DK Trade

Harrowgate Securities receives a don't know notice from a contra-broker covering a trade that Harrowgate's trading desk has no record of. What must Harrowgate's operations department do with the notice?

1. A.Disregard it, because a firm with no record of a transaction has nothing it can confirm.Wrong. Having nothing to confirm is the content of the answer, not a licence to give no answer.
2. B.Book the item to the firm's error account so the contra can settle, then research it afterwards.Wrong. The error account absorbs the firm's own mistakes; it is not a parking place for another firm's unrecognised trade.
3. C.Answer it within the time the rule allows, either confirming the trade or denying it in the prescribed form.Correct. Responding is the obligation the notice creates, and a denial discharges it just as a confirmation would.
4. D.Send it to the clearing agency, which adjudicates uncompared trades between its members.Wrong. A clearing agency processes what the two firms submit; it does not resolve a dispute about whether a trade happened.

Why: A don't know notice is a formal step in the comparison process, not correspondence a firm may decline to engage with. The receiving firm has to answer it within the time the rule allows, either confirming the trade or denying it, and the answer has to be given in the prescribed form rather than by informal contact. Having no record of the trade is the reason to respond with a denial, not a reason to stay silent, because an unanswered notice leaves an uncompared item hanging with consequences for both firms. Only a response closes the loop and lets the sending firm act on the result.

Thornfield Brokerage receives a Don't Know Notice from a contra-member on a trade that Thornfield has no record of. What does the Uniform Practice Code require Thornfield to do?

1. A.Nothing; silence is treated as a denial, because the procedure is voluntary for the party that started it.Wrong. The discretion of the sender to invoke the process creates no discretion for the party that receives the notice.
2. B.Accept the trade onto its books pending research, because the confirmation of the contra-member is presumed correct.Wrong. Booking an unrecognised trade would put a position on the records of the firm that no order supports.
3. C.Refer the discrepancy to the clearing agency, which resolves the comparison for both members.Wrong. A clearing agency compares the trades submitted to it, and this procedure exists for trades it is not comparing.
4. D.Respond within the period allowed, either confirming the transaction or returning the notice marked to deny knowledge of it.Correct. A documented answer either way is the obligation the notice creates.

Why: The Don't Know Notice procedure is voluntary for the confirming member, which may choose to use it when a comparison has not come back. It is not voluntary for the member that receives the notice. The receiving member must respond within the period the rule allows, either confirming the transaction or returning the notice marked to say it does not know the trade, signed by someone authorised to discuss it. Silence is not a permitted answer; the purpose of the procedure is to force an unmatched trade to a documented resolution rather than let it sit.

Millbrook Securities receives a confirmation for a trade it did recognize executing, but the confirmation states a different quantity than Millbrook's own record of the trade. Is a DK notice the correct response?

1. A.Yes, but only if the discrepancy is in price rather than quantity, since price discrepancies are the only terms a DK notice can address.Wrong. A DK-type dispute can address any material discrepancy in the confirmed terms, not price alone.
2. B.Yes -- a discrepancy in the confirmed terms, not just a total absence of any record, still means the two sides have not agreed, and that disagreement must be resolved before the trade is treated as compared.Correct. A DK-type dispute applies whenever a firm's record does not match the confirmation it received, whether the mismatch is total or a discrepancy in the details.
3. C.No -- a DK notice only applies when the firm has no record of the trade at all; a quantity mismatch must instead be resolved as a fail on settlement date.Wrong. Waiting until settlement date treats a comparison problem as a delivery problem; the mismatch needs to be resolved before the trade is ever treated as agreed.
4. D.No -- since Millbrook recognizes executing the trade, it must accept the confirmed quantity as controlling and adjust its own books to match.Wrong. Recognizing that a trade occurred does not mean accepting whatever quantity the other side reports; the discrepancy still needs to be resolved between the parties.

Why: A DK-type dispute notice applies whenever a firm's record does not match the confirmation it received, whether the mismatch is a total absence of any record or a discrepancy in the reported terms. Recognizing that a trade occurred is not the same as agreeing to its reported details; the quantity discrepancy still needs to be resolved between the parties before the trade is treated as compared.

A confirming member sends its confirmation on trade date and has received neither a matching confirmation nor a signed DK from the contra-member by the following morning. The trade is one that clears through a registered clearing agency. May the confirming member use the Don't Know Notice procedure?

1. A.Yes, because the procedure is available whenever a comparison has not been received by the applicable deadline.Wrong. Reading the deadline as the only condition skips the threshold question of how the trade clears.
2. B.Yes, but only after the clearing agency consents to the trade being withdrawn from comparison.Wrong. No such consent mechanism exists, and withdrawal is not how an uncompared trade gets resolved.
3. C.No, because the procedure is written for trades that do not clear through a registered clearing agency.Correct. A clearing-agency trade is resolved inside the comparison process of that agency instead.
4. D.No, because only the member that receives a confirmation is permitted to send such a notice.Wrong. It is the confirming member, having received nothing back, that sends the notice.

Why: The Don't Know Notice procedure in the Uniform Practice Code is written for trades that a registered clearing agency is not comparing. Where a clearing agency is comparing the trade, its own matching process and the advisories it generates are the mechanism for resolving an uncompared trade, and a paper notice passing between the two members would run in parallel to it. Availability of the procedure therefore turns on how the trade clears, not on how late the comparison is. Had the same trade been done in a security or a market outside that comparison process, the procedure would be open to the confirming member.