Blue Sheets : The Securities and Exchange Commission (SEC) issues blue sheets, which are formal requests for information addressed to market makers, broker-dealers, and clearinghouses.
Blue sheets request information about certain stocks or transactions, particularly those that may have influenced the security’s price.
Blue sheets are frequently requested to see whether there has been any illicit activity or to figure out why a certain asset has such a high level of volatility.
Blue sheets, like so many other aspects of the trading world, have gone electronic.
What Are Blue Sheets and How Do You Use Them?
The SEC issues blue sheets to financial institutions and trading firms in order to obtain transaction information.
This data will be used to improve the transparency of banking and trade activity, as well as to investigate any abnormalities.
If companies or individuals fail to disclose accurate information, they may be punished.
Only digitally submitted blue sheets are now requested.
Getting to Know Blue Sheets
Because the questionnaires or requests for information sent by the SEC were printed on blue paper, they were known as blue sheets.
The SEC receives a lot of information through blue sheets. They are expected to contain information about the account holder as well as trades executed by a firm and its clients, including:
- The security company’s name
- The date and cost of the transaction
- The transaction’s value
- A list of the parties involved in the transaction
The goal is to give authorities the tools they need to examine a company’s trading activities.
The capacity of regulators to detect fraud and insider trading might be hampered if the information is insufficient, out of date, or otherwise erroneous.
The Financial Industry Regulatory Authority’s (FINRA) Office of Fraud Detection and Market Intelligence uses blue sheet information to locate and identify unusual trading behaviour that could be insider trading.
Banks and other financial institutions that act as brokers and clearinghouses devote resources to properly managing and filing information.
This may entail tying up staff in order to obtain data. In order to better capture information, systems must be built.
The additional cost, like other compliance-related tasks, can be perceived as a hardship.
Each level of sophistication added to blue sheet data collection improves the transparency of banking and trading transactions.
As long as the information is accurate and timely, blue sheets can help speed up fraud investigations.
When authorities notice unusual trading patterns in blue sheet data, it can lead to a more extensive examination, which may necessitate further reporting and recordkeeping from banks and other financial organisations.
Particular Points to Consider
Originally, blue sheets were mailed out on paper in a hard copy manner.
However, in the 1980s, this began to change. Electronic blue sheet systems, or EBS, are being used to provide blue sheet information.
The shift is due to the increased volume of deals that occurred as trading platforms shifted to electronic exchanges.
Furthermore, a growing number of professionals and organisations are trading securities through various broker-dealer accounts.
Electronically sending and receiving blue sheet requests allows information to be communicated quickly, allowing files to be examined and closed as soon as feasible.
The Financial Industry Regulatory Authority (FINRA) distributes blue sheet requests to recipients through email and provides a due date to each request.
In the event that the company does not receive the original request, FINRA posts it on its system.
Companies that don’t have any data to report are required to provide a confirmation email after conducting a comprehensive investigation.
FINRA does not accept responses that are blank or empty blue pages.
Failure to Adhere
Companies may suffer repercussions if they fail to reply to information requests or if the data they supply is later discovered to be missing or insufficient.
The SEC may impose fines on all parties involved. Depending on the violation, the size and breadth of the sanctions may differ.
There have been multiple occasions where major banks have had to pay large fines for failing to provide sufficient information on the SEC’s blue sheets.
For fines originating from insufficient blue sheet information on trades conducted by their customers, Citigroup paid $7 million in 2016 and Credit Suisse Securities paid $4.25 million in 2015.
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