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  • 3000. RESPONSIBILITIES RELATING TO ASSOCIATED PERSONS, EMPLOYEES, AND OTHERS' EMPLOYEES

    • 3010. Supervision

      This rule is no longer applicable. NASD Rule 3010 has been superseded by FINRA Rules 3110 and 3170. Please consult the appropriate FINRA Rules.

      (a) Supervisory System
      Each member shall establish and maintain a system to supervise the activities of each registered representative, registered principal, and other associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable NASD Rules. Final responsibility for proper supervision shall rest with the member. A member's supervisory system shall provide, at a minimum, for the following:
      (1) The establishment and maintenance of written procedures as required by paragraphs (b) and (c) of this Rule.
      (2) The designation, where applicable, of an appropriately registered principal(s) with authority to carry out the supervisory responsibilities of the member for each type of business in which it engages for which registration as a broker/dealer is required.
      (3) The designation as an office of supervisory jurisdiction (OSJ) of each location that meets the definition contained in paragraph (g) of this Rule. Each member shall also designate such other OSJs as it determines to be necessary in order to supervise its registered representatives, registered principals, and other associated persons in accordance with the standards set forth in this Rule, taking into consideration the following factors:
      (A) whether registered persons at the location engage in retail sales or other activities involving regular contact with public customers;
      (B) whether a substantial number of registered persons conduct securities activities at, or are otherwise supervised from, such location;
      (C) whether the location is geographically distant from another OSJ of the firm;
      (D) whether the member's registered persons are geographically dispersed; and
      (E) whether the securities activities at such location are diverse and/or complex.
      (4) The designation of one or more appropriately registered principals in each OSJ, including the main office, and one or more appropriately registered representatives or principals in each non-OSJ branch office with authority to carry out the supervisory responsibilities assigned to that office by the member.
      (5) The assignment of each registered person to an appropriately registered representative(s) and/or principal(s) who shall be responsible for supervising that person's activities.
      (6) Reasonable efforts to determine that all supervisory personnel are qualified by virtue of experience or training to carry out their assigned responsibilities.
      (7) The participation of each registered representative and registered principal, either individually or collectively, no less than annually, in an interview or meeting conducted by persons designated by the member at which compliance matters relevant to the activities of the representative(s) and principal(s) are discussed. Such interview or meeting may occur in conjunction with the discussion of other matters and may be conducted at a central or regional location or at the representative's(') or principal's(') place of business.
      (b) Written Procedures
      (1) Each member shall establish, maintain, and enforce written procedures to supervise the types of business in which it engages and to supervise the activities of registered representatives, registered principals, and other associated persons that are reasonably designed to achieve compliance with applicable securities laws and regulations, and with the applicable Rules of NASD.
      (2) Tape recording of conversations
      (A) Each member that either is notified by NASD or otherwise has actual knowledge that it meets one of the criteria in paragraph (b)(2)(H) relating to the employment history of its registered persons at a Disciplined Firm as defined in paragraph (b)(2)(J) shall establish, maintain, and enforce special written procedures for supervising the telemarketing activities of all of its registered persons.
      (B) The member must establish and implement the supervisory procedures required by this paragraph within 60 days of receiving notice from NASD or obtaining actual knowledge that it is subject to the provisions of this paragraph.
      A member that meets one of the criteria in paragraph (b)(2)(H) for the first time may reduce its staffing levels to fall below the threshold levels within 30 days after receiving notice from NASD pursuant to the provisions of paragraph (b)(2)(A) or obtaining actual knowledge that it is subject to the provisions of the paragraph, provided the firm promptly notifies the Department of Member Regulation, NASD, in writing of its becoming subject to the Rule. Once the member has reduced its staffing levels to fall below the threshold levels, it shall not rehire a person terminated to accomplish the staff reduction for a period of 180 days. On or prior to reducing staffing levels pursuant to this paragraph, a member must provide the Department of Member Regulation, NASD with written notice, identifying the terminated person(s).
      (C) The procedures required by this paragraph shall include tape-recording all telephone conversations between the member's registered persons and both existing and potential customers.
      (D) The member shall establish reasonable procedures for reviewing the tape recordings made pursuant to the requirements of this paragraph to ensure compliance with applicable securities laws and regulations and applicable rules of NASD. The procedures must be appropriate for the member's business, size, structure, and customers.
      (E) All tape recordings made pursuant to the requirements of this paragraph shall be retained for a period of not less than three years from the date the tape was created, the first two years in an easily accessible place. Each member shall catalog the retained tapes by registered person and date.
      (F) Such procedures shall be maintained for a period of three years from the date that the member establishes and implements the procedures required by the provisions of this paragraph.
      (G) By the 30th day of the month following the end of each calendar quarter, each member firm subject to the requirements of this paragraph shall submit to NASD a report on the member's supervision of the telemarketing activities of its registered persons.
      (H) The following members shall be required to adopt special supervisory procedures over the telemarketing activities of their registered persons:
      •   A firm with at least five but fewer than ten registered persons, where 40% or more of its registered persons have been associated with one or more Disciplined Firms in a registered capacity within the last three years;
      •   A firm with at least ten but fewer than twenty registered persons, where four or more of its registered persons have been associated with one or more Disciplined Firms in a registered capacity within the last three years;
      •   A firm with at least twenty registered persons, where 20% or more of its registered persons have been associated with one or more Disciplined Firms in a registered capacity within the last three years.
      For purposes of the calculations required in subparagraph (H), firms should not include registered persons who:
      (1) have been registered for an aggregate total of 90 days or less with one or more Disciplined Firms within the past three years; and

      (2) do not have a disciplinary history.

      (I) For purposes of this Rule, the term "registered person" means any person registered with NASD as a representative, principal, or assistant representative pursuant to the Rule 1020, 1030, 1040, and 1110 Series or pursuant to Municipal Securities Rulemaking Board ("MSRB") Rule G-3.
      (J) For purposes of this Rule, the term "disciplined firm" means either a member that, in connection with sales practices involving the offer, purchase, or sale of any security, has been expelled from membership or participation in any securities industry self-regulatory organization or is subject to an order of the Securities and Exchange Commission revoking its registration as a broker/dealer; or a futures commission merchant or introducing broker that has been formally charged by either the Commodity Futures Trading Commission or a registered futures association with deceptive telemarketing practices or promotional material relating to security futures, those charges have been resolved, and the futures commission merchant or introducing broker has been closed down and permanently barred from the futures industry as a result of those charges; or a futures commission merchant or introducing broker that, in connection with sales practices involving the offer, purchase, or sale of security futures is subject to an order of the Securities and Exchange Commission revoking its registration as a broker or dealer.
      (K) For purposes of this Rule, the term "disciplinary history" means a finding of a violation by a registered person in the past five years by the Securities and Exchange Commission, a self-regulatory organization, or a foreign financial regulatory authority of one or more of the provisions (or comparable foreign provision) listed in IM-1011-1 or rules or regulations thereunder.
      (L) Pursuant to the Rule 9600 Series, NASD may in exceptional circumstances, taking into consideration all relevant factors, exempt any member unconditionally or on specified terms and conditions from the requirements of this paragraph. A member seeking an exemption must file a written application pursuant to the Rule 9600 Series within 30 days after receiving notice from NASD or obtaining actual knowledge that it meets one of the criteria in paragraph (b)(2)(H). A member that meets one of the criteria in paragraph (b)(2)(H) for the first time may elect to reduce its staffing levels pursuant to the provisions of paragraph (b)(2)(B) or, alternatively, to seek an exemption pursuant to paragraph (b)(2)(L), as appropriate; such a member may not seek relief from the Rule by both reducing its staffing levels pursuant to paragraph (b)(2)(B) and requesting an exemption.
      (3) The member's written supervisory procedures shall set forth the supervisory system established by the member pursuant to paragraph (a) above, and shall include the titles, registration status and locations of the required supervisory personnel and the responsibilities of each supervisory person as these relate to the types of business engaged in, applicable securities laws and regulations, and the Rules of this Association. The member shall maintain on an internal record the names of all persons who are designated as supervisory personnel and the dates for which such designation is or was effective. Such record shall be preserved by the member for a period of not less than three years, the first two years in an easily accessible place.
      (4) A copy of a member's written supervisory procedures, or the relevant portions thereof, shall be kept and maintained in each OSJ and at each location where supervisory activities are conducted on behalf of the member. Each member shall amend its written supervisory procedures as appropriate within a reasonable time after changes occur in applicable securities laws and regulations, including the Rules of this Association, and as changes occur in its supervisory system, and each member shall be responsible for communicating amendments through its organization.
      (c) Internal Inspections
      (1) Each member shall conduct a review, at least annually, of the businesses in which it engages, which review shall be reasonably designed to assist in detecting and preventing violations of, and achieving compliance with, applicable securities laws and regulations, and with applicable NASD rules. Each member shall review the activities of each office, which shall include the periodic examination of customer accounts to detect and prevent irregularities or abuses.
      (A) Each member shall inspect at least annually every office of supervisory jurisdiction and any branch office that supervises one or more non-branch locations.
      (B) Each member shall inspect at least every three years every branch office that does not supervise one or more non-branch locations. In establishing how often to inspect each non-supervisory branch office, the firm shall consider whether the nature and complexity of the securities activities for which the location is responsible, the volume of business done, and the number of associated persons assigned to the location require the non-supervisory branch office to be inspected more frequently than every three years. If a member establishes a more frequent inspection cycle, the member must ensure that at least every three years, the inspection requirements enumerated in paragraph (c)(2) have been met. The non-supervisory branch office examination cycle, an explanation of the factors the member used in determining the frequency of the examinations in the cycle, and the manner in which a member will comply with paragraph (c)(2) if using more frequent inspections than every three years shall be set forth in the member's written supervisory and inspection procedures.
      (C) Each member shall inspect on a regular periodic schedule every non-branch location. In establishing such schedule, the firm shall consider the nature and complexity of the securities activities for which the location is responsible and the nature and extent of contact with customers. The schedule and an explanation regarding how the member determined the frequency of the examination schedule shall be set forth in the member's written supervisory and inspection procedures.
      Each member shall retain a written record of the dates upon which each review and inspection is conducted.
      (2) An office inspection and review by a member pursuant to paragraph (c)(1) must be reduced to a written report and kept on file by the member for a minimum of three years, unless the inspection is being conducted pursuant to paragraph (c)(1)(C) and the regular periodic schedule is longer than a three-year cycle, in which case the report must be kept on file at least until the next inspection report has been written. The written inspection report must also include, without limitation, the testing and verification of the member's policies and procedures, including supervisory policies and procedures in the following areas:
      (A) Safeguarding of customer funds and securities;
      (B) Maintaining books and records;
      (C) Supervision of customer accounts serviced by branch office managers;
      (D) Transmittal of funds between customers and registered representatives and between customers and third parties;
      (E) Validation of customer address changes; and
      (F) Validation of changes in customer account information.
      If a member does not engage in all of the activities enumerated above, the member must identify those activities in which it does not engage in the written inspection report and document in the report that supervisory policies and procedures for such activities must be in place before the member can engage in them.
      (3) An office inspection by a member pursuant to paragraph (c)(1) may not be conducted by the branch office manager or any person within that office who has supervisory responsibilities or by any individual who is directly or indirectly supervised by such person(s). However, if a member is so limited in size and resources that it cannot comply with this limitation (e.g., a member with only one office or a member has a business model where small or single-person offices report directly to an office of supervisory jurisdiction manager who is also considered the offices' branch office manager), the member may have a principal who has the requisite knowledge to conduct an office inspection perform the inspections. The member, however, must document in the office inspection reports the factors it has relied upon in determining that it is so limited in size and resources that it has no other alternative than to comply in this manner.
      A member must have in place procedures that are reasonably designed to provide heightened office inspections if the person conducting the inspection reports to the branch office manager's supervisor or works in an office supervised by the branch manager's supervisor and the branch office manager generates 20% or more of the revenue of the business units supervised by the branch office manager's supervisor. For the purposes of this subsection only, the term "heightened inspection" shall mean those inspection procedures that are designed to avoid conflicts of interest that serve to undermine complete and effective inspection because of the economic, commercial, or financial interests that the branch manager's supervisor holds in the associated persons and businesses being inspected. In addition, for the purpose of this section only, when calculating the 20% threshold, all of the revenue generated by or credited to the branch office or branch office manager shall be attributed as revenue generated by the business units supervised by the branch office manager's supervisor irrespective of a member's internal allocation of such revenue. A member must calculate the 20% threshold on a rolling, twelve-month basis.
      (d) Review of Transactions and Correspondence

      (1) Supervision of Registered Representatives
      Each member shall establish procedures for the review and endorsement by a registered principal in writing, on an internal record, of all transactions and for the review by a registered principal of incoming and outgoing written and electronic correspondence of its registered representatives with the public relating to the investment banking or securities business of such member. Such procedures should be in writing and be designed to reasonably supervise each registered representative. Evidence that these supervisory procedures have been implemented and carried out must be maintained and made available to the Association upon request.
      (2) Review of Correspondence
      Each member shall develop written procedures that are appropriate to its business, size, structure, and customers for the review of incoming and outgoing written (i.e., non-electronic) and electronic correspondence with the public relating to its investment banking or securities business, including procedures to review incoming, written correspondence directed to registered representatives and related to the member's investment banking or securities business to properly identify and handle customer complaints and to ensure that customer funds and securities are handled in accordance with firm procedures. Where such procedures for the review of correspondence do not require review of all correspondence prior to use or distribution, they must include provision for the education and training of associated persons as to the firm's procedures governing correspondence; documentation of such education and training; and surveillance and follow-up to ensure that such procedures are implemented and adhered to.
      (3) Retention of Correspondence
      Each member shall retain correspondence of registered representatives relating to its investment banking or securities business in accordance with Rule 3110. The names of the persons who prepared outgoing correspondence and who reviewed the correspondence shall be ascertainable from the retained records and the retained records shall be readily available to the Association, upon request.
      (e) Qualifications Investigated
      Each member shall have the responsibility and duty to ascertain by investigation the good character, business repute, qualifications, and experience of any person prior to making such a certification in the application of such person for registration with this Association. Where an applicant for registration has previously been registered with the Association, the member shall review a copy of the Uniform Termination Notice of Securities Industry Registration (Form U-5) filed with the Association by such person's most recent previous NASD member employer, together with any amendments thereto that may have been filed pursuant to Article V, Section 3 of the Association's By-Laws. The member shall review the Form U-5 as required by this Rule no later than sixty (60) days following the filing of the application for registration or demonstrate to the Association that it has made reasonable efforts to comply with the requirement. In conducting its review of the Form U-5 and any amendments thereto, a member shall take such action as may be deemed appropriate.
      Where an applicant for registration has been previously registered with a registered futures association ("RFA") member that is or has been registered as a broker/dealer pursuant to Section 15(b)(11) of the Act ("notice-registered broker/dealer") with the SEC to trade security futures, the member shall review a copy of the Notice of Termination of Associated Person (Form 8-T) filed with the RFA by such person's most recent previous RFA member employer, together with any amendments thereto. The member shall review the Form 8-T as required by this Rule no later than sixty (60) days following the filing of the application for registration or demonstrate to the Association that it has made reasonable efforts to comply with the requirement. In conducting its review of a Form 8-T and any amendments, a member shall take such action as may be deemed appropriate.
      (f) Applicant's Responsibility
      Any applicant for registration who receives a request for a copy of his or her Form U-5 from a member pursuant to this Rule shall provide such copy to the member within two (2) business days of the request if the Form U-5 has been provided to such person by his or her former employer. If a former employer has failed to provide the Form U-5 to the applicant for registration, such person shall promptly request the Form U-5, and shall provide it to the requesting member within two (2) business days of receipt thereof. The applicant shall promptly provide any subsequent amendments to a Form U-5 he or she receives to the requesting member.
      (g) Definitions

      (1) "Office of Supervisory Jurisdiction" means any office of a member at which any one or more of the following functions take place:

      (A) order execution and/or market making;

      (B) structuring of public offerings or private placements;

      (C) maintaining custody of customers' funds and/or securities;

      (D) final acceptance (approval) of new accounts on behalf of the member;

      (E) review and endorsement of customer orders, pursuant to paragraph (d) above;

      (F) final approval of retail communications for use by persons associated with the member, pursuant to FINRA Rule 2210(b)(1), except for an office that solely conducts final approval of research reports; or

      (G) responsibility for supervising the activities of persons associated with the member at one or more other branch offices of the member.

