FINRA - Written Supervisory Procedures Checklist

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Written Supervisory Procedures Review Checklist

2008

(Complete only applicable areas)

The Written Supervisory Procedures Checklist (“WSP Checklist”) is an outline of selected key topics representative of the range of business activities typically proposed by applicants seeking approval to become FINRA members or to expand their existing securities business under the NASD Membership and

Registration Rules.

As part of the application process, applicants are required to submit a completed WSP Checklist, together with a copy of their Written Supervisory Procedures (“WSPs”). FINRA staff reviews the checklist and the WSPs in conjunction with its determination of whether the applicant meets the standards for admission

specified in NASD Rule 1014(a).

Note that the outline of topics in the WSP Checklist is not all-inclusive and does not necessarily represent all of the areas of inquiry that the staff will make when evaluating supervisory procedures proposed in an application. The full extent of the staff's inquiry and evaluation will depend on a number of factors, including

the precise nature of the proposed business activities.

In addition, applicants are advised that approval of a firm's proposed WSPs during the application process is not a safe harbor with respect to potential supervisory deficiencies. Among other things, the nature of the business actually conducted by a firm, the manner in which the WSPs are implemented and followed, and

the extent to which the firm updates and revises its procedures to reflect operating experience and change (both regulatory and operational) are important factors in determining future compliance with NASD Conduct Rules. The Written Supervisory Procedures are a “living document” and should provide a road map for the

supervisory personnel to follow when they conduct each review. Written Supervisory Procedures should be updated not only to reflect changes to rules and regulations, but also when changes are made to the supervisory process.

IMPORTANT NOTE: This outline of topics should not be considered by the user to include all topics and issues applicable to the user's business. It is merely to be used as an aid in preparing written supervisory procedures.

Certain references to specific rules and other guidance have been provided for some topics and line items contained within the checklist, although the list of references may not be exhaustive. Please review all references relevant to the firm’s business plan prior to completing and submitting the checklist.

ADVISORY: Members should be aware that the requirements of Rule 3012 (Supervisory Control System) and Rule 3013 (Annual Certification of Compliance and Supervisory Processes) are separate and distinct from the requirement pursuant to Rule 3010(b) (Written Procedures) that members create and maintain Written Supervisory Procedures.

Members seeking guidance on compliance with Rule 3012 and Rule 3013 are encouraged to visit the Supervisory Control Web page FINRA has created to assist members in complying with Rule 3012 and Rule 3013 (http://www.finra.org/supervisorycontrol). The Supervisory Control Web page contains rule filings, Notices to Members, and other publications relating to Rule 3012 and Rule 3013. Included in this material is an outline of the requirements of Rule 3012 and Rule 3013. The outline is located in the “Additional Guidance” section of the Supervisory Control Web page.


WRITTEN SUPERVISORY PROCEDURES CHECKLIST
Section	Topic	ITEM REQUIRED TO BE ADDRESSED	Reference: Unless otherwise noted, Rule references are to NASD Rules.		Page No.	Supervisor Assigned	When Reviewed (frequency)	How Review is Evidenced
General Administration		GENERAL ADMINISTRATION
General Administration	Form Filings	A. Form Filings
General Administration	Form Filings	Form BD Amendments	NASD By-Laws Art. IV, Section 1- Application for Membership
General Administration	Form Filings	Form U4/Form U5	NASD By-Laws Article V, Sections 2 (Application for Registration) and 3 (Notification of Termination; Amendments to Notification); NTM 03-65, Rule 3070 Reporting Requirements
General Administration	Form Filings	Fingerprint Cards	SEC Rule 17f-2 - Fingerprinting of Personnel
General Administration	Form Filings	Designation of principal responsible for supervision of form filings	Form Filing NASD Rule 1140 - Electronic Filing Rules
Firm Supervision and Oversight	Designation of Supervisors	Designation of Executive Representative	NASD By-Laws Art. IV, Section 3, 1150
		Updates to NASD Contact System	Rule 1140
General Administration	Regulatory Fees	NASD Fees and Assessments	NASD By-Laws, Schedule A; MSRB Rules A-13 and A-14 (if applicable)
		Trading Activity Fee Reporting Requirements	NASD By-Laws, Schedule A, Section 2 - Member Regulation Fees, NTM 04-84 - Guidance on the Trading Activity Fee.

		B. Business Continuity Plan
General Administration	Business Continuity Plan	Business Continuity Plan: 1) identify Emergency Contact Persons 2) data backup and recovery 3) mission critical systems 4) periodic assessment of financial and operational risks 5) alternate communications during emergency 6) providing an alternate physical location for employees 7) impact of disruption on critical counterparts 8) regulatory reporting and communication with regulators 9) provide for customer's prompt access to funds and securities in the event that the firm is unable to continue its business; 10) disclosure requirements of Rule 3510; 11) address the requirements for updating, annual review, and senior management approval positions; 12) address the requirements for updating, annual review, and senior management approval positions	3500 Emergency Preparedness, 3510 - Emergency Contact Information, MSRB Rule G-40 - Electronic Mail Contacts

		II. PERSONNEL
		A. Hiring Practices, Registration and Qualifications
Personnel	Hiring Practices	Investigation of Background and Qualifications	3010(a)(6) - Determining qualifications by experience and training; 3010(e) - Qualifications Investigated; MSRB Rule G-7- Info concerning associated persons.
Personnel	Hiring Practices	Hiring procedures	NTM 97-19 Guidance on Heightened Supervision, improved hiring procedures for registered reps; 03-49 - Proposed Heightened Supervision Requirements
Personnel	Hiring Practices	Screening for SD persons hired in clerical or ministerial positions	Rule 3010; NASD ByLaws, Article III - Qualifications of Members and Associated Persons
Personnel	Hiring Practices	Parking of Securities Registrations	NASD ByLaws, Article III, Section 1; Rule 1031(a)
Personnel	Qualification and Registration	Determine qualifications of Supervisory Personnel	3010(a)(6) and (b)(3); NTM 99-45 NASD Guidance on Supervisory Responsibilities
Personnel	Qualification and Registration	Municipal securities personnel, including representatives, principals, apprentices	MSRB Rule G-3 Classifications of Principals and Representatives
Personnel	Qualification and Registration	Registration of trading personnel.*	Rule 1022, NTM 00-46 - Equity Trader Registration Requirement
Personnel	Qualification and Registration	All associated persons are properly registered	NASD By-Laws, Article III, Section 2; 1070 - Qualification Exams and Waiver of Requirements; MSRB Rules G-2 & 3; 1021; 1022; IM-1022-1; IM-1022-2; 1030; 1032 - Categories of Representative Registration; 1040 - Registration of Associated Persons and Proctors; 1100 - Foreign Associates
Recordkeeping	Associated Person Records	Records for all Associated Persons	SEC Rule 17a-3(a)(12); NTM 01-80* Amendments To Broker/Dealer Books And Records Rules Under Rule 10b-10*
		B. Continuing Education
Personnel	Continuing Education	Required attendance at annual compliance meeting	3010(a)(7) - Rep and principal participation in compliance meeting not less than annually; NTM 99-45 - NASD Guidance on Supervisory Responsibilities
Personnel	Continuing Education	CE Contact person; Person responsible for firm's Continuing Education Program	NASD Rule 1120; NTM 04-22 Amendment to CE Requirements Regarding Regulatory Element Contact Person, 02-77 Registration Category for Proctors of In-Firm Delivery of Regulatory Element; 98-59 - SEC Approves Amendments to CE Requirements, MSRB Rule G-3
Personnel	Continuing Education	Monitor compliance with Regulatory Element: (i) prompt notification of persons required to sit for CBT; (ii) track registered persons to ensure they sit for CBT; (iii) monitor inactive registrations; and (iv) designate contact person with NASD	NASD Rule 1120; 98-59, 02-77; MSRB Rule G-3
Personnel	Continuing Education	Firm Element - requirement to prepare an annual:- (i) written needs analysis; (ii) written training plan; (iii) maintenance of training material and media used; and (iv) record of persons receiving training and other books and records.	NASD Rule 1120; 98-59, 02-77; MSRB Rule G-3

		III. FIRM SUPERVISION AND OVERSIGHT
		A. Supervisory System
Firm Supervision and Oversight	Designation of Supervisors	Designation of Supervisors and Supervisory Duties For Each Supervisor - include location of supervisor; title; date duties assumed; registration status (maintain for 3 years)(include Chief Compliance Officer as appropriate)	3010(a)(2) - Supervisor for each type of business; 3010(b)(3) - Designation of Offices of Supervisory Jurisdiction; NTM 99-45 NASD Provides Guidance on Supervisory Responsibilities
Firm Supervision and Oversight	General Supervisory Obligations	Assign each registered rep to a supervisor and create a record of all reps supervised by each supervisor	3010(a)(5); NTM 99-45
Firm Supervision and Oversight	Designation of Supervisors	Designation of branch supervisor	3010(a)(4) - Designations of principals and representatives in each OSJ
Firm Supervision and Oversight	General Supervisory Obligations	Distribution of procedures and amendments	3010(b)(4)- Copy of WSPs at each location
Firm Supervision and Oversight	General Supervisory Obligations	Periodic review of business and supervisory system	3010(c) Internal inspections; MSRB Rule G-27 - Duty to update and review written procedures

