Application of the OATS rules to orders that are cancelled or replaced due to a merger of the member holding the orders.


February 26, 2002

 

Mr. Christian M. Camerino
Vice President, Compliance
ABN AMRO Securities, LLC
55 East 52nd Street
New York, NY 10055-0193

 

Dear Mr. Camerino:

 

This letter is in response to your letter dated January 4, 2002 to Richard Wallace and our subsequent phone conversation on February 13, 2002 in which you request guidance from NASD Regulation, Inc. ("NASD Regulation") staff on whether certain activities would comply with NASD Rules 6950 through 6957 (the "OATS rules"). Specifically, your letter states that ABN AMRO Securities LLC ("ABN LLC") will be merging into its parent company ABN AMRO Incorporated (ABN Inc.) on March 1, 2002. ABN Inc. will be utilizing two order routing systems, ISI and AOM, and one trading system, BRASS, for Nasdaq trading and position management.

 

In your letter, you request guidance on the application of the OATS rules to the changes to ABN LLC’s open order file on February 28, 2002 and the processing of orders for ABN Inc. on and after March 1, 2002. First, on February 28, 2002, ABN LLC, after notifying customers, will cancel all open orders in the ISI and AOM systems or, at the request of the customer, will modify orders at the start of the day to "day" orders, such that the orders will expire on February 28, 2002, requiring re-entry on March 1, 2002. ABN LLC will request that BRASS broadcast a message to cancel open broker orders on file and that due to a name change, BRASS will stop accepting inbound orders preferenced to ABN LLC prior to the close on February 28, 2002. After the batch cycle for that day, BRASS will change the firm name to ABN Inc. ABN LLC will provide OATS Cancel Reports for all cancelled orders and Cancel/Replace Reports for all orders that are converted into day orders.

 

Second, once the merged entity is operating on March 1, 2002, ABN Inc.’s order routing systems will route orders to BRASS and enter a new order report for OATS purposes from ABN Inc. If ABN Inc. makes a market in the security, then BRASS will execute the transaction as ABN Inc., trade report the transaction and submit an execution event to OATS. If ABN Inc. does not make a market in the security, then BRASS will route the order to a market maker, reporting a routing event to OATS. The other broker/dealer will execute the transaction and, accordingly, will submit an Execution Report to OATS. For any other orders that are routed away to other broker/dealers, ABN Inc. will report a New Order and Routing Report to OATS. The executing broker/dealer will report the execution to OATS.

 

The staff concludes that the activities, as described in your letter and in our subsequent conversation, would comply with the OATS rules. Please note that the opinions expressed herein are staff opinions only and have not been reviewed or endorsed by the Board of Directors of NASD Regulation. This letter responds only to the issues that you have raised based on the facts you have described, and does not address any other rule or interpretation of the Association, or all the possible regulatory and legal issues involved.

 

Sincerely, 

 

 

 

Stephanie M. Dumont
Associate General Counsel

 

cc:

Richard Wallace
Market Regulation Department

 

Cathleen Shine
District 10