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Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Qualified Special Representative Agreement (QSR)

What it is:

A qualified special representative agreement (QSR) is a National Securities Clearing Corporation (NSCC) agreement that allows one broker-dealer to send a trade to a clearinghouse on behalf of another broker-dealer.

How it works (Example):

For example, let's assume that Brokerage XYZ handles trades for high net-worth clients. Normally, this means that the broker-dealer has an agreement to clear trades using Nasdaq's ACT system and that the system would match trades, which would go back to the broker-dealer's clearing firm. The ACT system would report the trade to the National Securities Clearing Corporation.

If Brokerage XYZ has a QSR agreement with Brokerage ABC, however, then Brokerage XYZ can send trades to its clearing house on behalf of Brokerage ABC (and Brokerage ABC can do the same for Brokerage XYZ). Each of the broker-dealer's clearing firms has agreed to clear trades according to the agreement.

Specifically, the broker-dealer matches an order against another broker-dealer order using an electronic communication network (ECN). The broker-dealers and the ECN send a ticket file to their clearing firms with the trade details. Rather than send the trade report to the Nasdaq ACT system, which sends them to the NSCC, Brokerage XYZ in our example sends trades directly to the NSCC.

Why it Matters:

A qualified special representative agreement (QSR) gives broker-dealers permission to execute trades without using the Nasdaq ACT system. Using a QSR allows a broker-dealer to process trades more efficiently, simply and cheaply. A QSR also allows broker-dealers to trade after or before regular trading hours. 

It is important to note that the Nasdaq ACT system reports trades continuously to the NSCC. However, trades made under QSR agreements are reported only five times a day. Additionally, QSRs do not eliminate broker-dealers from reporting their trades to the NASD, even if another broker-dealer sends a trade to a clearing house on their behalf. 

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