HelpFINRA Manual: Contents
FINRA Manual
Corporate Organization Notices
2006
06-72 Amendments to Rule 2340 Requiring Customer Account Statements to Include a Statement Reminding Customers to Report Inaccuracies in Their Accounts in Writing; Revised Effective Date: May 31, 2007
06-71 Clarification of Exemption for Market Makers Acting in the Capacity of Exchange Market Maker and Interpretive Guidance Relating to Riskless Principal Transactions
06-70 SEC Approves Amendments Expanding the OATS Requirements to OTC Equity Securities and NASD Publishes Revised OATS Reporting Technical Specifications; Effective Date: June 11, 2007
06-68 SEC Approves Amendments to Rule 2340 to Allow DVP/RVP Customers to Elect Not to Receive Account Statements; Effective Date: November 22, 2006
06-67 SEC Approves Amendments to NASD Rules to Align Them with Regulation NMS; Effective Date: Regulation NMS Trading Phase Date, Currently Scheduled to Occur February 5, 2007.The SEC has extended the Trading Phase Date to March 5, 2007.
06-66 NASD Announces Election Results for District Committees, District Nominating Committees and the National Adjudicatory Council
06-64 SEC Approves Amendments to Rule 10308 Regarding the Classification of Arbitrators; Effective Date: January 15, 2007
06-63 Amendments to Registration Rules Extending the Date by which Eligible Registrants must Complete Continuing Education Program before Engaging in Security Futures Activities; Effective Date: November 15, 2006
06-62 SEC Approves Rule 3160 Regarding Submission and Reporting Requirements for Regulation T and SEC Rule 15c3-3 Extension of Time Requests; Effective Date: March 1, 2007
06-61 SEC Approves Rule 3170 Requiring Members to Electronically File with or Otherwise Submit to NASD Specified Regulatory Notices or Other Documents; Effective Date: December 6, 20061
06-60 SEC Approves Amendments to Rule 2340 Requiring Customer Account Statements to Include a Statement Reminding Customers to Report Inaccuracies in Their Accounts in Writing; Effective Date: March 6, 2007
06-59 Broker-Dealer, Investment Adviser Firm, Agent and Investment Adviser Representative Renewals for 2007; Payment Deadline: December 8, 2006
06-58 SEC Approves Amendments to Rule 2320(a) Regarding Best Execution and New Interpretive Material 2320; Effective Date: November 8, 2006
06-57 SEC Approves Exemption to NASD Rule 5100 (Short Sale Rule) for Securities Included in the NASDAQ-100 Index; Effective Date: October 9, 2006
06-56 SEC Approves Amendments to the Safe Harbor for Business Expansions; Effective Date: November 3, 2006
06-54 Amendments to Option Disclosure Documents Delivery Requirements in Rule 2860; Implementation Date: October 26, 2006
06-53 Guidance on the Requirements for Availability of Bona Fide Market Making Activity Exception to NASD Rule 5100
06-52 NASD Requests Comment on Proposed Amendments to Rules Governing Conflicts of Interest in Public Offerings of Securities; Comment Period Expires October 30, 2006
06-50 NASD Reminds Members of Their Obligation to Provide Accurate Information to Services that Disseminate Trading Volume and Trading Interest
06-48 SEC Approves Amendments to NASD Rules 2210 and 2211 to Require Disclosure of Fees and Expenses in Mutual Fund Performance Sales Material; Effective Date: April 1, 2007
06-47 SEC Approves New Rule 2441 Requiring Disclosure and Consent When Trading on a Net Basis with Customers
06-45 SEC Approves Amendments to NASD Rule 2211 to Require Principal Pre-Use Approval of Certain Member Correspondence Sent to 25 or More Existing Retail Customers within a 30 Calendar-Day Period; Effective Date: December 1, 2006
06-44 Exemption for Registered NASDAQ Market Makers Acting in the Capacity of Exchange Market Maker (This Notice supersedes Notice to Members 06-37)
06-43 NASD Announces Nominees for Regional Industry Member Seats on the National Adjudicatory Council
06-42 Pilot Program to Permit Additional Market Participant Identifier Functionality on the Alternative Display Facility
06-39 SEC Approves Amendments Relating to Automated Reporting of Transactions Subject to Regulatory Transaction Fee; Effective Date: December 1, 2006
06-38 Member Obligations with Respect to the Sale of Existing Variable Life Insurance Policies to Third Parties