		B. General Supervisory Obligations
Firm Supervision and Oversight	Employee Supervision	Gifts & Gratuities	3060 - Influencing or Rewarding Employees of Others; MSRB Rule G-20
Firm Supervision and Oversight	Employee Supervision	Non-cash compensation	2810 - DPPs, 2820 - Variable Contracts, 2830 - Investment Company Securities; 95-56 NASD Files With The SEC Proposals Related To Non-Cash Incentive Programs, Disclosure Of Cash Compensation, And Direct Payments To Associated Persons; 95-75 SEC Approves Amendment Regarding Trading In Anticipation Of The Issuance Of A Research Report
Firm Supervision and Oversight	Employee Supervision	Outside Business Activities	3030
Firm Supervision and Oversight	Employee Supervision	Private Securities Transactions	3040; 85-84 New Rule of Fair Practice Relating to Private Securities Transactions; 94-44 Board Approves Clarification On Applicability Of Article III, Section 40 Of Rules Of Fair Practice To Investment Advisory Activities Of Registered Representatives; 96-33 NASD Clarifies Rules Governing RR/IAs
Firm Supervision and Oversight	Employee Supervision	Obligations related to associated persons with accounts at other b/ds	3010(c), 3050 - Transactions for of by Associated; 3050(d) - Obligations of Associated Persons Concerning an Account with a Notice Registered Broker/Dealer, Investment Adviser; Bank or Other Financial Institution; 91-27 Associated Person Notifying Employer Prior to Opening Securities Account With Another Member; 97-25 NASD Interpretive Position—NASD Rule 3050—Transactions For Or By Associated Persons; MSRB Rule G-28 – Transactions with Employees and Partners of Other Municipal Securities Professionals
Firm Supervision and Oversight	General Supervisory Obligations	Transactions with employees and partners of other municipal securities professionals.	MSRB Rule G-28
Firm Supervision and Oversight	Employee Supervision	Sharing in Customer Accounts	2330(f); NTM 03-21
Firm Supervision and Oversight	Employee Supervision	Borrowing and lending between associated persons & customers	2370; - Borrowing From or Lending to Customers; NTM 03-62; 04-14
Firm Supervision and Oversight	Employee Supervision	Investment Advisor Activities of Associated Persons	3040 - Private Securities Transactions of an Associated Person; NTM 91-32 Investment Advisor Compensation Arrangements; NTM 94-44 - Clarification [Regarding] Investment Advisory Activities Of Registered Representative , NTM 96-33 NASD Clarifies Rules Governing RR/IAs
Firm Supervision and Oversight	General Supervisory Obligations	Supervision of Outsourcing Arrangements	Rule 3010; NTM 05-48* Members' Responsibilities When Outsourcing Activities to Third-Party Service Providers*
Firm Supervision and Oversight	Employee Supervision	Heightened supervision (including registered persons from a disciplined firm)	Rule 3010; NTM 97-19* NASD & NYSE Guidance on Heightened Supervision*
Firm Supervision and Oversight	Employee Supervision	Supervision of Statutorily Disqualified Individuals	NASD By-Laws, Article III, Sections 3 and 4; Form MC-400; 3070* - Reporting Requirements; MSRB Rules G-4 and G-5*
Firm Supervision and Oversight	Employee Supervision	Review of Individual Investor Files and Registered Representative Correspondence with Customers (mutual funds)
Firm Supervision and Oversight	Employee Supervision	Supervision of Traders	NASD Rule 3010, NTM 98-96
Firm Supervision and Oversight	Exception Report Utilization	Use of Exception reports & other reports	3230(c) Exception reports provided by clearing firms, NTM 99-57 - SEC Approves Rule Amendments Governing Clearing Firms and Their Introducing Firm Clients’ Relationship
Trading/Market Making	Trade Reporting	Procedures Regarding Utilization of Regulation Compliance Report Cards*	http://www.nasdaqtrader.com/trader/ptd/samplereports.stm

		C. Review of Accounts and Correspondence
Firm Supervision and Oversight	Correspondence Review	Correspondence - incoming, outgoing, including facsimiles and electronic messages (e-mail, instant messages, etc.)	3010(d); SEC Rule 17a-4(b)(4); NTM 98-11 SEC Approves Rules Regarding Supervision, Review, and Record Retention of Correspondence; NTM 99-3 SEC Approves Rule Amendments Requiring Review Of Incoming, Written Correspondence; NTM 01-80 Amendments to Broker/Dealer Books and Records Rules Under the Securities Exchange Act Of 1934; NTM 03-33 Clarification for Members Regarding Supervisory Obligations and Recordkeeping Requirements for Instant Messaging; SEC Rule 17a-3(a); MSRB Rule G-27(d) Review of Correspondence
Firm Supervision and Oversight	Employee Supervision	Periodic Customer Account Review	3010(d); MSRB Rule G-27(c)
Firm Supervision and Oversight	General Supervisory Obligations	Opening accounts and transactions involving persons associated with other broker/dealers	3050
Firm Supervision and Oversight	General Supervisory Obligations	Transactions involving NASD and AMEX employees (regulatory staff as account holders)	3090, duplicate account statements
Firm Supervision and Oversight	General Supervisory Obligations	Supervisory Responsibilities	MSRB Rule G17 to G-27
Firm Supervision and Oversight	Employee Supervision	Front Running	IM 2110-3 - Front Running Policy
Firm Supervision and Oversight	Taping Rule	Taping Rule: specify minimum percentage of recordings; identify one or more senior persons w/ training to review recordings; consideration of disciplinary history of any RR whose phone conversations are being recorded; maintenance of records documenting how and when recordings are reviewed; monitoring to ensure compliance with procedures.	3010(b)(2) Tape Recording of Conversations; NTM 05-46 Taping Rule; NTM 02-61 SEC Approves Proposed Changes to the Taping Rule and NASD Interpretive Material 8310-2
		D. Branch Supervision
Firm Supervision and Oversight	Branch Supervision and Inspections	Designation of Offices of Supervisory Jurisdiction (OSJ)	NASD By-Laws Article III, IV Section 8; 3010(a)(3); 3010(g)
Firm Supervision and Oversight	Branch Supervision and Inspections	Supervision of non-branch location and off-site locations	3010(a); NTM 86-65 - Employment and Supervision of Off-Site Personnel, 04-71 - Supervision and Supervisory Controls
Firm Supervision and Oversight	Branch Supervision and Inspections	Supervision of Offices of Supervisory Jurisdiction and Branch Offices	3010(a)
Firm Supervision and Oversight	Branch Supervision and Inspections	Activities on the Premises of a Financial Institution	2350 - Broker/Dealer Conduct on the Premises of Financial Institutions; 94-47 SEC Issues Policy Governing Broker/ Dealer Activity On Bank Premises; 95-49 NASD Clarifies Use Of Bank And Financial Institution Logos And Names; 97-26 NASD Regulation Files Amendment To Bank Broker/Dealer Rule With The SEC; 97-89 SEC Approves Bank Broker/Dealer Rule
Firm Supervision and Oversight	Branch Supervision and Inspections	Mandatory annual inspection of all branch and non-branch locations; Schedule for inspections; Requirements for Inspection Reports; Maintenance of written inspection reports.	3010(c)(1)
Firm Supervision and Oversight	Branch Supervision and Inspections	Documentation of limited size and resources exception from inspection requirements (if applicable)	3010(c)(3); 3012(a)(2)(A)(ii)
Firm Supervision and Oversight	Branch Supervision and Inspections	Heightened office inspections of branch and non-branch locations	3010(c)(3)
Firm Supervision and Oversight	Branch Supervision and Inspections	Supervision of Branch Offices - Options Business	2860(b)(20)(C)
Firm Supervision and Oversight	Branch Supervision and Inspections	Branch Reviews	3010(c)

