Last-Sale Reporting

Last-sale reporting refers to the Nasdaq stock market’s requirement that dealers must submit details about the quantity and price of any stock sale to Nasdaq within 90 seconds of any transaction.

Last-sale reporting grew out of the need to ensure Nasdaq’s computerized trading system complied with regulations enforced by the U.S. Securities and Exchange Commission. In order to improve the transparency and efficiency of markets, regulators require that market makers use real-time trade reporting to provide a public record of stocks. Since Nasdaq’s trades take place electronically over a network rather than on the exchange, market makers must take responsibility for delivering trade data directly to the exchange. The 90-second window for trade reporting required by Nasdaq fulfills the exchange’s regulatory obligation for real-time trade reporting.

Nasdaq’s launch in 2006 created the largest global exchange company. Though Nasdaq OMX technically has its headquarters in New York, it operates markets throughout the world. At the time it launched, the primary trading platforms relied upon specialists to facilitate trade on the exchange using an auction-based system where buyers and sellers compete directly with one another to strike deals. The New York Stock Exchange (NYSE), for example, employs specific firms as market makers to work the floor of the exchange, reporting all bid and ask prices in a timely manner, setting opening prices and acting as a catalyst for trades. Specialists act as third-party facilitators, matching buyers with sellers in order to keep up the flow of trade across the market.

By contrast, Nasdaq uses over 300 market makers, none of which actually operates at a fixed, physical exchange and all of which enter directly into trades. Investment companies that act as Nasdaq market makers also act as dealers in securities over the exchange’s network. These firms purchase shares of stocks to amass an inventory to use as a basis from which to sell shares to others on the network, either to investors or other market makers. Dealers will also purchase shares from investors or other dealers, adding those shares back into their inventories.

In order to maintain transparency across the market and drive competitive pricing among market makers, any exchange needs to make current information on sales available to all market participants. While the NYSE gets this information from the specialists who facilitate trades on the exchange, Nasdaq trades have no third party to track trade data. Therefore, Nasdaq requires dealers to provide trade data directly to the exchange.