“Don’t have any idea (DK)” can be an expression used to describe the term “out trade” or trading transaction that is employed in situations where there is a difference regarding the particulars of the trade. Also known as “DK’d trade” this expression is used to describe a situation in which at the very least at least one party declares that they are unaware about a particular aspect of the transaction or “does not understand” the details of the trade.
The goal of exchanges such ones like New York Stock Exchange (NYSE), Nasdaq, and the London Stock Exchange (LSE)–is to create an organized and efficient market where sellers and buyers are able to trade financial instruments, such as commodities, stocks and derivatives. If the exchange receives a trade with a DK but it is unable to complete the transaction due to inconsistent information related to the transaction. An exchange’s clearinghouse is not in a position to settle any DK’d trade if the conditions that the deal is in conflict or incongruous.
Understanding Don’t Know (DK)
When an trader makes an offer to purchase or sell an security and the trade is settled, or closing of the transaction is not automatic. A clearing house functions as an intermediary to reconcile the trade between the transacting parties, and transfers those securities over to buyers, and selling the money. The process could take a few days or more to complete after the initial placing of the trade. In some instances the trade might fail to completely clear completely.
A DK’d transaction can occur in the event that either of the participants involved in the trade is in dispute or denies a trade due to different reasons. It is possible that they do not be able to find the trade on their books or records, or there could be a mismatch in the amount of shares, price, shares as well as the the CUSIP number. Sometimes, it is because of misdirected instructions being passed from one side towards the opposite. Sometimes, parties utilize this tactic to pull out of a transaction in the event that the market is swaying in their direction, which has been deemed to be an unprofessional strategy within the financial sector.
The SEC Rules for DK’d Trades
The Securities and Exchange Commission (SEC) offers specific guidelines and procedures regarding DK’d transactions through the Nasdaq stock exchange within the Uniform Practice Code. The rules state every contract which is DK’d by a competitor or has been declared DK’d in accordance with regulations of service could be closed by the party who signed the contract, without notification during regular trading hours. 1
The rules require that each party submit an Uniform Comparison or Confirmation by one business day. These confirmations or comparisons will be compared to determine whether there is a discrepancy concerning the DK’d trade. If only the claimant is able to submit a comparison or confirmation that the other party will be notified and have four days to reply. If they don’t then the claiming party is not liable for any further responsibility for the trade that DK’d made. 1
A confirmation or a comparison must contain the specific information that is outlined in the SEC. It should include an explanation of the security and the value of the transaction was completed, as well as any other specific words that aid in determining the specifics of the transaction.
An example of Don’t know (DK)
There are numerous ways in which to identify a transaction as DK’d. For instance firm XYZ purchases 1,500 shares of ABC shares from company X. If firm X transfers shares to company XYZ however, firm XYZ could reject the deal (DK it) when the terms of the transaction (price quantity, price or the particular security) aren’t in line with their records or if the transaction isn’t recorded on their records in any way.