      (2)(A) A "branch office" is any location where one or more associated persons of a member regularly conducts the business of effecting any transactions in, or inducing or attempting to induce the purchase or sale of any security, or is held out as such, excluding:

      (i) Any location that is established solely for customer service and/or back office type functions where no sales activities are conducted and that is not held out to the public as a branch office;

      (ii) Any location that is the associated person's primary residence; provided that

      a. Only one associated person, or multiple associated persons who reside at that location and are members of the same immediate family, conduct business at the location;
      b. The location is not held out to the public as an office and the associated person does not meet with customers at the location;
      c. Neither customer funds nor securities are handled at that location;
      d. The associated person is assigned to a designated branch office, and such designated branch office is reflected on all business cards, stationery, retail communications and other communications to the public by such associated person;
      e. The associated person's correspondence and communications with the public are subject to the firm's supervision in accordance with Rule 3010;
      f. Electronic communications (e.g., e-mail) are made through the member's electronic system;
      g. All orders are entered through the designated branch office or an electronic system established by the member that is reviewable at the branch office;
      h. Written supervisory procedures pertaining to supervision of sales activities conducted at the residence are maintained by the member; and
      i. A list of the residence locations is maintained by the member;
      (iii) Any location, other than a primary residence, that is used for securities business for less than 30 business days in any one calendar year, provided the member complies with the provisions of paragraph (A)(2)(ii)a. through h. above;

      (iv) Any office of convenience, where associated persons occasionally and exclusively by appointment meet with customers, which is not held out to the public as an office; *
      (v) Any location that is used primarily to engage in non-securities activities and from which the associated person(s) effects no more than 25 securities transactions in any one calendar year; provided that any retail communication identifying such location also sets forth the address and telephone number of the location from which the associated person(s) conducting business at the non-branch locations are directly supervised;
      (vi) The Floor of a registered national securities exchange where a member conducts a direct access business with public customers; or
      (vii) A temporary location established in response to the implementation of a business continuity plan.
      (B) Notwithstanding the exclusions in paragraph (2)(A), any location that is responsible for supervising the activities of persons associated with the member at one or more non-branch locations of the member is considered to be a branch office.
      (C) The term "business day" as used in Rule 3010(g)(2)(A) shall not include any partial business day provided that the associated person spends at least four hours on such business day at his or her designated branch office during the hours that such office is normally open for business.

      * Where such office of convenience is located on bank premises, signage necessary to comply with applicable federal and state laws, rules and regulations and applicable rules and regulations of the NYSE, other self-regulatory organizations, and securities and banking regulators may be displayed and shall not be deemed “holding out” for purposes of this section.

      Amended by SR-FINRA-2013-025 eff. Dec. 1, 2014.
      Amended by SR-FINRA-2013-001 eff. Feb. 4, 2013.
      Amended by SR-FINRA-2007-008 eff. Dec. 19, 2007.
      Amended by SR-NASD-2006-037 eff. July 3, 2006.
      Amended by SR-NASD-2005-033 eff. Aug. 1, 2005.
      Amended by SR-NASD-2005-004 eff. July 25, 2005
      Amended by SR-NASD-2002-162 and SR-NASD-2004-116 eff. Jan. 31, 2005.
      Amended by SR-NASD-2002-40 eff. Oct. 15, 2002.
      Amended by SR-NASD-2002-04 eff. Oct. 14, 2002.
      Amended by SR-NASD-99-28 eff. Aug. 16, 1999.
      Amended by SR-NASD-98-52 eff. March 15, 1999.
      Amended by SR-NASD-98-86 eff. Nov. 19, 1998.
      Amended by SR-NASD-97-69 eff. August 17, 1998.
      Amended by SR-NASD-98-45 postponed eff. date of provision in Notice to Members 98-11.
      Amended by SR-NASD-98-31 eff. Apr. 7, 1998, postponed eff. date of provision in Notice to Members.
      Amended by SR-NASD-98-10 postponed eff. date.
      Amended by SR-NASD-97-24 eff. Feb. 15, 1998.
      Amended by SR-NASD-97-41 eff. Sept. 4, 1997.
      Amended eff. June 12, 1989; Apr. 30, 1992.

      Selected Notices to Members: 86-65, 88-84, 89-34, 89-57, 91-48, 92-18, 96-33, 96-59, 96-82, 98-11, 98-18, 98-38, 98-52, 98-96, 99-03, 99-45, 04-71, 05-67, 06-13, 07-64, 14-10.

      • IM-3010-1. Standards for Reasonable Review

        This rule is no longer applicable. NASD IM-3010 has been superseded by FINRA Rule 3110. Please consult the appropriate FINRA Rule.

        In fulfilling its obligations pursuant to Rule 3010(c), each member must conduct a review, at least annually, of the businesses in which it engages, which review must be reasonably designed to assist in detecting and preventing violations of and achieving compliance with applicable securities laws and regulations and with NASD Rules. Each member shall establish and maintain supervisory procedures that must take into consideration, among other things, the firm's size, organizational structure, scope of business activities, number and location of offices, the nature and complexity of products and services offered, the volume of business done, the number of associated persons assigned to a location, whether a location has a principal on-site, whether the office is a non-branch location, the disciplinary history of registered representatives or associated persons, etc. The procedures established and the reviews conducted must provide that the quality of supervision at remote offices is sufficient to assure compliance with applicable securities laws and regulations and with NASD Rules. With respect to a non-branch location where a registered representative engages in securities activities, a member must be especially diligent in establishing procedures and conducting reasonable reviews. Based on the factors outlined above, members may need to impose reasonably designed supervisory procedures for certain locations and/or may need to provide for more frequent reviews of certain locations.
        Amended by SR-NASD-2006-037 eff. July 3, 2006
        Adopted by SR-NASD-2003-104 eff. May 1, 2006.

        Selected Notice: 05-67.

    • 3011. Anti-Money Laundering Compliance Program

      This rule is no longer applicable. NASD Rule 3011 has been superseded by FINRA Rule 3310. Please consult the appropriate FINRA Rule.

      On or before April 24, 2002, each member shall develop and implement a written anti-money laundering program reasonably designed to achieve and monitor the member's compliance with the requirements of the Bank Secrecy Act (31 U.S.C. 5311, et seq.), and the implementing regulations promulgated thereunder by the Department of the Treasury. Each member's anti-money laundering program must be approved, in writing, by a member of senior management. The anti-money laundering programs required by this Rule shall, at a minimum,
      (a) Establish and implement policies and procedures that can be reasonably expected to detect and cause the reporting of transactions required under 31 U.S.C. 5318(g) and the implementing regulations thereunder;

      (b) Establish and implement policies, procedures, and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act and the implementing regulations thereunder;

      (c) Provide for annual (on a calendar-year basis) independent testing for compliance to be conducted by member personnel or by a qualified outside party, unless the member does not execute transactions for customers or otherwise hold customer accounts or act as an introducing broker with respect to customer accounts (e.g., engages solely in proprietary trading or conducts business only with other broker-dealers), in which case such "independent testing" is required every two years (on a calendar-year basis);

      (d) Designate and identify to NASD (by name, title, mailing address, e-mail address, telephone number, and facsimile number) an individual or individuals responsible for implementing and monitoring the day-to-day operations and internal controls of the program (such individual or individuals must be an associated person of the member) and provide prompt notification to NASD regarding any change in such designation(s); and

      (e) Provide ongoing training for appropriate personnel.

      Amended by SR-NASD-2005-066 eff. Mar. 6, 2006.
      Amended by SR-NASD-2002-146 eff. Oct. 22, 2002.
      Adopted by SR-NASD-2002-24 eff. April 24, 2002.

      Selected Notices: 02-21, 02-50, 02-78, 02-80, 03-34, 06-07.

      • IM-3011-1. Independent Testing Requirements

        This rule is no longer applicable. NASD IM-3011-1 has been superseded by FINRA Rule 3310. Please consult the appropriate FINRA Rule.

        (a) All members should undertake more frequent testing than required if circumstances warrant.
        (b) Independent testing, pursuant to Rule 3011(c), must be conducted by a designated person with a working knowledge of applicable requirements under the Bank Secrecy Act and its implementing regulations.
        (c) Independent testing may not be conducted by:
        (1) a person who performs the functions being tested,
        (2) the designated anti-money laundering compliance person, or
        (3) a person who reports to a person described in either (1) or (2) above, except that a member may allow the test to be conducted by a person who reports to a person described in (1) or (2) above if all four of the following conditions are met:
        (A) the member has no other qualified internal personnel to conduct the test;
        (B) the member establishes written policies and procedures to address conflicts that may arise from allowing the test to be conducted by a person who reports to the person(s) whose activities he or she is testing (e.g., anti-retaliation procedures);
        (C) to the extent possible, the person conducting the test reports the results of the test to a person at the member who is senior to the persons described in (1) or (2) above; and
        (D) the member must document its rationale, which must be reasonable, for determining that it has no other alternative than to comply in the manner set forth in the exception to this paragraph (3). In addition, if the person does not report the results consistent with (C) above, the member must document a reasonable explanation for not doing so.
        Adopted by SR-NASD-2005-066 eff. Mar. 6, 2006.

        Selected Notice: 06-07.

      • IM-3011-2. Review of Anti-Money Laundering Compliance Person Information

        This rule is no longer applicable. NASD IM-3011-2 has been superseded by FINRA Rule 3310. Please consult the appropriate FINRA Rule.

        Each member must identify, review, and, if necessary, update the information regarding its anti-money laundering compliance person designated pursuant to Rule 3011(d) in the manner prescribed by Rule 1160.
        Amended by SR-NASD-2007-034 eff. Dec. 31, 2007.
        Adopted by SR-NASD-2005-066 eff. Mar. 6, 2006.

        Selected Notices: 06-07, 07-42.

    • 3012. Supervisory Control System

      This rule is no longer applicable. NASD Rule 3012 has been superseded by FINRA Rule 3120. Please consult the appropriate FINRA Rule.

      (a) General Requirements
      (1) Each member shall designate and specifically identify to NASD one or more principals who shall establish, maintain, and enforce a system of supervisory control policies and procedures that (A) test and verify that the member's supervisory procedures are reasonably designed with respect to the activities of the member and its registered representatives and associated persons, to achieve compliance with applicable securities laws and regulations, and with applicable NASD rules and (B) create additional or amend supervisory procedures where the need is identified by such testing and verification. The designated principal or principals must submit to the member's senior management no less than annually, a report1 detailing each member's system of supervisory controls, the summary of the test results and significant identified exceptions, and any additional or amended supervisory procedures created in response to the test results.
      (2) The establishment, maintenance, and enforcement of written supervisory control policies and procedures pursuant to paragraph (a) shall include:
      (A) procedures that are reasonably designed to review and supervise the customer account activity conducted by the member's branch office managers, sales managers, regional or district sales managers, or any person performing a similar supervisory function.
      (i) General Supervisory Requirement. A person who is either senior to, or otherwise independent of, the producing manager must perform such supervisory reviews. For purposes of this Rule, an "otherwise independent" person: may not report either directly or indirectly to the producing manager under review; must be situated in an office other than the office of the producing manager; must not otherwise have supervisory responsibility over the activity being reviewed (including not being directly compensated based in whole or in part on the revenues accruing for those activities); and must alternate such review responsibility with another qualified person every two years or less.
      (ii) "Limited Size and Resources" Exception. If a member is so limited in size and resources that there is no qualified person senior to, or otherwise independent of, the producing manager to conduct the reviews pursuant to (i) above (e.g., a member has only one office or an insufficient number of qualified personnel who can conduct reviews on a two-year rotation), the reviews may be conducted by a principal who is sufficiently knowledgeable of the member's supervisory control procedures, provided that the reviews are in compliance with (i) to the extent practicable.
      (iii) Notification Requirement. If a member determines that it must rely on the "limited size and resources" exception set forth in (ii) above to conduct any of its producing managers' supervisory reviews, the member must notify NASD through an electronic process (or any other process prescribed by NASD) within 30 days of the date on which the member first relies on the exception,2 and annually thereafter.3 If a member subsequently determines that it no longer needs to rely on the exception to conduct any of its producing managers' supervisory reviews, the member must, within 30 days of ceasing to rely on the exception, notify NASD by using the electronic process or any other process prescribed by NASD.
      (iv) Documentation Requirement. A member relying on (ii) above must document in its supervisory control procedures the factors used to determine that complete compliance with all of the provisions of (i) is not possible and that the required supervisory systems and procedures in place with respect to any producing manager comply with the provisions of (i) above to the extent practicable.
      (B) procedures that are reasonably designed to review and monitor the following activities:
      (i) all transmittals of funds (e.g., wires or checks, etc.) or securities from customers to third party accounts (i.e., a transmittal that would result in a change of beneficial ownership); from customer accounts to outside entities (e.g., banks, investment companies, etc.); from customer accounts to locations other than a customer's primary residence (e.g., post office box, "in care of" accounts, alternate address, etc.); and between customers and registered representatives, including the hand-delivery of checks;
      (ii) customer changes of address and the validation of such changes of address; and
      (iii) customer changes of investment objectives and the validation of such changes of investment objectives.
      The policies and procedures established pursuant to paragraph (a)(2)(B) must include a means or method of customer confirmation, notification, or follow-up that can be documented. If a member does not engage in all of the activities enumerated above, the member must identify those activities in which it does not engage in its written supervisory control policies and procedures and document in those policies and procedures that additional supervisory policies and procedures for such activities must be in place before the member can engage in them; and
      (C) procedures that are reasonably designed to provide heightened supervision over the activities of each producing manager who is responsible for generating 20% or more of the revenue of the business units supervised by the producing manager's supervisor. For the purposes of this subsection only, the term "heightened supervision" shall mean those supervisory procedures that evidence supervisory activities that are designed to avoid conflicts of interest that serve to undermine complete and effective supervision because of the economic, commercial, or financial interests that the supervisor holds in the associated persons and businesses being supervised. In addition, for the purpose of this section only, when calculating the 20% threshold, all of the revenue generated by or credited to the producing manager or the producing manager's office shall be attributed as revenue generated by the business units supervised by the producing manager's supervisor irrespective of a member's internal allocation of such revenue. A member must calculate the 20% threshold on a rolling, twelve-month basis.
      (b) Dual Member
      Any member in compliance with substantially similar requirements of the New York Stock Exchange, Inc. shall be deemed to be in compliance with the provisions of this Rule.

      1 Rule 3012 became effective on January 31, 2005, which would require a member's first Rule 3012 report to be submitted by no later than January 31, 2006 and at least annually thereafter; however, a member may elect to submit its first Rule 3012 report by no later than April 1, 2006. Importantly, a member's first Rule 3012 report must encompass the period from January 31, 2005 (the effective date of Rule 3012) up to the submission date (or a reasonable period of time immediately preceding the submission date). Each ensuing Rule 3012 report may not be for a period greater than 12 months from the date of the preceding Rule 3012 report (but may be for a shorter time period if a member elects to prepare a report more frequently than annually).

      2 The "limited size and resources" exception became effective on January 31, 2005, prior to the effective date of the notification requirement set forth in this subparagraph (iii). In the event a member is already relying on the "limited size and resources" exception (or determines to rely on the exception prior to the effective date of the notification requirement), the member must notify NASD of such reliance within 30 days of the effective date of the notification requirement.

      3 Members must ensure that each ensuing annual notification is effected no later than on the anniversary date of the previous year's notification.

      Amended by SR-NASD-2005-084 eff. Feb. 14, 2006.
      Amended by SR-NASD-2005-121 eff. Oct. 14, 2005.
      Amended by SR-NASD-2004-116 eff. Jan. 31, 2005.
      Adopted by SR-NASD-2002-162 eff. Jan. 31, 2005.