06-37 Exemption for Registered NASDAQ Market Makers Acting in the Capacity of Exchange Market Maker (This Notice is superseded by Notice to Members 06-44)
06-35 Revisions to the Series 22, 27, 28, 39 and 55 Examination Programs; Implementation Date: August 15, 2006
06-34 Technical Changes in the Reporting of Statistical and Summary Information Regarding Customer Complaints and Disclosure Events pursuant to Rule 3070
06-33 Frequently Asked Questions regarding Electronic Blue Sheet Submissions; Remediation Dates Extended
06-32 NASD Requests Comment on Providing Public Access to Historic TRACE Data Not Previously Disseminated or Otherwise Publicly Available; Comment Period Expires August 15, 2006
06-31 NASD Requests Comment on Regulatory Relief that Should Be Granted in Response to a Possible Pandemic or Other Major Business Disruption; Comment Period Expires September 15, 2006
06-30 Amendments to the Fee for Extension of Time Requests under Regulation T and SEC Rule 15c3-3; Effective Date: July 1, 2006
06-29 NASD Announces Nomination Procedures for Regional Industry Member Vacancies on the National Adjudicatory Council; Nomination Deadline: July 17, 2006
06-28 SEC Approves New Rule 3210 Applying Short Sale Delivery Requirements to Non-Reporting OTC Equity Securities; Effective Date: July 3, 2006
06-27 SEC Approves Amendments to Rule 6740 Relating to Submission of SEC Rule 15c2-11 Information to NASD; Effective Date: June 29, 2006
06-25 Establishment of Branch Office System Processing Fee and Waiver of Branch Office System Processing Fee and Annual Branch Office Registration Fee For One Branch Office Per Member Per Year; Effective Date: July 3, 2006
06-24 NASD Informs Members of Upcoing District Committee and District Nominating Committee Elections
06-23 NASD Reminds FINOPs of their Obligations under NASD Rule 1022 and Issues Guidance to FINOPS who Work Part-Time, Work Off-Site or Hold Multiple Registrations
06-22 NASD Requests Comment on Publicly Disseminating in TRACE Information Whether a Transaction was Inter-Dealer or Dealer-Customer and, in Dealer-Customer Transactions, Whether the Broker-Dealer was a Buyer or Seller; Comment Period Expires June 15, 2006
06-20 NASD Implements Changes to the Regulation Filing Applications System; Effective Date: July 3, 2006
06-18 SEC Division of Market Regulation Issues Interpretive Guidance Regarding Regulation SHO Close-Out Requirements; Effective Date: May 1, 2006
06-17 NASD Extends Compliance Date for Recent Amendments to NASD's Order Audit Trail System Rules; Compliance Date: July 10, 2006
06-16 NASD Amends Rule 1013 to Adopt a Standardized Application Form (Form NMA) to be Used by All New Member Applicants; Implementation Date: May 20, 2006
06-15 SEC Approves Expansion of NASD's Exemptive Authority under the OATS Rules; NASD Provides Additional Guidance Regarding Exemptive Relief and Encourages Exempted and Other Small Firms to Test the Enhanced OATS Web Interface
06-14 SEC Approves Amendments to the Short Interest Reporting Requirements; Effective Date: July 3, 2006
06-13 Validation of Electronic Blue Sheet Systems: Intermarket Surveillance Group Requires Validation by March 31, 2006
06-12 Extension of Effective Date of NASD Uniform Branch Office Definition and Certain Form BR and Form U4 Filing Requirements from May 1, 2006 to July 3, 2006, Effective Date of Uniform Definition: NASD: July 3, 2006; NYSE: September 9, 2005
06-11 SEC Approves Amendment to NASD Interpretive Material 3013 Regarding Timing of Submission of Report that Evidences Processes to a Member's Board of Directors and Audit Committee; Effective Date: March 17, 2006
06-08 Amendments Relating to the Status of Persons Serving in the Armed Forces of the United States; Effective Dates: IM-1000-2(a) and IM-1000-2(b): November 15, 2005; IM-1000-2(c): March 27, 2006
06-07 SEC Approves Amendments to Anti-Money Laundering Compliance Program Rule and Adoption of Interpretive Material; Effective Date: March 6, 2006
06-06 NASD Requests Comment on Proposed Interpretive Material IM-3060 Addressing Gifts and Business Entertainment; Comment Period Expires February 23, 2006; Comment Period extended to March 3, 2006
