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What Is a Blotter?
A blotter (also called a deal blotter or trade blotter) is a physical or digital record of all trades made over a period of time (usually one trading day) along with their relevant details.
Key Takeaways
- A blotter is a detailed record of one’s trading activity and history.
- Clearing firms and regulatory agencies like the SEC use trade blotters to adjust or correct out trades 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 a day.
Understanding a Blotter
The purpose of a trade blotter is to carefully document trades so that they can be reviewed and confirmed by a trader or brokerage firm. The blotter is mainly used in the stock market, foreign exchange market, and the bond market. It can be customized based on the needs of the user. A trade blotter is also used in the options and commodity markets.
The details of a trade will include such things as the 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 helpful to review if a particular trading strategy utilized was successful.
While blotters used to be written down on large boards or paper spreadsheets, today they are usually created through trading software programs that automatically record the trades made through a data feed.
A broker usually provides a blotter to its traders as a software program. It includes what security was traded, the time of trade, the quantity and price of sale or purchase, the ECN market the trade occurred over, and whether it was a buy, sell, or short order.
The blotter also indicates whether a trade was settled appropriately and includes orders that were entered but canceled before being filled. The trader can customize what details are to be shown on the blotter. A broker uses a blotter to keep a record of all transactions in the event that any issue with a trade arises.
Blotter Usage
A blotter can be used with or in place of a trading journal by traders who utilize it to improve their trading techniques and strategies. At the end of a trading day, traders will usually use the blotter to review how well they performed. They can sort through the blotter to review areas in which they could have performed better, such as timing with entries and/or exits.
Compliance departments and regulators, such as the Securities and Exchange Commission (SEC), also sort the blotter to detect whether any illegal trading has been done. The sorting can be done in numerous ways to reveal any discrepancies in trading.
During an SEC audit, trading blotters are used by firms to show a record of their trades by type of investment. A separate trading blotter will be used for equities, for example, and another one for fixed-income securities, and so on.
If some trades were carried out on stocks on the watchlist, or restricted trading list, this might indicate insider trading. Blotters might also reveal that some portfolio managers are showing favoritism to select clients if the following (or other information) is revealed:
- Certain client accounts on the blotter frequently have profitable trades.
- Client accounts have considerably different purchase or sale prices of the same security.
- Certain types of accounts that command the highest commission fees are prioritized over other accounts in trading.
Furthermore, a portfolio manager involved in an investment strategy that deviates from the strategy disclosed to clients may be found out through a blotter. One example of a red flag is when a supposed buy-and-hold investment portfolio actually has only short-term traded securities.
Any unusual trading activity highlighted on a blotter will be investigated further to determine whether any wrongdoing was carried out.
Example of a Blotter Template
Let’s say that investment firm ABC is preparing for an SEC audit. It separates out its trades by type of investment and generates a trading blotter for each investment for the time period requested by the SEC. Each spreadsheet (usually using Excel) contains details of the trade as categorized below.
| Client name | Trade name | Settlement Date | Buy/ Sell |
CUSIP | Security Symbol |
Security Desc. |
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.
What Are the Blotters of Original Entry?
All blotters are considered blotters of original entry as they all record new information. The different types of blotters, such as those for the receipt and delivery of securities, for the purchase and sale of securities, and the disbursements of cash, all fall under blotters of original entry.
What Does a Trade Blotter Do?
A trade blotter simply records the trading activity of an individual and by doing so creates a trading history. Information in a trade blotter includes the client name, the trade name, the settlement date, if the trade was a buy or sell, the CUSIP, the security symbol, the quantity purchased, the unit price, and more.
What Triggers an Insider Trading Investigation?
A variety of activities can trigger an insider trading investigation by the SEC. This usually occurs around some large news event, such as before a merger or acquisition, where the SEC or other regulatory agencies look for unusual movement in a specific security.
The Bottom Line
Blotters are records of trades and are used for organizational purposes and tracking. They’re also useful for when adjustments or updates need to be made as well as being useful in spotting illegal trading. Like any type of record, blotters can be designed and applied in a variety of contexts.