Average Price Confirmation

A large customer order is filled through several separate executions at different prices over a short period. The trading desk reports a single aggregated trade to the tape reflecting the blended average price for the entire order, rather than reporting each individual execution. A principal reviewing this practice questions it. What is the concern?

1. A.Each individual execution generally must be reported separately, since aggregating them into a single blended report does not accurately reflect actual trading activity in the security.Correct. Each execution must generally be reported separately to accurately reflect actual trading activity.
2. B.The practice is acceptable, since a single blended report reduces the number of prints without changing the total volume traded.Wrong. Reducing the number of prints obscures the actual sequence and pricing of individual executions in the security.
3. C.The practice is acceptable as long as the blended price is disclosed to the customer on the confirmation.Wrong. Customer confirmation disclosure is a separate matter from the tape reporting requirement to report each execution.
4. D.The practice is acceptable as long as all of the individual executions occurred within the same few minutes.Wrong. How close in time the executions occurred doesn't change the requirement to report each one individually.

Why: Each individual execution generally must be reported to the tape as its own separate trade reflecting its own actual price and time, rather than aggregated into a single blended report; aggregating multiple executions into one tape report does not accurately reflect the actual trading activity that occurred in the security.

A large customer order is filled through a series of separate executions at different prices throughout the day. The firm's confirmation to the customer shows a single average price for the entire order but does not indicate that it reflects an average of multiple executions, nor does it offer to provide the individual execution prices upon request. A principal reviewing the confirmation questions this. What is missing?

1. A.Nothing is missing, since showing a single average price is the standard and complete way to confirm a multi-execution order.Wrong. The confirmation should also disclose that the price is an average and that individual prices are available on request.
2. B.The confirmation should disclose that the price shown is an average of multiple executions and that individual execution prices are available upon request.Correct. Disclosing the average-price nature and availability of individual prices on request is the required additional element.
3. C.The missing element is the exact time of each individual execution, which must always appear directly on the confirmation itself.Wrong. Individual execution times don't need to appear directly on the confirmation; the requirement is disclosing the average nature and availability upon request.
4. D.The missing element only matters if the average price differs from the price of the first execution in the series.Wrong. The disclosure obligation doesn't depend on how the average compares to any single execution in the series.

Why: A confirmation reflecting an average price for multiple executions should disclose that the price shown is an average and that the individual execution prices are available to the customer upon request; presenting only a single price without that disclosure can obscure the actual execution history of the order.

A principal reviewing execution records notices that two customer market orders for the same security, received seconds apart, were executed at meaningfully different average prices. One order was handled by a trader who has a personal relationship with that customer; the other was handled by a different trader. The firm has no documented reason for the price difference. What should the principal do?

1. A.Investigate why the two similarly situated orders received different handling and document the findings.Correct. An unexplained disparity between near-simultaneous, similarly situated orders warrants investigation and documentation.
2. B.Conclude the difference is immaterial since both prices were within the day's overall trading range.Wrong. Being within the day's range doesn't explain or excuse an unexplained disparity between two orders received almost simultaneously.
3. C.Take no action unless one of the two customers files a complaint about the price received.Wrong. The obligation to investigate disparate handling doesn't depend on a customer noticing or complaining.
4. D.Address it by having the favored trader handle all future orders for both customers.Wrong. This doesn't investigate or resolve the underlying disparity — it simply extends the same unexplained pattern rather than correcting it.

Why: Similarly situated orders received at nearly the same time should be handled consistently; an unexplained price disparity tied to which trader (and which relationship) handled the order requires investigation, not assumption that it was coincidental.