WSP Checklist - cloudfront.net

WRITTEN SUPERVISORY PROCEDURES REVIEW CHECKLIST (Complete only applicable areas)

The Written Supervisory Procedures Checklist (“WSP Checklist”) is an outline of selected key topics representative of the range of business activities typically proposed by applicants seeking approval to become NASD members or to expand their existing securities business under the NASD Membership and Registration Rules.

As part of the application process, applicants are required to submit a completed WSP Checklist, together with a copy of their Written Supervisory Procedures (“WSPs”). NASD staff reviews the checklist and the WSPs in conjunction with its determination of whether the applicant meets the standards for admission specified in NASD Rule 1014(a). Note that the outline of topics in the WSP Checklist is not all-inclusive and does not necessarily represent all of the areas of inquiry that the staff will make when evaluating supervisory procedures proposed in an application. The full extent of the staff's inquiry and evaluation will depend on a number of factors, including the precise nature of the proposed business activities. In addition, applicants are advised that approval of a firm's proposed WSPs during the application process is not a safe harbor with respect to potential supervisory deficiencies. Among other things, the nature of the business actually conducted by a firm, the manner in which the WSPs are implemented and followed, and the extent to which the firm updates and revises its procedures to reflect operating experience and change (both regulatory and operational) are important factors in determining future compliance with NASD Conduct Rules. The Written Supervisory Procedures are a “living document” and should provide a road map for the supervisory personnel to follow when they conduct each review. Written Supervisory Procedures should be updated not only to reflect changes to rules and regulations, but also when changes are made to the supervisory process. IMPORTANT NOTE: This outline of topics should not be considered by the user to include all topics and issues applicable to the user's business. It is merely to be used as an aid in preparing written supervisory procedures. Certain references to specific rules and other guidance have been provided for some topics and line items contained within the checklist, although the list of references may not be exhaustive. Please review all references relevant to the firm’s business plan prior to completing and submitting the checklist.

1 Revision Date 6/10/05


ITEM REQUIRED

Reference Unless otherwise noted, Rule references are to NASD Rules.

N/A

Page No.

Super.

Assigned

When

Reviewed

How

Evidenced

I. General Administrative Form Filing NASD Rule 1140

Form BD Amendments NASD By-Laws Art. IV, Section 1

Form U4/Form U5

NASD By-Laws Article V, Sections 2 and 3; NTM 03-65

Fingerprint Cards SEC Rule 17f-2 Designation of Executive Representative

NASD By-Laws Art. IV, Section 3, 1150

Designation of principal responsible for supervision of form filings

1140

General B/D Activities Advertising & Sales Literature (including e-mail and Web sites)

2210, 2220; IM 2210-1; NTM 93-73, 93-85; 95-74,96-50,98-3, 98-107, 00-15, 00-21, 01-80, 02-39; MSRB Rule G-21, SEC Rule 17a3(a)(20)

Cold callers/Telemarketing Scripts 2210, 2212, 3010(b)(2), 3110(g); NTM 95-54, 96-44, 97-1, 03-38, 04-15

Correspondence - incoming, outgoing, including facsimiles and electronic messages (e-mail, instant messages, etc.)

3010(d); SEC Rule 17a-4(b)(4); NTM 98-11, 99-3, 01-80, 03-33; SEC Rule 17a(3)(20)

Institutional Sales Literature & Correspondence

2211; NTM 03-38

Customer Complaints 3110, MSRB Rules G-18(a)(xii) and G-10

Material Event & Customer Complaint Reporting

3070

Distribution of procedures and amendments

3010(b)(4)

Gifts & Gratuities 3060; MSRB Rule G-20 Outside Business Activities 3030 Periodic review of business and supervisory system

3010(c)

Private Securities Transactions

3040; NTM 85-84, 94-44, 96-33

Regulation SP of Gramm Leach Bliley • requirement to provide initial,

annual & revised privacy policy notice;

• description of how & when policy is distributed to customers;

• administrative, technical & physical safe guard of information; and

• testing of firewalls.