      Selected Notices: 04-71, 05-29, 06-04.

    • 3013. Annual Certification of Compliance and Supervisory Processes

      This rule is no longer applicable. NASD Rule 3013 has been superseded by FINRA Rule 3130. Please consult the appropriate FINRA Rule.

      (a) Designation of Chief Compliance Officer(s)
      Each member shall designate and specifically identify to NASD on Schedule A of Form BD one or more principals to serve as a chief compliance officer.
      (b) Annual Certification
      Each member shall have its chief executive officer(s) (or equivalent officer(s)) certify annually,1 as set forth in IM-3013, 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, and that the chief executive officer(s) has conducted one or more meetings with the chief compliance officer(s) in the preceding 12 months to discuss such processes.

      1 Rule 3013 and IM-3013 became effective on December 1, 2004, which would require a member's first certification to be executed by December 1, 2005 and annually thereafter; however, a member may elect to execute its first certification by no later than April 1, 2006 and annually thereafter.

      Amended by SR-NASD-2007-049 eff. July 16, 2007.
      Amended by SR-NASD-2005-121 eff. Oct. 14, 2005.
      Adopted by SR-NASD-2003-176 eff. Dec. 1, 2004.

      Selected Notices: 04-79, 07-32.

      • IM-3013. Annual Compliance and Supervision Certification

        This rule is no longer applicable. NASD IM-3013 has been superseded by FINRA Rule 3130. Please consult the appropriate FINRA Rule.

        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(s) (or equivalent officer(s)) 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. A member may choose to designate a second co-chief executive officer, provided that each of the two chief executive officers must individually discharge all of the obligations set forth in Rule 3013 and this Interpretive Material, and each shall be held responsible for the representations in the certification as if they were the member's only chief executive officer.2 The certification shall state the following:
        * * * * * * * * * *

        Annual Compliance and Supervision Certification
        The undersigned is/are the chief executive officer(s) (or equivalent officer(s)) of [name of member corporation/partnership/sole proprietorship] (the "Member"). As required by NASD Rule 3013(b), the undersigned make(s) the following certification:
        1. The Member has in place processes to:
        (a) establish, maintain and review policies and procedures reasonably designed to achieve compliance with applicable NASD rules, MSRB rules and federal securities laws and regulations;
        (b) modify such policies and procedures as business, regulatory and legislative changes and events dictate; and
        (c) test the effectiveness of such policies and procedures on a periodic basis, the timing and extent of which is reasonably designed to ensure continuing compliance with NASD rules, MSRB rules and federal securities laws and regulations.
        2. The undersigned chief executive officer(s) (or equivalent officer(s)) has/have conducted one or more meetings with the chief compliance officer(s) in the preceding 12 months, the subject of which satisfy the obligations set forth in IM-3013.
        3. The Member's processes, with respect to paragraph 1 above, are evidenced in a report reviewed by the chief executive officer(s) (or equivalent officer(s)), chief compliance officer(s), and such other officers as the Member may deem necessary to make this certification. The final report has been submitted to the Member's board of directors and audit committee or will be submitted to the Member's board of directors and audit committee (or equivalent bodies) at the earlier of their next scheduled meetings or within 45 days of the date of execution of this certification.
        4. The undersigned chief executive officer(s) (or equivalent officer(s)) has/have consulted with the chief compliance officer(s) and other officers as applicable (referenced in paragraph 3 above) and such other employees, outside consultants, lawyers and accountants, to the extent deemed appropriate, in order to attest to the statements made in this certification.3
        * * * * * * * * * *

        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(s) (or equivalent officer(s)) 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(s) (or equivalent officer(s)) and the chief compliance officer(s) 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(s) (or equivalent officer(s)) and the chief compliance officer(s), as well as the pertinent requirements of paragraphs 3 and 4 of the certification, are intended to indicate the unique and integral role of a 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(s) can execute the certification. A chief compliance officer is a primary advisor to the member on its overall compliance scheme and the particularized rules, policies and procedures that the member adopts. This is because a 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.
        NASD recognizes that such expertise may reside in more than one individual in firms with distinct business segments. Therefore, a member may choose to designate more than one chief compliance officer, provided that (1) each designated chief compliance officer is a principal; (2) the member precisely defines and documents the areas of primary compliance responsibility assigned to each designated chief compliance officer and makes specific provisions for which of the designated chief compliance officers has primary compliance responsibility in areas that can reasonably be expected to overlap; (3) each designated chief compliance officer satisfies all of the requirements of Rule 3013 and this Interpretive Material with respect to his or her defined area of primary compliance responsibility as if that individual was the member's only chief compliance officer and (4) collectively, the designated chief compliance officers have the responsibilities and expertise that enable them to consult with the chief executive officer(s) on the totality of the subject matters required to be addressed in the certification by the chief executive officer(s) under Rule 3013. Thus, for example, a member that chooses to have multiple chief compliance officers is required to conduct one or more meetings annually between the chief executive officer(s) (or equivalent officer(s)) and each designated chief compliance officer, individually or collectively. At each such meeting, the chief executive officer (or equivalent officer) would be required to discuss with each chief compliance officer the required topics, but only as it relates to the particular chief compliance officer's defined and documented area of primary compliance responsibility.
        It is the expertise in the process of compliance that makes a chief compliance officer an indispensable party to enable the chief executive officer(s) to reach the conclusions stated in the certification. Consequently, any certification made by a chief executive officer (or equivalent officer) under circumstances where a 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(s) regarding the member's comprehensive compliance program.
        The chief compliance officer(s) and other compliance officers that report to the chief compliance officer(s) (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 a 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(s) and the other officers referenced in paragraph 3 of the certification who consult with the chief executive officer(s) (or equivalent officer(s)) 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 one or more chief compliance officers does not preclude such persons from holding any other position within the member, including the position of chief executive officer, provided that such persons 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.4
        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(s) (or equivalent officer(s)), chief compliance officer(s) 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 Designation of a co-chief executive officer pursuant to this Interpretive Material applies only for the purposes of Rule 3013 and IM-3013 and has no effect on any other regulatory obligation imposed on a member or its chief executive officer.

        3 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(s) (or equivalent officer(s)) and the chief compliance officer(s) 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.

        4 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.

        Amended by SR-NASD-2007-049 eff. July 16, 2007.
        Amended by SR-NASD-2006-036 eff. Mar. 17, 2006.
        Adopted by SR-NASD-2003-176 eff. Dec. 1, 2004.

        Selected Notices: 04-79, 06-11, 07-32.

    • 3020. Fidelity Bonds

      This rule is no longer applicable. NASD Rule 3020 has been superseded by FINRA Rule 4360. Please consult the appropriate FINRA Rule.

      (a) Coverage Required
      Each member required to join the Securities Investor Protection Corporation who has employees and who is not a member in good standing of the American Stock Exchange, Inc.; the Boston Stock Exchange; the Midwest Stock Exchange, Inc.; the New York Stock Exchange, Inc.; the Pacific Stock Exchange, Inc.; the Philadelphia Stock Exchange, Inc.; or the Chicago Board Options Exchange shall:
      (1) Maintain a blanket fidelity bond, in a form substantially similar to the standard form of Brokers Blanket Bond promulgated by the Surety Association of America, covering officers and employees which provides against loss and has agreements covering at least the following:

      (A) Fidelity

      (B) On Premises

      (C) In Transit

      (D) Misplacement

      (E) Forgery and Alteration (including check forgery)

      (F) Securities Loss (including securities forgery)

      (G) Fraudulent Trading

      (H) Cancellation Rider providing that the insurance carrier will use its best efforts to promptly notify the National Association of Securities Dealers, Inc. in the event the bond is cancelled, terminated or substantially modified.

      (2) Maintain minimum coverage for all insuring agreements required in this paragraph (a) of not less than $25,000;

      (3) Maintain required minimum coverage for Fidelity, On Premises, In Transit, Misplacement and Forgery and Alteration insuring agreements of not less than 120% of its required net capital under SEC Rule 15c3-1 up to $600,000. Minimum coverage for required net capital in excess of $600,000 shall be determined by reference to the following table:

      Net Capital Requirement under SEC Rule 15c3-1

      Minimum Coverage

      $600,000 – 1,000,000

      750,000

      1,000,001 – 2,000,000

      1,000,000

      2,000,001 – 3,000,000

      1,500,000

      3,000,001 – 4,000,000

      2,000,000

      4,000,001 – 6,000,000

      3,000,000

      6,000,001 – 12,000,000

      4,000,000

      12,000,001 – and above

      5,000,000


      (4) Maintain Fraudulent Trading coverage of not less than $25,000 or 50% of the coverage required in paragraph (a)(3), whichever is greater, up to $500,000;

      (5) Maintain Securities Forgery coverage of not less than $25,000 or 25% of the coverage required in paragraph (a)(3), whichever is greater, up to $250,000.

      (b) Deductible Provision

      (1) A deductible provision may be included in the bond of up to $5,000 or 10% of the minimum insurance requirement established hereby, whichever is greater.

      (2) If a member desires to maintain coverage in excess of the minimum insurance requirement then a deductible provision may be included in the bond of up to $5,000 or 10% of the amount of blanket coverage provided in the bond purchased, whichever is greater. The excess of any such deductible amount over the maximum permissible deductible amount described in subparagraph (1) above must be deducted from the member's net worth in the calculation of the member's net capital for purposes of SEC Rule 15c3-1. Where the member is a subsidiary of another Association member the excess may be deducted from the parent's rather than the subsidiary's net worth, but only if the parent guarantees the subsidiary's net capital in writing.

      (c) Annual Review of Coverage

      (1) Each member, other than members covered by subparagraph (2), shall annually review, as of the anniversary date of the issuance of the bond, the adequacy thereof by reference to the highest required net capital during the immediately preceding twelve-month period, which amount shall be used to determine minimum required coverage for the succeeding twelve-month period pursuant to subparagraphs (a)(2), (3), (4) and (5).

      (2) Each member which has been in business for one year shall, as of the first anniversary date of the issuance of its original bond, review the adequacy thereof by reference to an amount calculated by dividing the highest aggregate indebtedness it experienced during its first year by 15. Such amount shall be used in lieu of required net capital under SEC Rule 15c3-1 in determining the minimum required coverage to be carried in the member's second year pursuant to subparagraphs (a)(2), (3), (4) and (5). Notwithstanding the above, no such member shall carry less minimum bonding coverage in its second year than it carried in its first year.

      (3) Each member shall make required adjustments not more than sixty days after the anniversary date of the issuance of such bond.

      (4) Any member subject to the requirements of this paragraph (c) may apply for an exemption from the requirements of this paragraph (c). The application shall be made pursuant to Rule 9610 of the Code of Procedure. The exemption may be granted upon a showing of good cause, including a substantial change in the circumstances or nature of the member's business that results in a lower net capital requirement. The NASD may issue an exemption subject to any condition or limitation upon a member's bonding coverage that is deemed necessary to protect the public and serve the purposes of this Rule.

      (d) Notification of Change
      Each member shall report the cancellation, termination or substantial modification of the bond to the Association within ten business days of such occurrence.
      (e) Definitions
      For purposes of fidelity bonding the term "employee" or "employees" shall include any person or persons associated with a member firm (as defined in Article I, paragraph (q) of the By-Laws) except:
      (1) Sole Proprietors

      (2) Sole Stockholders

      (3) Directors or Trustees of member firms who are not performing acts coming within the scope of the usual duties of an officer or employee.

      Amended by SR-NASD-98-33 eff. Sept. 15, 1998.
      Deleted and replaced with former Appendix C by SR-NASD-93-48 eff. Mar. 8, 1994.
      Amended by SR-NASD-82-14 eff. Nov. 19, 1982.
      Amended eff. July 11, 1979.
      Added eff. Mar. 15, 1974.

      Selected Notice: 73-02, 73-75, 74-15, 75-26, 76-19, 78-02, 78-15, 79-25, 79-26, 82-40, 82-58, 83-56.

    • 3030. Outside Business Activities of an Associated Person

      This rule is no longer applicable. NASD Rule 3030 has been superseded by FINRA Rule 3270. Please consult the appropriate FINRA Rule.

      No person associated with a member in any registered capacity shall be employed by, or accept compensation from, any other person as a result of any business activity, other than a passive investment, outside the scope of his relationship with his employer firm, unless he has provided prompt written notice to the member. Such notice shall be in the form required by the member. Activities subject to the requirements of Rule 3040 shall be exempted from this requirement.
      Adopted by SR-NASD-88-34 eff. Oct. 13, 1988.

      Selected Notices: 88-5, 88-45, 88-86, 89-39, 90-37, 94-44, 94-93, 96-33, 01-79.

    • 3040. Private Securities Transactions of an Associated Person

      This rule is no longer applicable. NASD Rule 3040 has been superseded by FINRA Rule 3280. Please consult the appropriate FINRA Rule.

      (a) Applicability
      No person associated with a member shall participate in any manner in a private securities transaction except in accordance with the requirements of this Rule.
      (b) Written Notice
      Prior to participating in any private securities transaction, an associated person shall provide written notice to the member with which he is associated describing in detail the proposed transaction and the person's proposed role therein and stating whether he has received or may receive selling compensation in connection with the transaction; provided however that, in the case of a series of related transactions in which no selling compensation has been or will be received, an associated person may provide a single written notice.
      (c) Transactions for Compensation

      (1) In the case of a transaction in which an associated person has received or may receive selling compensation, a member which has received notice pursuant to paragraph (b) shall advise the associated person in writing stating whether the member:

      (A) approves the person's participation in the proposed transaction; or

      (B) disapproves the person's participation in the proposed transaction.

      (2) If the member approves a person's participation in a transaction pursuant to paragraph (c)(1), the transaction shall be recorded on the books and records of the member and the member shall supervise the person's participation in the transaction as if the transaction were executed on behalf of the member.

      (3) If the member disapproves a person's participation pursuant to paragraph (c)(1), the person shall not participate in the transaction in any manner, directly or indirectly.

      (d) Transactions Not for Compensation
      In the case of a transaction or a series of related transactions in which an associated person has not and will not receive any selling compensation, a member which has received notice pursuant to paragraph (b) shall provide the associated person prompt written acknowledgment of said notice and may, at its discretion, require the person to adhere to specified conditions in connection with his participation in the transaction.
      (e) Definitions
      For purposes of this Rule, the following terms shall have the stated meanings:
      (1) "Private securities transaction" shall mean any securities transaction outside the regular course or scope of an associated person's employment with a member, including, though not limited to, new offerings of securities which are not registered with the Commission, provided however that transactions subject to the notification requirements of Rule 3050, transactions among immediate family members (as defined in Rule 2790), for which no associated person receives any selling compensation, and personal transactions in investment company and variable annuity securities, shall be excluded.

      (2) "Selling compensation" shall mean any compensation paid directly or indirectly from whatever source in connection with or as a result of the purchase or sale of a security, including, though not limited to, commissions; finder's fees; securities or rights to acquire securities; rights of participation in profits, tax benefits, or dissolution proceeds, as a general partner or otherwise; or expense reimbursements.
      Amended by SR-NASD-99-60 eff. March 23, 2004.
      Adopted by SR-NASD-85-28 eff. Nov. 12, 1985.

      Selected Notices: 75-34, 80-62, 82-39, 85-21, 85-54, 85-84, 91-32, 94-44, 96-33, 01-79, 03-79.

    • 3050. Transactions for or by Associated Persons

      This rule is no longer applicable. NASD Rule 3050 has been superseded by FINRA Rule 3210. Please consult the appropriate FINRA Rule.

      (a) Determine Adverse Interest
      A member ("executing member") who knowingly executes a transaction for the purchase or sale of a security for the account of a person associated with another member ("employer member"), or for any account over which such associated person has discretionary authority, shall use reasonable diligence to determine that the execution of such transaction will not adversely affect the interests of the employer member.
      (b) Obligations of Executing Member
      Where an executing member knows that a person associated with an employer member has or will have a financial interest in, or discretionary authority over, any existing or proposed account carried by the executing member, the executing member shall:
      (1) notify the employer member in writing, prior to the execution of a transaction for such account, of the executing member's intention to open or maintain such an account;

      (2) upon written request by the employer member, transmit duplicate copies of confirmations, statements, or other information with respect to such account; and

      (3) notify the person associated with the employer member of the executing member's intention to provide the notice and information required by subparagraphs (1) and (2).