		E. Insider Trading
Firm Supervision and Oversight	Monitoring for Insider Trading	Periodically reviewing employee and firm trading	SEC Rule 10b-5; NTM 89-05 - Insider Trading and Securities Fraud Enforcement Act of 1988; NASD Rule 2110; 3010; IM-2110-4 Trading Ahead of Research Reports
Firm Supervision and Oversight	Monitoring for Insider Trading	Criteria for investigating suspect trades
Firm Supervision and Oversight	Monitoring for Insider Trading	Require employee to sign attestation	NTM 91-45 Joint Memo on Chinese Wall Policies and Procedures
Firm Supervision and Oversight	Monitoring for Insider Trading	Update employees on new or revised insider trading rules and regulations
Firm Supervision and Oversight	Monitoring for Insider Trading	Definition of Material, Non-Public Information, Insiders, and other relevant terms and prohibitions – NTM 89-05	SEC Rule 10b-5; NTM 89-05 - Insider Trading and Securities Fraud Enforcement Act of 1988; NASD Rule 2110; 3010
Firm Supervision and Oversight	Monitoring for Insider Trading	Policies and Procedures on access to and utilization of material, non-public information
Firm Supervision and Oversight	Monitoring for Insider Trading	Tools and methods for inhibiting/ monitoring transactions in restricted securities
Firm Supervision and Oversight	Monitoring for Insider Trading	Chinese Wall Procedures including: (1) method for determining whether firm trading should be restricted; (2) determining and identifying activities that are restricted while security is on list; (3) monitoring associated persons' trading of restricted security; (4) time period covered and frequency of review; (5) recording details of associated persons' trade in restricted security; and (6) creation and maintenance of documentation to evidence supervisory reviews.	91-45 NASD/NYSE Joint Memo on Chinese Wall Policies and Procedures; 91-27 Associated Person Notifying Employer Prior to Opening Securities Account With Another Member; IM 2110-4 - Trading Ahead of Research Reports
Firm Supervision and Oversight	Monitoring for Insider Trading	Procedures to detect transactions in Restricted/control securities, e.g. Compliance, Gray or Watch Lists, etc.	SEC Rule 144 - Selling Restricted and Control Securities
		Securities Transactions for Personal and Family-Related Accounts	Rule 2110

		F. Anti-Money Laundering Program
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	Designate AML Contact person	3011(d)
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	Designation of AML Compliance Officer to NASD
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	Written Anti-Money Laundering Compliance Program approved in writing by senior management of the firm	3011
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	Establish and implement policies and procedures that can be reasonably expected to detect and cause the reporting of suspicious transactions	3011
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	Bank Secrecy Act; Reporting Suspicious Transactions; Recordkeeping for Funds Transfers	SEC Rule 17a-8, NTM 89-12, 97-13
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	Independent testing of the firm's AML Compliance Program	3011(c)
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	On-going training of appropriate personnel	3011
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	Identification and verification of customers, including a Customer Identification Program: Account documentation; verification of identify of customer or persons with trading authority; Description of when and how the b/d will use documentary methods, non-discretionary methods or both; Maintain records of information used to verify identity; Description of policy when firm can not obtain adequate verification of identity; and CIP approved in writing by Senior Management.	Section 326 of the USA Patriot Act; NTM 03-34
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	Determination if customer appears on any list of known or suspected terrorists or terrorist organizations, such as those listed on the Treasury's Office of Foreign Assets Control (OFAC) Web site, as well as on the list of embargoed countries and regions on the OFAC List
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	Responding to information requests from FinCEN concerning money laundering or terrorist financing, including how the firm will protect the security and confidentiality of the information requests	U.S. Patriot Act, section 314, and Bank Secrecy Act
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	Sharing information with other financial institutions, if applicable (including requirement to provide annual sharing agreement to FinCEN)	U.S. Patriot Act, section 314, and Bank Secrecy Act
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	If firm does not open or maintain correspondent accounts for foreign banks it must have internal controls implemented to detect any attempt to open such an account
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	If firm opens or maintains correspondent accounts for foreign banks, it must:
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	(i) obtain the name and address of an agent residing in the United States who is authorized to accept service of legal process for records on behalf of foreign bank correspondent accounts
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	(ii) identify the owners of foreign banks that maintain correspondent accounts in the United States and retaining applicable records
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	(iii) provide information to federal law enforcement officers not later than seven days after receipt of request
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	(iv) terminate correspondent relationships with a foreign bank not later than ten business days after notification by the Secretary of the Treasury or the Attorney General that the firm has failed to comply with a summons or contested a summons
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	(v) (Effective date to be determined) Due diligence review for correspondent accounts of foreign financial institutions
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	Determine the identity of the nominal and beneficial account holders and the source of funds deposited into "private banking accounts," and to conduct enhanced scrutiny of accounts of a senior foreign political figure
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	If the firm does not open or maintain private banking accounts for non-U.S. persons have internal controls in place designed to detect any attempt to open such an account.
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	Freeze accounts and prohibit transactions with persons who are suspected of terrorist activities pursuant to Executive Order #13224 that was issued through the Office of Foreign Assets Control (OFAC)
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	If the firm prohibits the receipt of currency: Procedures and internal controls to detect its receipt
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	Filing Currency Transaction Reports: Identify cash transactions for filing CTRs; Filing CTRs; Verify the identity of customers for filing CTRs		SEC Rule 17a-8; Bank Secrecy Act
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	Filing reports of International Transportation of Currency or Monetary Instruments		SEC Rule 17a-8; Bank Secrecy Act
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	Filing reports of Foreign Bank and Financial Accounts		SEC Rule 17a-8; Bank Secrecy Act
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	Obtaining all required information regarding the transmittal/re-transmittal of wire transfers that includes the transmitter and recipient of funds
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	Verifying the identity of customers in connection with wire transfers
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	Procedures to detect and report suspicious transactions by filing Suspicious Activity Reports (SAR-SF)		NTM 02-47
Firm Supervision and Oversight	Anti-Money Laundering Policies and Procedures	Record keeping requirements (currently a five-year requirement)		SEC Rule 17a-8; Bank Secrecy Act

		IV. SALES PRACTICES
		A. Communications with the Public
Sales Practices	Communications with the Public	Advertising & Sales Literature (including e-mail and Web sites)	2210 - Communications with the Public, 2220 - Options Communications with the Public; IM 2210-1 - Guidelines to Ensure that Communications with the Public are not Misleading; 93-73 Members' Obligations to Customers When Selling Collateralized Mortgage Obligations (CMOs); 93-85 SEC Approves Amendments to CMO Advertising Guidelines; 95-74 SEC Approves Amendments To Advertising And Sales Literature Filing And Review Requirements; 96-50 Supervisory And Other Obligations Related To Use Of Electronic Media; 98-3 Electronic Delivery Of Information Between Members And Their Customers; 98-107 NASD Reminds Members Of Their Obligations To Disclose Mutual Fund Fees; 00-15 SEC Approves Rule Change Relating To Filing Requirements For Independently Prepared Research Reports; 00-21 NASD Regulation Reminds Members Of Their Responsibilities When Advertising Recent Mutual Fund Performance; 02-39 SEC Approves Rule Governing Research Analysts' Conflicts of Interest; MSRB Rule G-21 – Advertising; SEC Rule 17a-3(a)(20) – communications with the public
Sales Practices	Communications with the Public	Cold callers/Telemarketing Scripts	2210, 2212, 3010(b)(2), 3110(g); NTM 95-54 Cold Calling Requirements , 96-44, 97-1 Approval of Telemarketing Amendments, 03-38 Member Communications with the Public; 04-15 Member Participation in the National Do-Not-Call Registry
Sales Practices	Communications with the Public	Institutional Sales Literature & Correspondence	2211; NTM 03-38
Sales Practices	Communications with the Public	Speaking Engagements; Scripts; Outlines; Media Participation; Chat Rooms	2210
Sales Practices	Communications with the Public	Sales Material for Municipal Fund Securities; 529 Plans	NTM 03-17 Sales Material for Municipal Fund Securities
Sales Practices	Communications with the Public	Options Communication with the Public	2220
Sales Practices	Communications with the Public	Sales Literature Review	2210

		B. Disclosures to Customers
Sales Practices	Customer Information and Disclosures	Customer Disclosure and Written Acknowledgment (Business on Premises of Financial Institution)	2350(c)(3)
Sales Practices	Customer Information and Disclosures	Communications related to SIPC coverage	SIPC By-Laws, Article 11, Section 4
Sales Practices	Customer Information and Disclosures	Material Event & Customer Complaint Reporting	3070
Sales Practices	Customer Information and Disclosures	Regulation SP of Gramm Leach Bliley: requirement to provide initial, annual & revised privacy policy notice; description of how and when policy is distributed to customers; administrative, technical & physical safeguard of information; and testing of firewalls.	Regulation SP - Privacy of Consumer Financial Information
Sales Practices	Customer Information and Disclosures	Investor Education	2280 - Investor Education and Protection
Sales Practices	Customer Information and Disclosures	Mortgage Backed Securities: Risk Disclosures for mortgage-backed products, e.g. prepayment risk; spread risks; interest rate risks; Disclosure of principal returns	Regulation AB - Regulation Asset Backed Securities
Sales Practices	Customer Information and Disclosures	CMOs: Disclosure about Collateralized Mortgage Obligation products and their risks	IM-2210-1; IM-2210-8* Communications with the Public About Collateralized Mortgage Obligations, 93-85 SEC Approves Amendments to CMO Advertising Guidelines* 93-73 Members' Obligations to Customers When Selling Collateralized Mortgage Obligations (CMOs)
Sales Practices	Customer Information and Disclosures	Delivery of disclosure documents	2860(b)(11) - Delivery of Current Disclosure Documents
Sales Practices	Customer Information and Disclosures	Disclosures	SEC Rule 10b-9* - Prohibited Representations in Connection with Certain Offerings*
Sales Practices	Customer Information and Disclosures	Designated Securities/Penny Stocks	SEC Rules 15g(1)-(9); NTM 92-38* - SEC Adoption of Penny Stock Disclosure Rules*
Sales Practices	Customer Information and Disclosures	Payment for Order Flow - Policies, Procedures and Disclosures to Customers	2110; SEC Rules 10b-10, 11Ac1-3 - Customer Account Statements: Payment for order flow disclosures
Sales Practice	Customer Information and Disclosures	Disclosures for bank-affiliated broker-dealers, e.g. statement that investment is not FDIC insured, price fluctuates, etc.	2350(c ) - Standards for Member Conduct
Sales Practices? Municipal Securities	Customer Information and Disclosures	Disclosures to Customers; Disclosures in connection with new issues of municipal securities	MSRB Rule G-32 - Disclosures in connection with new issues
Sales Practices? Municipal Securities	Customer Information and Disclosures	Municipal Securities Disclosure; Disclosures by Issuer	SEC Rule 15c2-12 - Municipal Securities Disclosures
Sales Practices	Customer Information and Disclosures	Prohibition against guarantees	2330(e) - Prohibition Against Guarantees; SEC Rule 10b-5
Firm Supervision	General Supervisory Obligations	Conduct and Fair Dealing; Fraud	MSRB Rule G-17 - Conduct of municipal securities activities; SEC Rule 15c1-2 Fraud and Misrepresentation

