NASD Notice to Members 04-38 - May 2004

NASD Reminds Member Firms of Their Obligations to Adhere to Credit Extension Requirements and Day Trading Margin Rules

Executive Summary

On March 11, 2004, NASD announced a disciplinary action that resulted in a $10 million fine against three firms for improperly extending credit in violation of Federal Reserve Board Regulation T and, in numerous instances, allowing trades that avoided NASD Rule 2520's day trading margin requirements (NASD actions). Day trading is the buying and selling, or selling short and buying to cover, the same security on the same day in a margin account. Firms should familiarize themselves with the facts surrounding the NASD Actions and review their own procedures to ensure that strong safeguards are in place relative to compliance with Regulation T and Rule 2520. In this regard, firms should also review the full text of Regulation T and Rule 2520, as well as related materials, to ensure full compliance with all credit extension provisions and day trading margin rules.

 

Questions concerning this Notice may be directed to Susan M. DeMando, Director, Financial Operations, Member Regulation Department, at (202) 728-8411.