OATS Compliance Sweeps
March 24, 2005
NASD has recently made several changes to the OATS Compliance Sweeps that are conducted by the Market Regulation Department. The following list highlights some of the more significant sweeps conducted by the Market Regulation OATS Team and the changes that have been implemented recently for each type of review. Members should note that the following is not a comprehensive list of all reviews conducted by the Market Regulation OATS Team, and should ensure they have adequate supervisory systems in place to provide for compliance with all aspects of the OATS Rules.
- Monthly Review of Significant Changes in a Member's Reporting Behavior - This review is conducted on a monthly basis to identify potential non-reporting issues. OATS analysts review each firm's reported volume during the month and contact those firms with a deviation from their historic norms. Firms are contacted by phone and will be asked to confirm the conversation via email. Depending on the facts and circumstances presented to the staff during the initial phone inquiry, Market Regulation may determine to open a formal review.
- OATS Integrated Sweep - The OATS Integrated sweep is conducted on a quarterly basis and includes the review of a firm's late reporting, executions that cannot be matched to an ACT or TRACS trade report, and routes that do not match to an Order Entry Report in SuperMontage1. Those firms displaying the highest levels of non-compliance each quarter are selected for review.
- Reject Repair Sweep - Originally a component of the OATS Integrated Sweep, the Reject Repair sweep is now conducted as a separate review on a quarterly basis. This sweep identifies firms that fail to repair rejected order events that the OATS system has flagged as being repairable. Firms exhibiting the highest percentages of unrepaired rejections are selected for review.
- Out of Sequence Sweep - The Out of Sequence Sweep identifies firms with order events that appear to have been reported out of sequence, thus bringing into question the accuracy of the timestamps on the individual order events. For example, the order-received timestamp (the time a firm received an order) on a firm's OATS New Order Report should contain a time prior to, or equal to, the order event timestamp on any subsequent order events submitted to OATS, such as a Route Report or an Execution Report.
- New Firm Sweep - NASD contacts all new firms to ensure that they report data to OATS on a timely basis as appropriate for their business model. For example, if during the registration process a firm states it will have an electronic order handling system in operation by 4/25/05, NASD will monitor to ensure that data is submitted starting on that day. If no data is submitted on that date, the firm is contacted to determine whether the firm has put its system into production or if its business model has otherwise changed.
In addition to the regularly scheduled sweeps outlined above, NASD plans to conduct several special reviews during 2005. The first review will be focused on firms failing to match route reports to the related new order report when an order is routed electronically between members. NASD is undertaking a special review focused on firms' historical compliance with the order/route matching requirements. This historical review will cover an extended period of time to ensure firms' performance can be accurately assessed. Firms should anticipate that data as far back as 2003 may be in included in the review.
The second special review planned for 2005 involves a comprehensive look at members' supervisory systems relating to OATS. Every OATS reporting firm will be asked to provide certain information regarding its OATS supervisory system. NASD plans to conduct this review via an automated format whereby members may provide a response through a secure website. More information regarding this review will be made available in the near future. Firms should begin reviewing their supervisory systems now in anticipation of this review.
Should you have any question regarding the OATS Compliance Program, or on OATS in general, please contact the OATS Helpdesk at 1-800-321-NASD.
1 For matching requirements please consult the OATS Reporting Technical Specifications document.