A blue sheet is a report sent by a clearing firm to provide information to the Securities and Exchange Commission (SEC) about its activities. These documents are sent by request from the SEC and they are also used by other regulatory agencies to monitor trading activities. Failure to send a blue sheet upon request can be grounds for legal penalties, as firms involved in the financial markets are expected to comply with regulatory rulings designed to facilitate monitoring, regulation, and investor safety.
Until the late 1980s, this documentation was sent on literal blue sheets, explaining the name. With the advent of electronic filing techniques, firms began transitioning to electronic blue sheets, and today, electronic filing is the preferred method. The SEC can receive electronic filings instantly, and the filings are compatible with its databases, allowing them to be quickly stored, as well as cross-referenced with previous filings and filings from other companies. This facilitates the rapid exchange of accurate information.
On the blue sheet, the company provides information about the names of any securities handled by the firm, along with the dates of trades and the prices at which trades were executed. The size of each transaction must also be reported, along with the names of the parties involved. This information should be readily available to the clearing firm in its own records and if it is not, it suggests the firm is having difficulty with recordkeeping and transaction monitoring, an indicator of a problem with the firm's management and procedures.
The SEC can examine a blue sheet for signs of irregularities or transactions of concern. It can also be compared to other public filings to match up accounts of various transactions. If something about a transaction arouses the concerns of SEC regulators, they can initiate an investigation to learn more about the transaction and the parties involved. For example, a clearing firm's blue sheet may reveal evidence of insider trading or other fraudulent trading activities.
Regulatory agencies like the SEC are expected to monitor the financial markets to keep them safe for people involved in trading of securities and other financial products. In addition, their monitoring is designed to protect the economy as a whole, as problems with trades and other financial activities may create bigger economic problems. A crashing company, for example, can panic investors, leading to economic turmoil and subsequent problems for people who are not necessarily directly involved in the financial market.