Regulation SP

Speaking Engagements; Scripts; Chat Rooms

2210

ITEM REQUIRED


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Registered Representative Activities/Associated Persons Designation of Supervisors and Supervisory Duties For Each Supervisor - include location of supervisor; title; date duties assumed; registration status (maintain for 3 years)(include Chief Compliance Officer as appropriate)

3010(a)(2); 3010(b)(3); NTM 99-45

Determine qualifications of Supervisory Personnel

3010(a)(6); NTM 99-45

All associated persons are properly registered

NASD By-Laws, Article III, Section 2; 1070; MSRB Rules G-2 & 3; 1021; 1022; IM-1022-1; IM-1022-2; 1030; 1040; 1100; 1110

Investigation of Background and Qualifications

3010(a)(6); 3010(e); MSRB Rule G-7

Records for all Associated Persons

SEC Rule 17a-3(a)(12); NTM 01-80

Assign each registered rep to a supervisor and create a record of all reps supervised by each supervisor

3010(a)(5); NTM 99-45

Require reps to attend an annual compliance meeting

3010(a)(7); NTM 99-45

Heightened supervisory/hiring procedures

NTM 97-19; 03-49

Supervision of Statutorily Disqualified Individuals

NASD By-Laws, Article III, Sections 3 and 4; Form MC-400; 3070; MSRB Rules G-4 and G-5

Screening for SD persons hired in clerical or ministerial positions

Require annual written attestation from registered representatives regarding:

(a) opening a securities account

(b) private securities transactions

(c) outside business activities Obligations related to associated persons with accounts at other b/ds

3010(c), 3050(d); NTM 91-27, 97-25; MSRB Rule G-28

Parking of Securities Registrations

NASD ByLaws, Article III, Section 1; Rule 1031(a)

Sharing in Customer Accounts 2330(f); NTM 03-21 Lending between registered persons & customers

2370; NTM 03-62; 04-14

Use of Exception reports & other reports

3230(c), NTM 99-57

Investment Advisor Activities of Associated Persons

3040; NTM 91-32, 94-44, 96-33

ITEM REQUIRED


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Branch Office Activities 3010; NTM 86-65, 88-84, 89-34, 92-18,99-45, 04-71 Designation of branch supervisor 3010(a)(4) Designation of Offices of Supervisory Jurisdiction (OSJ)

NASD By-Laws Article IV Section 8; 3010(a)(3); 3010(g)

Supervision of non-branch location

3010(c); NTM 86-65, 04-71

Supervision of Offices of Supervisory Jurisdiction and Branch Offices

3010(c)(1)

Activities of the Premises of a Financial Institution

2350; NTM 94-47, 94-94, 95-49, 97-26, 97-89

Mandatory inspection schedule for locations at which the firm conduct a business

3010(c)(1)

Requirements for Inspections of branch and non-branch locations and contents of inspections reports

3010(c)(1)-(3);

Maintenance of written inspection reports of branch and non-branch locations

3010(c)(2);

Documentation of limited size and resources exception from inspection requirements (if applicable)

3010(c)(3)

Heightened office inspections of branch and non-branch locations

3010(c)(3)

Supervisory Controls 3012, 3013, NTM 04-71 and 04-79 Designation of Chief Compliance Officer 3013(a)

CEO's Annual Certification 3013(b) Designation of and Identification to NASD Principal Responsible for Supervisory Controls 3012(a)(1)

Supervisory Control Procedures for Testing the Firm's Written Supervisory Procedures to Ensure that All Rules are Addressed 3012(a)(1)

Supervisory Control Procedures that Address Updating the Firm's Written Supervisory Procedures 3012(a)(1)

Identification of Producing Managers and Assigning Qualified Supervisors 3012(a)(2)

Identification of Producing Managers for Heightened Supervision 3012(a)(2)

Documentation of Limited Size and Resources Exception for Producing Manager Supervision, including factors used in determining the exception is required 3012(a)(2)(A)

ITEM REQUIRED


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Evidenced


Designated Principal Annual Report to Senior Management on Firm's Supervisory Controls Procedures, Test Results, and Resulting Changes 3012(a)(1)

Review and Supervision of Customer Account Activity of Producing Managers 3012(a)(2)(A)

Review and Supervision of Transmittal of Customer Funds or Securities 3012(a)(2)(B)

Supervision of Customer Changes of Address and Validation 3012(a)(2)(B)

Supervision of Customer Changes of Investment Objective 3012(a)(2)(B)

Heightened Supervision over High Producing Managers 3012(a)(2)(c)

Financial Reporting/Books and Records Maintenance of Books and Records

• main office; • other offices; and, • update customer account

information.

