Automated Confirmation Transaction Details

Brokers and other market makers must enter all confirmations of completed trades into the ACT service for matching and clearing. Each of the ACT reports they file must contain all relevant information and subsequently be available for audit or market data purposes.

The ACT platform provides fast access to trading information. It is also a secure platform that increases efficiency, transparency and provides online access to trading status. Participation in the ACT is mandatory—all brokers who are members of a clearing agency must submit a report. These reports are very detailed and contain, amongst other information, a security identification symbol, the number of shares or bonds involved in the transaction, and the unit price of each share or bond. In 1998, ACT replaced its predecessor, the Trade Acceptance and Reconciliation Service (TARS).

Automated Confirmation Transaction Example

Cathy has decided to buy shares on NASDAQ for the first time. She now has to follow these steps:

  1. She has to find an online broker who has access to NASDAQ. Many brokers are registered with NASDAQ, but not all are.
  2. Having chosen her broker, she now opens an online account and deposits money in this account to buy her shares.
  3. She chooses which shares she wishes to purchase and buys them. Cathy can opt to buy at the actual market price (the price at the time of purchase) or issue a limit order which states the price she is willing to pay for the shares. With a limit order, she cannot complete the transaction until the share price matches Cathy's offer price.

From Cathy's point of view, the transaction is complete. However, her broker must file an ACT report. In a market such as NASDAQ, in which 4 billion shares are routinely traded every day, the ACT system is necessary to track trading and guarantee the honesty and openness of trades.

Significance of ACT

The New York Stock Exchange (NYSE) has far more capitalization than NASDAQ, which has a capitalization of around $19 trillion—still no small number. The two exchanges are the largest in the world. Both deal in securities, but there are differences in the type of equities which they list, how they operate, requirements, and the processes they use. Although ACT is part of stock market dealings, you'd only see it in NASDAQ.

The NYSE is almost as old as the United States itself. It has a history going back to 1792. It has an active and noisy physical trading floor. On the other hand, NASDAQ is a relative newcomer. NASDAQ opened in 1971 and was the first electronic exchange in the world. It does not have a physical trading floor. In 1998, it became the first stock market in the United States to trade online.

The electronic nature of NASDAQ trading necessitates a sophisticated electronic means of following and recording billions of trades. ACT is how NASDAQ attempts to provide the security and confidence necessary in a fast-moving and frequently volatile market.