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
2 Revision Date 6/10/05
ITEM REQUIRED
Reference Unless otherwise noted, Rule references are to NASD Rules.
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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
Reference Unless otherwise noted, Rule references are to NASD Rules.
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3 Revision Date 6/10/05
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
Reference Unless otherwise noted, Rule references are to NASD Rules.
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4 Revision Date 6/10/05
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
Reference Unless otherwise noted, Rule references are to NASD Rules.
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5 Revision Date 6/10/05
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
Reference Unless otherwise noted, Rule references are to NASD Rules.
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6 Revision Date 6/10/05
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
Reference Unless otherwise noted, Rule references are to NASD Rules.
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7 Revision Date 6/10/05
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
ITEM REQUIRED
Reference Unless otherwise noted, Rule references are to NASD Rules.
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8 Revision Date 6/10/05
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
Reference Unless otherwise noted, Rule references are to NASD Rules.
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9 Revision Date 6/10/05
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
Reference Unless otherwise noted, Rule references are to NASD Rules.
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10 Revision Date 6/10/05
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
SEC Rule 17a-8; Bank Secrecy Act
Filing reports of Foreign Bank and Financial Accounts
SEC Rule 17a-8; Bank Secrecy Act
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)
SEC Rule 17a-8; Bank Secrecy Act
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
Reference Unless otherwise noted, Rule references are to NASD Rules.
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11 Revision Date 6/10/05
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
Reference Unless otherwise noted, Rule references are to NASD Rules.
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12 Revision Date 6/10/05
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
Reference Unless otherwise noted, Rule references are to NASD Rules.
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13 Revision Date 6/10/05
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
Reference Unless otherwise noted, Rule references are to NASD Rules.
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14 Revision Date 6/10/05
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
Reference Unless otherwise noted, Rule references are to NASD Rules.
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15 Revision Date 6/10/05
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
Reference Unless otherwise noted, Rule references are to NASD Rules.
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16 Revision Date 6/10/05
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
Reference Unless otherwise noted, Rule references are to NASD Rules.
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17 Revision Date 6/10/05
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
Reference Unless otherwise noted, Rule references are to NASD Rules.
N/A
Page No.
Super.
Assigned
When
Reviewed
How
Evidenced
18 Revision Date 6/10/05
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