Blue Sheets

What Are Blue Sheets?

Blue sheets are formal requests for information sent out by the Securities and Exchange Commission (SEC) to market makers, broker-dealers, and/or clearinghouses. Blue sheets ask for information related to specific securities or transactions—especially those that may have affected the price of the security. Blue sheets are often requested in order to determine if there has been any illegal activity or to determine why a certain security experiences a large level of volatility. Like many things in the trading world, blue sheets have now become electronic.

Understanding Blue Sheets

The questionnaires or requests for information sent by the SEC came to be known as blue sheets because they were printed on blue paper. Blue sheets provide the SEC with a lot of different information. They are supposed to include information about the account holder and the trades executed by a firm and its clients, specifically:

• The name of the security
• The date and price of the trade
• The size of the transaction
• A list of the counterparties involved

The objective is to grant regulators the means to analyze a firm's trading activity. If the information is incomplete, out of date, or otherwise inaccurate, it can interfere with the ability of regulators to spot instances of fraud and insider trading. Blue sheet information is used by the Financial Industry Regulatory Authority's (FINRA) Office of Fraud Detection and Market Intelligence to find and identify oddities in trading activity that could be insider trading.

Banks and other institutions that serve as brokers and clearinghouses commit resources to managing and filing information appropriately. This can mean tying up employees to gather information. Systems have to be established in order to better capture the information. As with other actions tied to compliance, the added expense can be seen as a burden.

Each layer of sophistication that is added to blue sheet information gathering helps to improve the transparency of banking and trading activities. Blue sheets can speed up investigations into fraud as long as the information is accurate and timely. When regulators discover oddities in trading actions from blue sheet information, it can trigger a more thorough investigation that may require further reporting and records by banks and other financial institutions.

Special Considerations

Blue sheets were originally mailed out on paper in a hard copy system. But that changed in the 1980s. Blue sheet information is now provided electronically through electronic blue sheet systems, or EBS. The change is a result of the high volumes of trades that began taking place as trading systems began moving to electronic exchanges. In addition, more professionals and institutions trade securities through different broker-dealer accounts.

Sending and receiving blue sheet requests electronically allows information to be transmitted in a timely manner so that files can be reviewed and closed as soon as possible.

FINRA sends blue sheet requests to recipients via email and assigns a due date for each request. FINRA also posts the requests on its system in case the company doesn't receive the original request. Companies that don't have any information to report must send a confirmation email after doing a thorough review. FINRA does not accept blank or empty blue sheets as a response.

Failure to Comply

There are consequences companies face if they either don't respond to requests for information or if the data they submit is later found to be incomplete or insufficient. All responsible parties may be fined by the SEC. The size and scope of the penalties can vary depending on the violation.

There have been several instances where major banks have had to pay big fines for not giving enough information on the blue sheets requested by the SEC. Citigroup paid $7 million in 2016 and Credit Suisse Securities paid $4.25 million in 2015 for fines stemming from insufficient blue sheet information on trades made by their customers.