Rule 11210(a)(3) does not prohibit a firm from effecting the requirements of the provision electronically, but the firm is responsible for the accuracy and proper functioning of the computer program.
October 15, 2001
Mark W. Bolle
Senior Compliance Specialist
Raymond James Financial Services, Inc.
880 Carillon Parkway
St. Petersburg, Florida 33716
RE: Automated Confirmation to Order Transaction Comparison - NASD Rule 11210(a)(3)
Dear Mr. Bolle:
I am responding to your letter of September 10, 2001, in which you seek interpretive advice from the staff regarding whether Raymond James Financial Services, Inc. ("Raymond James" or the "Firm") will be in compliance with NASD Rule 11210(a)(3) if it uses a trade comparison software application that would automatically and electronically compare trade confirmations with trade orders to ascertain whether any discrepancies exist. You also asked whether such a system would be adequate for recordkeeping purposes (retention of order ticket and client confirmations for three years). You further described the proposed software application to me in a telephone call on October 5, 2001.
You state that Raymond James currently uses a system that electronically keeps the trade order tickets placed by the firm for clients in a database housed at the Firm. Trade confirmations are then printed and mailed to the client and the registered representative after trade execution that day. The registered representative then compares the paper trade confirmation upon receipt to the electronic order entry to ensure that no trade errors exist. Once it is proved that no discrepancies exist, a tracking number on the paper hard copy trade confirmation is manually entered into the trade order entry database. A paper copy of the confirmation is retained at the branch.
You state that the proposed new software application would automatically and electronically compare the electronic order entries to the trade confirmations that are delivered to the Firm’s clients, thereby eliminating the need for manual comparison by registered representatives. If the system detected a discrepancy between the trade order entry and the trade confirmation, it would send an "alert" via e-mail to the registered representative indicating that a trade error may exist and prompting the representative to review the trade order. If the system did not detect a discrepancy, it would automatically enter in a tracking number in the electronic order entry database (for quick reference to the trade confirmation). A paper copy of the trade confirmation would be maintained at the branch. The firm would continue to mail paper trade confirmations to clients and registered representatives on a daily basis.
Rule 11210(a)(3) states: "Comparisons or confirmations shall be compared upon receipt to ascertain whether any discrepancies exist. If discrepancies do exist, a corrected Uniform Comparison or Confirmation shall be sent by the party in error." Rule 11210(a)(3) does not specify whether a firm is required to compare confirmations manually or electronically. The rule merely requires firms to compare confirmations upon receipt to ascertain whether any discrepancies exist, and if so, to send a corrected Uniform Confirmation. Therefore, if Raymond James' proposed software application is able to perform this comparison function electronically, Rule 11210(a)(3) does not preclude the firm from using such a program. Of course, Raymond James is responsible for the accuracy and proper functioning of the computer program.
As to your inquiry regarding the adequacy of the proposed system for recordkeeping purposes, you should consult with SEC staff regarding compliance with requirements under the federal securities laws, including Rules 17a-3 and 17a-4 under the Securities Exchange Act of 1934.
I hope this letter is responsive to your inquiry. Please note that the opinions expressed in this letter 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 you have raised and does not necessarily address any other rule or interpretation of the NASD or all the possible regulatory and legal issues involved.
Very truly yours,
Shirley H. Weiss
|cc:||Alan M. Wolper, District Director
Atlanta District Office