NASD Rule 3010 - Supervision

Members may use on-demand webcast technology to satisfy annual compliance meeting requirement, subject to certain safeguards and conditions.


 

November 30, 2006

Mr. Evan Charkes
Managing Director
Citigroup Global Markets, Inc.
485 Lexington Avenue, 17th Floor
New York, New York 10017

Re: NASD Rule 3010(a)(7) - Annual Compliance Meeting

Dear Mr. Charkes:

This is in response to your letter dated October 27, 2006, as supplemented by your correspondence dated November 16, 17 and 27, 2006, in which you request interpretive guidance on behalf of Citigroup Global Markets, Inc. ("CGMI"), an NASD member, regarding the use of on-demand webcast technology to satisfy CGMI's annual compliance meeting requirement.

Background

Based upon your letter, supplemental correspondence and our subsequent telephone conversations, we understand the facts to be as follows. The Smith Barney business line, which is part of CGMI, has approximately 18,000 registered persons located in nearly 900 registered branch office locations throughout the United States. The Corporate and Investment Bank also has a number of registered branch office locations throughout the United States. CGMI currently satisfies the annual compliance meeting required under NASD Rule 3010(a)(7) through an in-person meeting at which compliance matters relevant to the activities of its registered persons are discussed. However, CGMI is proposing to satisfy this requirement through the use of an on-demand webcast. Under the proposal, CGMI would notify its registered persons of the requirement to view the webcast, and it then would be available to them on-demand on the firm's intranet. As important policies and procedures change, CGMI would update the content of the annual compliance meeting and record an updated webcast.

Registered persons would be able to send an e-mail to a centralized address, or call a telephone hotline, with any questions regarding the content of the webcast. The webcast presenter would respond in a timely fashion to these questions. Further, CGMI would compile and post the questions and answers on its intranet site.

To view the webcast, CGMI would require that each registered person enter a unique user ID and password. Records of attendance, which are required by the Rule, would be maintained electronically in an appropriate "read only" format, which would allow CGMI to track attendance more easily and to report to management on the participation results.

Moreover, CGMI would implement the following safeguards to ensure that registered persons view the entire webcast: (1) once the registered person opens the webcast, the technology platform would track the number of minutes that the webcast stays on; (2) the webcast would be a click-as-you-go configuration; and (3) at the end of the webcast, a pop-up box would appear asking the registered person to attest that he or she has viewed the entire webcast or the registered person would be asked to complete a separate attestation that he or she has viewed the entire webcast.

CGMI believes that the use of an online on-demand webcast would, among other things, provide registered persons with greater ease of access and scheduling flexibility, provide the firm more flexibility to develop and modify the content of the annual compliance meeting and webcast, and result in a more efficient use of firm resources.

You seek guidance on whether the proposed use of an on-demand webcast, as described above, would be consistent with the requirements of Rule 3010(a)(7).

Response

Rule 3010(a)(7) requires that each registered person (representative and principal) participate, at least once each year, in a meeting (or an interview) at which compliance matters relevant to the activities of the particular registered person are discussed. The primary purpose of the Rule is to give registered persons the opportunity to regularly discuss compliance issues relevant to their activities and to keep them current on changing compliance requirements and changes in the firm. These meetings can be held individually or with a group and can be held at a central or regional location or at the registered person's place of business. Firms also must ensure that registered persons attend the entire meeting.

As discussed in Notice to Members (NTM) 99-45 (June 1999), members are provided with substantial flexibility in implementing the annual compliance meeting required under Rule 3010(a)(7). Firms are not required to conduct in-person meetings with each registered person or with a group of registered persons. For instance, among other delivery methods, firms may conduct the meeting by webcast,1 provided that certain safeguards are in place.

In NTM 99-45, the staff stated that firms that choose to conduct compliance meetings other than in-person must ensure that, among other safeguards, attendees are able to hear presenters live and are able to ask questions and engage in dialogue with the presenters. The purpose of this requirement is to ensure that each registered person is provided an opportunity to discuss compliance matters that relate to the types of activities that the registered person conducts.

The staff believes that CGMI's proposed on-demand webcast, though not a live webcast, is consistent with this requirement insofar as it would provide each registered person an opportunity to e-mail or telephone his or her questions to the presenter and receive answers from the presenter in a timely fashion. Moreover, CGMI would make such questions and answers available on its intranet for other registered persons to view, which in turn may encourage more discussion. In this regard, the staff expects CGMI to adequately notify its registered persons of the opportunity to ask questions and receive answers as well as inform them of the availability of questions and answers on the firm's intranet site. In addition, the staff believes that CGMI's proposed safeguards are adequate in ensuring attendance and that registered persons view the entire webcast.

Based on the foregoing and subject to the terms and conditions discussed above, the staff believes that CGMI's use of an on-demand webcast would be consistent with the requirements of Rule 3010(a)(7).

I hope that this letter is responsive to your request. Please note that the opinions expressed herein are staff opinions only and have not been reviewed or endorsed by the NASD Board of Governors. This letter responds only to the issues you have raised based on the facts as you have described them, and does not address any other rule or interpretation of NASD, or all the possible regulatory and legal issues involved. In addition, you should be aware that any changes in the facts as you have described them will require further consideration and may cause us to reach a different conclusion.

Very truly yours,

Afshin Atabaki
Assistant General Counsel

cc:

Hans L. Reich
Senior Vice President and Regional Director
New York District Office

 

1 See NTM 05-44 (June 2005).