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Friday, July 28, 2000

Equity Trader Alert #2000 - 53
Additional Examples of the .W Modifier

Since July 17, 2000, when changes to the transaction reporting procedures for weighted average and special pricing formula trades became effective (Head Trader Alert #2000-52), Nasdaq® has received several additional inquiries regarding the appropriate use of the .W modifier. The following examples illustrate additional scenarios when the .W must be appended to the transaction report.

Scenario #1

At 10:00:00, a.m. Eastern Time (ET), Firm WXYZ receives an order from a customer to buy 8,000 shares of ABCD.

Firm WXYZ is flat ABCD. Firm WXYZ begins accumulating shares of ABCD through the following executions on SelectNet®: 

10:00:45   B  1,000  @  10 1/2

10:00:55   B  1,000  @  10 3/4

10:01:20   B  1,000  @  11

10:02:45   B  1,000  @  11 1/4

10:03:30   B  1,000  @  11 1/2

10:03:50   B    500  @  11 3/4

10:04:00   B    500  @  12

10:04:30   B  2,000  @  12 1/2
SelectNet reports each of the buys listed above to the tape. The volume-weighted average price (VWAP) for these trades is $11.48. At 10:04:31, Firm WXYZ sells the 8,000 shares to its customer and reports the following: 
Sell  8,000  ABCD  $11.48 .W.
Scenario #2

Same fact pattern as scenario #1, except that it is the current understanding between Firm WXYZ and its customer that they will trade on a net basis (e.g., there is an understanding that Firm WXYZ will add 1/4 point to the VWAP price).

SelectNet reports each of the buys listed above to the tape. The VWAP for these trades is $11.48. At 10:04:31, Firm WXYZ sells the 8,000 shares to its customer on a net basis. Firm WXYZ reports the following: 

Sell  8,000  ABCD  $11.73  .W.
Use of the .W modifier is appropriate in this scenario because it was the understanding between Firm WXYZ and its customer that the pricing formula would be the VWAP price plus 1/4 point.

Scenario #3

At 10:04:00, Firm WXYZ receives an order from a customer to buy 5,000 shares of ABCD at the best available price.

Firm WXYZ is long 3,000 shares of ABCD. At 10:04:05, Firm WXYZ sells the 3,000 shares to its customer at $12 3/4 and begins accumulating shares of ABCD through the following executions on SelectNet: 

10:04:30   B  	   500 @   12 3/4

10:04:50   B       500 @   12 1/4

10:05:30   B     1,000 @   12 1/2
Within 90 seconds of 10:04:05, Firm WXYZ reports the sell to the customer to the tape: 
Sell  3,000  ABCD  $12 3/4.
SelectNet reports each of the buys listed above to the tape. At 10:05:31, Firm WXYZ sells the 2,000 shares to its customer at a VWAP price of 12½. Firm WXYZ reports the following: 
Sell  2,000  ABCD  $12 1/2  .W.
Scenario #4

Same fact pattern as scenario # 3, except that it is the current understanding between Firm WXYZ and its customer that they will trade on a net basis (e.g., there is an understanding that Firm WXYZ will add 1/4 point to the price).

Within 90 seconds of 10:04:05, Firm WXYZ reports the sell to the customer to the tape: 

Sell  3,000  ABCD  $13 (net price).
SelectNet reports each of the buys listed above to the tape. At 10:05:31, Firm WXYZ sells the 2,000 shares to its customer on a net basis. Firm WXYZ reports the following: 
Sell  2,000  ABCD  $12 3/4   .W.
Use of the .W modifier is appropriate in this scenario because it was the understanding between Firm WXYZ and its customer that the pricing formula would be the VWAP price plus ¼ point.

Late Trade Reporting

Members are reminded of their obligation to report transactions within 90 seconds of execution. The time of execution is not required to be included in the transaction report for a .W trade that is reported within 90 seconds of execution, unless required by another National Association of Securities Dealers, Inc. (NASD®) rule (e.g., Rule 6954). However, if a member fails to report a .W transaction within 90 seconds, the member must report the transaction with the .W modifier and include the actual time of execution. Members must not report these transactions using the .SLD modifier.

Members must execute and report .W transactions as soon as practicable after the price is determined according to the pricing formula. Also, members must not delay executing and reporting .W transactions.

For more information on the proper use of the .W modifier, please refer to Head Trader Alert #2000-52 or NASD Notice to Members 00-43. Please direct any questions that you may have to:

  • Nasdaq MarketWatch at (800) 211-4953,
  • Peter Geraghty, Nasdaq Office of General Counsel, at (202) 728-8227, or
  • Legal Section, Market Regulation, NASD Regulation®, at (240) 386-5126.