		C. Customer Information Controls
Sales Practices	Customer Information Controls	New Account Review and Approval	2310(a)&(b), 3110(c); 3050; SEC Rule 17a-3; MSRB Rule G-8
Sales Practices	Customer Information Controls	Verification of customer’s background and financial information for options; Maintenance of background information	2860(b)(16)(c); 2860(b)(17)
Sales Practices	Customer Information Controls	Review/approve new options accounts	2860(b)(16), IM-2860-2

		D. Suitability
Sales Practices	Suitability	Suitability	2110 - Standards of Commercial Honor and Principles of Trade, 2310 - Recommendations to Customers - Suitability, 2310-2 Fair Dealing with Customers; 3110(a) - Creation and preservation of books and records; 2720(k) - Distribution of securities of members and affiliates - suitability; 2810(b)(2)-Direct Participation Programs suitability requirements; 2844 - Warrants; 2860(b)(19) – Options; NTM 96-86-Sale of Variable Contracts Subject to Suitability Requirements; MRSB Rule G-17 Prohibition against, unfair, dishonest, deceptive activities; MSRB Rule G-19 - Suitability of recommendations and transactions and discretionary accounts; NTM 03-07 - Member Obligations when Selling Hedge Funds; NTM 05-26 - New Products
Sales Practices	Suitability	Discretionary Accounts	2510 - Discretionary Accounts, 3110(c)(3) - Customer account information for discretionary accounts; MSRB Rule G-19 - Suitability of recommendations and transactions
Sales Practices	Suitability	Discretionary Accounts - Options	2860(b)(18) - Suitability
Sales Practices	Suitability	Sale of Designated securities/Penny Stocks	SEC Rules 15g(1)-(9); IM-2310-1 Possible Application of Penny Stock Rules; NTM, 92-38 - SEC Adoption of Penny Stock Disclosure Rules, 92-42 - Penny Stock Risk Disclosure Documents, 93-55 - SEC Amends and Clarifies Penny Stock Rules; SEC Rule 15c2-6
Sales Practices	Suitability Determinations and Reviews	Suitability; Review of subscription agreements	2310
Sales Practices	Suitability	Identification of Sophisticated Municipal Market Professionals (SMMPs)	Application of MSRB Rule G-17; Affirmative Disclosures, MSRB Rule G-19, Suitability; MSRB Rule G-13 - Quotations.
Sales Practices	Suitability	Minimum Denomination Amounts	MSRB Rule G-15; MSRB Rule G-17, MSRB Rule G-8
Sales Practices	Due Diligence	Hedge Funds Due Diligence Reviews	NTM 03-07 Obligations When Selling Hedge Funds; NTM 05-26 - Best Practices for Reviewing New Products
Sales Practices	Due Diligence	Due Diligence (Public/Private) review of prospective offerings and files	2310, 2810; SEC Rule 10b-5
Sales Practices	Suitability	Powers of attorney/Authority to act as agent on behalf of account/Third party	SEC Rule 17a-4(b)(6)
		Short sale recommendations	3350
		Suitability of Solicited Online Transactions	NTM 01-23 Online Suitability

		E. Fees Charged to Customers
Sales Practices	Fees Charged to Customers	Fair Pricing, Commissions and Fees Charged to Customers; Markups	2430 - Charges for Services Performed; 2440 Fair Prices and Commissions; IM-2440 - Markup Policy; MSRB Rules G-18 and G-30; 92-16 NASD Policies and Procedures for Markups/Markdowns in Equity Securities; 93-81 NASD Reminds Members of the Requirement for Fairness Of Agency Commissions And Applicability of the 5% Policy; 97-8 SEC Approves Quotation And Transaction Reporting Of Direct Participation Programs
Sales Practices	Fees Charged to Customers	Fee-based accounts	2110; NTM 03-68* NASD Reminds Members That Fee-Based Compensation Programs Must Be Appropriate*

		F. Transaction Review and Handling Customer Complaints
Sales Practices	Reviewing Transactions and Handling Customer Grievances	Customer Complaints	3110, MSRB Rules G-18(a)(xii) and G-10
Sales Practices	Reviewing Transactions and Handling Customer Grievances	Trade review (including unauthorized trading, churning, etc.)	SEC Rules 10b-5, 15c1-7; 2110, 2120, 2310, 3010; IM 2110-1; MSRB Rule G-27(c);
Sales Practices	Reviewing Transactions and Handling Customer Grievances	Customer Grievances - Options	2860(b)(17)(A)

		V. FINANCIAL AND OPERATIONAL ISSUES
		A. Financial Reporting
Firm Supervision and Oversight	FinOp Responsibilities	FinOp’s Duties and Responsibilities (including FinOps registered with multiple firms)		1022(b); 1022(c); NTM 06-23 NASD Reminds FinOps of their Obligations under NASD Rule 1022 and Issues Guidance to FINOPS who Work Part-Time, Work Off-Site or Hold Multiple Registrations
Financial and Operational	Filing of Focus and Related Forms	Financial Reporting/Backup – Net Capital Computation; FOCUS		SEC Rules 17a-5, 17a-11; NASD By-Laws, Schedule A; 3110
Financial and Operational	Filing of Focus and Related Forms	Policies and procedures to ensure timely filing of Schedule I annually. Note: If Firm has municipal securities revenue, include procedures for ensuring such revenue is recorded on Schedule I.
		B. Handling of Customer Funds and Securities
Financial and Operational	Handling of Funds and Securities	Net Capital Rule: Error procedures for handling customer funds received by fully-disclosed firms; handling customer funds in general; handling customer securities.	SEC Rules 15c3-1, 17a-11; NTM 92-72 SEC Adopts Significant Amendments to the Net Capital Rule, Proposes Others for Public Comment; NTM 93-30 NASD Provides SEC-Approved Clarifications and Interpretations to Recent Net Capital Rule Amendments; NTM 99-44 SEC Approves Interpretations and Allocation Chart For Proprietary Accounts Of Introducing Broker/Dealers
Financial and Operational	Handling of Funds and Securities	Customer Protection Rule: Reserve computations; quarterly box count; safekeeping and segregation of customer securities.	SEC Rule 15c3-3; 3140; NTM 99-44; SEC Rule 17a-13; SEC Rules 8c-1, 15c2-1, 15c3-3, 17a-13; 2330
Financial and Operational	Handling of Funds and Securities	Prohibition Against Improper Use of Customer Funds & Securities	2330; MSRB Rule G-25
Financial and Operational	Handling of Funds and Securities	Escrow Account Maintenance: Transmission or maintenance of payments received in connection with underwritings	SEC Rule 15c2-4
Financial and Operational	Handling of Funds and Securities	Receipt and reporting of cash receipts	SEC Rule 15c3-3

		C. Capital and Credit Regulation
Financial and Operational	Capital & Credit Regulation	Buy-In Procedures	Uniform Practice Code (UPC) Rule 11810(a)-(m) - Buying In
Financial and Operational	Capital & Credit Regulation	Sell-Out Procedures	UPC 11820(a)-(b) - Selling Out
Financial and Operational	Capital & Credit Regulation	Short Sale Close-out Procedures	UPC Rule 11830(a)-(c); 93-53* SEC Approves Amendments Relating to Close Outs of Short Sales and Bona Fide Fully Hedged or Arbitraged Positions*
Financial and Operational	Capital & Credit Regulation	Parking of Securities for Net Capital	2110; SEC Rules 10b-5, 15c3-1
Financial and Operational	Capital & Credit Regulation	Parking of Securities for Manipulation	2110; SEC Rules 10b-5, 15c3-1
Financial and Operational	Capital & Credit Regulation	Repurchase/Reverse Repurchase Transactions	SEC Rules 15c3-1, 15c3-3(b)(4)
Financial and Operational	Capital & Credit Regulation	Bonds Borrowed & Loaned Transactions	SEC Rule 15c3-3(b)(3)
Financial and Operational	Securities Clearance and Settlement	Uniform Practice - Municipals	MSRB Rule G-12
Financial and Operational	Reporting	Disclosure of firm balance sheets upon customer request	SEC Rule 17a-5