SEC Rules 17a-3 and 17a-4; 3110; NTM 01-80, 03-33; MSRB Rules G-8 and G-9

Net Capital Rule • Error Procedures for

handling customer funds received by fully-disclosed firms

• Handling Customer Funds

• Handling Customer Securities

SEC Rules 15c3-1, 17a-11; NTM 92-72, 93-30, 99-44

Customer Protection Rule • Reserve Computations • Quarterly Box Count • Safekeeping and

Segregation of Customer Securities

SEC Rule 15c3-3; 3140; NTM 99-44 SEC Rule 17a-13 SEC Rules 8c-1, 15c2-1, 15c3-3, 17a-13; 2330

Financial Reporting/Backup – Net Capital Computation; FOCUS

SEC Rules 17a-5, 17a-11; NASD By-Laws, Schedule A; 3110

NASD Fees and Assessments NASD By-Laws, Schedule A; MSRB Rules A-13 and A-14 (if applicable)

Margin Requirements 2520; Regulation T Fees Charged to Customers 2430 Clearing Agreements 3230; NTM 99-57 Bank Secrecy Act; Reporting Suspicious Transactions; Recordkeeping for Funds Transfers

SEC Rule 17a-8, NTM 89-12, 97-13

ITEM REQUIRED


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Business Continuity Plan • identify Emergency Contact

Persons • address data back-up and

recovery • address mission critical

systems • address periodic

assessment of financial and operational risks

• address alternate communications during emergency

• address providing an alternate physical location for employees

• address the impact of disruption upon critical counterparts

• address regulatory reporting and communications with regulators

• provide for customer’ prompt access to finds and securities in the event that firm is unable to continue its business

• address disclosure requirements of Rule 3510

• address the requirements for updating, annual review, and senior management approval provisions

3500, 3510, MSRB Rule G-40

ITEM REQUIRED


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Taping Rule • specify minimum percentage

of recordings reviewed and method

• identify one or more senior persons w/ training to review recordings

• in establishment of review procedures, consider disciplinary history of any RR whose phone conversations are being recorded

• maintain records documenting how and when tape recordings are reviewed

• monitor to ensure compliance to procedures

3010(b)(2)

Anti-Money Laundering (AML) 3011; NTM 02-21; MSRB Rule G-41(when final rule is approved)

Anti-Money Laundering Small Firm Template (NOTE: The AML Program may be included in the firm’s WSPs or may be a separate document.)

Designate AML Contact person 3011(d) Written Anti-Money Laundering Compliance Program approved in writing by senior management of the firm

Establish and implement policies and procedures that can be reasonably expected to detect and cause the reporting of suspicious transactions

Compliance with the Bank Secrecy Act and implementing regulations

Independent testing of the firm's AML Compliance Program

On-going training of appropriate personnel

http://www.nasd.com/web/idcplg?IdcService=SS_GET_PAGE&ssDocName=NASDW_006340&ssSourceNodeId=646

ITEM REQUIRED


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Super.

Assigned

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Reviewed

How

Evidenced


Identification and verification of customers, including a Customer Identification Program • Account documentation; • Verify identity of customer or

persons with trading authority;

• Description of when & how the b/d will use documentary methods, non-documentary methods or both;

• Maintain records of information used to verify identity; and

• Description of policy when firm can not obtain adequate verification of identity.

