Firm Supervisory Responsibilities When Using Another Entity to Transmit OATS Data on the Firm's Behalf

February 10, 2004

 

NASD is publishing this article to provide guidance to member firms on supervisory responsibilities when using another entity to transmit OATS data on the firm's behalf. If a firm utilizes another member or non-member entity ("Reporting Agent") to record and transmit OATS data on its behalf, the member firm is still required to have written supervisory procedures to ensure compliance with the OATS rules. A contractual arrangement, no matter how comprehensive, will not relieve a member of its responsibilities under the OATS Rules.

 

Under NASD Rule 6955(c), member firms that use a Reporting Agent to record and transmit their OATS data must have an executed copy of the written agreement with that entity that specifically outlines the responsibilities of each party. (For more details, please see the article entitled OATS and Third Party Contracts in this edition of the OATS Report.) Each Reporting Member, however, is ultimately responsible for its own data, notwithstanding the existence of such an agreement. Also, it is imperative that NASD member firms determine in which OATS Phase they are required to report and that this determination is clearly and accurately communicated to the Reporting Agent to ensure that order information is submitted accordingly. As with any firm already reporting under the first two OATS Phases, NASD holds Phase 3 firms that currently report data voluntarily wholly responsible for the integrity of the reported data.

 

Articles in the December 2000 and February 2001 editions of The OATS Report, both entitled OATS Written Supervisory Procedures, provide guidance on what member firms should include in written supervisory procedures when using a Reporting Agent. In sum, written supervisory procedures should, at a minimum: (1) identify the individual responsible for the review of OATS reporting, including, but not limited to, the repair of rejections; (2) describe specifically what type of review(s) will be conducted; (3) specify how often the review(s) will be conducted; and (4) describe how the review(s) will be evidenced. These procedures should incorporate frequent reviews by the firm of the data posted on the OATS Web Interface. NASD staff strongly recommends that firms conduct their supervisory reviews on a daily basis.

 

Members also need to ensure that the data reported on their behalf is transmitted in a timely fashion and that it is complete and accurate. Among other things, firms should review to verify that: (1) their data is sent to OATS by 0400 the following calendar day; (2) the data is complete with no missing events; and (3) the data is accurate with all of the appropriate data fields reported correctly. As noted above, NASD staff recommends that each of these reviews be conducted on a daily basis.

 

An integral part of any such review should be checking the OATS Web interface to view rejected data. In addition, Reporting Members can check the FORE Status Notification to ensure that OATS received the FORE file sent by their Reporting Agent and whether OATS accepted the file. They can check Statistics on the number of reported order events ("ROEs") transmitted and rejected to ensure that the Reporting Agent is reporting all such events. They can also check their Order/Trade Matching Statistics if they are also responsible for submitting OATS Execution Reports.

 

By using the OATS Web interface, Reporting Members also can access more specific information regarding the Rejected ROEs that need to be reviewed and, if appropriate, can repair and resubmit them to OATS. Accepted OATS data, which is not available directly on the OATS Web interface, also will need to be reviewed to ensure it is complete and accurate. Further, repaired and corrected data will need to be saved and maintained as part of a member's records [see OATS Rule 6954(a)(4)(A) on maintenance of OATS data].

 

Should you have any questions about this or other OATS matters, you may contact the OATS Business Help Desk by calling (800) 321-NASD or by sending an e-mail.

Last Updated: 2/10/2004