NASDAQ Equity Audit Trail

IMPORTANT

Officers * Partners * Proprietors Operations and P&S Department Managers

TO: ALL NASD Members

In its Notice to Members 84-55 dated October 15, 1984, the Association announced plans to implement a NASDAQ Equity Audit Trail and detailed the seven phases to be followed for completion of the plan. As described in that notice, Phase I involves the collection of additional information from members through the facilities of the clearing corporations to include:

• time of trade (military time, eastern zone)
• capacity of executing broker-dealer (principal or agent)

This notice is intended to advise members that the implementation of Phase I is now underway. If your firm has not already begun to provide the above information on all NASDAQ securities to the clearing corporations of which you are a member, you should begin to do so promptly.

The Association has coordinated the planning and implementation of Phase I with the various clearing corporations involved in OTC comparison systems. On November 13, 1984 and again on December 18, 1984, the National Securities Clearing Corporation (NSCC) provided its members with instructions on the manner in which the above described audit trail information is to be included with other clearing data currently submitted to the NSCC's OTC Comparison System. On January 10, 1985, NSCC implemented the capability to receive audit trail data from its participants and began providing an audit trail compliance report to the NASD. Enclosed with this notice is the Trade Date + 1 Stock Detail Input Format to be used by NSCC members in complying with the Phase I audit requirements. Comparable format changes have been made by the Midwest Clearing Corporation, Pacific Clearing Corporation and Stock Clearing Corporation of Philadelphia to their OTC comparison systems and copies have been provided directly to their respective members.

Since complete and accurate audit trail information from members is required to achieve a valid NASDAQ Equity Audit Trail, all information on NASDAQ securities submitted to the clearing corporations for OTC comparison will be carefully monitored during a transition period that will end on July 1, 1985. Thus, members should review the accuracy of their clearing input not only in terms of time of trade and capacity, but also in terms of price, size, executing broker and clearing broker. Operational systems or procedural changes that may be necessary to achieve accurate audit trail input to clearing should also be complete by July 1, 1985. Should your firm need assistance or have questions during the transition, please feel free to contact the NASD or clearing corporation representative noted below.

Phase II of the NASDAQ Equity Audit Trail will involve the real-time reporting of a buy/sell indicator with all transaction reports in NASDAQ/NMS securities as well as off-board trade reports in listed securities. It is currently anticipated that trade reporting procedure changes for the NASDAQ Level III terminals will not be implemented before July 1985. A specific timetable and instructions on new reporting procedures will be provided well in advance of any such change.

For members utilizing the Small Order Execution System (SOES) and/or Computer Assisted Execution System (CAES), you should be aware that audit trail data is automatically generated by both systems and, therefore, no additional information is required of members for transactions executed through these systems under Phase I or Phase II.

Any questions concerning OTC clearing input format changes or other Phase I Equity Audit Trail requirements should be directed to Jack Donlon at (212) 839-6375 or NSCC's Ed O'Shaughnessy at (212) 510-0507 who is coordinating the efforts of the clearing corporations.

Sincerely,

Frank J. Wilson
Executive Vice President and General Counsel

Enclosure

OTC T+1 STOCK DETAIL INPUT AND DELETE FORMAT