Section 326 of the USA Patriot Act; NTM 03-34

Determination if customer appears on any list of known or suspected terrorists or terrorist organizations, such as those listed on the Treasury's Office of Foreign Assets Control (OFAC) Web site, as well as on the list of embargoed countries and regions on the OFAC List

Responding to information requests from FinCEN concerning money laundering or terrorist financing, including how the firm will protect the security and confidentiality of the information requests

U.S. Patriot Act, section 314, and Bank Secrecy Act

Sharing information with other financial institutions, if applicable (including requirement to provide annual sharing agreement to FinCEN)

U.S. Patriot Act, section 314, and Bank Secrecy Act

If firm does not open or maintain correspondent accounts for foreign banks: • it must have internal controls

implemented to detect any attempt to open such an account

ITEM REQUIRED


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Assigned

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Evidenced


If firm opens or maintains correspondent accounts for foreign banks: • obtain the name and address

of an agent residing in the United States who is authorized to accept service of legal process for records on behalf of foreign bank correspondent accounts

• identify the owners of foreign banks that maintain correspondent accounts in the United States and retaining applicable records

• provide information to federal law enforcement officers not later than seven days after receipt of request

• terminate correspondent relationships with a foreign bank not later than ten business days after notification by the Secretary of the Treasury or the Attorney General that the firm has failed to comply with a summons or contested a summons

(Effective date to be determined) Due diligence review for correspondent accounts of foreign financial institutions

Determine the identity of the nominal and beneficial account holders and the source of funds deposited into "private banking accounts," and to conduct enhanced scrutiny of accounts of a senior foreign political figure

If the firm does not open or maintain private banking accounts for non-U.S. persons: • internal controls detect any

attempt to open such an account

Freeze accounts and prohibit transactions with persons who are suspected of terrorist activities pursuant to Executive Order #13224 that was issued through the Office of Foreign Assets Control (OFAC)

ITEM REQUIRED


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Super.

Assigned

When

Reviewed

How

Evidenced


If the firm prohibits the receipt of currency: • Procedures and internal

controls to detect its receipt

Filing Currency Transaction Reports: • Identify cash transactions for

filing CTRs • Filing CTRs • Verify the identity of

customers for filing CTRs

SEC Rule 17a-8; Bank Secrecy Act

Filing reports of International Transportation of Currency or Monetary Instruments


Filing reports of Foreign Bank and Financial Accounts


Obtaining all required information regarding the transmittal/re-transmittal of wire transfers that includes the transmittor and recipient of funds

Verifying the identity of customers in connection with wire transfers

Procedures to detect and report suspicious transactions by filing Suspicious Activity Reports (SAR-SF)

NTM 02-47

Record keeping requirements (currently a five-year requirement)


II. Continuing Education NASD Rule 1120; NTM 97-35, 98-59, 02-77; MSRB Rule G-3

CE Contact person NTM 04-22 Monitor compliance with Regulatory Element - • prompt notification of persons

required to sit for CBT; • track registered persons to

ensure they sit for CBT; • monitor inactive registrations; • designate contact person with

NASD

Firm Element - requirement to prepare an annual: • Written needs analysis; • Written training plan; • Maintenance of training

material; • Record of persons receiving

training

ITEM REQUIRED


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Super.

Assigned

When

Reviewed

How

Evidenced


III. All Securities Related Activities

Best Execution 2320; NTM 97-57, 00-42, 01-22; MSRB Rules G-17 and G-18

Customer Funds & Securities Use 2330; MSRB Rule G-25 Designated securities SEC Rules 15g(1)-(9);

NTM, 92-38, 92-42, 93-55

Discretionary Accounts 2510, 3110(c)(3); MSRB Rule G-19

Fair Pricing 2440; IM-2440; MSRB Rules G-18 and G-30; NTM 92-16, 93-81, 96-6, 97-6

Investor Education 2280 Approval of Account Name or designation changes for orders Rule 3110(d)

New Account Review and Approval

2310(a)&(b), 3110(c); 3050; SEC Rule 17a-3; MSRB Rule G-8

OATS Requirements: • Daily Clock

Synchronization • Review of OATS

Web Site • Review of OATS

Data

6953

Opening accounts and transactions involving persons associated with other broker/dealers

3050

Order Tickets/Confirmations 2320, 2830; IM 2230; NTM 95-2, 98-3, 01-80; SEC Rules 10b-10, 17a-3; MSRB Rule G-15

Parking of Securities 2110; SEC Rules 10b-5, 15c3-1

Periodic Customer Account Review

3010(c); MSRB Rule G-27(c)

Prohibition against guarantees 2330(e); NTM 03-2; MSRB Rule G-251

Research Analysts • Relationships and

Communications; • Compensation; • Personal Trading; • Qualifications & Registration; • Disclosures; and • Annual Attestation by Senior

Management

1050, 2711; NTM 03-4, 04-184

Restricted/control securities SEC Rule 144 Securities Transactions for Personal and Family-Related Accounts

2110; IM 2110-1

ITEM REQUIRED


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Super.

