Additional Guidance Regarding the OATS Routing Method Code of I and Special Handling Code of ISO

Outbound ISOs Generated by a Smart Router

As previously announced in the March 21, 2007 OATS Reporting Technical Specifications, a new Routing Method Code of “I” (Intermarket Sweep Order) became available on June 11, 2007. As of February 4, 2008, the Routing Method Code of “I” will be required in the OATS Route and/or Combined Order/Route Reports for all OATS reportable orders routed to another market center that are identified to the receiving market center as an ISO. NASD encourages members, however, to begin using the code as soon as practicable given that it will facilitate NASD's ability to determine that trades were made in reliance on the ISO exception from SEC Rule 611 of Regulation NMS.

The OATS Reporting Technical Specifications also state that when firms use an intelligent order routing system, or “smart router,” to send orders to other firms and/or market centers, they must use a Routing Method Code of “S” (Smart Router). Since the Routing Method Code field allows only for a single code, firms have raised the question as to how to properly report an order that is marked as an ISO and that is also routed via a smart router. If an ISO is routed via a smart router, firms must use the Routing Method Code of “I” (rather than “S”) to identify that the order was sent as an ISO.

Modifications to Orders Routed as an ISO

If an order that was previously routed to another market center as an ISO is subsequently modified and re-routed to the same receiving market center, that modification and subsequent ISO must in all cases be reported to OATS, irrespective of whether the modification was generated by a smart router or the receiving market center is an OATS Reporting Member. This guidance supersedes previous guidance with respect to modifications generated by a smart router and routed to another OATS Reporting Member.

Special Handling Codes- ISO (Intermarket Sweep Order) and IOC (Immediate or Cancel)

When firms receive an order marked as an ISO, they now have the obligation to report to OATS on the new order type reports (New Order, Combined Order/Route, Combined Order/Execution and Cancel/Replace) a Special Handling Code of “ISO.” Firms have stated that many of the ISOs they receive are also marked as Immediate or Cancel (“IOC”). The OATS new order type reports each allow for up to five Special Handling Codes. Therefore, firms receiving ISOs marked as IOC must report to OATS both the ISO and IOC Special Handling Codes.

For more information on the Routing Method Code and Special Handling Code fields, please consult the OATS Reporting Technical Specifications or contact the OATS Helpdesk at 1-800-321-NASD.