NASD Files Proposal Regarding Submission of Supervisory Controls Reports to Board of Directors and Audit Committee
On March 7, 2006, NASD filed a proposed rule change with the SEC to amend IM-3013, which provides guidance regarding the CEO certification requirements of NASD Rule 3013. Under NASD Rule 3013, each member firm’s CEO or equivalent officer must certify annually that the member has in place processes to establish, maintain, review, modify, and test policies and procedures reasonably designed to achieve compliance with applicable NASD rules, MSRB rules and the federal securities laws. Among other things, IM-3013 provides that the CEO must certify that the member firm’s processes are “evidenced in a report reviewed by the chief executive officer (or equivalent officer), chief compliance officer, and such other officers as the Member may deem necessary to make this certification, and submitted to the Member’s board of directors and audit committee.”
Under the proposed rule change, each NASD member firm would be permitted to submit the final report to its board of directors and audit committee either before or after the execution of the certification, provided that the board and audit committee received the report at the earlier of their next scheduled meeting or within 45 days after execution of the certification. In its proposal, NASD acknowledged that IM-3013 is not clear as to whether a member may submit the report to its board of directors and audit committee after the CEO makes the certification. NASD also stated that it had not intended to require the board of directors or audit committee to review or consider the report as a condition to the CEO executing the certification.
The proposed rule change will become effective after it is approved by the SEC, following publication for public comment in the Federal Register.
Securities Industry FYI is a service of the Broker-Dealer Practice of Morgan Lewis. If you have any questions concerning these important legal developments, please contact any member of Morgan Lewis’s Broker-Dealer Practice, including:
Washington, D.C.
John V. Ayanian
202.739.5946
jayanian@morganlewis.com
Mary Dunbar
212.309.6168
mdunbar@morganlewis.com