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Reviewed

How

Evidenced


Suitability 2110, 2310, 3110(a) • 2720(k) -self

underwritings, • 2810(b)(2)-DPP’s • 2844 - index warrants • 2860(b)(19) – Options • NTM 96-86-Variable

Annuities; • MSRB Rule G-19

Third-Party Accounts SEC Rule 17a-4(b)(6) Trade review (including unauthorized trading, churning, etc.)

SEC Rules 10b-5, 15c1-7; 2110, 2120, 2310, 3010; IM 2110-1; NTM 04-30; MSRB Rule G-27(c)

Transactions involving NASD and AMEX employees

3090

IV. Fixed Income Securities

TRACE Reporting 6200 - 6250; NTM 03-58; SEC Rules 10b-5 and 14(e)(3)

Repurchase/Reverse Repurchase Transactions

SEC Rules 15c3-1, 15c3-3(b)(4)

Bonds Borrowed & Loaned Transactions

SEC Rule 15c3-3(b)(3)

Adjusted Trading 2120; SEC Rule 10b-5 Municipal Securities MSRB Rules G-17 – G-28, G-30, G-37 and G-38

Municipal Fund Securities; 529 Plans

NTM 03-17

Apprentice municipal representatives MSRB Rule G-3 Annual review of WSPs MSRB Rule G-27 Supervisory Responsibilities MSRB Rule G-9 and G27 Books and Records MSRB Rules G-8 and G-9 Customer Accounts MSRB Rules G-8 and G-19 Gifts & Gratuities MSRB Rule G-20 Material Events SEC Rule 15c2-12(c) Political Contributions MSRB Rules G-37 and G-

38; NTM 96-54, 99-14

Transaction reporting requirements MSRB Rule G-14, NTM 03-13

Customer Complaint Brochure MSRB Rule G-10

Government Securities Government Securities Act Amendments of 1993, Sections 102-107, SEC Rules 10b-5, 17a-3; NTM 95- 48, 96-66

Mortgage Backed Securities Disclosure of principle returns

CMOs Disclosure about product and its risk

ITEM REQUIRED


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Assigned

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Reviewed

How

Evidenced


V. Options Allocation procedures 2860(b)(23)(C) Uncovered short option contracts 2860(b)(16)(E) Position Limits / Exercise Limits 2860 (b)(3), (b)(4), IM-

2860-1

Reporting options positions 2860(b)(5) Verification of customer’s background and financial information

2860(b)(16)(c)

Review/approve new accounts 2860(b)(16), IM-2860-2 Delivery of disclosure documents 2860(b)(11) Supervision 2860(b)(20) Discretionary Accounts 2860(b)(18) Branch office option business 2860(b)(20)(C) Maintenance of records 2860(b)(17) Customer Grievances 2860(b)(17)(A) Options Communication with the Public

2220

VI. Investment Company Products and Variable Contracts Prospectus Delivery 33 Act, Section 5(b) Redemption Procedures (Dealers only)

2830(j)

Verification of customer signatures to transfer account, change address, etc.

Signature guarantee requirements and proper execution

Sales Charges 2310, 2830(d)&(n); NTM 04-26

Reciprocal Activity 2830(k); MSRB Rule G-31 Sales Literature Review Non-cash compensation 2820, 2830; NTM 95-56,

95-75

Mutual funds & Unit Investment Trusts Review of Customer Accounts for: NTM 02-85; 04-30

Switching NTM 91-39, 94-16, 95-80 Breakpoints IM 2830-1; NTM 94-16, 98-

8, 02-85

Letters of intent & Rights of Accumulation

NTM 02-85

Market timing and late trading activities

2110, 2120, NTM 03-50

Selling Dividends 2830(e) BABD

Disclosure statement that investment is not FDIC insured, price fluctuates, etc.