      (c) Obligations of Associated Persons Concerning an Account with a Member
      A person associated with a member, prior to opening an account or placing an initial order for the purchase or sale of securities with another member, shall notify both the employer member and the executing member, in writing, of his or her association with the other member; provided, however, that if the account was established prior to the association of the person with the employer member, the associated person shall notify both members in writing promptly after becoming so associated.
      (d) Obligations of Associated Persons Concerning an Account with a Notice-Registered Broker/Dealer, Investment Adviser, Bank, or Other Financial Institution
      A person associated with a member who opens a securities account or places an order for the purchase or sale of securities with a broker/dealer that is registered pursuant to Section 15(b)(11) of the Act ("notice-registered broker/dealer"), a domestic or foreign investment adviser, bank, or other financial institution, except a member, shall:
      (1) notify his or her employer member in writing, prior to the execution of any initial transactions, of the intention to open the account or place the order; and

      (2) upon written request by the employer member, request in writing and assure that the notice-registered broker/dealer, investment adviser, bank, or other financial institution provides the employer member with duplicate copies of confirmations, statements, or other information concerning the account or order;
      provided, however, that if an account subject to this paragraph (d) was established prior to a person's association with a member, the person shall comply with this paragraph promptly after becoming so associated.
      (e) Paragraphs (c) and (d) shall apply only to an account or order in which an associated person has a financial interest or with respect to which such person has discretionary authority.

      (f) Exemption for Transactions in Investment Company Shares and Unit Investment Trusts
      The provisions of this Rule shall not be applicable to transactions in unit investment trusts and variable contracts or redeemable securities of companies registered under the Investment Company Act of 1940, as amended, or to accounts which are limited to transactions in such securities.
      Amended by SR-NASD-2002-40 eff. Oct. 15, 2002.
      Amended by SR-NASD-90-58 eff. June 1, 1991.
      Amended by SR-NASD-86-29 eff. Dec. 15, 1986; Mar. 14, 1991.
      Amended by SR-NASD-82-25 eff. Feb. 28, 1983.

      Selected Notices: 82-21, 82-44, 83-17, 85-41, 87-2, 91-27, 97-25, 02-73.

    • 3060. Influencing or Rewarding Employees of Others

      This rule is no longer applicable. NASD Rule 3060 has been superseded by FINRA Rule 3220. Please consult the appropriate FINRA Rule.

      (a) No member or person associated with a member shall, directly or indirectly, give or permit to be given anything of value, including gratuities, in excess of one hundred dollars per individual per year to any person, principal, proprietor, employee, agent or representative of another person where such payment or gratuity is in relation to the business of the employer of the recipient of the payment or gratuity. A gift of any kind is considered a gratuity.

      (b) This Rule shall not apply to contracts of employment with or to compensation for services rendered by persons enumerated in paragraph (a) provided that there is in existence prior to the time of employment or before the services are rendered, a written agreement between the member and the person who is to be employed to perform such services. Such agreement shall include the nature of the proposed employment, the amount of the proposed compensation, and the written consent of such person's employer or principal.

      (c) A separate record of all payments or gratuities in any amount known to the member, the employment agreement referred to in paragraph (b) and any employment compensation paid as a result thereof shall be retained by the member for the period specified by SEC Rule 17a-4.
      Amended by SR-NASD-92-40 eff. Dec. 28, 1992.
      Amended by SR-NASD-84-8 eff. June 20, 1984.
      Amended eff. Sept. 1, 1969.

      Selected Notices: 82-44, 93-8.

      Selected SEC Decisions:
      Albert P. Fosha, SEC Rel. No. 34-22815 (1986).

    • 3070. Reporting Requirements

      This rule is no longer applicable. NASD Rule 3070 has been superseded by FINRA Rule 4530. Please consult the appropriate FINRA Rule.

      (a) Each member shall promptly report to the Association whenever such member or person associated with the member:

      (1) has been found to have violated any provision of any securities law or regulation, any rule or standards of conduct of any governmental agency, self-regulatory organization, or financial business or professional organization, or engaged in conduct which is inconsistent with just and equitable principles of trade; and the member knows or should have known that any of the aforementioned events have occurred;

      (2) is the subject of any written customer complaint involving allegations of theft or misappropriation of funds or securities or of forgery;

      (3) is named as a defendant or respondent in any proceeding brought by a regulatory or self-regulatory body alleging the violation of any provision of the Act, or of any other federal or state securities, insurance, or commodities statute, or of any rule or regulation thereunder, or of any provision of the By-laws, rules or similar governing instruments of any securities, insurance or commodities regulatory or self-regulatory organization;

      (4) is denied registration or is expelled, enjoined, directed to cease and desist, suspended or otherwise disciplined by any securities, insurance or commodities industry regulatory or self-regulatory organization or is denied membership or continued membership in any such self-regulatory organization; or is barred from becoming associated with any member of any such self-regulatory organization;

      (5) is indicted, or convicted of, or pleads guilty to, or pleads no contest to, any felony; or any misdemeanor that involves the purchase or sale of any security, the taking of a false oath, the making of a false report, bribery, perjury, burglary, larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion, or misappropriation of funds, or securities, or a conspiracy to commit any of these offenses, or substantially equivalent activity in a domestic, military, or foreign court;

      (6) is a director, controlling stockholder, partner, officer or sole proprietor of, or an associated person with, a broker, dealer, investment company, investment advisor, underwriter or insurance company which was suspended, expelled or had its registration denied or revoked by any agency, jurisdiction or organization or is associated in such a capacity with a bank, trust company or other financial institution which was convicted of or pleaded no contest to, any felony or misdemeanor;

      (7) is a defendant or respondent in any securities or commodities-related civil litigation or arbitration which has been disposed of by judgment, award or settlement for an amount exceeding $15,000. However, when the member is the defendant or respondent, then the reporting to the Association shall be required only when such judgment, award, or settlement is for an amount exceeding $25,000;

      (8) is the subject of any claim for damages by a customer, broker, or dealer which is settled for an amount exceeding $15,000. However, when the claim for damages is against a member, then the reporting to the Association shall be required only when such claim is settled for an amount exceeding $25,000;

      (9) is associated in any business or financial activity with any person who is subject to a "statutory disqualification" as that term is defined in the Act, and the member knows or should have known of the association. The report shall include the name of the person subject to the statutory disqualification and details concerning the disqualification;

      (10) is the subject of any disciplinary action taken by the member against any person associated with the member involving suspension, termination, the withholding of commissions or imposition of fines in excess of $2,500, or otherwise disciplined in any manner which would have significant limitation on the individual's activities on a temporary or permanent basis.

      (b) Each person associated with a member shall promptly report to the member the existence of any of the conditions set forth in paragraph (a) of this Rule. Each member shall report to the Association not later than 10 business days after the member knows or should have known of the existence of any of the conditions set forth in paragraph (a) of this rule.

      (c) Each member shall report to the Association statistical and summary information regarding customer complaints in such detail as the Association shall specify by the 15th day of the month following the calendar quarter in which customer complaints are received by the member. For the purposes of this paragraph, "customer" includes any person other than a broker or dealer with whom the member has engaged, or has sought to engage, in securities activities, and "complaint" includes any written grievance by a customer involving the member or person associated with a member.

      (d) Nothing contained in this Rule shall eliminate, reduce, or otherwise abrogate the responsibilities of a member or person associated with a member to promptly file with full disclosure, required amendments to Form BD, Forms U-4 and U-5, or other required filings, and to respond to NASD with respect to any customer complaint, examination, or inquiry.

      (e) Any member subject to substantially similar reporting requirements of another self-regulatory organization of which it is a member is exempt from paragraphs (a), (b) and (c) of this Rule.

      (f) Each member shall promptly file with NASD copies of:

      (1) any indictment, information or other criminal complaint or plea agreement for conduct reportable under paragraph (a)(5) of this Rule;

      (2) any complaint in which a member is named as a defendant or respondent in any securities or commodities-related private civil litigation;

      (3) any securities or commodities-related arbitration claim filed against a member in any forum other than the NASD Dispute Resolution forum;

      (4) any indictment, information or other criminal complaint, any plea agreement, or any private civil complaint or arbitration claim against a person associated with a member that is reportable under question 14 on Form U-4, irrespective of any dollar thresholds Form U-4 imposes for notification, unless, in the case of an arbitration claim, the claim has been filed in the NASD Dispute Resolution forum.

      (g) Members shall not be required to comply separately with paragraph (f) in the event that any of the documents required by paragraph (f) have been the subject of a request by NASD's Registration and Disclosure staff, provided that the member produces those requested documents to the Registration and Disclosure staff not later than 30 days after receipt of such request. This paragraph does not supersede any NASD rule or policy that requires production of documents specified in paragraph (f) sooner than 30 days after receipt of a request by the Registration and Disclosure staff.

      Amended by SR-NASD-2002-112 eff. May 21, 2003.
      Amended by SR-NASD-2002-27 eff. July 15, 2002.
      Adopted by SR-NASD-95-16 eff. Sept. 8, 1995.

      Selected Notices: 94-95, 95-81, 96-85, 02-34, 03-23, 06-34.

    • 3080. Disclosure to Associated Persons When Signing Form U-4

      This rule is no longer applicable. NASD Rule 3080 has been superseded by FINRA Rule 2263. Please consult the appropriate FINRA Rule.

      A member shall provide an associated person with the following written statement whenever the associated person is asked to sign a new or amended Form U4.
      The Form U4 contains a predispute arbitration clause. It is in item 5 of Section 15A of the Form U4. You should read that clause now. Before signing the Form U4, you should understand the following:
      (1) You are agreeing to arbitrate any dispute, claim or controversy that may arise between you and your firm, or a customer, or any other person, that is required to be arbitrated under the rules of the self-regulatory organizations with which you are registering. This means you are giving up the right to sue a member, customer, or another associated person in court, including the right to a trial by jury, except as provided by the rules of the arbitration forum in which a claim is filed.

      (2) A claim alleging employment discrimination, including a sexual harassment claim, in violation of a statute is not required to be arbitrated under NASD rules. Such a claim may be arbitrated at the NASD only if the parties have agreed to arbitrate it, either before or after the dispute arose. The rules of other arbitration forums may be different.

      (3) Arbitration awards are generally final and binding; a party's ability to have a court reverse or modify an arbitration award is very limited.

      (4) The ability of the parties to obtain documents, witness statements and other discovery is generally more limited in arbitration than in court proceedings.

      (5) The arbitrators do not have to explain the reason(s) for their award.

      (6) The panel of arbitrators may include arbitrators who were or are affiliated with the securities industry, or public arbitrators, as provided by the rules of the arbitration forum in which a claim is filed.

      (7) The rules of some arbitration forums may impose time limits for bringing a claim in arbitration. In some cases, a claim that is ineligible for arbitration may be brought in court.

      Amended by SR-NASD-2006-046 eff. April 03, 2006.
      Adopted by SR-NASD-99-08 eff. Jan. 18, 2000.

      Selected Notice: 99-96.

    • 3090. Transactions Involving Association and American Stock Exchange Employees

      This rule is no longer applicable. NASD Rule 3090 has been superseded by FINRA Rule 2070. Please consult the appropriate FINRA Rule.

      (a) When a member has actual notice that an Association or American Stock Exchange employee has a financial interest in, or controls trading in, an account, the member shall promptly obtain and implement an instruction from the employee directing that duplicate account statements be provided by the member to the Association.

      (b) No member shall directly or indirectly make any loan of money or securities to any Association or American Stock Exchange employee. Provided, however, that this prohibition does not apply to loans made in the context of disclosed, routine banking and brokerage agreements, or loans that are clearly motivated by a personal or family relationship.

      (c) Notwithstanding the annual dollar limitation set forth in Conduct Rule 3060(a), no member shall directly or indirectly give, or permit to be given, anything of more than nominal value to any Association or American Stock Exchange employee who has responsibility for a regulatory matter that involves the member. For purposes of this subsection, the term "regulatory matter" includes, but is not limited to, examinations, disciplinary proceedings, membership applications, listing applications, delisting proceedings, and dispute-resolution proceedings that involve the member.

      Adopted by SR-NASD-00-58 eff. Nov. 17, 2000.

    • 3100. BOOKS AND RECORDS, AND FINANCIAL CONDITION

    • 3110. Books and Records

      This rule is no longer applicable. NASD Rule 3110 (a, c, d, e, f, g, h, & j) has been superseded by FINRA Rule 4510 Series, NASD Rule 3110(i) has been superseded by FINRA Rule 3150. Please consult the appropriate FINRA Rules.

      (a) Requirements
      Each member shall make and preserve books, accounts, records, memoranda, and correspondence in conformity with all applicable laws, rules, regulations and statements of policy promulgated thereunder and with the Rules of this Association and as prescribed by SEC Rule 17a-3. The record keeping format, medium, and retention period shall comply with Rule 17a-4 under the Securities Exchange Act of 1934.
      (b) Marking of Customer Order Tickets
      A person associated with a member shall indicate on the memorandum for each transaction in a non-exchange-listed security, as that term is defined in Rule 2320, the name of each dealer contacted and the quotations received to determine the best inter-dealer market; however, the requirements of this paragraph shall not apply if the member can establish and has documented that:
      (1) two or more priced quotations for the security are displayed in an inter-dealer quotation system, as defined in Rule 2320(f), that permits quotation updates on a real-time basis for which NASD has access to historical quotation information; or
      (2) the transaction is effected in compliance with Rule 2320(f)(3)(B) or (C).
      (c) Customer Account Information
      Each member shall maintain accounts opened after January 1, 1991 as follows:
      (1) for each account, each member shall maintain the following information:

      (A) customer's name and residence;
      (B) whether customer is of legal age;
      (C) signature of the registered representative introducing the account and signature of the member or partner, officer, or manager who accepts the account; and
      (D) if the customer is a corporation, partnership, or other legal entity, the names of any persons authorized to transact business on behalf of the entity;
      (2) for each account other than an institutional account, and accounts in which investments are limited to transactions in open-end investment company shares that are not recommended by the member or its associated persons, each member shall also make reasonable efforts to obtain, prior to the settlement of the initial transaction in the account, the following information to the extent it is applicable to the account:

      (A) customer's tax identification or Social Security number;
      (B) occupation of customer and name and address of employer; and
      (C) whether customer is an associated person of another member; and
      (3) for discretionary accounts, in addition to compliance with subparagraphs (1) and (2) above, and Rule 2510(b) of these Rules, the member shall:

      (A) obtain the signature of each person authorized to exercise discretion in the account;
      (B) record the date such discretion is granted; and
      (C) in connection with exempted securities other than municipals, record the age or approximate age of the customer.
      (4) For purposes of this Rule, Rule 2310, and Rule 2510 the term "institutional account" shall mean the account of:

      (A) a bank, savings and loan association, insurance company, or registered investment company;
      (B) an investment adviser registered either with the Securities and Exchange Commission under Section 203 of the Investment Advisers Act of 1940 or with a state securities commission (or any agency or office performing like functions); or
      (C) any other entity (whether a natural person, corporation, partnership, trust, or otherwise) with total assets of at least $50 million.
      (d) Record of Written Complaints
      Each member shall keep and preserve in each office of supervisory jurisdiction, as defined in Rule 3010, either a separate file of all written complaints of customers and action taken by the member, if any, or a separate record of such complaints and a clear reference to the files containing the correspondence connected with such complaint as maintained in such office.
      (e) "Complaint" Defined
      A "complaint" shall be deemed to mean any written statement of a customer or any person acting on behalf of a customer alleging a grievance involving the activities of those persons under the control of the member in connection with the solicitation or execution of any transaction or the disposition of securities or funds of that customer.
      (f) Requirements When Using Predispute Arbitration Agreements for Customers Accounts