06-05 SEC Approves Permanent Rules Concerning Bond Mutual Fund Volatility Ratings; Effective Date: December 27, 2005
06-04 SEC Approves Amendments to NASD Rule 3012 to Require Members Relying on Rule 3012's "Limited Size and Resources" Exception to Notify NASD of their Reliance
06-03 NASD Provides Guidance Regarding New Rule 2111 Prohibiting Members from Trading Ahead of Customer Market Orders Under Certain Circumstances; Effective Date: January 9, 2006
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06-11 SEC Approves Amendment to NASD Interpretive Material 3013 Regarding Timing of Submission of Report that Evidences Processes to a Member's Board of Directors and Audit Committee; Effective Date: March 17, 2006
GUIDANCE
Annual Compliance and Supervision Legal & Compliance Certification
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SUGGESTED ROUTING |
KEY TOPICS |
| Legal & Compliance Operations Registered Representatives Senior Management Training |
IM-3013 (Annual Compliance and Supervision Certification) |
Executive Summary
The Securities and Exchange Commission (SEC) has approved an amendment to Interpretive Material 3013 (IM-3013) to establish the timing with respect to the requirement to submit to the member's board of directors and audit committee (or equivalent bodies) a report that evidences certain processes that form the basis of a certification by the Chief Executive Officer (CEO) under Rule 3013.1 The rule change permits submission of the final report to these governing bodies to take place either before or after the execution of the certification, provided that the board of directors and audit committee (or equivalent bodies) receive the report at the earlier of their next scheduled meetings or within 45 days after execution of the certification. The rule change became effective upon SEC approval on March 17, 2006.The text of IM-3013 with the changes indicated is in Attachment A.
Questions/Further Information
Questions concerning this Notice may be directed to Philip Shaikun, Associate Vice President and Associate General Counsel, Office of General Counsel, Regulatory Policy and Oversight, at (202) 728-8451.
Background and Discussion
NASD Rule 3013 requires each member's CEO or equivalent officer to certify annually that the member has in place processes to establish, maintain, review, modify and test policies and procedures reasonably designed to achieve compliance with applicable NASD rules, MSRB rules and the federal securities laws. The rule is accompanied by IM-3013, which sets forth the actual certification language and also provides additional guidance about the requirements of the rule and sets forth certain limitations to its scope.
The certification consists of four attestations, each set forth in a separate numbered paragraph within IM-3013. In paragraph 3 of the certification, the CEO attests that the member's processes are "evidenced in a report reviewed by the chief executive officer (or equivalent officer), chief compliance officer, and such other officers as the Member may deem necessary to make this certification, and submitted to the Member's board of directors and audit committee."
The rule is not intended to require the board of directors or audit committee to review or consider the report as a condition to the CEO executing the certification. Rather, the requirement that the report be submitted to the member's board of directors and audit committee (or equivalent bodies) is intended to ensure that those governing bodies remain informed of this aspect of the member's compliance system in the context of their overall responsibility for governance and internal controls of the member for which they serve. Accordingly, the rule change permits submission of the final report to these governing bodies to take place either before or after the execution of the certification, provided that the board of directors and audit committee (or equivalent bodies) receive the report at the earlier of their next scheduled meetings or within 45 days after execution of the certification. Importantly, the board of directors and audit committee (or equivalent bodies) must receive the report in its final form regardless of whether the member elects to submit it to them before or after certification by the CEO.