Variable Annuities 2820, 3010, 3110; NTM 99-35, 00-44

ITEM REQUIRED


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Page No.

Super.

Assigned

When

Reviewed

How

Evidenced


Twisting Communications with the Public IM 2210-2 Contract Delivery Projections of returns 1035 exchanges IRS Code § 1035

VII. Underwriting Activities

Best Efforts and Private Placement

SEC Rules 10b-9 and 15c2-4, Reg D Rules 501-506; Reg A; NTM 84-7,

Self Underwriting 2720; NTM 98-48 Monitoring of firm commitment charges

SEC Rule 15c3-1

Use of Compliance Desk software Free-Riding and Withholding procedures

2790; NTM 03-79

Syndicate Management Intrastate Offerings 33 Act, Section 3(a)(11),

SEC Rule 147

Restricted Period 2710(b)(10); NTM 97-10 Filings required by Corporate Finance Department

2710(b)

Regulation M: • Rule 101 – Direct

Participate Restrictions • Rule 102 – Issuers and

Selling Security Holders • Rule 103 – Passive

Market Making/NASDAQ • Rule 104 – Stabilizing

Transactions • Rule 105 – Short Sales

Due Diligence 2310, 2810; SEC Rule 10b-5

Non-cash compensation 2710(c)(5), 2810(b)(4); NTM 03-53

Disclosure of affiliation with issuer or interest in distribution

SEC Rules 15c1-5 and 15c1-6

Prospectus Delivery Securities Act of 1933, SEC Rule 434, NTM 95-42

SEC Rule 144 stock Securities Act of 1933, SEC Rule 144

TRACE eligible securities notification requirements

6260(b)

Municipal Underwritings Conduct and Fair Dealing MSRB Rule G-17 Fraud SEC Rule 15c1-2 Sales during underwriting period MSRB Rule G-11 Financial Advisor Activities MSRB Rule G-23

ITEM REQUIRED


N/A

Page No.

Super.

Assigned

When

Reviewed

How

Evidenced


Uniform Practice MSRB Rule G-12 Official Statements MSRB Rule G-36 Underwriting transaction assessments

MSRB Rule A-13

CUSIP Numbers MSRB Rule G-34 Political Contributions MSRB Rule G-37 Financial Consultants MSRB Rule G-38 Disclosures to Customers MSRB Rule G-32 Disclosures by Issuer SEC Rule 15c2-12

Private Placements Securities Act of 1933, SEC Rules 501 – 506; Regulation A Suitability; Review of subscription agreements

2310

Disclosures SEC Rule 10b-9 Escrow Account Maintenance SEC Rule 15c2-4

Hedge Funds NTM 03-07 Due Diligence Suitability; Review of subscription agreements

2310

Training of associated persons DPPs

Review of subscription agreements

Disclosure 2810(b)(3) Rollups 2810(b)(6), NTM 94-70 Secondary Trading 2310, 2320, 2420, 2440,

11580; IM 2440; SEC Rules 10b-10, 15c2-11; NTM 91-69

Trade Reporting 6900; NTM 97-8, 99-15

VIII. Insider Trading All firms: NTM 89-05

Periodically reviewing employee and firm trading

Provisions for investigating suspect trades

Initial education Require employee to sign attestation

Update employees on new or revised IT regs

Investment banking, arbitrage, or research firms Chinese Wall Procedures NTM 91-45; IM 2110-4 Method for determining whether firm trading should be restricted

Which activities restricted while security is on list

ITEM REQUIRED


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Page No.

Super.