		D. Margin
Capital and Credit Regulation	Margin	Margin Requirements	2520 - Margin Requirements; Regulation T- Credit by Brokers and Dealers; 06-26 Amendments to Margin Rules to Reflect Additional Complex Option Spread Strategies; 98-102 Calculating Margin for Day-Trading and Cross-Guaranteed Accounts; 04-38 NASD Reminds Member Firms of Their Obligations to Adhere to Credit Extension Requirements and Day Trading Margin Rules; 01-26 SEC Approves Proposed Rule Change Relating to Day-Trading Margin Requirements; 98-102 Calculating Margin for Day-Trading and Cross-Guaranteed Accounts; 02-35 NASD Adopts Amendments Regarding the Posting of Margin Disclosure and Day-Trading Risk Disclosure Statements on Web Sites; 01-31 SEC Approves NASD Rule Proposal Requiring Delivery of Margin Disclosure Statement to Non-Institutional Customers; 03-66 SEC Approves Proposed Changes to NASD Rule 2520; 01-11 SEC Approves Proposed Rule Change Relating to Cash And Margin Treatment for Certain Types of Options Positions
Capital and Credit Regulation	Margin	Netting positions of accounts that are related or accounts under common control; Letters of authorization regarding guarantees/cross guarantees	NTM 98-65 - NASD Reminds Members of Obligations Relating to Short Sale Rule; Rule 2520 - Margin Requirements; 2520(f)(4) - Guarantees; 2520(f)(8)(B) - Special Initial and Margin Maintenance Requirements for Day Trading
Capital and Credit Regulation	Margin	Joint Back-Office Arrangements	2520; NTM 00-51 SEC Approves Proposed Rule Change Relating To Margin For Exempted Borrowers, Good Faith Accounts, Joint Back Office Arrangements, Control And Restricted Securities, And Options Transactions

		VI. RECORDKEEPING
Recordkeeping	Maintenance of Books and Records	Maintenance of Books and Records [main office; other offices; and update customer account information.]	SEC Rules 17a-3 and 17a-4; 3110; NTM 01-80 Amendments To Broker/Dealer Books And Records Rules Under Rule 10b-10, NTM 95-2 - SEC Adopts Changes to Rule 10b-10, 03-33; MSRB Rules G-8 and G-9; MSRB Rule G-15
Recordkeeping	Order Tickets	Order Tickets/ Order Ticket Procedures	2320, 2830; 3110; SEC Rule 17a-3(a); NTM 95-2, NTM 98-3* Electronic Delivery Of Information Between Members And Their Customers, 01-80; SEC Rules 10b-10, 17a-3; MSRB Rule G-15*
Recordkeeping	Confirmations	Confirmations	2320, 2830; IM 2230; NTM 95-2, 98-3, NTM 01-80
Recordkeeping	Confirmations	Confirmation Disclosure; Disclosure of Additional Information on Transaction Confirmations	2320; IM 2230; SEC Rule 10b-10; NTM 95-2
		Instant Messaging	03-33 Clarification for Members Regarding Supervisory Obligations and Recordkeeping Requirements for Instant Messaging
Recordkeeping	Maintenance of Books and Records	Municipal books and records to be created and preserved;	MSRB Rules G-8 and G-9

		VII. INTERNAL CONTROLS
Internal Controls	Account Transfers	Customer Account Transfers Contracts (ACATS)		3012; UPC Rule 11870(a)-(n)
Internal Controls	Account Transfers	Verification of customer signatures to transfer account, change address, etc.
Internal Controls	Branch Office Controls	Review of Order Entry and Account Access Centers and customer account access at branch offices.
Internal Controls	Branch Office Controls	Controls over branch office administrative and back-office functions		3012
Internal Controls	Clearing Firm Monitoring of Correspondents	Clearing Agreements (e.g. clearing firm forwarding complaints to introducing firms, etc.)		3230(b); NTM 99-57* SEC Approves Rule Amendments Governing Clearing Firms and Their Introducing Firm Clients’ Relationship*
Internal Controls	Customer Information Controls	Approval of Account Name or designation changes for orders		Rule 3110(j)
Internal Controls	Risk Mitigation	Trading Limits
Internal Controls	Systems and Operations Controls	Signature guarantee requirements and proper execution
Internal Controls	Systems and Operations Controls	Information Security Measures (e.g. securing equipment, preventing entry of unauthorized orders, controls on system entitlements, limits on password sharing, administrative procedures to change passwords, audit trail for tracking changes in entitlements, etc.)	NASD Rules 4702(a)(4), (c)(4) & (d)(4);Rule no longer in NASD Manual. 5220(f)Rule to be deleted as of 2/5/07; 6120(a)(2)(D); (a)(3)(D) & (a)(4)(D).This Version of the Rule is only effective until 11/27/06

		VIII. DIRECT PARTICIPATION PROGRAMS Including Real Estate Syndications; Oil and Gas Interests
Direct Participation Programs	Suitability Determinations and Reviews	Disclosure; Review of subscription agreements	2810 - Direct Participation Programs; 2810(b) - Application, Suitability, Disclosure, Organization and Offering Expenses, Valuation, Participation in Rollups
Direct Participation Programs	General Supervisory Obligations	Rollups	2810(b)(6), NTM 94-70 - SEC Approves Adoption of NASD Limited Partnership Rollup Transaction Rules
Direct Participation Programs	Organization and Offering Expenses	Review and determination for Fair and Reasonable DPP Expenses; Documentation for evidencing review	2810(b)(4); NTM 82-51; 86-66 - Due Diligence Reimbursements in Connection with Direct Participation Programs
Direct Participation Programs	Secondary Market Trading	Secondary Trading of DPP Shares	2310 - Recommendations to Customers (Suitability), 2320 - Best Execution and Interpositioning, 2420 - Dealing with Non-Members, 2440 - Fair Prices and Commissions , 2810 - Direct Participation Programs; 11580 - Transfer of Limited Partnership Securities; IM 2440 - Mark-up Policy; IM 11580 - Transfer of Limited Partnership Securities; SEC Rules 10b-10, 15c2-11 - Initiation or Resumption of Quotations Without Specified Information; NTM 91-69 - Application of NASD Rules, Interpretations, By-Laws, and Federal Securities Laws to the Secondary Market in Direct Participation Program Interests
Direct Participation Programs	Secondary Market Trading	Trade Reporting of DPP Transactions	6900 - Reporting Transactions in Direct Participation Programs; NTM 97-8 - SEC Approves Quotation and Transaction Reporting of Direct Participation Programs, NTM 99-15 SEC Approves Rule Amendments Limiting Quotations On OTC Bulletin Board To Reporting Securities

		IX. FIXED INCOME SECURITIES
		A. Municipal Securities
Municipal Securities		Financial Advisor Activities	MSRB Rule G-23
Municipal Securities		Official Statements (delivery of official statements; advance refunding documents, to MSRB or designee, etc.)	MSRB Rule G-36
Municipal Securities		Underwriting transaction assessments payable to MSRB	MSRB Rule A-13
Municipal Securities		Political Contributions	MSRB Rule G-37
Municipal Securities		Financial Consultants; Payment for solicitation of municipal securities business	MSRB Rule G-38
Municipal Securities		Sales during underwriting period/ New issue syndicate practices	MSRB Rule G-11
Municipal Securities		New Municipal securities issues; CUSIP Numbers and new issue requirements	MSRB Rule G-34
Municipal Securities Business	Delivery of Investor Brochure	Delivery of Investor Brochure Upon Receipt of Complaint/Customer Complaint Brochure	MSRB Rule G-10
Municipal Securities Business	Political Contributions	Political Contributions	MSRB Rules G-37 and G- 38; NTM 96-54, 99-14
Municipal Securities Business	Trade Reporting	Transaction reporting requirements; Real-Time Reporting System [RTRS]	MSRB Rule G-14, NTM 03-13
Municipal Securities Business		Use of Ownership Information obtained in Fiduciary or Agency Capacity	MSRB Rule G-24
		Policies and procedures to ensure timely annual filing of Schedule I.
		B. Government Securities	Government Securities Act Amendments of 1993, Sections 102-107, SEC Rules 10b-5, 17a-3; NTM 95- 48, 96-66
		C. TRACE
		B. Government Securities	Government Securities Act Amendments of 1993, Sections 102-107, SEC Rules 10b-5, 17a-3; NTM 95- 48, 96-66