The rule change became effective upon SEC approval on March 17, 2006. Members must execute their first CEO certification no later than April 1, 2006.
1 Exchange Act Release No. 53509 (March 17, 2006) (SR-NASD-2006-036).
ATTACHMENT A
Text of approved rule change. New language is underlined; deletions are in double brackets.
IM-3013. Annual Compliance and Supervision Certification
The NASD Board of Governors is issuing this interpretation to the requirement under Rule 3013(b), which requires that the member's chief executive officer (or equivalent officer) execute annually1 a certification that the member has in place processes to establish, maintain, review, test and modify written compliance policies and written supervisory procedures reasonably designed to achieve compliance with applicable NASD rules, MSRB rules and federal securities laws and regulations. The certification shall state the following:
* * * * * * * * * *
The undersigned is the chief executive officer (or equivalent officer) of [name of member corporation/partnership/sole proprietorship] (the "Member"). As required by NASD Rule 3013(b), the undersigned makes the following certification:
* * * * * * * * * *
It is critical that each NASD member understand the importance of employing comprehensive and effective compliance policies and written supervisory procedures. Compliance with applicable NASD rules, MSRB rules and federal securities laws and regulations is the foundation of ensuring investor protection and market integrity and is essential to the efficacy of self-regulation. Consequently, the certification requirement is intended to require processes by each member to establish, maintain, review, test and modify its compliance policies and written supervisory procedures in light of the nature of its businesses and the laws and rules that are applicable thereto, and to evidence such processes in a report reviewed by the chief executive officer (or equivalent officer) executing the certification.
Included in this processes requirement is an obligation on the part of the member to conduct one or more meetings annually between the chief executive officer (or equivalent officer) and the chief compliance officer to: (1) discuss and review the matters that are the subject of the certification; (2) discuss and review the member's compliance efforts as of the date of such meetings; and (3) identify and address significant compliance problems and plans for emerging business areas.
The periodic and content requirements for meetings between the chief executive officer (or equivalent officer) and the chief compliance officer, as well as the pertinent requirements of paragraphs 3 and 4 of the certification, are intended to indicate the unique and integral role of the chief compliance officer both in the discharge of certain compliance processes and reporting requirements that are the subject matter of the certification and in providing a reliable basis upon which the chief executive officer can execute the certification. The chief compliance officer is the primary advisor to the member on its overall compliance scheme and the particularized rules, policies and procedures that the member adopts. This is because the chief compliance officer should have an expertise in the process of (1) gaining an understanding of the products, services or line functions that need to be the subject of written compliance policies and written supervisory procedures; (2) identifying the relevant rules, regulations, laws and standards of conduct pertaining to such products, services or line functions based on experience and/or consultation with those persons who have a technical expertise in such areas of the member's business; (3) developing, or advising other business persons charged with the obligation to develop, policies and procedures that are reasonably designed to achieve compliance with those relevant rules, regulations, laws and standards of conduct; (4) evidencing the supervision by the line managers who are responsible for the execution of compliance policies; and (5) developing programs to test compliance with the member's policies and procedures.
It is that expertise in the process of compliance that makes the chief compliance officer an indispensable party to enable the chief executive officer to reach the conclusions stated in the certification. Consequently, any certification made by a chief executive officer under circumstances where the chief compliance officer has concluded, after consultation, that there is an inadequate basis for making such certification would be, without limitation, conduct inconsistent with the observance of the high standards of commercial honor and the just and equitable principles of trade—a violation of Rule 2110. Beyond the certification requirement, it is the intention of both Rule 3013 and this Interpretive Material to foster regular and significant interaction between senior management and the chief compliance officer regarding the member's comprehensive compliance program.