Assigned

When

Reviewed

How

Evidenced


Firm monitoring rep’s trading of restricted security

NTM 91-27

Time period covered and frequency of review

Why, when, and how security is put on restricted list

Record details of rep’s trade in restricted security

Research Reports 2711; IM 2110-4 Annual Attestations Disclosures Quiet Periods

Trading/Market Making NTM 98-96

ACT Compliance 6130; NTM 97-15, 98-82 Affirmative Determination 3370; NTM 99-98, 00-28,

04-21

Alternative Trading Systems & ECNs

99-34, 99-42, 02-01, 03-16, 03-55; SEC Reg ATS

Best Execution 2320; NTM 00-42, 01-22; MSRB Rule G-18

Evaluation of execution in competing markets

2320

Confirmation Disclosure 2320; IM 2230; SEC Rule 10b-10; NTM 95-2

Designated Securities SEC Rules 15g(1)-(9) Due Diligence SEC Rule 15c2-11 Fair Pricing 2440; IM-2440; NTM 92-16 Firm Quote/Backing Away 3320, 4613, SEC Rule

11Ac1-1; IM-3320; NTM 99-61, 00-42, FYI 8/00

Front Running / Trading ahead of research

IM 2110-3; NTM 96-25

Limit/Market Order Handling • Order Display/Quote

Display • Priority Procedures

2110; IM 2110-2, 2110-5; SEC Rules 11Ac1-1, 11Ac1-4 15c2-1; NTM 97-49, 97-57, 99-99, 00-26

Locked and Crossed Markets 4613(e); NTM 00-29, 00-42 Non-Nasdaq Securities 6540, 6740, SEC Rule

15c2-11; NTM 91-36, 92-50, 97-83, 99-58

Order Audit Trail System 6950 – 6957; NTM 98-33, 00-26

Order Execution Reports SEC Rule 11Ac1-5; NTM 01-16

Order Routing Information SEC Rule 11Ac1-6 Order Ticket Procedures 3110; SEC Rule 17a-3(a) Passive Market Making Regulation M, Rule 103 Payment for Order Flow 2110; SEC Rules 10b-10,

11Ac1-3

Position Limits

ITEM REQUIRED


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Super.

Assigned

When

Reviewed

How

Evidenced


Anti-Competitive Practices pricing conventions; size conventions; coordination of quotations; trades and trade reports; exchange of proprietary information; improper collaboration and coordination of market maker activities; failure to honor quotations; late and inaccurate trade reporting; and harassment

SEC 21(a) Report; IM 2110-5

Prohibition of payments for market making activities

2460; NTM 97-46

Registration of trading personnel 1022, NTM 00-46 Regulation Compliance Report Cards

Security of Terminals Short interest reporting 3360; NTM 03-08 Short Sales 3350; SEC Rules 10b-21;

NTM 99-28, 99-98

Stock Volatility NTM 99-11; 99-12 SOES Trading Practices 4700; NTM 98-66, 00-30 Supervision of Traders Trade Reporting 4652; NTM 95-8, 98-96,

99-04

• DPP 6920 • Nasdaq

4630-4632 (NMS) 4640-4642 (Smallcap) NTM 00-30

• NNOTC 6700-6720 • Riskless Principal NTM 99-65, 99-66, 00-79 • SOES 4730(c) • Third Market 6600-6620; NTM 98-5

Trading ahead of customer orders in CQS stocks

6440(f)

Trading Halts 4120, 6545; IM 4120-3; NTM 99-05, 00-41, 01-47, 02-82

Withdrawal of Quotes Online Trading & Day Trading 2360; NTM 00-62

Account Acceptance 2360 Accounts under common control; Letters of Authorization

NTM 98-65

Alternative Trading Systems NTM 99-34, 99-42 Best Execution 2320; NTM 01-22 Branch Reviews 2420

ITEM REQUIRED


N/A

Page No.

Super.

Assigned

When

Reviewed

How

Evidenced


Disclosures (delayed execution & market losses due to internet overload during periods of market volatility).

Discretionary Trading & Third Party Traders

Margin Requirements 2520; Reg T; NTM 98-102, 01-26

Order review NTM 98-66 Order Routing & Execution NTM 98-66, 99-12 Periodic assessment of competing markets

2320

Reallocation of Trades/ Arranging for Credit

Risk Disclosures 2361; NTM 02-35 Short sale recommendations 3350 Solicitation of New Accounts * 2360 Suitability 2310, IM 2310-2 System capacity reviews Trade Review – double executions; oversells; cancelled orders; manipulative activity by customers

Trading Limits

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