what is blotter
What is the blotter?
A blotter (also called a trade blotter or exchange blotter) is a physical or digital record of all trades made over some time (usually a trading day) along with related details.
MAJOR TAKEAWAYS
A blotter is a detailed record of your business and history. Clearing houses and regulatory agencies such as the SEC use trade blotters to settle or correct outtrades and to detect instances of illegal trading. A blotter can also be used by traders to evaluate and analyze trading positions at the end of the day.
Understanding the blotter
The purpose of a blotter is to carefully document transactions so that they can be reviewed and confirmed by a trader or broker. The blotter is mainly used in the stock, foreign exchange, and bond markets. It can be customized according to user needs. A trading blotter is also used in the options and commodities market.
Details of trade will include things like time, price, order size and a specification of whether it was a buy or sell order. This serves as an audit trail of transactions and is useful for verifying whether a particular trading strategy being used was successful.
While blotters were once written on large whiteboards or paper spreadsheets, today they are typically created using trading software that automatically records trades made via a data stream.
A broker usually provides a blotter to its traders in the form of software. It includes the security that was traded, the time of the trade, the quantity and price to sell or buy, the ECN market on which the trade took place and whether it was an order. buying, selling or short. The blotter also indicates whether a trade was properly settled and includes orders that were entered but cancelled before being executed. The merchant can customize the details to be displayed on the blotter. A broker uses a blotter to keep track of all transactions in the blotter in case any issues arise with a transaction.
Using Blotter
A blotter can be used with or in place of a trading journal by traders who use it to improve their trading techniques and strategies. At the end of a trading day, traders typically use the blotter to check their performance. They can scroll through the blotter to review areas where they could have done better, such as timing within and/or out.
Compliance departments and regulators, such as the Securities and Exchange Commission (SEC), also filter blotter paper to detect if illegal trade has taken place. Sorting can be done in several ways to reveal any trade discrepancies. During an SEC audit, trade blotters are used by companies to display a record of their transactions based on the type of investment. For stocks, for example, a separate trading book will be used, and another for fixed-income securities, and so on.
If certain transactions have been made in securities on the Watch List or Restricted List, this could indicate insider trading. Blotters can also reveal that some portfolio managers are using favouritism in selecting clients if the following information (or other information) is disclosed:
- Some client accounts on the blotter often have profitable
- Customer accounts have very different buy or sell prices for the same security.
- Certain types of accounts that require the highest fees take priority over other accounts in trading.
In addition, a portfolio manager involved in an investment strategy that deviates from the strategy disclosed to clients may be discovered through a blotter. An example of a red flag: is when an investment portfolio that is supposed to buy and hold only contains short-term traded securities.
Any unusual business activity found on a blotter will be further investigated to determine if any wrongdoing has been committed
Blotter Example
Let’s say that investment firm ABC is preparing for an SEC audit. It separates its trades by type of investment and generates a trading blotter for each investment for the period requested by the SEC. Each spreadsheet (usually using Excel) contains details of the trade as shown below.
Example of a Blotter Template
Client name
Trade name
Settlement Date
Buy/
Sell
CUSIP
Security
Symbol
Security
Dec.
Quantity
Unit Price
Principal/
Proceeds
Total
Commission
Fees
Net Proceeds
Broker
In the case of fixed-income securities, such as bonds, an additional column called “accrued interest” is added to the sheet.