		X. INVESTMENT COMPANY PRODUCTS
		Investment Company Securities	2830
Mutual Funds	Fees Charged to Customers	Sales Charges - Investment Company Products	2310, 2830(d)&(n); NTM 04-26* NASD Reminds Members of Their Duty to Ensure Proper Application of Discounts in Sales Charges to Sales of Unit Investment Trusts (UITs)*
Mutual Funds	General Requirements	Prospectus Delivery	33 Act, Section 5(b)
Mutual Funds	Late Trading and Market Timing	Market timing and late trading activities	2110, 2120 - Use of Manipulative, Deceptive or Other Fraudulent Devices, NTM 03-50 NASD Reminds Member Firms of their Obligations Regarding Mutual Fund Transactions and Directs Review of Policies and Procedures
Mutual Funds	Mutual Fund Underwriters/Dealers	Redemption Procedures (Dealers only)	2830(j)
Mutual Funds	Customer Information and Disclosures	Selling Dividends - limitations on disclosures	2830(e)
Mutual Funds	Fees Charged to Customers	Review of Customer Accounts	NTM 02-85 NASD Requires Immediate Member Firm Action Regarding Mutual Fund Purchases and Breakpoint Schedules; NTM 04-30 NASD Reminds Firms of Sales Practice Obligations In Sale of Bonds and Bond Funds
Mutual Funds	Fees Charged to Customers	Breakpoints, Letters of Intent, Rights of Accumulation	IM 2830-1 Breakpoint Sales; NTM 94-16 NASD Reminds Members Of Mutual Fund Sales Practice Obligations , NTM 02-85 NASD Requires Immediate Member Firm Action Regarding Mutual Fund Purchases and Breakpoint Schedules
Mutual Funds	Suitability	Switching	NTM 91-39 Limitations on Use of "Negative Response" Letters in Switching Customers From One Mutual Fund to Another; NTM 95-80 NASD Further Explains Members Obligations And Responsibilities Regarding Mutual Funds Sales Practices; NTM 94-16 NASD Reminds Members Of Mutual Fund Sales Practice Obligations
Mutual Funds	Employee Supervision	Execution of investment company portfolio transactions; compensation, commissions, reciprocal activity	2830(k) Execution of investment company portfolio transactions; MSRB Rule G-31* - Reciprocal dealings with municipal securities investment companies*

		XI. ONLINE / DAY TRADING ACCOUNTS

		XII. OPTIONS
Options	Recordkeeping	Maintenance of records - Central log, index or file for options complaints	2860(b)(17)
Options	Supervision of Options Accounts	Supervision of Accounts – ROP, CROP, and SROP; Headquarters Review of Options Accounts.	2860(b)(20)
		Adjustment to Options Contracts	NTM 02-17 Alerting Customers To Adjustments To Option Contracts caused by corporate actions
Options	Transaction Processing	Allocation procedures	2860(b)(23)(C)
Options	Transaction Processing	Uncovered short option contracts	2860(b)(16)(E); NTM 06-54* Special Statement for Uncovered Options Writers*
Options	Transaction Processing	Position Limits / Exercise Limits	2860 (b)(3) - Position Limits, (b)(4) - Exercise Limits, IM- 2860-1 - Position Limits ; NTM 06-51 Amendments to Option Exercise Procedures in Rule 2860; 03-19 SEC approves amendments to NASD's option position and exercise limits for positions established pursuant to certain qualified hedge strategies; NTM 99-20 SEC Approves Rule Change Increasing Position Limits on Standardized Equity Options; NASD Reminds Members of Their Reporting Obligations When Trading Options
Options	Transaction Processing	Reporting options positions	2860(b)(5)
Options	Transaction Processing	Position Limits Reporting Procedures	2860(b)(23)(c)
		Cash and Margin Treatment for Certain Types of Options	NTM 06-26 Amendments to Margin Rules to Reflect Additional Complex Option Spread Strategies; NTM 01-11 Cash and Margin Treatment for Certain Types of Options

		XIII. RESEARCH
		A. RESEARCH
Research	General Supervisory Obligations	Research Analysts: (1) Restrictions on Relationships with Research Department; (2) Restrictions on Communications with Subject Company ; (3) Restrictions on Research Analyst Compensation; (4) Prohibition on Promise of Favorable Research; (5) Publication of Research Reports; Termination of Coverage; (6) Personal Trading by Research Analysts; (7) Disclosure Obligations in Research Reports - including Conflicts of Interest, Receipt of Compensation; (8) Prohibitions Against Retaliation.	1050 - Registration of Research Analysts, 2711 - Research Analysts and Research Reports; NTM 07-04 Codification of Interpretations to Rule 2711; NTM 04-81 SEC Approves New NASD Qualification Requirements for Supervisors of Research Analysts; NTM 04-18 NASD and NYSE Provide Further Guidance on Rules Governing Research Analysts’ Conflicts of Interest;
Research	General Supervisory Obligations	Research Reports	2711; IM 2110-4* - Trading Ahead of Research Reports*
Research	General Supervisory Obligations	Quiet Periods	2711; 2210
Research	Research	Fixed Income Research	2711, NTM 06-36* NASD and NYSE Joint Interpretive Guidance on Fixed Income Research*



		XIV. UNDERWRITINGS AND PRIVATE PLACEMENTS
Sales Practices	General Obligations?	Private Placements		Securities Act of 1933, SEC Rules 501 – 506; Regulation A* - Conditional Small Issues Exemption*
Underwriting	Types of Offerings	Best Efforts and Private Placement (including procedures for contingent offerings)		Rule 2710 Corporate Financing Rule; SEC Rules 10b-9 and 15c2-4, Reg D Rules 501-506; Reg A; NTM 84-7 SEC Staff Interpretations of Rule 15c2-4; NTM 87-61 Suggested Escrow Agreement Provisions for Members' Compliance With Securities and Exchange Commission Rule 15c2-4; NTM 98-4 Reminder Of Members' Obligations To Comply With Rule15c2-4
		PIPES - Private Investments in Public Equities (including monitoring for impermissible trading in PIPE issuers)		Rule 2710 Corporate Financing Rule; SEC Rules 10b-9 and 15c2-4, Reg D Rules 501-506; Reg A; NTM 84-7 SEC Staff Interpretations of Rule 15c2-4; NTM 87-61 Suggested Escrow Agreement Provisions for Members' Compliance With Securities and Exchange Commission
Underwriting	Types of Offerings	Self Underwriting		2720;
Underwriting		Intrastate Offerings		33 Act, Section 3(a)(11), SEC Rule 147
Underwriting		SEC Rule 144 stock		Securities Act of 1933, SEC Rule 144
Underwriting	Firm Commitment Charges	Monitoring of firm commitment charges		SEC Rule 15c3-1
Underwriting	Free Riding and Withholding	Use of Compliance Desk software		IM-2110-1 Free-Riding and Withholding Interpretation; Rule 2790; NTM 04-20 - IPO Distribution Manager; NTM 96-18 - Reporting Free Riding and Withholding Information to NASD
Underwriting	Free Riding and Withholding	Free-Riding and Withholding procedures		2790; NTM 03-79* SEC Approves New Rule 2790 (Restrictions on the Purchase and Sale of IPOs of Equity Securities); Replaces Free-Riding and Withholding Interpretation*
Underwriting	Material Event Disclosure	Material Events		SEC Rule 15c2-12(c)
Underwriting	Securities Registration	Public Offerings (Securities Registration)		Securities Act of 1933, Section 5
Underwriting	Securities Registration	Misrepresentations as to registration		SEC Rule 15c1-3
Underwriting	Syndicate Settlement	Syndicate Management
Underwriting		Restricted Period; Underwriting Activity Report		2710(b)(10); NTM 97-10* SEC to Approve Amendments to NASD Rules to Facilitate Compliance With SEC Regulation M*
Underwriting		Filings required by Corporate Finance Department		2710(b) - Filing Requirements - Corporate Financing - Underwriting Terms and Arrangements
Underwriting		Regulation M: (i) Rule 101 - Direct Participation Restrictions; (ii) Rule 102 - Issuers and Selling Security Holders; (iii) Rule 103 - Passive Market-Making/Nasdaq; (iv) Rule 104 - Stabilizing Transactions; (v) Rule 105 - Short Sales		Regulation M - Anti-Manipulation Rules Concerning Securities Offerings
Underwriting		Non-cash compensation		2710(c)(5), 2810(b)(4); NTM 03-53* SEC Announces Immediate Effectiveness of Amendments to Non-Cash Compensation Provisions of Rule 2710 and Rule 2810*
Underwriting		Disclosure of affiliation with issuer or interest in distribution		SEC Rules 15c1-5 and 15c1-6
Underwriting		Prospectus Delivery		Securities Act of 1933, SEC Rule 434, NTM 95-42* SEC Approves Amendments To Prospectus Delivery Requirements To Accommodate T+3 Settlement*


		XV. VARIABLE PRODUCTS
Variable Products	Communications with the Public	Communications with the Public about variable life insurance and variable annuities: General Considerations - product identification; liquidity; claims about guarantees; Specific Considerations - fund performance; product comparisons; rankings; product features; hypothetical illustrations.		IM 2210-2 - Communications with the Public About Variable Life Insurance and Variable Annuities;
		Sales of Variable Products		NTM 99-35 - NASD Reminds Members of Their Responsibilities Regarding the Sales of Variable Annuities; NTM 00-44 - NASD Reminds Members of Their Responsibilities Regarding the Sale of Variable Life Insurance
Variable Products	General Obligations?	Variable Annuities		2820 - Variable Contracts of an Insurance Company, 3010, 3110;
Variable Products	Suitability	Twisting (trading among mutual funds, insurance products, and variable products)		2110
Variable Products	Suitability	1035 Exchanges		IRS Code § 1035
Variable Products	Suitability	Replacements		2110
Variable Products	Suitability	Multiple Contract Sales		2110

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Written Supervisory Procedures Checklist
Member/Firm Name:		Firm Name
Date of Procedures:

	Supervisory System/Procedure Requirements
Item No.	Location in the Firm's Written Supervisory Procedures [Document(s) and Page Number(s) in the Firm’s Written Procedures that specify the review(s) to be performed.]		Copy of docs. that evidence review attached? (Yes/No)	Additional Information/Comments (Optional) [Use to provide any additional information and/or comments that the member believes may facilitate NASD's review of the member's supervisory systems/procedures.]

