What Is a Blotter?

What Is a Blotter?

Let me explain what a financial blotter, also called a trade blotter, really is. It's a physical or digital record that captures all the trades you've made over a specific period, typically just one trading day. This document logs key details like the time of the trade, the price, and specifics about the order, creating a solid audit trail for all your transactions.

You need to know that blotters are essential for traders in markets like stocks, foreign exchange, and bonds. They help you analyze and confirm your trades, and they assist regulatory bodies such as the SEC in checking for compliance.

Key Takeaways

Understand that a blotter is a comprehensive record of your trades over a set period, usually one day, and it serves as a crucial tool for auditing by both traders and regulators. These trade blotters apply to various markets, including stocks, foreign exchange, bonds, commodities, and options, where they provide detailed info on time, price, and order size.

Regulatory bodies like the SEC rely on blotters to review trading activities and spot illegal practices, such as insider trading. In today's world, blotters are mostly digital, automatically generated by trading software, and you can customize them to fit your reporting needs. By reviewing your blotter, you can analyze your trading strategies and performance to identify areas for improvement.

How Trade Blotters Work: A Detailed Overview

A trade blotter documents your trades so you or your brokerage firm can review and confirm them. You'll find it mainly used in the stock market, foreign exchange market, and bond market, but it can be customized to your needs. It also applies to options and commodity markets.

The details in a trade include the time, price, order size, and whether it was a buy or sell. This creates an audit trail that's useful for checking if a trading strategy worked. Back in the day, blotters were written on large boards or paper spreadsheets, but now they're created through trading software that records trades automatically via a data feed.

Your broker typically provides a blotter as a software program. It shows what security was traded, the time, quantity and price of the sale or purchase, the ECN market involved, and if it was a buy, sell, or short order. The blotter also notes if a trade settled properly and includes canceled orders. You can customize the details shown, and brokers use it to record all transactions in case issues arise.

Practical Applications of Trade Blotters

You can use a blotter with or instead of a trading journal to improve your techniques and strategies. At the end of the day, review the blotter to see how you performed. Sort through it to spot where you could have done better, like with entry or exit timing.

Compliance departments and regulators like the SEC sort blotters to detect illegal trading. They can sort in various ways to find discrepancies. During an SEC audit, firms use trading blotters to show records of trades by investment type, with separate blotters for equities, fixed-income securities, and so on.

If trades involve stocks on a watchlist or restricted list, it might point to insider trading. Blotters can reveal if portfolio managers favor certain clients, such as through frequent profitable trades in specific accounts, different prices for the same security, or prioritizing high-commission accounts.

A blotter might also show if a manager deviates from the disclosed strategy, like a buy-and-hold portfolio actually having short-term trades. Any unusual activity on the blotter leads to further investigation for wrongdoing.

Creating a Trade Blotter: An Example Template

Suppose your investment firm, like ABC, is preparing for an SEC audit. You generate trading blotters for each requested investment type. Each sheet, often in Excel, details trades with columns for client name, trade name, settlement date, buy/sell, CUSIP, security symbol, security description, quantity, unit price, principal/proceeds, total commission, fees, net proceeds, and broker.

For fixed-income securities like bonds, add a column for accrued interest. This setup ensures everything is categorized properly.

What Are the Blotters of Original Entry?

All blotters are blotters of original entry because they record new information. Different types, like those for receipt and delivery of securities, purchase and sale of securities, or cash disbursements, all qualify as such.

What Does a Trade Blotter Do?

A trade blotter records your trading activity, creating a history. It includes client name, trade name, settlement date, buy/sell, CUSIP, security symbol, quantity, unit price, and more.

What Triggers an Insider Trading Investigation?

Various activities can trigger an SEC insider trading investigation, often around big news like mergers or acquisitions, where regulators look for unusual movements in a security.

The Bottom Line

Blotters are essential records for tracking and organizing your trades in markets like stocks, bonds, and commodities. They help you review and analyze performance, and they're key for clearing firms and regulators in spotting illegal activities.

You can customize blotters to show specific details, which improves your ability to evaluate strategies and techniques. Whether for personal use or regulatory needs, keep your blotter detailed and accurate for effective trade management.