NASD Notice to Members 04-03 - January 2004

SEC Approves NASD Rule Proposal Requiring Members to Make Affirmative Determinations for Short Sale Orders Received from Non-Member Broker/Dealers; Effective Date: February 20, 2004

Executive Summary

The Securities and Exchange Commission (SEC) approved amendments to Rule 3370 (Prompt Receipt and Delivery of Securities—the “Affirmative Determination” Rule) that expand the scope of the affirmative determination requirement to include orders received from non-member broker/dealers. As revised, Rule 3370 applies to orders received by member firms from both customers and non-member broker/dealers, as well as most firm proprietary orders. The revisions also add an exception for “proprietary” short sales of non-member broker/dealers provided the member can establish that the order meets certain conditions.