      (1) Any predispute arbitration clause shall be highlighted and shall be immediately preceded by the following language in outline form.
      This agreement contains a predispute arbitration clause. By signing an arbitration agreement the parties agree as follows:
      (A) All parties to this agreement are giving up the right to sue each other in court, including the right to a trial by jury, except as provided by the rules of the arbitration forum in which a claim is filed.
      (B) Arbitration awards are generally final and binding; a party's ability to have a court reverse or modify an arbitration award is very limited.
      (C) The ability of the parties to obtain documents, witness statements and other discovery is generally more limited in arbitration than in court proceedings.
      (D) The arbitrators do not have to explain the reason(s) for their award.
      (E) The panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities industry.
      (F) The rules of some arbitration forums may impose time limits for bringing a claim in arbitration. In some cases, a claim that is ineligible for arbitration may be brought in court.
      (G) The rules of the arbitration forum in which the claim is filed, and any amendments thereto, shall be incorporated into this agreement.
      (2)(A) In any agreement containing a predispute arbitration agreement, there shall be a highlighted statement immediately preceding any signature line or other place for indicating agreement that states that the agreement contains a predispute arbitration clause. The statement shall also indicate at what page and paragraph the arbitration clause is located.
      (B) Within thirty days of signing, a copy of the agreement containing any such clause shall be given to the customer who shall acknowledge receipt thereof on the agreement or on a separate document.
      (3)(A) A member shall provide a customer with a copy of any predispute arbitration clause or customer agreement executed between the customer and the member, or inform the customer that the member does not have a copy thereof, within ten business days of receipt of the customer's request. If a customer requests such a copy before the member has provided the customer with a copy pursuant to subparagraph (2)(B) of this paragraph, the member must provide a copy to the customer by the earlier date required by this subparagraph (3)(A) or by subparagraph (2)(B).
      (B) Upon request by a customer, a member shall provide the customer with the names of, and information on how to contact or obtain the rules of, all arbitration forums in which a claim may be filed under the agreement.
      (4) No predispute arbitration agreement shall include any condition that:

      (A) limits or contradicts the rules of any self-regulatory organization;
      (B) limits the ability of a party to file any claim in arbitration;
      (C) limits the ability of a party to file any claim in court permitted to be filed in court under the rules of the forums in which a claim may be filed under the agreement;
      (D) limits the ability of arbitrators to make any award.
      (5) If a customer files a complaint in court against a member that contains claims that are subject to arbitration pursuant to a predispute arbitration agreement between the member and the customer, the member may seek to compel arbitration of the claims that are subject to arbitration. If the member seeks to compel arbitration of such claims, the member must agree to arbitrate all of the claims contained in the complaint if the customer so requests.
      (6) All agreements shall include a statement that "No person shall bring a putative or certified class action to arbitration, nor seek to enforce any pre-dispute arbitration agreement against any person who has initiated in court a putative class action; or who is a member of a putative class who has not opted out of the class with respect to any claims encompassed by the putative class action until: (i) the class certification is denied; or (ii) the class is decertified; or (iii) the customer is excluded from the class by the court. Such forbearance to enforce an agreement to arbitrate shall not constitute a waiver of any rights under this agreement except to the extent stated herein."
      (7) The provisions of this Rule shall become effective on May 1, 2005. The provisions of subparagraph (3) shall apply to all members as of the effective date of this Rule regardless of when the customer agreement in question was executed. Otherwise, agreements signed by a customer before May 1, 2005 are subject to the provisions of this Rule in effect at the time the agreement was signed.
      (g) Negotiable Instruments Drawn From A Customer's Account
      No member or person associated with a member shall obtain from a customer or submit for payment a check, draft, or other form of negotiable paper drawn on a customer's checking, savings, share, or similar account, without that person's express written authorization, which may include the customer's signature on the negotiable instrument. Each member shall maintain this authorization for a period of three years. This provision shall not, however, require maintenance of copies of negotiable instruments signed by customers.
      (h) Order Audit Trail System Record keeping Requirements

      (1) Each member that is a Reporting Member, as that term is defined in Rule 6951(m), shall record and maintain, with respect to each order, as that term is defined in Rule 6951(i), for such security that is received or executed at its trading department:

      (A) an identification of each registered person who receives the order directly from a customer;
      (B) an identification of each registered person who executes the order; and
      (C) when an order is originated by the member and transmitted manually to another department, an identification of the department that originated the order.
      (2) Each Reporting Member shall maintain and preserve records of the information required to be recorded under paragraph (h)(1) of this Rule for the period of time and accessibility specified in SEC Rule 17a-4(b).
      (3) The records required to be maintained and preserved under paragraph (h)(1) of this Rule may be immediately produced or reproduced on "micrographic media" as defined in SEC Rule 17a-4(f)(1)(i) or by means of "electronic storage media" as defined in SEC Rule 17a-4(f)(1)(ii) that meet the conditions set forth in SEC Rule 17a-4(f) and be maintained and preserved for the required time in that form.
      (i) Holding of Customer Mail
      Upon the written instructions of a customer, a member may hold mail for a customer who will not be at his or her usual address for the period of his or her absence, but (A) not to exceed two months if the member is advised that such customer will be on vacation or traveling or (B) not to exceed three months if the customer is going abroad.
      (j) Changes in Account Name or Designation
      Before any customer order is executed, there must be placed upon the memorandum for each transaction, the name or designation of the account (or accounts) for which such order is to be executed. No change in such account name(s) (including related accounts) or designation(s) (including error accounts) shall be made unless the change has been authorized by a member or a person(s) designated under the provisions of NASD rules. Such person must, prior to giving his or her approval of the account designation change, be personally informed of the essential facts relative thereto and indicate his or her approval of such change in writing on the order or other similar record of the member. The essential facts relied upon by the person approving the change must be documented in writing and preserved for a period of not less than three years, the first two years in an easily accessible place, as the term "easily accessible place" is used in SEC Rule 17a-4.
      For purposes of this paragraph (j), a person(s) designated under the provisions of NASD rules to approve account name or designation changes must pass a qualifying principal examination appropriate to the business of the firm.

      Cross References–

      Rule 2860(b)(17), Options, Maintenance of Records
      Rule 8210, Reports and Inspection of Books for Purpose of Investigating Complaints
      Rule 9552, Failure to Provide Information or Keep Information Current
      IM-2310-2, Fair Dealing with Customers

      Amended by SR-FINRA-2011-052 eff. May 31, 2012.
      Amended by SR-FINRA-2010-052 eff. Dec. 5, 2011.
      Amended by SR-FINRA-2010-003 eff. June 28, 2010.
      Amended by SR-FINRA-2007-024 eff. Sep. 8, 2009.
      Amended by SR-NASD-2004-130 eff. Sep. 28, 2007.
      Amended by SR-NASD-2005-087 eff. Aug. 1, 2006.
      Amended by SR-NASD-2005-103 eff. Aug. 29, 2005
      Amended by SR-NASD-98-74 eff. May 1, 2005
      Amended by SR-NASD-2005-045 eff. April 12, 2005
      Amended by SR-NASD-2002-162 & SR-NASD-2004-116 eff. Jan. 31, 2005
      Amended by SR-NASD-2004-175 eff. Jan 3, 2005
      Amended by SR-NASD-2003-110 eff. June 28, 2004
      Amended by SR-NASD-2003-131 eff. March 31, 2004
      Amended by SR-NASD-00-20 eff. Nov. 24, 2000
      Amended by SR-NASD-98-38 eff. according to schedule in Rule 6957
      Amended by SR-NASD-98-35 eff. May 29, 1998
      Amended by SR-NASD-98-31 eff. Apr. 7, 1998
      Amended by SR-NASD-98-10 postponed eff. date
      Amended by SR-NASD-97-56 eff. according to schedule in Rule 6957
      Amended by SR-NASD-97-24 eff. Feb. 15, 1998
      Amended by SR-NASD-96-28 eff. Dec 2, 1996
      Amended by SR-NASD-95-39 eff. Oct 10, 1996
      Amended by SR-NASD-95-13 eff. June 9, 1995
      Amended by SR-NASD-92-12 eff. Sept. 6, 1994
      Amended by SR-NASD-92-28 eff. Oct. 28, 1992
      Amended by SR-NASD-90-09 & SR-NASD-90-39 eff. May 2, 1990 eff. for accounts opened and recommendations made after Jan. 1, 1991
      Amended by SR-NASD-88-21 eff. Aug. 1, 1988, May 10, 1989
      Amended by SR-NASD-87-23 eff. Aug. 3, 1987
      Amended by SR-NASD-86-17 eff. Oct, 15, 1986

      Selected Notices: 86-29, 86-69, 87-15, 88-40, 88-83, 88-91, 89-58, 90-12, 90-52, 91-46, 92-65, 95-16, 95-54, 95-85, 96-44, 96-82, 97-01, 98-11, 98-33, 98-47, 98-73, 00-78, 04-15, 04-36, 04-71, 05-08, 07-40, 10-26, 11-19, 12-13.

      • IM-3110. Customer Account Information

        This rule is no longer applicable. NASD IM-3110 has been superseded by FINRA Rule 4510 Series. Please consult the appropriate FINRA Rule.

        (a) Members should be aware that any transaction that involves a non-exchange-listed equity security trading for less than five dollars per share may be subject to the provisions of SEC Rules 15g-1 through 15g-9, and those rules should be reviewed to determine if an executed customer suitability agreement is required.

        (b) Additional information is required to be obtained prior to making recommendations to customers (see Rule 2310) and in connection with discretionary accounts (see Rule 2510).

        (c) Accounts opened, and recommendations made prior to January 1, 1991 remain subject to former Article III, Sections 2 and 21(c) as previously in effect as set forth in Notice to Members 90-52 (August 1990).
        Amended by SR-NASD-2005-087 eff. Aug. 1, 2006
        Amended by SR-NASD-2006-037 eff. July 3, 2006
        Adopted by SR-NASD-2003-104 eff. May 1, 2006.

        Selected Notice: 05-67.

    • 3115. Requirements for Alternative Trading Systems to Record and Transmit Order and Execution Information for Security Futures

      This rule is no longer applicable. NASD Rule 3115 has been superseded by FINRA Rule 4551. Please consult the appropriate FINRA Rule.

      (a) Alternative Trading Systems' Recording Requirements

      (1) Each alternative trading system that accepts orders for security futures (as defined in section 3(a)(55) of the Act) shall record each item of information described in paragraph (b) of this Rule. For purposes of this Rule, the term "order" includes a broker/dealer's proprietary quotes that are transmitted to an alternative trading system.

      (2) Alternative trading systems shall record each item of information required to be recorded under this Rule in such form as is prescribed by the Association from time to time.

      (3) Maintaining and Preserving Records

      (A) Each alternative trading system shall maintain and preserve records of the information required to be recorded under this Rule for the period of time and accessibility specified in SEC Rule 17a-4(b).

      (B) The records required to be maintained and preserved under this Rule may be immediately produced or reproduced on "micrographic media" as defined in SEC Rule 17a-4(f)(1)(i) or by means of "electronic storage media" as defined in SEC Rule 17a-4(f)(1)(ii) that meet the conditions set forth in SEC Rule 17a-4(f) and may be maintained and preserved for the required time in that form.

      (b) Information to be Recorded.
      The records required pursuant to paragraph (a) of this Rule shall contain, at a minimum, the following information for every order:
      (1) Date and time (expressed in terms of hours, minutes, and seconds) that the order was received;

      (2) Security future product name and symbol;

      (3) Number of contracts to which the order applies;

      (4) An identification of the order as related to a program trade or an index arbitrage trade as defined in New York Stock Exchange Rule 80A;

      (5) The designation of the order as a buy or sell order;

      (6) The designation of the order as a market order, limit order, stop order, stop limit order, or other type of order;

      (7) Any limit or stop price prescribed by the order;

      (8) The date on which the order expires and, if the time in force is less than one day, the time when the order expires;

      (9) The time limit during which the order is in force;

      (10) Any instructions to modify or cancel the order;

      (11) Date and time (expressed in terms of hours, minutes, and seconds) that the order was executed;

      (12) Unit price at which the order was executed; excluding commissions, mark-ups or mark-downs;

      (13) Size of the order executed;

      (14) Identity of the alternative trading system's subscribers that were intermediaries or parties in the transaction; and

      (15) An account identifier that relates the order back to the account owner(s).

      (c) Reporting Requirements

      (1) General Requirement
      Alternative trading systems shall report information required to be recorded under this Rule to the Association on the next business day following the date the alternative trading system accepted the order or executed the trade, or at such other time period as the Association shall specify.
      (2) Method of Transmitting Data
      Alternative trading systems shall transmit this information in such form as prescribed by the Association.
      Adopted by SR-NASD-2001-47 eff. March 31, 2003.

    • 3120. Use of Information Obtained in Fiduciary Capacity

      This rule is no longer applicable. NASD Rule 3120 has been superseded by FINRA Rule 2060. Please consult the appropriate FINRA Rule.

      A member who in the capacity of paying agent, transfer agent, trustee, or in any other similar capacity, has received information as to the ownership of securities, shall under no circumstances make use of such information for the purpose of soliciting purchases, sales or exchanges except at the request and on behalf of the issuer.

      Cross Reference–

      Rule 2330, Customers' Securities or Funds

    • 3121. Custodian of the Record

      This rule is no longer applicable. NASD Rule 3121 has been superseded by FINRA Rule 4570. Please consult the appropriate FINRA Rule.

      A member who files a Securities and Exchange Commission Form BDW shall designate on the Form BDW, as the custodian of the record, a person associated with the member at the time that the Form BDW is filed.
      Adopted by SR-NASD-99-76 eff. Sept. 11, 2000.

      Selected Notice: 00-56.

    • 3130. Regulation of Activities of Members Experiencing Financial and/or Operational Difficulties

      This rule is no longer applicable. NASD Rule 3130 has been superseded by FINRA Rules 4110, 4120, and 4140. Please consult the appropriate FINRA Rules.

      (a) Application — For the purposes of this Rule, the term "member" shall be limited to any NASD member that is not designated to another self-regulatory organization by the Commission for financial responsibility pursuant to Section 17 of the Act and SEC Rule 17d-1 thereunder. Further, the term shall not be applicable to any member that is subject to Rule 3131.
      (b) Each member subject to SEC Rule 15c3-1 shall comply with the net capital requirements prescribed therein and with the provisions of this Rule.
      (c) A member, when so directed by NASD, shall not expand its business during any period in which:
      (1) Any of the following conditions continue to exist, or have existed, for more than 15 consecutive business days:
      (A) A firm's net capital is less than 150 percent of its net capital minimum requirement or such greater percentage thereof as may from time to time be prescribed by NASD;
      (B) If subject to the aggregate indebtedness requirement under SEC Rule 15c3-1, a firm's aggregate indebtedness is more than 1,000 per centum of its net capital;
      (C) If, in lieu of paragraph (c)(1)(B) above, the specified percentage of the aggregate debit items in the Formula for Determination of Reserve Requirements for Brokers and Dealers under SEC Rule 15c3-3 (the alternative net capital requirement) is applicable, a firm's net capital is less than 5 percent of the aggregate debit items thereunder; or
      (D) The deduction of capital withdrawals including maturities of subordinated debt scheduled during the next six months would result in any one of the conditions described in subparagraph (A), (B) or (C).
      (2) NASD restricts the member for any other financial or operational reason.
      (d) A member, when so directed by NASD, shall forthwith reduce its business:
      (1) to a point at which the member would not be subject to a prohibition against expansion of its business as set forth in paragraph (c)(1)(A), (B) or (C) of this Rule if any of the following conditions continue to exist, or have existed, for more than 15 consecutive business days:
      (A) A firm's net capital is less than 125 percent of its net capital minimum requirement or such greater percentage thereof as may from time to time be prescribed by NASD;
      (B) If subject to the aggregate indebtedness requirement under SEC Rule 15c3-1, a firm's aggregate indebtedness is more than 1,200 per centum of its net capital;
      (C) If, in lieu of paragraph (d)(1)(B) above, the specified percentage of the aggregate debit items in the Formula for Determination of Reserve Requirements for Brokers and Dealers, under SEC Rule 15c3-3 (the alternative net capital requirement) is applicable, a firm's net capital is less than 4 percent of the aggregate debit items thereunder; or
      (D) If the deduction of capital withdrawals including maturities of subordinated debt scheduled during the next six months would result in any one of the conditions described in paragraph (d)(1)(A), (B) or (C) of this Rule.
      (2) As required by NASD when it restricts a member for any other financial or operational reason.
      (e) A member shall suspend all business operations during any period of time when the member is not in compliance with applicable net capital requirements as set forth in SEC Rule 15c3-1. NASD Staff may issue a notice to such member directing it to suspend all business operations; however, the member's obligation to suspend all business operations arises from its obligations under SEC Rule 15c3-1 and is not dependent on any notice that may be issued by NASD staff.
      (f) Any notice directing a member to limit or suspend its business operations shall be issued by NASD staff pursuant to Rule 9557.
      Amended by SR-NASD-2003-110 eff. June 28, 2004.
      Amended by SR-NASD-2003-74 eff. Dec. 1, 2003.
      Amended by SR-NASD-95-39 eff. Oct. 10, 1996.
      Adopted by SR-NASD-83-21 eff. Feb. 17, 1984.

