October 23, 2014
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Obligation of Members to Comply with Conduct & Marketplace Rules (Head Trader Alert #2000-09)

Recently, The Nasdaq Stock Market, Inc. and NASD Regulation, Inc. have received complaints about member firms failing to answer phones during market hours. According to these complaints, market participants will often seek to access by telephone a quote displayed in the OTC Bulletin Board® (OTCBB) in an attempt to trade with the market participant posting the quote. What occurs, however, is the member posting the quote does not answer his/her phone because the member is short-staffed or there is high volume in the issue. Nasdaq and NASD Regulation® believe that such activity is contrary to National Association of Securities Dealers, Inc. (NASD® ) Conduct Rule 3320 and Marketplace Rule 6540(b)(1)(A).

In light of the above, Nasdaq and NASD Regulation would like to reiterate the obligation of NASD members to comply with certain NASD Conduct and Marketplace rules regarding adequate staffing of over-the-counter (OTC) trading desks, order rooms, and/or other departments that execute customer orders. Members, especially those trading in the OTCBB, are specifically reminded to comply with Conduct Rule 3320, IM-3320, and Marketplace Rule 6540(b)(1)(A). Failure to comply with these rules may lead to disciplinary action by NASD Regulation.

Specifically, NASD Conduct Rule 3320—Offers at Stated Prices—states that no member shall make an offer to buy from or sell to any person any security at a stated price unless such member is prepared to purchase or sell, as the case may be, at such price and under such conditions as are stated at the time of such offer to buy or sell. Additionally, paragraph three in IM-3320—Firmness of Quotations—states that each member furnishing quotations must insure that it is adequately staffed to respond to inquiries during the normal business hours of such member.

Marketplace Rule 6540 (b) (1) (A)—Requirements applicable to Market Makers (OTCBB)—states that a Market Maker in a particular OTCBB-eligible security may enter into the Service a priced bid and/or offer, an unpriced indication of interest (including "bid wanted" and "offer wanted" indications), or a bid or offer accompanied by a modifier to reflect unsolicited customer interest. Every quotation entry must include the appropriate telephone number for the firm's trading desk.

Nasdaq and NASD Regulation reiterate that members must implement procedures to ensure that phones of OTC order rooms or other departments assigned to execute customer orders are being answered while the firm is open (including the after-hours session, when applicable), notwithstanding market volatility or activity.

Any questions regarding these matters and issues during the trading day may be directed to Nasdaq MarketWatch at (800) 211-4953 or NASD Market Regulation at (301) 590-6410.

All Nasdaq Head Trader Alerts are available on the Nasdaq TraderSM Web site at www.nasdaqtrader.com. To access the current Alerts, click "Trader News" on the homepage, then click "Go" next to "Head Trader Alerts" on the left navigation. Click on the specific Alert you would like to see. To access the 1999, 1998, or 1997 Alerts, click on the appropriate button for the previous year's index.


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