	*Supervisory System, Procedures & Qualifications:*
1a	Designation of Principal(s) responsible for overall supervisory system & procedures. [Rules 3012(a)(1) & 3010(b)(3)]

1b	Designation of Principal(s) responsible for supervision of the member’s trading area(s). [Rules 3010(a)(2) & (b)(3)]

1c	Designation, as an Office of Supervisory Jurisdiction (OSJ), each location at which the order execution or market making functions are conducted. [Rules 3010(a)(3) & (g)(1)]

1d	Designation of Principal(s) in each OSJ location at which order execution or market making occurs. [Rules 3010(a)(4) & (b)(3)]

1e	Procedures to help ensure personnel are properly registered as required by Rules 1020 through 1060. [Rules 3010(a) & 1020-60]

1f	Procedures to help ensure a reasonable effort is made to determine supervisory personnel are qualified by virtue of experience or training to execute assigned responsibilities. [Rules 3010(a)(6) & (b)(3)]



	*Order Handling:*
2a	*If the firm will route orders to another market center:* Procedures to help ensure compliance, and review for compliance, with the Disclosure of Order Routing Information Rule, including as applicable, (i) creation and publication of accurate quarterly reports; (ii) monitoring the continuing availability of any claimed exemption(s) from publishing reports; (iii) responding, upon request, to individuals seeking specific routing data; (iv) annual disclosures regarding the availability of reports; and, (v) vendor performance. [SEC Rule 606]

2b	*If the firm will be a market maker in covered securities:* Procedures to help ensure compliance, and to review for compliance, with the Limit Order Display and Quote Dissemination Rules. [SEC Rules 604 and 602]

2c	*If the firm will accept limit orders:* Procedures to help ensure compliance, and to review for compliance, with the Limit Order Protection Rules. [Rules 2110, IM-2110-2 & 6541]

2d	*If the firm will accept market orders:* Procedures to help ensure compliance, and to review for compliance, with the Market Order Protection Rule. [Rule 2111]

2e	*If the firm will be an OTC market maker in any exchange-traded security, but is not registered as a market maker:* Procedures to monitor the member's trading activity to determine whether it has traded over 1% of the quarterly volume of any exchange-traded security, thereby making the security a "subject security" and the member a "responsible broker-dealer" that is required to communicate its best bid, offer and size for each subject security to a national securities exchange or association. [SEC Rules 600(b)(65) & (73) and 602(b)(1) & (4); NASD Rule 6320(a)]

2f	*If the firm will be an exchange or OTC market maker in NMS securities:* Procedures to help ensure quotations are not communicated to vendors for display on a terminal, unless the security is a subject security with respect to the market maker. [SEC Rule 602(b)(4)]

2g	*If the firm will be is a market center in NMS stocks:* Procedures to help ensure compliance, and review for compliance, with the Disclosure of Order Execution Information Rule, including as applicable, (i) creation and publication of accurate monthly reports; (ii) monitoring the continuing availability of any claimed exemption(s) from publishing reports; and, (iii) vendor performance. [SEC Rule 605]



	Best Execution: 2320; NTM 97-57, 00-42, 01-22; MSRB Rules G-17 & 18
3a	Procedures to help ensure compliance, and to review for compliance, with the requirement to execute customer orders and orders for the customer of another broker-dealer at a price as favorable as possible under prevailing market conditions as required by Rule 2320(a), including as applicable:
(1)	Execution of customer orders as principal;

(2)	Execution of customer orders as principal after acquiring securities to fill the customer’s order (i.e., riskless principal trading);

(3)	Execution of customer orders as agent;

(4)	Execution of customer block-sized orders, “not held” orders, and customer orders with special pricing terms/conditions (e.g., VWAP; MOO; MOC; Capped);

(5)	If the member concurrently handles multiple orders subject to time/price trading discretion (e.g., "not held," "working," cost-based VWAP, etc.), establishing a process to ensure best execution obligations are met with respect to all orders and that shares are allocated to concurrently open orders in a fair and non-discriminatory manner;

(6)	Execution of market or marketable limit orders against non-displayed limit orders priced better than the displayed market; [Rule 2111]

(7)	Execution of orders routed to and executed by other parties, based on order-by-order routing decisions by the member;

(8)	Execution of orders routed to and executed by other parties, based on aggregate routing decisions by the member (a/k/a “Regular & Rigorous” Reviews);

(9)*	Policies and procedures against adjusted trading [2120 - Use of Manipulative, Deceptive, or Other Fraudulent Devices; SEC Rule 10b-5]

(10)*	Reallocation of Trades/Allocation methodology and procedures [NTM 01-85 Guidance on Compensation and Mixed Capacity Trades]


3b	*If the firm will trade OTC equity securities:* Procedures to help ensure compliance, and to review for compliance, with the requirements to ascertain the best interdealer market by obtaining and documenting quotations. (a/k/a “3-Quote Rule). [Rules 2320(g) & 3110(h)]

3c	*If the firm will be an ITS participant:* Procedures to help ensure compliance, and to review for compliance, with the prohibition on executing an order at a price inferior to another participant’s quote (i.e., a “Trade Through”), unless certain conditions exist. [Rules 5262 & 2320]



	*Anti-Intimidation / Coordination:*
4a	Procedures to help prevent the occurrence, and to detect occurrences, of trading practices prohibited by IM-2110-5 to coordinate or collaborate with another person or member, including: i. The coordination of quotes, trades or trade reports with another member through a “price/size convention” (in which quotes are determined other than by market forces and/or independent valuations of the security) or otherwise; ii. Requesting another member to alter or maintain a price or quote; iii. The display of quotes in order to orchestrate artificial price movements; iv. The display of quotes with no intention of trading at the quoted prices; v. The display of quotes in order to help another member execute trades; vi. The delay of trade reports for the benefit of the member or another party; viii. Engaging in any other activity, which improperly benefits the member or other members at the expense of customers.

4b	Procedures to help prevent the occurrence, and to detect occurrences, of conduct prohibited by IM-2110-5 to threaten, coerce, intimidate or improperly influence another person or member, including:
(1)	i. Refusals to honor firm quote obligations or to trade with other members, especially in a selective / discriminatory fashion; ii. Executing orders in a manner intended to harass or annoy another member; iii. Reporting harassment and instances in which threats or attempts at coercion have been received;

(2)	Educating personnel as to what constitutes improper conduct.



	*Trade Reporting:*
5a	*If the firm will report trades through a TRF:* Procedures to help ensure compliance, and to review for compliance, with requirements to report trades accurately and timely. [Rules 4632, 6420, 6620 & 6130]

5b	*If the firm will report trades through the ADF/TRACS:* Procedures to help ensure compliance, and to review for compliance, with requirements to report trades accurately and timely. [Rules 4632A & 6130A]

5c	Procedures to help ensure compliance, and to review for compliance, with TRF and/or ADF/TRACS requirements regarding:
(1)	The proper use of trade modifiers (e.g., .PRP, .SLD, .T, .W, etc.) when required, and refraining from use when not required;

(2)	Reporting riskless principal trades;

(3)	Accepting trades reported by another member (or entering a matching trade) in a timely manner;

5d	*If another member or third party reports trades on the firm's behalf (under an AGU, A2, QSR or otherwise):* Procedures to help ensure trades have been accurately reported on the member’s behalf.



