The NASD in Notice to Members 07-12 requests comments on proposed amendments to Rules 3010(g)
and 2711. Of relevance to independent broker-dealers, is the proposed amendments to Rule 3010(g)
which would would eliminate the definition of "Office of Supervisory Jurisdiction" ("OSJ"), and would adopt
definitions for "supervisory branch office," "limited supervisory branch office," "non-supervisory branch
office" and a "non-branch office." These changes seek to reclassify office designations in line with New
York Stock Exchange ("NYSE") rules.
The functions that currently make a location an OSJ would generally be captured in a new definition of
"supervisory branch office." Consistent with NYSE rules, locations at which the only activity being
conducted is the final review of research reports would not be covered by the definition. Like the current
system for OSJs, an appropriately registered principal must be on-site at a supervisory branch as
provided in Rule 3010(a)(4) and such location would be subject to an annual inspection cycle as provided
in Rule 3010(c)(1)(A).
A "limited supervisory branch office" would be any location of the member that supervises one or
more non-branch locations and does not supervise any supervisory branches or any other limited
supervisory branch offices. Such location would be subject to branch office registration and would be
subject to an annual inspection cycle as provided in Rule 3010(c)(1)(A). The office would not be required
to be staffed with an appropriately registered principal on-site as provided in Rule 3010(a)(4).
A "non-supervisory branch office" would be any location of the member that satisfies the definition of
branch office, but does not qualify as a supervisory branch office or limited supervisory branch office.
Like the current system for non-OSJ branch offices, a non-supervisory branch office would be subject to
branch office registration. Such an office would not be required to have a registered principal on-site but
instead would be required to have one or more registered representatives or principals on site to carry out
supervisory responsibilities as provided in Rule 3010(a)(4), and such location would be subject to
inspection at least every three years as provided in Rule 3010(c)(1)(B).
The fourth and final classification would be a "non-branch location" which would be any location of the
member, including but not limited to a main office, that does not qualify as any of the other three office
classifications. In addition, a non-branch location would include a location that qualifies for an exclusion
from the definition of "branch office" pursuant to Rule 3010(g)(2), provided such locations do not engage
in any other activities that would require branch office registration. A non-branch location would also
include certain locations that engage in certain types of activities (e.g., final approval of research reports,
investment banking services, or proprietary trading or securities lending ).
Notice to Members ("NTM") 07-12 explains that the proposal to amend Rule 3010(g) grows out of the
NASD/NYSE Rule Harmonization initiative. This initiative dates back to early 2006 when the NASD and
the NYSE announced that they would be working together to harmonize their rulebooks in order to
achieve consistency where possible. The NTM further explains that the driving force for the proposed
amendments is to treat offices whose only supervisory-related function is the principal review and
approval of final research reports consistently under the NASD and NYSE rules.
Status: The comment period on the proposal expired on April 9, 2007. The NASD is now in the process
of reviewing the comments that have been submitted.