The chief compliance officer and other compliance officers that report to the chief compliance officer (as described in the sentence that immediately follows) shall perform the compliance functions contemplated by this Interpretive Material and paragraphs 3 and 4 of the certification. Nothing in this Interpretive Material is intended to limit or discourage the participation of other employees both within and without the member's compliance department in any aspect of the member's compliance programs or processes, including those matters discussed in this Interpretive Material. However, it is understood that the chief compliance officer and, where applicable, the most senior compliance officers having primary compliance department responsibility for each of the member's business segments, will retain responsibility for the compliance functions contemplated by this Interpretive Material and paragraphs 3 and 4 of the certification.
As may be necessary to render their views and advice, the chief compliance officer and the other officers referenced in paragraph 3 of the certification who consult with the chief executive officer (or equivalent officer) pursuant to paragraph 4, shall, in turn, consult with other employees, officers, outside consultants, lawyers and accountants.
The NASD Board of Governors recognizes that supervisors with business line responsibility are accountable for the discharge of a member's compliance policies and written supervisory procedures. The signatory to the certification is certifying only as to having processes in place to establish, maintain, review, test and modify the member's written compliance and supervisory policies and procedures and the execution of this certification and any consultation rendered in connection with such certification does not by itself establish business line responsibility.
The requirement to designate a chief compliance officer does not preclude such person from holding any other position within the member, including the position of chief executive officer, provided that such person can discharge the duties of a chief compliance officer in light of his or her other additional responsibilities. The requirement that a member's processes include providing the report to the board of directors and audit committee (required by paragraph 3 of the certification) does not apply to members that do not utilize these types of governing bodies and committees in the conduct of their business.3
The report required in paragraph 3 of the certification must document the member's processes for establishing, maintaining, reviewing, testing and modifying compliance policies, that are reasonably designed to achieve compliance with applicable NASD rules, MSRB rules and federal securities laws and regulations, and any principal designated by the member may prepare the report. The report must be produced prior to execution of the certification and be reviewed by the chief executive officer (or equivalent officer), chief compliance officer and any other officers the member deems necessary to make the certification and must be provided to the member's board of directors and audit committee in final form either prior to execution of the certification or at the earlier of their next scheduled meetings or within 45 days of execution of the certification. The report should include the manner and frequency in which the processes are administered, as well as the identification of officers and supervisors who have responsibility for such administration. The report need not contain any conclusions produced as a result of following the processes set forth therein. The report may be combined with any other compliance report or other similar report required by any other self-regulatory organization provided that (1) such report is clearly titled in a manner indicating that it is responsive to the requirements of the certification and this Interpretive Material; (2) a member that submits a report for review in response to an NASD request must submit the report in its entirety; and (3) the member makes such report in a timely manner, i.e., annually.
1 Members must ensure that each ensuing annual certification is effected no later than on the anniversary date of the previous year's certification.
2 Members should understand that the requirements of Rule 3013 and this Interpretive Material represent, in part, a principle-based requirement to certify that the member has in place processes to establish, maintain, review, test and modify written compliance policies and written supervisory procedures reasonably designed to achieve compliance with applicable NASD rules, MSRB rules and federal securities laws and regulations. Consequently, compliance with the periodic and content requirements in this Interpretive Material pertaining to meetings between the chief executive officer (or equivalent officer) and the chief compliance officer does not satisfy the full extent of these principle-based obligations that will vary with the facts and circumstances of a member's business activities and organizational structure. Moreover, NASD emphasizes the testing aspect of this principle-based requirement; an integral purpose of NASD rules pertaining to supervision is that members adopt policies and procedures that are effective as to both the scope of, and the achievement of compliance with, applicable NASD rules, MSRB rules and federal securities laws and regulations.
3 As a part of their process, members must have the report reviewed by their governing bodies and committees that serve similar functions in lieu of a board of directors and audit committee.
