OATS and Third Party Contracts

February 10, 2004

 

NASD member firms may contractually arrange for another member firm or non-member entity to transmit order events to OATS on their behalf. Such arrangements must clearly specify the responsibilities of each party with respect to OATS reporting.

 

As required under NASD Rule 6955(c), Reporting Members using a third party to record and transmit their OATS data must have a written agreement that specifies the responsibilities of each party. Each Reporting Member, however, is ultimately responsible for its own data, notwithstanding the existence of such an agreement.

 

At a minimum, a contractual arrangement with a third party Order Sending Organization ("OSO") must be executed by both parties and should account for the following:

 

1. A representation that the OSO is familiar with the OATS Rules and the OATS Reporting Technical Specifications.
2. A representation that the OSO has completed, or will complete, testing as described in the Technical Specifications.
3. An agreement to make reports to OATS in compliance with OATS Rules and Technical Specifications and any subsequent modifications thereto.
4. An agreement that any records of OATS data prepared on behalf of the member firm and maintained by the third party are the property of the member firm and shall be surrendered promptly upon such member firm's request.
5. An agreement regarding whose responsibility it is to review the OATS Web site for rejections and the submission of appropriate repairs, late reporting, non-reporting, and other reporting infractions.
6. An agreement to promptly notify the member firm upon the occurrence of any event, including physical damage, that limits the OSO's ability to make OATS reports on behalf of the firm.

A contractual arrangement, no matter how comprehensive, will not relieve a member of its responsibilities under the OATS Rules. The above provisions are merely suggestions of the types of issues that a member must consider in contracting another entity to fulfill its OATS reporting requirements.

 

Regardless of who transmits the data on behalf of the firm, it is imperative that the firm has written supervisory procedures in place to ensure that the information reported is timely, accurate and complete. (For more information on this please see the article entitled Firm Supervisory Responsibilities When Using Another Entity to Transmit Data on the Firm's Behalf in this edition of The OATS Report.)

 

Additionally, it is imperative that NASD members determine what OATS Phase they are to be reporting in and that this information is communicated to the OSO to ensure that order information is submitted accordingly.

 

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