Interpretive Letter to Name Not Public
July 17, 1998
Re: OATS Reporting Requirements
In your letter dated April 8, 1998, you asked for an interpretation of NASD Rules 6950 through 6957 (the "OATS Rules") as they apply to your firm.
The following interpretation is based on the following facts supplied in your letter. [Your firm] is a member of the NASD engaged "solely in proprietary trading." Furthermore, "[The firm] does not make markets." You have asked NASDR to confirm that a proprietary trader that is not a market maker is exempt from the OATS Rules.
NASD Rule 6951(j) excludes from the definition of "Order" a "proprietary transaction originated by a trading desk in the ordinary course of a member’s market making activities." Since [your firm] is not a market maker, the transactions executed by [your firm] do not fall within the exception provided in the definition of an order. Since [your firm] is an NASD member and originating orders, it must comply with Rules 6951 through 6957.
The conclusion that [your firm] must comply with the OATS Rules is supported by other provisions of the OATS Rules and the SEC order approving the OATS Rules. Provisions of the OATS Rules pertaining to order origination, transmittal, and modification all require firms to record and report information about orders originated by the member. The SEC Order approving the OATS Rules also clearly contemplates that member firms originating orders will be required to keep records and report information to OATS.
In conclusion, based on the facts you provided, [your firm] would be required to record and report information as specified in the OATS Rules. If you have any questions please feel free to contact me directly.
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 NASDR. The letter responds only to the issues you have raised based on the facts as you have described them in your letter, and does not necessarily address any other rule or interpretation of the NASD or all the possible regulatory and legal issues involved.
Should you have any questions regarding this interpretation, please contact me directly at 301 590 6544.
Cindy D. Foster
Member Firm Compliance Section
Market Regulation Department