Qualified Special Representative Agreement (QSR)

Key takeaways
* A QSR lets one broker‑dealer clear trades on behalf of another without using the Nasdaq ACT matching system.
* Under a QSR, the delivering broker sends trade details directly to the National Securities Clearing Corporation (NSCC) via the receiving broker’s clearing arrangement.
* Benefits: faster settlement, lower transaction costs, and extended trading hours. Risks: counterparty and operational risk.

What is a QSR?

A Qualified Special Representative Agreement (QSR) is a contract between broker‑dealers that permits one firm to submit and clear trades for another outside the Nasdaq Automated Confirmation Transaction (ACT) system. Instead of each broker routing matched trade information through ACT, one broker’s clearing firm accepts and processes the trade on behalf of the other under the terms of the QSR.

How it works

• Parties: There are two parties—the delivering broker (whose client initiated the trade) and the receiving/clearing broker (whose clearing firm will accept the trade). Both parties must be properly registered broker‑dealers.
• Flow: Trades are matched (often via an electronic communication network, ECN), and the delivering broker’s ticket information is transmitted to the receiving broker’s clearing firm for settlement at the NSCC.
• Reporting: Each broker remains responsible for reporting its own trades to regulators such as FINRA, even when a QSR is used.

Benefits and risks

Benefits
* Faster processing and settlement by removing some intermediate steps.
* Reduced transaction costs and administrative overhead.
* Ability to extend trading hours and streamline cross‑firm operations.

Risks
* Counterparty risk—one party may fail to fulfill obligations under the agreement.
* Operational risk—errors in transmission, reconciliation, or systems integration.
* Dispute management: QSRs typically include procedures and timeframes for reporting issues, resolving disputes, and escalating to regulators when necessary.

Matching and reporting trades

• Matching: Brokers and ECNs match buy and sell orders electronically. Each party forwards ticket files with trade details to its clearing firm.
• Clearing: Under a QSR, a clearing firm will accept and clear trades on behalf of the delivering broker according to the agreement.
• Regulatory reporting: Despite delegated clearing, each broker must still satisfy regulatory reporting obligations and maintain accurate records.

Related terms

• AGU (Automatic Give‑Up) agreement: An arrangement where an executing broker executes a trade and automatically gives credit for that trade to another broker’s account. AGUs automate the “give‑up” process in the system.
• Tape reporting (consolidated tape): The continuous electronic feed that transmits trade data—symbol, price, and volume—across markets; the modern equivalent of ticker tape.
• Contra side of a trade: The opposing party in a transaction (e.g., the seller if a market maker buys). The contra party may be trading for its own account or on behalf of clients.
• Spoofing: Placing orders with no intention of executing them to manipulate market prices. Spoofing is illegal because it misrepresents supply and demand and distorts fair market pricing.
• Why brokers give up trades: Often used when a client’s usual broker is unavailable; electronic trading has reduced the frequency of manual give‑ups.

Bottom line

Qualified Special Representative Agreements enable broker‑dealers to streamline clearing by delegating trade submission to a counterparty’s clearing firm. When implemented with clear processes and risk controls, QSRs can improve speed and lower costs while preserving regulatory reporting responsibilities.