      Selected Notices: 84-21, 85-89, 03-67, 04-36.

      • IM-3130. Restrictions on a Member's Activity

        This rule is no longer applicable. NASD Rule IM-3130 has been superseded by FINRA Rules 4110, 4140, and 4521. Please consult the appropriate FINRA Rules.

        (a) This explanation outlines and discusses some of the financial and operational deficiencies which could initiate action under Rule 3130. Paragraphs (c)(2) and (d)(2) of Rules 3130 and 3131 recognize that there are various unstated financial and operational reasons for which NASD may impose restrictions on a member so as to prohibit its expansion or to require a reduction in overall level of business. These provisions are deemed necessary in order to provide for the variety of situations and practices which do arise and which, if allowed to persist, could result in increased exposure to customers and to broker/dealers.
        (b) In the opinion of the Board of Governors, it would be impractical and unwise to attempt to identify and list all of the situations and practices that might lead to the imposition of restrictions or the types of remedial actions NASD may direct be taken because they are numerous and cannot be totally identified or specified with any degree of precision. The Board believes, however, that it would be helpful to members' understanding to list some of the other bases upon which NASD may conclude that a member is in or approaching financial difficulty.
        (c) For purposes of paragraphs (c)(2) and (d)(2) of Rule 3130, a member may be considered to be in or approaching financial or operational difficulty in conducting its operations and therefore subject to restrictions if it is determined by NASD that any of the parameters specified therein are exceeded or one or more of the following conditions exist:
        (1) The member has experienced a reduction in excess net capital of 25% in the preceding two months or 30% or more in the three-month period immediately preceding such computation.
        (2) The member has experienced a substantial change in the manner in which it processes its business which, in the view of the Association, increases the potential risk of loss to customers and members.
        (3) The member's books and records are not maintained in accordance with the provisions of SEC Rules 17a-3 and 17a-4.
        (4) The member is not in compliance, or is unable to demonstrate compliance, with applicable net capital requirements.
        (5) The member is not in compliance, or is unable to demonstrate compliance, with SEC Rule 15c3-3 (Customer Protection — Reserves and Custody of Securities).
        (6) The member is unable to clear and settle transactions promptly.
        (7) The member's overall business operations are in such a condition, given the nature and kind of its business that, notwithstanding the absence of any of the conditions enumerated in subparagraphs (1) through (6), a determination of financial or operational difficulty should be made; or
        (8) The member is registered as a Futures Commission Merchant and its net capital is less than 7% of the funds required to be segregated pursuant to the Commodity Exchange Act and the regulations thereunder.
        (d) For purposes of paragraphs (c)(2) and (d)(2) of Rule 3131, a member may be considered to be in or approaching financial or operational difficulty in conducting its operations and therefore subject to restrictions if it is determined by NASD that any of the parameters specified therein are exceeded or one or more of the following conditions exist:
        (1) The member has experienced significant reduction in excess liquid capital in the preceding month or in the three-month period immediately preceding such computation.
        (2) The member has experienced a substantial change in the manner in which it processes its business which, in NASD's view, increases the potential risk of loss to customers and members.
        (3) The member's books and records are not maintained in accordance with the provisions of Section 404.2 of the Treasury Department rules.
        (4) The member is not in compliance, or is unable to demonstrate compliance, with applicable capital requirements of Section 402 of the Treasury Department rules.
        (5) The member is not in compliance, or is unable to demonstrate compliance, with Section 403.4 of the Treasury Department rules (Customer Protection — Reserve and Custody of Securities).
        (6) The member is unable to clear and settle transactions promptly.
        (7) The member's overall business operations are in such a condition, given the nature and kind of its business that, notwithstanding the absence of any of the conditions enumerated in subparagraphs (1) through (6), a determination of financial or operational difficulty should be made.
        (8) The member is registered as a Futures Commission Merchant and its net capital is less than required by Section 402.1(d) of the Treasury Department rules.
        (e) If NASD determines that any of the conditions specified in paragraphs (c) or (d) of this explanation exist, it may require that the member take appropriate action by effecting one or more of the following actions until such time as NASD determines they are no longer required:
        (1) Promptly pay all free credit balances to customers.
        (2) Promptly effect delivery to customers of all fully-paid securities in the member's possession or control.
        (3) Introduce all or a portion of its business to another member on a fully-disclosed basis.
        (4) Reduce the size or modify the composition of its inventory.
        (5) Postpone the opening of new branch offices or require the closing of one or more existing branch offices.
        (6) Promptly cease making unsecured loans, advances or other similar receivables, and, as necessary, collect all such loans, advances or receivables where practicable.
        (7) Accept no new customer accounts.
        (8) Undertake an immediate audit by an independent public accountant at the member's expense.
        (9) Restrict the payment of salaries or other sums to partners, officers, directors, shareholders, or associated persons of the member.
        (10) Effect liquidating transactions only.
        (11) Accept unsolicited customer orders only.
        (12) File special financial and operating reports; and/or
        (13) Be subject to such other restrictions or take such other action as NASD deems appropriate under the circumstances in the public interest and for the protection of members.
        Amended by SR-NASD-2003-177 eff. Dec. 1, 2003.
        Amended by SR-NASD-95-39 eff. Oct. 10, 1996.

        Selected Notice: 03-67, 04-36.

    • 3131. Regulation of Activities of Section 15C Members Experiencing Financial and/or Operational Difficulties

      This rule is no longer applicable. NASD Rule 3131 has been superseded by FINRA Rule 4130. Please consult the appropriate FINRA Rule.

      (a) Application — For the purposes of this Rule, the term "member" shall be limited to any member of NASD registered with the Commission pursuant to Section 15C of the Act that is not designated to another self-regulatory organization by the Commission for financial responsibility pursuant to Section 17 of the Act and Rule 17d-1 thereunder.
      (b) Each member subject to Section 402.2 of the rules of the Treasury Department shall comply with the capital requirements prescribed therein and with the provisions of this Rule.
      (c) A member, when so directed by NASD shall not expand its business during any period in which:
      (1) Any of the following conditions continue to exist, or have existed, for more than 15 consecutive business days:
      (A) A firm's liquid capital is less than 150 percent of the total haircuts or such greater percentage thereof as may from time to time be prescribed by NASD.
      (B) A firm's liquid capital minus total haircuts is less than 150 percent of its minimum dollar capital requirement.
      (C) The deduction of ownership equity and maturities of subordinated debt scheduled during the next six months would result in any one of the conditions described in (A) or (B) of this subparagraph (1).
      (2) NASD restricts the member for any other financial or operational reason.
      (d) A member, when so directed by NASD, shall forthwith reduce its business:
      (1) To a point at which the member would not be subject to a prohibition against expansion of its business as set forth in subparagraphs (c)(1)(A), (B), or (C) of this Rule if any of the following conditions continue to exist, or have existed, for more than 15 consecutive business days:
      (A) A firm's liquid capital is less than 125 percent of total haircuts or such greater percentage thereof as may from time to time be prescribed by NASD.
      (B) A firm's liquid capital minus total haircuts is less than 125 percent of its minimum dollar capital requirement.
      (C) The deduction of ownership equity and maturities of subordinated debt scheduled during the next six months would result in any one of the conditions described in (A) or (B) of this subparagraph (1).
      (2) As required by NASD when it restricts a member for any other financial or operational reason.
      (e) A member shall suspend all business operations during any period of time when the member is not in compliance with applicable net capital requirements as set forth in Section 402.2 of the rules of the Treasury Department. NASD Staff may issue a notice to such member directing it to suspend all business operations; however, the member's obligation to suspend all business operations arises from its obligations under Section 402.2 of the rules of the Treasury Department and is not dependent on any notice that may be issued by NASD staff.
      (f) Any notice directing a member to limit or suspend its business operations shall be issued by NASD staff pursuant to Rule 9557.
      Amended by SR-NASD-2003-110 eff. June 28, 2004.
      Amended by SR-NASD-2003-74 eff. Dec. 1, 2003.
      Adopted by SR-NASD-95-39 eff. Oct. 10, 1996.

      Selected Notices: 03-67, 04-36.

    • 3140. Approval of Change in Exempt Status Under SEC Rule 15c3-3

      This rule is no longer applicable. NASD Rule 3140 has been superseded by FINRA Rule 1020. Please consult the appropriate FINRA Rule.

      (a) Application — For the purposes of this Rule, the term "member" shall be limited to any member of the Association who is subject to SEC Rule 15c3-3 and is not designated to another self-regulatory organization by the Commission for financial responsibility pursuant to Section 17 of the Act and SEC Rule 17d-1 promulgated thereunder. Further, the term shall not be applicable to any member that is subject to Section 402.2(c) of the rules of the Treasury Department.

      (b) A member operating pursuant to any exemptive provision as contained in subparagraph (k) of SEC Rule 15c3-3 under the Act (Rule 15c3-3), shall not change its method of doing business in a manner which will change its exemptive status from that governed by subparagraph (k)(1) or (k)(2)(ii) to that governed by subparagraph (k)(2)(i); or from subparagraph (k)(1), (k)(2)(i) or (k)(2)(ii) to a fully computing firm that is subject to all provisions of Rule 15c3-3; or commence operations that will disqualify it for continued exemption under Rule 15c3-3 without first having obtained the prior written approval of the Association.

      (c) In making the determination as to whether to approve, deny in whole or in part an application made pursuant to paragraph (b), the Association staff shall consider among other things the type of business in which the member is engaged, the training, experience and qualifications of persons associated with the member, the member's procedures for safeguarding customer funds and securities, the member's overall financial and operational condition and any other information deemed relevant in the particular circumstances and the time these measures would remain in effect.

      Cross Reference–

      Rule 2261, Disclosure of Financial Condition
      Amended by SR-NASD-99-76 eff. Sept. 11, 2000
      Amended by SR-NASD-95-39 eff. Oct. 10, 1996
      Adopted eff. Nov. 7, 1985

      Selected Notice: 00-56.

    • 3150. Reporting Requirements for Clearing Firms

      This rule is no longer applicable. NASD Rule 3150 has been superseded by FINRA Rule 4540. Please consult the appropriate FINRA Rule.

      (a) Each member that is a clearing firm or self-clearing firm shall be required to report to NASD in such format as NASD may require, prescribed data pertaining to the member and any member broker-dealer for which it clears. A clearing firm or self-clearing firm may enter into an agreement with a third party pursuant to which the third party agrees to fulfill the obligations of a clearing firm or self-clearing firm under this Rule. Notwithstanding the existence of such an agreement, each clearing firm or self-clearing firm remains responsible for complying with the requirements of this Rule.
      (b) Each member that is a clearing firm is required to report prescribed data to NASD under this Rule in such a manner as to enable NASD to distinguish between data pertaining to all proprietary and customer accounts of an introducing member and data pertaining to all proprietary and customer accounts of any member for which the introducing member is acting as an intermediary in obtaining clearing services from a clearing firm. The reporting requirements of this paragraph (b) shall apply to the proprietary and customer accounts of members that have established an intermediary clearing arrangement with an introducing member on or after February 20, 2006.
      (c) Pursuant to the Rule 9600 Series, NASD may in exceptional and unusual circumstances, taking into consideration all relevant factors, exempt a member or class of members unconditionally or on specified terms from any or all of the provisions of this Rule that it deems appropriate.
      Amended by SR-NASD-2005-058 eff. Feb. 20, 2006.
      Amended by SR-NASD-2004-014 eff. Feb. 20, 2004.
      Adopted by SR-NASD-2001-19 eff. Dec. 10, 2001.

      Selected Notice: 01-84, 04-24, 05-72.

    • IM-3150. Exemptive Relief

      This rule is no longer applicable. NASD IM-3150 has been superseded by FINRA Rule 4540. Please consult the appropriate FINRA Rule.

      (a) Upon written request for exemptive relief pursuant to the Rule 9600 Series, NASD generally will grant an exemption from the reporting requirements of Rule 3150 to a self-clearing firm that:

      (1) derives, on an annualized basis, at least 85 percent of its revenue from transactions in fixed income securities;

      (2) conducts an institutional business that settles transactions on an RVP/DVP basis, provided that such exemption from reporting shall apply only with respect to such institutional business unless NASD determines that any other remaining business otherwise qualifies for an exemption under this IM-3150 or is de minimis in nature; or

      (3) does not execute transactions for customers or otherwise hold customer accounts or act as an introducing broker with respect to customer accounts (e.g., that engages solely in proprietary trading, or that conducts business only with other broker-dealers or any other non-customer counter-parties).

      (b) Upon written request for exemptive relief pursuant to the Rule 9600 Series, NASD also generally will grant an exemption to a clearing firm with respect to one or more of the introducing firms for which it clears if the introducing firm meets one of the above-stated grounds for exemptive relief.

      (c) Any self-clearing firm that, due to a change in the facts pertaining to the operation and nature of its business or the operation and nature of the business of a firm for which it clears, as applicable, no longer qualifies for an exemption previously granted by NASD from the reporting requirements of Rule 3150 must promptly report such change in circumstances to NASD, Department of Member Regulation, and commence compliance with the reporting requirements of Rule 3150.

      Adopted by SR-NASD-2004-014 eff. Feb. 20, 2004.

      Selected Notice: 04-24.

    • 3160. Extensions of Time Under Regulation T and SEC Rule 15c3-3

      This rule is no longer applicable. NASD Rule 3160 has been superseded by FINRA Rule 4230. Please consult the appropriate FINRA Rule.

      (a) When NASD is the designated examining authority pursuant to SEC Rule 17d-1 for a member that is a clearing firm, such member must submit requests for extensions of time as contemplated by Sections 220.4(c) and 220.8(d) of Regulation T of the Federal Reserve Board and SEC Rule 15c3-3(n) to NASD for approval, in such format as NASD may require.
      (b) Each member that is a clearing firm for which NASD is the designated examining authority is required to file a monthly report with NASD in such format as NASD may require, indicating all broker-dealers for which it clears that have overall ratios of requests for extensions of time as contemplated by Sections 220.4(c) and 220.8(d) of Regulation T of the Federal Reserve Board and SEC Rule 15c3-3(m) to total transactions for the month that exceed a percentage specified by NASD. The report is due to NASD within five (5) business days following the end of each reporting month.
      Adopted by SR-NASD-2006-064 eff. March 1, 2007.

      Selected Notice: 06-62.

    • 3170. Mandatory Electronic Filing Requirements

      This rule is no longer applicable. NASD Rule 3170 has been superseded by FINRA Rule 4517. Please consult the appropriate FINRA Rule.

      Each member shall be required to file with NASD, or otherwise submit to NASD, in such electronic format as NASD may require, all regulatory notices or other documents required to be filed or otherwise submitted to NASD, as specified by NASD.

      Adopted by SR-NASD-2006-060 eff. Dec. 6, 2006.

      Selected Notice: 06-61.

