May 5, 2005
Dear NASD Member:
I'm writing to alert you to a new NASD Notice to Members, posted in direct response to the many questions and concerns you have raised about the application of NASD's new supervisory control amendments.
As a member of NASD's Board of Governors, Chairman of its Small Firm Advisory Board, and Chairman of a small investment firm, I'm acutely aware of the difficulties small firms face in understanding and adapting to new laws and regulations. And in the case of the new Rule 3012, you in the small firm community have voiced your concerns loudly and clearly.
NASD has responded with Notice to Members 05-29. This Notice offers plain English guidance on compliance with Rule 3012(a)(1), which requires member firms to test and verify their supervisory policies and procedures.
Rule 3012 requires firms to do two things:
First, they must test and verify that their supervisory procedures are sufficient and supplement those procedures where they find shortfalls.
Second, firms must have procedures that are reasonably designed to review and supervise on a day-to-day basis the customer account activity conducted by their producing managers.
While not a safe harbor, the guidance provided in the Notice to Members consists of six relatively simple steps that member firms can take to help them head down the path in adopting the right procedures to comply with these new requirements.
The new Notice to Members was published to provide guidance to NASD small firm members. I strongly urge you to read it carefully. I believe you will find it very helpful in complying with the rule, and improving your compliance program.
Small Firm Advisory Board