Acceptable alternative procedures for U.S. broker reconciliations (Statement B, Form 1)

GN-FORM1-21-004
Type: Rules Notice> Guidance Note
Rule connection:
IIROC Rules
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Effective Date: December 31, 2021

IIROC is publishing this Guidance Note to provide clarification regarding the required practice and acceptable alternative procedures (if applicable) for classifying and documenting trades as resolved for over-the-counter (OTC) trades and financing transactions with U.S. counterparties.

The notes and instructions to Statement B, Line 22, state: “Items are considered unresolved unless:  (i) a written acknowledgement from the counterparty of a valid claim has been received; and (ii) a journal entry to resolve the difference has been processed as of the due date of Form 1.  This does not include journal entries writing off the difference to profit or loss in the period subsequent to the date of Form 1….”

The reconciliation of certain U.S. counterparty transactions, such as OTC trades and financing transactions provide reporting challenges to Dealer Members (Dealers), as the U.S. counterparty is only required to provide statements not less than once every calendar quarter in accordance with FINRA Rule 22311 . There is no requirement to provide statements on a monthly basis.

The following are acceptable alternatives to the requirements of a month-end statement:

Counterparty

Required

Acceptable alternative procedures

U.S. counterparty

Monthly statement

  • For those transactions not confirmed through an acceptable clearing corporation, positive confirmation from the other broker must be obtained or alternatively, the Dealer must provide satisfactory evidence that the trade settled. In addition, a quarterly statement must be obtained from the US counterparty to ensure for completeness that all trades cleared and were reconciled during the quarter.
  • For those transactions confirmed through CDS, NSCC, DTC or any other acceptable clearing corporation, month-end open item reports and / or outstanding fails reports is an acceptable form of 3rd party reconciliation.

Canadian counterparty

Monthly statement

  • Where the counterparty is processing the trade through the clearing corporation, month-end outstanding reports are acceptable for reconciliation purposes.
  • In all other instances a monthly statement is required.
  1. Applicable Rules

IIROC Rules this Guidance Note relates to:

  • Statement B of Form 1
  1. Previous Guidance Note

This Guidance Note replaces MR0525 - Acceptable Alternative Procedures for U.S. Broker Reconciliations (Statement B, Form 1).

  1. Related documents

This Guidance Note was published under Notice 21-0190 - IIROC Rules, Form 1 and Guidance.

  • 1FINRA Rule 2231 was formerly NASD Rule 2340 (this rule is no longer applicable).