	*Sale Transactions:*
6a	Procedures to help ensure compliance, and to review for compliance, with requirements to (i) properly determine whether a sale is long or short; and, (ii) mark the member's order records accordingly as “long,” “short” or “short exempt.” [SEC Rule 200(a) & (g)]

6b	*If the firm will utilize aggregation of units:* Procedures to help ensure the member's organization plan qualifies for independent trading unit aggregation, that each unit engages only in its specified trading strategies and that trading units do not coordinate strategies with each other. [SEC Rule 200(f)]

6c	Procedures to help ensure compliance, and to review for compliance, with requirements to locate (or arrange to borrow) securities being sold prior to execution. [SEC Rule 203(b)]

6d	Procedures to help ensure compliance, and to review for compliance, with requirements to refrain from accepting short sale orders for threshold securities in which the member has aged fails unless the member borrows the securities being sold prior to execution. [SEC Rule 203(b)(3)]

6e	*If the firm will report sales to a TRF and/or the ADF/TRACS:* Procedures to help ensure compliance, and to review for compliance, with requirements to report accurate short sale indicators (i.e., long, short or short exempt) for customer and proprietary sale transactions. [Rules 6130, IM-6130 & 6130A]

6f	*If the firm will effect short sales in Nasdaq Global Market securities otherwise than on an Exchange:* Procedures to help ensure compliance, and to review for compliance, with the prohibitions on executing non-exempt short sales on a down bid. [Rule 5100; SEC Rule 202T; NASD Rule 3350]

6g	*If the firm will effect short sales in Exchange-listed securities otherwise than on an Exchange:* Procedures to help ensure compliance, and to review for compliance, with the prohibitions on executing non-exempt short sales on a down tick. [SEC Rules 10a-1 & 202T]



	*Other Trading Rules:*
7a	Procedures to help ensure compliance, and to review for compliance, with the prohibitions on trading or quoting during a trading halt in a Nasdaq-listed, exchange-listed or OTC Equity security. [Rules 3340, 4120A & 6545]

7b	Procedures to help ensure compliance, and to review for compliance, with the requirements for the member to honor its quotes, refrain from “backing away” from its quotes and adequately staff its trading desk. [Rules 3320, IM-3320 & 4613A(c); SEC Rules 602(b)(2) & (b)(3)]

7c	Procedures to help ensure compliance, and to review for compliance, with the requirements related to locked and crossed markets, including:
(1)	If the member is an ADF participant: Properly responding to “trade or move directed orders” during pre-opening trading. [Rule 4613A(e)]

(2)	If the member enters quotes in ADF: Refraining from entering a quote that would lock or cross an existing quote. [Rule 4613A(e)]

(3)	If the member is an ITS market maker, properly responding to complaints from another participant by “shipping” or “unlocking” the market after having locked or crossed the other ITS participant’s quote. [Rule 5263]

7d	*If the firm will enter quotes for exchange-listed or OTC Equity securities in multiple real-time quotation systems:* Procedures to help ensure compliance, and to review for compliance, with the requirement to maintain identical quotes for a security in each system. [Rule 6330(a) & 2320(g)(2)]

7e	*If the firm will use NASD systems:* Procedures to help ensure compliance, and to review for compliance, with requirements to maintain the physical security of equipment to prevent the improper use of, or unauthorized entry of information into, NASD systems. [Rules 4705(a)(4), 5220(f), 6120(a) & 6120A(a)]



	*Soft Dollar Accounts and Trading:*
8a	*If the firm will provide “soft dollar” credits to customers:* Procedures to help ensure compliance, and to review for compliance, with requirements related to this activity, including:
	[Additional References] NTM 07-04 Codification of Interpretations to Rule 2711; NTM 05-04 Directed Brokerage]
(1)	Preparing records that reflect which trades were executed by the member pursuant to agreements with customers to generate soft dollar credits; [SEC Rules 17a-3 & 17a-4]

(2)	Monitoring trades for which soft dollar credits are accrued to determine whether they were within the SEC-established safe harbor for agency transactions and riskless principal transactions reported as such in accordance with NASD trade reporting rules; [SEC '34 Act Section 28(e)]

(3)	If/When operating outside the SEC-established safe harbor, undertaking reasonable affirmative steps to verify that the member is operating in compliance with all applicable securities rules, and regulations, and is not aiding or abetting violations by others; [SEC '34 Act Section 28(e)]

(4)	Preparing records that reflect the cost/value of research or other services provided to customers that reduce/eliminate accrued soft dollar credits; [SEC Rules 17a-3 and 17a-4]

(5)	Monitoring research or services provided to ensure the items are within the SEC-established safe harbor. [SEC '34 Act Section 28(e)]

(6)*	Annual review of research analyst compensation [Rule 2711(d)(2)]



	*Order Audit Trail System (“OATS”):*
9a	Procedures to help ensure compliance, and to review for compliance, with the requirement to synchronize the member’s clock daily, prior to the open, and to monitor for intraday drift. [Rule 6953]

9b	Procedures to help ensure compliance, and to review for compliance, with the requirement that reported OATS data is accurate and timely, whether reported by the firm or by a third party on the member’s behalf. [Rule 6954 & 6955]

9c	Procedures to review correct and re-submit data initially rejected by OATS. [Rules 6954 & 6955]

9d	Procedures to help ensure information reported to OATS is consistent with information submitted to a TRF and/or the ADF/TRACS. [Rules 6130, 6130A, 6954 & 6955]

9e	Procedures to help ensure reported routed order identification numbers are consistent with the numbers received from the sending member. [Rules 6954 & 6955]



	*Other Rules:*
10a	Procedures to help ensure compliance, and to review for compliance, with the prohibitions on the improper sharing of material, non-public information (including information about pending orders) between the member's trading desk(s) (e.g., market making desk, agency desk, arbitrage desk, basket desk, etc.). [a/k/a “Chinese Walls or “Information Barriers;” Rules 3010, 2110, IM-2110-2, IM-2110-5]

10b	Procedures to help ensure compliance, and to review for compliance, with the requirement to accurately prepare and maintain required books and records pertaining to the trading area(s). [SEC Rules 17a-3 & 17a-4 & NASD Rule 3110]

10c*	Procedures to help ensure compliance, and to review for compliance with the prohibitions against accepting payment or other consideration, directly or indirectly from an issuer, affiliate or promoter thereof in accordance with Rule 2460.



	*Use of Multiple Market Participant Identifiers ("MPIDs"):*
11a	*If the firm proposes to use multiple MPIDs:* Procedures to help ensure compliance, and review for compliance, with use of each MPID in accordance with (i) the representations made when requesting supplemental MPIDs, and (ii) the requirements/limitations related to use of supplemental MPIDs. [Rules 2110, 4613A and IM-4613A-1]

11b	*If the firm proposes to use multiple MPIDs:* Procedures to help ensure compliance, and review for compliance, with limiting access of each MPID’s user(s) to their own order/trading information and ensuring that order/trading information is not improperly shared between multiple MPID user(s). [Rule 2110 & IM-2110-5]

11c	*If the firm proposes to use multiple MPIDs:* Procedures to help ensure the member has incorporated activity conducted under all MPIDs into its supervisory system and procedures as needed (including but not limited to trade reporting, OATS, record keeping, Reg SHO, Reg NMS and best execution obligations), based upon the activity for which the additional MPIDs are used. [Rules 3010(a) & (b)(1), 3012(a)(1) and 3013(b)]



	Rules Applicable to ATSs and ECNs:Regulation ATS; NTM 99-34 - Guidance on Complying with Reg ATS; NTM 99-42 Guidance on Complying with Notice Requirements of Reg ATS
12a	Procedures to help ensure compliance, and to review for compliance, with the requirements to file Form ATS-R on a quarterly basis. [SEC Rule 301(b)(9)]

12b	Procedures to help ensure compliance, and to review for compliance, with the requirement to protect subscribers’ confidential trading information [SEC Rule 301(b)(10)], including:
(1)	Limiting information access to ATS employees responsible for operating the ATS or for compliance with applicable rules;

(2)	Implementing standards to control ATS employees trading for their own accounts.

12c	Procedures to help ensure compliance, and to review for compliance, with the prohibition on charging inconsistent fees. [SEC Rule 301(b)(4)]

12d	Procedures to monitor trading volume and determine whether the ATS has surpassed the “5% threshold” that would require it to comply with Reg. ATS order display, execution access and fair access requirements. [SEC Rule 301(b)(3) & (b)(5)]

12e	Procedures to monitor trading volume and determine whether the ATS has surpassed the “20% threshold” that would require it to comply with the Reg ATS requirements for capacity, integrity and security of automated system. [SEC Rule 301(b)(6)]

12f	*If the firm proposes to be a "Reporting ECN" (as defined in NASD Rule 6110) that reports trades to a TRF:* Procedures to help ensure compliance, and to review for compliance, with TRF reporting requirements in NASD Rule 6130(c)(5), including:
(1)	Providing an initial written notice to NASD of the reporting method used for each ECN subscriber;

(2)	Providing advance written notice to NASD prior to implementing a change to the reporting method used for an ECN subscriber;

(3)	If the ECN is a "Reporting Party" pursuant to "Method A" or "Method B" [Rule 6130(c)(5)(A) or (B)], reviews to help ensure the accuracy of information reported to the TRF;

(4)	If the ECN is a "Reporting Party" pursuant to "Method B," reviews to help ensure the ECN obtains sufficient order information from the subscriber to enable accurate reporting by the ECN to the TRF; and,

(5)	If the ECN is a "Reporting Party" pursuant to "Method C" [Rule 6130(c)(5)(C)], reviews to help ensure the ECN provides complete, accurate information to enable the reporting parties to properly trade report in a timely manner.

12g	*If the ATS enters quotes in the NASD's ADF:* Procedures to help ensure compliance, and to review for compliance, with the requirement to execute orders in excess of the ECN’s displayed quote size, when displaying a quote based on a reserved size order. [Rule 4623A(c)]

12h	*Policies and procedures pursuant to which pursuant to which the firm will review and approve applicants seeking to subscribe to the ATS.*