    • 3200. SETTLEMENTS



      Cross References–

      Rule 6350A, Clearance and Settlement
      Rule 11000 Series, Uniform Practice Code

      • 3210. Short Sale Delivery Requirements

        This rule is no longer applicable. NASD Rule 3210 has been superseded by FINRA Rule 4320. Please consult the appropriate FINRA Rule.

        (a) If a participant of a registered clearing agency has a fail to deliver position at a registered clearing agency in a non-reporting threshold security for 13 consecutive settlement days, the participant shall immediately thereafter close out the fail to deliver position by purchasing securities of like kind and quantity.
        (1) Provided, however, a participant of a registered clearing agency that has a fail to deliver position at a registered clearing agency in a non-reporting threshold security on October 15, 2007, and which, prior to October 15, 2007, had been previously grandfathered from the close-out requirement in paragraph (a) (i.e., because the participant of a registered clearing agency had the fail to deliver position at a registered clearing agency on the settlement day preceding the day that the security became a non-reporting threshold security), shall close out that fail to deliver position within thirty-five settlement days of October 15, 2007 by purchasing securities of like kind and quantity. The requirements in paragraph (b) shall apply to all such fails to deliver that are not closed out in conformance with this paragraph (a)(1).
        (2) Provided, however, if a participant of a registered clearing agency has a fail to deliver position at a registered clearing agency for thirty-five consecutive settlement days in a non-reporting threshold security that was sold pursuant to SEC Rule 144, the participant shall immediately thereafter close out the fail to deliver position in the security by purchasing securities of like kind and quantity. The requirements in paragraph (b) shall apply to all such fails to deliver that are not closed out in conformance with this paragraph (a)(2).
        (b) If a participant of a registered clearing agency has a fail to deliver position at a registered clearing agency in a non-reporting threshold security for 13 consecutive settlement days (or 35 consecutive settlement days if entitled to rely on paragraphs (a)(1) or (a)(2) of this rule), the participant and any broker or dealer for which it clears transactions, including any market maker that would otherwise be entitled to rely on the exception provided in paragraph (b)(2)(iii) of SEC Rule 203 of Regulation SHO, may not accept a short sale order in the non-reporting threshold security from another person, or effect a short sale in the non-reporting threshold security for its own account, without borrowing the security or entering into a bona-fide arrangement to borrow the security, until the participant closes out the fail to deliver position by purchasing securities of like kind and quantity.
        (c) If a participant of a registered clearing agency reasonably allocates a portion of a fail to deliver position to another registered broker or dealer for which it clears trades or for which it is responsible for settlement, based on such broker or dealer's short position, then the provisions of this rule relating to such fail to deliver position shall apply to the portion of such registered broker or dealer that was allocated the fail to deliver position, and not to the participant.
        (d) A participant of a registered clearing agency shall not be deemed to have fulfilled the requirements of this rule where the participant enters into an arrangement with another person to purchase securities as required by this rule, and the participant knows or has reason to know that the other person will not deliver securities in settlement of the purchase.
        (e) For the purposes of this rule, the following terms shall have the meanings below:
        (1) the term “market maker” has the same meaning as in section 3(a)(38) of the Exchange Act.
        (2) the term “non-reporting threshold security” means any equity security of an issuer that is not registered pursuant to section 12 of the Exchange Act and for which the issuer is not required to file reports pursuant to section 15(d) of the Exchange Act:
        (A) for which there is an aggregate fail to deliver position for five consecutive settlement days at a registered clearing agency of 10,000 shares or more and for which on each settlement day during the five consecutive settlement day period, the reported last sale during normal market hours for the security on that settlement day that would value the aggregate fail to deliver position at $50,000 or more, provided that if there is no reported last sale on a particular settlement day, then the price used to value the position on such settlement day would be the previously reported last sale; and
        (B) is included on a list published by NASD.
        A security shall cease to be a non-reporting threshold security if the aggregate fail to deliver position at a registered clearing agency does not meet or exceed either of the threshold tests specified in paragraph (e)(2)(A) of this rule for five consecutive settlement days.
        (3) the term “participant” means a participant as defined in section 3(a)(24) of the Exchange Act, that is an NASD member.
        (4) the term “registered clearing agency” means a clearing agency, as defined in section 3(a)(23)(A) of the Exchange Act, that is registered with the Commission pursuant to section 17A of the Exchange Act.
        (5) the term “settlement day” means any business day on which deliveries of securities and payments of money may be made through the facilities of a registered clearing agency.
        (f) Pursuant to the Rule 9600 Series, the staff, for good cause shown after taking into consideration all relevant factors, may grant an exemption from the provisions of this rule, either unconditionally or on specified terms and conditions, to any transaction or class of transactions, or to any security or class of securities, or to any person or class of persons, if such exemption is consistent with the protection of investors and the public interest.
        Amended by SR-FINRA-2007-013 eff. Oct. 15, 2007.
        Amended by SR-NASD-2006-071 eff. July 3, 2006.
        Amended by SR-NASD-2004-044 eff. July 3, 2006.
        Amended by SR-NASD-2004-175 eff. Jan. 3, 2005.
        Amended by SR-NASD-97-28 eff. Aug. 7, 1997.
        Deleted and replaced with former Appendix B by SR-NASD-93-48 eff. Mar. 8, 1994.
        Added eff. Sept. 24, 1973.

        Selected Notices: 73-05, 73-45, 73-54, 73-67, 06-28, 07-45.

      • 3220. Adjustment of Open Orders

        This rule is no longer applicable. NASD Rule 3220 has been superseded by FINRA Rule 5330. Please consult the appropriate FINRA Rule.

        (a) A member holding an open order from a customer or another broker/dealer shall, prior to executing or permitting the order to be executed, reduce, increase or adjust the price and/or number of shares of such order by an amount equal to the dividend, payment or distribution, on the day that the security is quoted ex-dividend, ex-rights, ex-distribution or ex-interest, except where a cash dividend or distribution is less than one cent ($.01), as follows:
        (1) In the case of a cash dividend or distribution, the price of the order shall be reduced by subtracting the dollar amount of the dividend or distribution from the price of the order and rounding the result to the next lower minimum quotation variation used in the primary market, provided that if there is more than one minimum quotation variation in the primary market, then the greater of the variations shall be used (e.g., if a market has minimum quotation variations of 1/16 or 1/32 of a dollar for securities trading in fractions, depending on the price of the security, or $.01 for securities trading in decimals, then the adjustment to open orders shall be in increments of 1/16 of a dollar for issues trading in fractions, and $.01 for issues trading in decimals);
        (2) In the case of a stock dividend or split, the price of the order shall be reduced by rounding the dollar value of the stock dividend or split to the next higher minimum quotation variation used in the primary market as specified in paragraph (a)(1) and subtracting that amount from the price of the order; provided further, that the size of the order shall be increased by (A) multiplying the size of the original order by the numerator of the ratio of the dividend or split, (B) dividing the result by the denominator of the ratio of the dividend or split, and (C) rounding the result to the next lower round lot; and
        (3) In the case of a dividend payable in either cash or securities at the option of the stockholder, the price of the order shall be reduced by the dollar value of the cash or securities, whichever is greater, according to the formulas in subparagraph (1) or (2), above; provided, that if the stockholder opts for securities, the size of the order shall be increased pursuant to the formula in subparagraph (2), above.
        (b) If the value of the distribution cannot be determined, the member shall not execute or permit such order to be executed without reconfirming the order with the customer.
        (c) If a security is the subject of a reverse split, all open orders shall be cancelled.
        (d) The term "open order" means an order to buy or an open stop order to sell, including but not limited to "good 'til cancelled," "limit" or "stop limit" orders which remain in effect for a definite or indefinite period until executed, cancelled or expired.
        (e) The provisions of this Rule shall not apply to:
        (1) orders governed by the rules of a registered national securities exchange;
        (2) orders marked "do not reduce" where the dividend is payable in cash;
        (3) orders marked "do not increase" where the dividend is payable in stock, provided that the price of such orders shall be adjusted as required by this Rule;
        (4) open stop orders to buy;
        (5) open sell orders; or
        (6) orders for the purchase or sale of securities where the issuer of the securities has not reported a dividend, payment or distribution pursuant to SEC Rule 10b-17.
        (f) Mandatory Open Order Conversion for Securities Commencing Decimal Pricing
        All open orders in Nasdaq securities priced in fractions remaining in a firm's internal system on the evening prior to, or received thereafter and prior to, the security's commencing decimal pricing pursuant to the Decimals Implementation Plan for the Equities and Options Markets shall be converted, no later than midnight on that evening prior to their first day of decimal pricing, as follows:
        (1) Prior to the conversion, member firms should notify their customers and inform them of the change to their open fractional order(s) as a result of the conversion to decimal pricing. Customers should be afforded the opportunity to take action if they do not wish to participate in the conversion. Customers not wishing to participate in the mandatory conversion should be allowed the opportunity to cancel their open order(s) prior to the evening of the conversion.
        (2) No later than midnight on the evening prior to a security's first day of decimal pricing, all open orders priced in fractions that have not been canceled, including those with price qualifiers such as DNR and DNI, shall be converted as follows:
        •  The fractional price of all open Buy Orders (GTC, GTX, Buy Stop and Buy Stop Limits) will be converted to their decimal equivalent and then "rounded down" to the nearest $0.01.
        •  The fractional price of all open Sell Orders (GTC, GTX, Sell Stop and Sell Stop Limits) will be converted to their decimal equivalent and then "rounded up" to the nearest $0.01.
        Example: Buy 1000 MSFT 88 1/16 would convert to B 1000 MSFT 88.06 (1/16 = 0.0625)
        Sell 1000 MSFT 88 1/16 would convert to S 1000 MSFT 88.07
        This rule is to be in effect only in preparation for the first day of decimal trading of the newly-converted security. After conversion, firms may accept orders of any number of spaces beyond the decimal point in the newly-converted security and submit them, after appropriate rounding (See NASD Rule 4613 (a)(1)(D)), to Nasdaq for display.
        Amended by SR-NASD-01-10 eff. March 12, 2001.
        Amended by SR-NASD-00-46 eff. Aug. 28, 2000.
        Amended by SR-NASD-97-48 eff. July 30, 1997.
        Amended by SR-NASD-95-27 eff. Aug. 22, 1995.
        Amended by SR-NASD-94-71 eff. Feb. 7, 1995.
        Amended by SR-NASD-94-46 eff. Sept. 15, 1994.
        Adopted by SR-NASD-93-52 eff. May 16, 1994; eff. date amended to Sept. 15, 1994 by SR-NASD-94-22.

        Selected Notices: 93-61, 94-9, 94-28, 94-63.

      • 3230. Clearing Agreements

        This rule is no longer applicable. NASD Rule 3230 has been superseded by FINRA Rule 4311. Please consult the appropriate FINRA Rule.

        (a) All clearing or carrying agreements entered into by a member, except where any party to the agreement is also subject to a comparable rule of a national securities exchange, shall specify the respective functions and responsibilities of each party to the agreement and shall, at a minimum, specify the responsibility of each party with respect to each of the following matters:
        (1) opening, approving and monitoring customer accounts;
        (2) extension of credit;
        (3) maintenance of books and records;
        (4) receipt and delivery of funds and securities;
        (5) safeguarding of funds and securities;
        (6) confirmations and statements;
        (7) acceptance of orders and execution of transactions;
        (8) whether, for purposes of the Commission's financial responsibility rules adopted under the Act, and the Securities Investor Protection Act, as amended, and regulations adopted thereunder, customers are customers of the clearing member; and
        (9) the requirement to provide customer notification under paragraph (g) of this Rule.
        (b)(1) In order for the introducing member to carry out its functions and responsibilities under the agreement, each clearing member must forward promptly any written customer complaint received by the clearing member regarding the introducing member or its associated persons relating to functions and responsibilities allocated to the introducing member under the agreement directly to: (A) the introducing member; and (B) the introducing member's examining authority designated under Section 17 of the Act ("DEA") (or, if none, to its appropriate regulatory agency or authority). The clearing or carrying agreement must specifically direct and authorize the clearing member to do so.
        (2) The clearing member must also notify the customer, in writing, that it has received the complaint, and that the complaint has been forwarded to the introducing member and to the introducing member's DEA (or, if none, to its appropriate regulatory agency or authority).
        (3) Pursuant to the Rule 9600 Series, the Association may exempt a member or person associated with a member from the requirements of this paragraph for good cause shown in instances where the introducing organization is an affiliated entity of the carrying organization.
        (c)(1) A clearing member, when it enters into a clearing agreement, must immediately, and annually thereafter, provide the introducing member a list or description of all reports (exception and other types of reports) which it offers to the introducing member to assist the introducing member in supervising its activities, monitoring its customer accounts, and carrying out its functions and responsibilities under the clearing agreement. The introducing member must notify promptly the clearing member, in writing, of those specific reports offered by the clearing member that the introducing member requires to supervise and monitor its customer accounts.
        (2) The clearing member must retain as part of its books and records required to be maintained under the Act and the Association's rules, copies of the reports requested by or provided to the introducing member. For purposes of this Rule, the clearing member will be in compliance with the requirements of this paragraph if it retains the data from which the original report was produced, provided, the clearing member can, at the request of the DEA (or, if none, to its appropriate regulatory agency or authority), either (A) recreate the report; or (B) provide the data and the data formatting that was used to prepare the report.
        (3) Each year, no later than July 31, the clearing member must notify in writing the introducing member's chief executive and compliance officers of the reports offered to the introducing member pursuant to paragraph (c)(1) and the reports requested by or supplied to the introducing member as of such date. The clearing member must also provide a copy of the notice to the introducing member's DEA (or, if none, to its appropriate regulatory agency or authority).
        (4) Pursuant to the Rule 9600 Series, the Association may exempt a member or person associated with a member from the requirements of this paragraph for good cause shown in instances where the introducing organization is an affiliated entity of the carrying organization.
        (d) The clearing or carrying agreement may permit the introducing member to issue negotiable instruments directly to the introducing member's customers using instruments for which the clearing member is the maker or drawer. The clearing member may not grant the introducing member the authority to issue negotiable instruments until the introducing member has notified the clearing member in writing that it has established, and will maintain and enforce, supervisory procedures with respect to the issuance of such instruments that are satisfactory to the carrying organization.
        (e) Whenever a clearing member designated to the Association for oversight pursuant to Section 17 of the Act, or a rule of the Commission adopted thereunder, amends any of its clearing or carrying agreements with respect to any item enumerated in subparagraphs (a)(1) through (a)(9) or enters into a new clearing or carrying agreement with an introducing member, the clearing member shall submit the agreement to the Association for review and approval.
        (f) Whenever an introducing member designated to the Association for oversight pursuant to Section 17 of the Act, or a rule of the Commission adopted thereunder, amends its clearing or carrying agreement with a clearing member designated to another self-regulatory organization for oversight with respect to any item enumerated in subparagraphs (a)(1) through (a)(9) enters into a new clearing agreement with another clearing member, the introducing member shall submit the agreement to its local Association district office for review.
        (g) Each customer whose account is introduced on a fully disclosed basis shall be notified in writing upon the opening of his account of the existence of the clearing or carrying agreement.
        (h) All clearing agreements shall require each introducing member to maintain its proprietary and customer accounts and the proprietary and customer accounts of any member for which it is acting as an intermediary in obtaining clearing services from the clearing firm in such a manner as to enable the clearing firm and NASD to identify data belonging to the proprietary and customer accounts of each member. The requirements of this paragraph (h) shall apply to intermediary clearing arrangements between a member and an introducing member that are established on or after February 20, 2006.
        Amended by SR-NASD-2005-058 eff. Feb. 20, 2006.
        Amended by SR-NASD-97-76 eff. July 19, 1999.
        Adopted by SR-NASD-93-46 eff. Apr. 15, 1994.

        Selected Notices: 92-32, 93-50, 94-7; 97-79, 99-57, 05-72.

    • 3300. TRADING

      • 3310. Publication of Transactions and Quotations

        This rule is no longer applicable. NASD Rule 3310 has been superseded by FINRA Rule 5210. Please consult the appropriate FINRA Rule.

