NASD Reminds Firms of Email Address Established to Report System Outages to Market Regulation Department
November 25, 2002
In the Winter 2000 Regulatory & Compliance Alert (2000 RCA), NASD provided the email addresses specified below so that members could notify NASD's Market Regulation Department (the "staff") of system problems that impacted a member's ability to comply with certain SEC and NASD rules. Because firms experience system problems in the normal course of business and in connection with the implementation of new processes relating to market developments such as SuperMontage and TRACE, NASD staff is reminding members of these email addresses, the purpose for which the emails are to be used, and the information that should be included in the email messages.
As noted in the 2000 RCA, NASD staff performs periodic surveillance reviews or "sweeps" of the industry for compliance with a variety of rules including, among others, the Securities and Exchange Commission (SEC) Order Handling Rules and NASD rules relating to trade reporting for equities and corporate bonds (TRACE), ACT compliance, trading during a halt, and trade-or-move obligations. Using sophisticated automated technology, the staff reviews the trading and market making activity of all member firms. Where warranted, the staff's review may result in the imposition of informal or formal disciplinary action.
As part of its review, the staff considers whether a system outage or other technology-related problem caused, or contributed to, a member's failure to comply with a rule. To address such issues earlier in the "sweep" process, the Market Regulation Department established an email address so that members can alert the staff when system outages or other technology-related problems have impeded the members' ability to comply with certain SEC or NASD rules. The staff uses the contemporaneous record created from the members' messages left at the email address to evaluate the results of surveillance "sweeps." On a case-by-case basis, the staff will determine whether the incidents identified in that record should be viewed as a mitigating factor. NASD staff notes that any mitigation resulting from the notification of system problems is affected, among other things, by the cause, magnitude, duration, and frequency of the system problem. In addition, the promptness of the notification and the extent to which the member firm proactively addresses the problem will also be considered in assessing mitigation. It should be noted that the reporting of system problems in cases involving extended periods of non-compliance caused by such problems may not, by itself, have a mitigating effect unless the member firm can document sustained efforts to solve the problem.
In the event a member experiences a system outage or other technology-related problem that impacts that member's ability to meet the obligations imposed by the applicable rules, the member should send a message to the appropriate email address below that includes the following information: