OATS Phase III - Additional Guidance Regarding the Smart Router Routing Method Code

August 7, 2006

NASD is publishing this article to provide additional guidance to members regarding use of the Routing Method Code of "S" (Smart Router) on Route and Combined Order/Route Reports.¹

For purposes of OATS reporting, NASD defines a Smart Router as a system that, based on predetermined logic applied to variable market conditions, determines without human intervention, the venue to which orders are routed. Specifically, NASD intends for the Smart Router code to be used only in situations where the computer program is determining the routing decision based on current market conditions. Conversely, a system pre-programmed to send all orders of a pre-determined size or greater to one destination and smaller orders to a different destination, regardless of market conditions, would not be qualified as a Smart Router and the "S" Routing Method Code would not be applicable.

NASD implemented the Smart Router code to assist NASD surveillance programs in ascertaining whether a system, rather than an individual trader, made the order routing decisions with respect to a specific order. It also allows NASD to better identify situations in which subsequent OATS reports may not be required. As described in the OATS Report entitled "Firm Responsibilities When Using Intelligent Order Routing Systems", published March 3, 2003, modifications, reroutes and cancellations sent to an OATS reporting member firm by a Smart Router need not be reported by the routing member firm.

Members should be aware that when using a Smart Router Routing Method Code, all Route and Combined Order/Route reports with a Routing Method Code of ('S') and a Destination Code of Member Firm ('M'), ECN ('E') or NASDAQ Market Center ('U') require the Routed Order ID or Sent to Routed Order ID field to be populated. As of July 10, 2006, all Route and Combined Order/Route reports with a Routing Method Code of Smart Router ('S'), a Destination Code of 'M', 'E' or 'U', and a blank Routed Order ID or Sent to Routed Order ID were rejected.

In addition, all Route and Combined Order/Route reports with a Routing Method Code of Smart Router ('S') and a Destination Code of Member Firm ('M') or ECN ('E') will be considered in the OATS Interfirm Route Matching process. Likewise, all Route and Combined Order Route reports with a Routing Method Code of Smart Router ('S') and a Destination Code of NASDAQ Market Center ('U') will be considered in the NASDAQ Market Center Route matching process.

Please contact the OATS Helpdesk at 1-800-321-NASD for more information.

1 The “S” Routing Method Code was introduced in the April 10, 2006 Addendum to the OATS Reporting Technical Specifications. Although this code became available for use in the OATS Production Environment on July 10, 2006, it will not be required until September 11, 2006.