        No member shall publish or circulate, or cause to be published or circulated, any notice, circular, advertisement, newspaper article, investment service, or communication of any kind which purports to report any transaction as a purchase or sale of any security unless such member believes that such transaction was a bona fide purchase or sale of such security; or which purports to quote the bid price or asked price for any security, unless such member believes that such quotation represents a bona fide bid for, or offer of, such security. If nominal quotations are used or given, they shall be clearly stated or indicated to be only nominal quotations.
        Cross Reference–

        IM-3320, Firmness of Quotations

        • IM-3310. Manipulative and Deceptive Quotations

          This rule is no longer applicable. NASD IM 3310 has been superseded by FINRA Rule 5210. Please consult the appropriate FINRA Rule.

          Rule 2110 provides that:
          A member, in the conduct of his business, shall observe high standards of commercial honor and just and equitable principles of trade.
          Rule 3310 provides that:
          No member shall publish or circulate, or cause to be published or circulated, any notice, circular, advertisement, newspaper article, investment service, or communication of any kind which purports to report any transaction as a purchase or sale of any security unless such member believes that such transaction was a bona fide purchase or sale of such security; or which purports to quote the bid price or asked price for any security, unless such member believes that such quotation represents a bona fide bid for, or offer of, such security. If nominal quotations are used or given, they shall be clearly stated or indicated to be only nominal quotations.
          Rule 2120 provides that:
          No member shall effect any transaction in, or induce the purchase or sale of, any security by means of any manipulative, deceptive or other fraudulent device or contrivance.
          It would be inconsistent with the above provisions for a member to publish or circulate or cause to be published or circulated, by any means whatsoever, any report of any securities transaction or of any purchase or sale of any security unless such member knows or has reason to believe that such transaction was a bona fide transaction, purchase or sale.
          Similarly, it would be inconsistent with the above provisions for a member, for itself or for any other person, to publish or circulate or to cause to be published or circulated, by any means whatsoever, any quotation for any security without having reasonable cause to believe that such quotation is a bona fide quotation, is not fictitious and is not published or circulated or caused to be published or circulated for any fraudulent, deceptive or manipulative purpose.
          For the purposes of this interpretation, the term "quotation" shall include any bid or offer or any formula, such as "bid wanted" or "offer wanted," designed to induce any person to make or submit any bid or offer.

      • 3320. Offers at Stated Prices

        This rule is no longer applicable. NASD Rule 3320 has been superseded by FINRA Rule 5220. Please consult the appropriate FINRA Rule.

        No member shall make an offer to buy from or sell to any person any security at a stated price unless such member is prepared to purchase or sell, as the case may be, at such price and under such conditions as are stated at the time of such offer to buy or sell.

        • IM-3320. Firmness of Quotations

          This rule is no longer applicable. NASD IM-3320 has been superseded by FINRA Rule 5220. Please consult the appropriate FINRA Rule.

          Members and persons associated with members in the over-the-counter market make trading decisions and set prices for customers upon the basis of telephone and wire quotations as well as quotations in the National Quotation Bureau sheets. In some instances a dealer's quotations, purportedly firm, are, in fact, so qualified upon further inquiry as to constitute "backing away" by the quoting dealer. Further, dealers who place quotations in the sheets have been found to be unwilling to make firm bids or offers upon inquiry in such a way as to pose a question as to the validity of the quotations originally inserted. Such "backing away" from quotations disrupts the normal operation of the over-the-counter market.
          Members, of course, change interdealer quotations constantly in the course of trading, but under normal circumstances where the member is making a "firm trading market" in any security, it is expected at least to buy or sell a normal unit of trading in the quoted stock at its then prevailing quotations unless clearly designated as not firm or firm for less than a normal unit of trading when supplied by the member. It should be realized, however, that at times contemporaneous transactions or substantial changes in inventory might well require dealers to quote a "subject market" temporarily.

          In order to insure the integrity of quotations, every member has an obligation to correctly identify the nature of its quotations when they are supplied to others. In addition, each member furnishing quotations must insure that it is adequately staffed to respond to inquiries during the normal business hours of such member.

          It shall be deemed conduct inconsistent with high standards of commercial honor and just and equitable principles of trade if a member fails to fulfill its obligations as outlined above.
          Adopted by the NASD Board on May 4, 1965.

      • 3330. Payment Designed to Influence Market Prices, Other than Paid Advertising

        This rule is no longer applicable. NASD Rule 3330 has been superseded by FINRA Rule 5230. Please consult the appropriate FINRA Rule.

        No member shall, directly or indirectly, give, permit to be given, or offer to give, anything of value to any person for the purpose of influencing or rewarding the action of such person in connection with the publication or circulation in any newspaper, investment service, or similar publication, of any matter which has, or is intended to have, an effect upon the market price of any security, provided that this Rule shall not be construed to apply to matter which is clearly distinguishable as paid advertising.

      • 3340. Prohibition on Transactions, Publication of Quotations, or Publication of Indications of Interest During Trading Halts

        This rule is no longer applicable. NASD Rule 3340 has been superseded by FINRA Rule 5260. Please consult the appropriate FINRA Rule.

        (a) No member or person associated with a member shall, directly or indirectly, effect any transaction or publish a quotation, a priced bid and/or offer, an unpriced indication of interest (including "bid wanted" and "offer wanted" and name only indications), or a bid or offer accompanied by a modifier to reflect unsolicited customer interest, in any security as to which a trading halt is currently in effect. If NASD closes trading in a security pursuant to its authority under Rule 4633(a)(3), Rule 4120A(a)(3), or Rule 6431(a)(3) members would not be prohibited from trading through other markets for which trading is not halted.
        (b) No member or person associated with a member shall, directly or indirectly, effect any transaction or publish a quotation, a priced bid and/or offer, an unpriced indication of interest (including "bid wanted" and "offer wanted" and name only indications), or a bid or offer, accompanied by a modifier to reflect unsolicited customer interest, in:
        (1) a future for a single security when the underlying security has a regulatory trading halt that is currently in effect; and
        (2) a future on a narrow-based securities index when one or more underlying securities that constitute 50% or more of the market capitalization of the index has a regulatory trading halt that is currently in effect.
        Cross Reference–

        Rule 6120, Trading Halts

        Amended by SR-NASD-2005-087 eff. Aug. 1, 2006
        Amended by SR-NASD-2001-47 eff. March 31, 2003.
        Amended by SR-NASD-2002-97 eff. July 29, 2002.
        Amended by SR-NASD-2000-33 eff. August 13, 2001.
        Adopted by SR-NASD-87-13 eff. May 5, 1988.

        Selected Notices: 86-13, 88-46, 89-2, 98-26, 01-47, 02-82.

      • 3360. Short-Interest Reporting

        This rule is no longer applicable. NASD Rule 3360 has been superseded by FINRA Rule 4560. Please consult the appropriate FINRA Rule.

        (a) Each member shall maintain a record of total "short" positions in all customer and proprietary firm accounts in OTC Equity Securities, securities listed on a national securities exchange and not otherwise reported to another self-regulatory organization and shall regularly report such information to NASD in such a manner as may be prescribed by NASD. Reports shall be made as of the close of the settlement date designated by NASD. Reports shall be received by NASD no later than the second business day after the reporting settlement date designated by NASD.
        (b) For purposes of this Rule:
        (1) "short" positions to be reported are those resulting from "short sales" as that term is defined in SEC Rule 200(a) of Regulation SHO, with the exception of positions that meet the following requirements:
        (A) any sale by any person, for an account in which he has an interest, if such person owns the security sold and intends to deliver such security as soon as is possible without undue inconvenience or expense;
        (B) any sale of a security (except a sale to a stabilizing bid complying with Rule 104 of Regulation M) effected with the approval of an exchange which is necessary to equalize the price of such security thereon with the current price of such security on another national securities exchange which is the principal exchange market for such security;
        (C) any sale of a security for a special arbitrage account by a person who then owns another security by virtue of which he is, or presently will be entitled to acquire an equivalent number of securities of the same class as the securities sold; provided such sale, or the purchase which such sale offsets, is effected for the bona fide purpose of profitting from a current difference between the price of security sold and the security owned and that such right of acquisition was originally attached to or represented by another security or was issued to all the holders of any such class of securities of the issuer;
        (D) any sale of a security registered on, or admitted to unlisted trading privileges on, a national securities exchange effected for a special international arbitrage account for the bona fide purpose of profitting from a current difference between the price of such security on a securities market not within or subject to the jurisdiction of the United States and on a securities market subject to the jurisdiction of the United States; provided the seller at the time of such sale knows or, by virtue of information currently received, has reasonable grounds to believe that an offer enabling him to cover such sale is then available to him in such foreign securities market and intends to accept such offer immediately; and
        (E) any sale by an underwriter, or any member of a syndicate or group participating in the distribution of a security, in connection with an over-allotment of securities, or any lay-off sale by such a person in connection with a distribution of securities through rights or a standby underwriting commitment.
        (2) the term "customer" includes a broker-dealer; and
        (3) the term "OTC Equity Securities" shall mean any equity security that is not listed on a national securities exchange.
        Amended by SR-NASD-2006-131 eff. Sept. 6, 2007.
        Amended by SR-NASD-2007-047 eff. July 6, 2007.
        Amended by SR-NASD-2005-087 eff. Aug. 1, 2006.
        Amended by SR-NASD-2005-112 eff. July 3, 2006.
        Amended by SR-NASD-2005-001 eff. Jan. 7, 2005.
        Amended by SR-NASD-2002-178 eff. Dec. 16, 2002.
        Amended by SR-NASD-94-67 eff. May 1, 1995.
        Amended eff. Aug. 31, 1987.
        Adopted by SR-NASD-85-34 eff. Jan. 20, 1986.

        Selected Notices: 85-77, 85-87, 86-4, 86-15, 86-61, 87-15, 95-8, 03-08, 07-24, 07-31.

      • 3370. Purchases

        This rule is no longer applicable. NASD Rule 3370 has been superseded by FINRA Rule 11860. Please consult the appropriate FINRA Rule.

        No member or person associated with a member may accept a customer's purchase order for any security unless it has first ascertained that the customer placing the order or its agent agrees to receive securities against payment in an amount equal to any execution, even though such an execution may represent the purchase of only a part of a larger order.
        Amended by SR-NASD-2004-175 eff. Jan. 3, 2005.
        Amended by SR-NASD-2004-031 eff. April 1, 2004.
        Amended by SR-NASD-2001-85 eff. April 1, 2004.
        Amended by SR-NASD-2002-40 eff. Oct. 15, 2002.
        Amended by SR-NASD-2002-97 eff. July 29, 2002.
        Amended by SR-NASD-99-37 eff. June 9, 2000.
        Amended by SR-NASD-2000-46 eff. Aug. 28, 2000.
        Amended by SR-NASD-95-39 eff. Oct 10, 1996.
        Amended by SR-NASD-95-62 eff. Feb. 20, 1996.
        Amended by SR-NASD-95-38 Sept. 18, 1995.
        Amended by SR-NASD-94-56 eff. June 7, 1995.
        Amended by SR-NASD-95-02 eff. Jan. 9, 1995.
        Amended by SR-NASD-94-32 eff. Jan. 9, 1995.
        Amended by SR-NASD-90-30 eff. July 14, 1993.
        Amended by SR-NASD-89-5 eff. July 5, 1990.
        Amended by SR-NASD-87-23 eff. Aug. 3, 1987.
        Amended by SR-NASD-86-17 eff. Oct. 15, 1986.
        Amended eff. Sept. 1, 1972, Nov. 15, 1973.
        Formerly the Interpretation to Article III, Section 1 of the Rules of Fair Practice adopted eff. Sept. 9, 1968.

        Selected Notices: 85-87, 86-69, 88-47, 90-13, 90-51, 93-53, 94-80, 95-36, 00-28, 04-03, 04-21.

      • 3380. Order Entry and Execution Practices

        This rule is no longer applicable. NASD Rule 3380 has been superseded by FINRA Rule 5290. Please consult the appropriate FINRA Rule.

        No member or associated person may engage in conduct that has the intent or effect of splitting any order into multiple smaller orders for execution or any execution into multiple smaller executions for transaction reporting for the primary purpose of maximizing a monetary or in-kind amount to be received by the member or associated person as a result of the execution of such orders or the transaction reporting of such executions. For purposes of this rule, “monetary or in-kind amount” shall be defined to include, but not be limited to, any credits, commissions, gratuities, payments for or rebates of fees, or any other payments of value to the member or associated person.
        Adopted by SR-NASD-2005-144 eff. May 25, 2006.

        Selected Notice: 06-19.

    • 3500. EMERGENCY PREPAREDNESS

      • 3510. Business Continuity Plans

        This rule is no longer applicable. NASD Rule 3510 has been superseded by FINRA Rule 4370. Please consult the appropriate FINRA Rule.

        (a) Each member must create and maintain a written business continuity plan identifying procedures relating to an emergency or significant business disruption. Such procedures must be reasonably designed to enable the member to meet its existing obligations to customers. In addition, such procedures must address the member's existing relationships with other broker-dealers and counter-parties. The business continuity plan must be made available promptly upon request to NASD staff.

        (b) Each member must update its plan in the event of any material change to the member's operations, structure, business or location. Each member must also conduct an annual review of its business continuity plan to determine whether any modifications are necessary in light of changes to the member's operations, structure, business, or location.

        (c) The elements that comprise a business continuity plan are flexible and may be tailored to the size and needs of a member. Each plan, however, must at a minimum, address:
        (1) Data back-up and recovery (hard copy and electronic);

        (2) All mission critical systems;

        (3) Financial and operational assessments;

        (4) Alternate communications between customers and the member;

        (5) Alternate communications between the member and its employees;

        (6) Alternate physical location of employees;

        (7) Critical business constituent, bank, and counter-party impact;

        (8) Regulatory reporting;

        (9) Communications with regulators; and

        (10) How the member will assure customers' prompt access to their funds and securities in the event that the member determines that it is unable to continue its business.
        Each member must address the above-listed categories to the extent applicable and necessary. If any of the above-listed categories is not applicable, the member's business continuity plan need not address the category. The member's business continuity plan, however, must document the rationale for not including such category in its plan. If a member relies on another entity for any one of the above-listed categories or any mission critical system, the member's business continuity plan must address this relationship.
        (d) Members must designate a member of senior management to approve the plan and he or she shall be responsible for conducting the required annual review. The member of senior management must also be a registered principal.

        (e) Each member must disclose to its customers how its business continuity plan addresses the possibility of a future significant business disruption and how the member plans to respond to events of varying scope. At a minimum, such disclosure must be made in writing to customers at account opening, posted on the member's Internet Web site (if the member maintains a Web site), and mailed to customers upon request.

        (f) For purposes of this rule, the following terms shall have the meanings specified below:

        (1) "Mission critical system" means any system that is necessary, depending on the nature of a member's business, to ensure prompt and accurate processing of securities transactions, including, but not limited to, order taking, order entry, execution, comparison, allocation, clearance and settlement of securities transactions, the maintenance of customer accounts, access to customer accounts and the delivery of funds and securities.

        (2) "Financial and operational assessment" means a set of written procedures that allow a member to identify changes in its operational, financial, and credit risk exposures.
        Adopted by SR-NASD-2002-108 eff. Aug. 11, 2004 (Clearing Firms), Sep. 10, 2004 (Introducing Firms).

        Selected Notice: 04-37.

      • 3520. Emergency Contact Information

        This rule is no longer applicable. NASD Rule 3520 has been superseded by FINRA Rule 4370. Please consult the appropriate FINRA Rule.

        (a) Each member shall report to NASD, via such electronic or other means as NASD may specify, prescribed emergency contact information for the member. The emergency contact information for the member includes designation of two emergency contact persons. Each emergency contact person shall be a member of senior management and a registered principal of the member.

        (b) Each member must promptly update its emergency contact information, via such electronic or other means as NASD may specify, in the event of any material change. With respect to the designated emergency contact persons, each member must identify, review, and, if necessary, update such designations in the manner prescribed by Rule 1160.
        Amended by SR-NASD-2007-034 eff. Dec. 31, 2007.
        Adopted by SR-NASD-2002-108 eff. June 14, 2004.

        Selected Notices: 04-37, 07-42.