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Clarification of application of OATS rules to customer allocations of executions.
When a member exchanges TRACE-eligible securities for a Creation Unit of an exchange-traded fund ("ETF"), the transfer of TRACE-eligible securities is not required to be reported to TRACE. Similarly, when a member redeems a Creation Unit of an ETF and receives TRACE-eligible securities, their acquisition is not required to be reported to TRACE.
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Secondary market trading in Fresco Index Shares Funds would be consistent with the requirements of NASD Rules 2830(c) and (g).
Direct payments of securities-based compensation by a member to the associated persons of another member are not permitted under NASD Rules 2820(g) and 2830(l) absent an SEC No-action letter or interpretive release. Further, proposed arrangement may require dual registration of associated persons.
Separate sales contests are permissible under NASD Rule 2820(g) for group variable contracts.
Direct payments of securities-based compensation by a member to the associated persons of another member are not permitted under NASD Rules 2820(g) and 2830(l) absent an SEC No-action letter or interpretive release. Further, proposed arrangement may require dual registration of associated persons.
Application of NASD Rules to Member Firms using Pink Sheets Linkage.
If a member transmits orders to buy and sell TRACE-eligible securities to other broker-dealers for the benefit of various proprietary accounts of foreign affiliates of the member, the member is acting as agent and must report the transactions under Rule 6230.
If a member engages in a TRACE-eligible securities transaction that is part of an open market issuer repurchase, the member would not be in compliance with Rule 6230 if the member failed to report the transaction in reliance on Rule 6230(e)(3).
Applicability of Rule 3040 to investment advisory activities of an individual who is dually registered as a registered representative and a registered investment advisor.
Secondary market trading in ETF Advisors Trust shares does not violate NASD Rules 2830, 2110 or 2420.
Applicability of Rule 2820(g) to payments to an associated person from an issuer's deferred compensation plan.
October 2002
In an effort to assist member firms' compliance efforts, NASD is issuing this regular communication, "Improving Examination Results." This document has two sections: "Examination Priorities" and "Frequently Found Violations," both of which relate to the Department of Member Regulation's routine examinations of firms. While each firm must establish its own compliance programs and supervisory procedures, we felt it may be helpful to share our overall priorities.