December 13, 2001
Dear NASD Member Firm:
As many of you are already aware, in 1998, the NASD established a Small Firm Advisory Board (SFAB) comprising representatives from NASD members with 150 or fewer registered representatives, so that the NASD's smaller firm members would have more of a voice in matters affecting our business and customers. As Chairman of the SFAB, I'm pleased to report that the SFAB has been an effective voice for small broker/dealers in discussions with and decisions reached by the NASD Board of Governors.
The SFAB has consistently reviewed and provided feedback about action items going before the NASD Regulation and NASD Dispute Resolution Boards, as well as the Board of Governors of the NASD, on any issues of importance to small firms. Through this process, we've been able to effectively share the perspective of small member firms on the most significant of NASD proposals, rules, and regulations.
Along those lines, one of the more recent successes involved gaining exemptive relief from SEC Rule 11Ac1-5, which requires firms to produce detailed reports on execution quality. The NASD's SFAB and Nasdaq requested an exemption from the rule for small Nasdaq market makers. While the SEC did not grant a blanket exemption for small firms, it responded favorably by granting exemptions for inactively traded securities and for small market centers that do not focus their business on the most actively traded securities. Also, as a result of SFAB efforts, the SEC granted an exemption from the quarterly reporting requirements of Rule 11Ac1-6(b) to small broker/dealers that routed on average 500, or fewer, customer orders in covered securities per month during the preceding calendar quarter. In both cases, representatives of the SFAB met with the senior management of the SEC Division of Market Regulation in making the case for the exemptions.
Other areas the SFAB has addressed since its inception include, extended trading hours, registration requirements for chief compliance officers, Order Audit Trail System, Year 2000 initiatives, non-cash compensation, injunctive relief, Web CRD issues, margin and day-trading rules, decimalization, INSITE, and review of rule modernization efforts.
The SFAB is also integrally involved with the State Requirements Task Force. SFAB Vice Chair Lou Denton currently chairs this group. The purpose of this Task Force is to work with states to resolve a number of long-standing registration-related issues. We'll keep you up to date on its progress.
The SFAB looks to you for your guidance and suggestions. To help facilitate this communication, attached is a listing of the current Small Firm Advisory Board members. Please feel free to contact me or any of the members listed. We are all available to talk to you about issues of importance to small firms.
William C. Alsover