Source NTM

Type of Business

Summary Description

NtM 06-61 advises firms that the SEC has approved Rule 3170 that requires certain notices previously sent to the NASD via email or facsimile to be submitted electronically through the Regulation Filing system. (note – this is the same system used in filing FOCUS or reviewing contact information.  

Beginning on January 1, 2007, notices that must be sent through electronic submission include, but are not limited to, withdrawals of equity capital, electronic storage media, replacement of accountant, net capital deficiency, aggregate indebtedness is in excess of 1200 percent of net capital, net capital is less than 5 percent of aggregate debit items, net capital is less than 120 percent of required minimum dollar amount, failure to make and keep current books and records, and material inadequacy in accounting systems, internal controls, or practice and procedures

Templates will be available on the NASD website. Notifications regarding electronic storage media and replacement of accountant will require PDF attachments.  Please note that the electronic filing of these notices with the NASD does not affect requirements in those rules to file notices with the SEC or other regulatory authorities.

Effective March 6, 2007,  general securities firms are required to include a statement in all brokerage account statements advising customers they should report any inaccuracies or discrepancies in their accounts promptly.  Such statements must include contact information for both the introducing and clearing firm, where these firms are different, and should advise the client that any oral communications should be followed up in writing to further protect their rights under the Securities Investor Protection Act. For more information, please refer to amended Rule 2340.

Effective November 8, 2006, Rule 2320(a) on Best Execution was amended to require those firms providing execution services to clients of other broker/dealers to exercise the same diligence in providing best execution to these orders as they do to orders for their own clients and accounts. This does not apply when orders are simply being executed against a quote made by the dealer receiving the order.

Effective October 9, 2006, securities in the NASDAQ-100 index are exempted from requirement under Rule 5100.  This Rule requires all short sales in NASDAQ Global Market (NGM) securities except those exempted by the Rule or which qualify for another exception, effected other than on an exchange, to be made at or below the current national best (inside) bid (NBM) if this bid is below the preceding NBM.   

Rule 1017 requires that a member submit an application to NASD for approval prior to, among other things, making a “material change in business operations,” which is defined in Rule 1011.  IM-1011-1 creates a safe harbor for certain types of expansions that are presumed not to be a “material change in business operations” and therefore do not require NASD approval.  Effective November 3, 2006, amendments were made to IM-1011-1 to limit the types of violations under Rule 2110 (Standards of Commercial Honor and Principles of Trade) and the Securities Act of 1934, which would prevent a firm from expanding the number of representatives or offices a firm could add under the safe harbor. These violations include but are not limited to unauthorized trading, churning, conversion, material misrepresentation, front-running and excessive mark-ups.