Why Reg NMS Due Diligence?
With the implementation of Regulation NMS (Reg NMS), reasonable policies and procedures for data
handling are required for any firm sending Intermarket Sweep Orders (ISOs) or acting as a trading center
by internalizing order flow.
The SEC recommends due diligence with respect to data handling in their Responses to Frequently
Asked Questions Concerning Rule 611 and 610 of Regulation NMS, June 8, 2007 as cited below:
“...As a practical matter, however, Firms should be aware that Network Data, as the single available common reference point for quotations and trades in NMS stocks, may be used by regulatory authorities, as an initial matter, to gauge their compliance with Rule 611 generally…”
“Firms also should recognize that the widely available Network Data could be a valuable external tool for
assessing the effectiveness of their internal policies and procedures. For example, an examination of the
Network Data might reveal particular types of stocks, times of day, or types of trading conditions in which
the Firm appears to generate a high rate of trade-throughs. The Firm could use this information to fashion
its compliance reviews to assess these specific potential problem areas. Such compliance reviews could
reveal that the trade-throughs in the Network Data are false positives, as well as the explanation for why
they appear to be trade-throughs in the Network Data.
Conversely, compliance reviews targeted on the problem areas may reveal weaknesses in the Firm’s
policies and procedures that the Firm could correct with timely action. In either case, policies and
procedures that include the use of Network Data may enable the Firm to provide a more effective
response to regulatory inquiries.”
For additional information on Jordan & Jordan's Reg NMS offerings, contact Michael O'Conor, 212-655-2953.