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88-104 Adoption of Rule Amendments Mandating the Automated Submission of Trading Data - Effective February 12, 1989

SUGGESTED ROUTING*

Senior Management
Internal Audit
Legal & Compliance
Operations
Systems
Trading

*These are suggested departments only. Others may be appropriate for your firm.

EXECUTIVE SUMMARY

The board Govenors of the National association of Securities Dealers, Inc,(NASD) Recently approved an amendment to Part VI, Section 4 of Schedule D and Section 3 of H of the NASD's By-Laws mandating that Standardized requests for trading data, (i.e trading questtonnaires or "blue sheet" information) be submitted in an automated format. The rule amerdmerits will be filed with fte Securities and Exchange Commission (SEC) and, subject to the SEC's approval, will be effective February 12, 1989.

BACKGROUND

The NASD and the other self-regulatory organizations comprising the Intermarket Surveillance Group (ISG )1 have adopted uniform policies and procedures for ensuring timely response by their members to standardized requests for trading data, which emanate from their market surveillance functions. This is in recognition of the need to reduce the time it takes to conduct an investigation and to assist members in expediting responses to the numerous requests for information received from the regulatory agencies.

These incentives are also in response to SEC initiatives calling for more timely referral of regulatory matters to the SEC.

EXPLANATION OF AMENDMENTS

The amended rule requires NASD members to respond to standardized market surveillance requests for customer and proprietary trading information in NASDAQ securities by using the NASD's automated electronic "blue sheet" system. This trading information is limited to the type normally requested on a standard trading questionnaire or blue sheet and generally includes price and volume for transactions on behalf of customers or for proprietary accounts. In this regard, all members receiving such a request for information must make arrangements to file their response electronically through the Association's automated blue sheet system starting no later than February 12, 1989. Upon request, the Association may grant an exception from such requirement under certain limited circumstances. It is the NASD's understanding that all ISG participants will require their members to submit trading data in an automated fashion by the February 12, 1989, deadline noted above.

This proposed amendment is very similar in nature to the amendments that have been filed with the SEC by the other ISG participant self-regulatory organizations. Approval for this amendment is expected shortly. Detailed specifications as to the method of transmitting blue sheet data to the NASD will be the subject of a separate Notice to Members, which will be issued in early 1989.

TIMELINESS GUIDELINES FOR RESPONDING TO REQUEST FOR INFORMATION

The 10-Business-Day Standard

In a related matter and in conjunction with other ISG initiatives, any NASD requests for trading information dated on or after February 12, 1989, must be answered within no more than 10 business days of the date of the request. This is a new industry standard that will be employed by all self-regulatory organizations. Submissions of requested data that are received after the deadline or that are in a format other than that requested will be subject to probable disciplinary action unless an extension has been granted by the NASD prior to the requested return date. To assist NASD members in meeting this 10-business-day standard, the Market Surveillance Department will transmit all requests for blue sheet information by FAX if they are provided with a specific number where FAX transmissions can be sent.

Any questions regarding this Notice may be directed to James M. Cangiano, Vice President, Market Surveillance at (202) 728-8186 or to Eneida Rosa, Assistant General Counsel, at (202) 728-8284.


1 The members of the ISG are as follows: The American Stock Exchange, the Boston Stock Exchange, the Chicago Board Options Exchange, the Cincinnati Stock Exchange, the Midwest Stock Exchange, the National Association of Securities Dealers, the New York Stock Exchange, the Pacific Stock Exchange, and the Philadelphia Stock Exchange. Representatives from the SEC staff also attend ISG meetings.



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