NASD Conduct Rule 3050 requires firms to develop effective processes for supervision of the trading activities of their associated persons. This includes notification to the member firm of the existence of securities accounts maintained by the associated person and written notification to the member firm and the executing firm prior to opening a securities account or placing an initial order for the purchase or sale of securities.
Timely personal trade supervision can represent a daunting challenge. Firms must track and review requests for approval from associated persons and trading confirms and statements from executing firms. Additionally, some firms require periodic attestation of trades and holdings to ensure adherence to the SEC code of ethics. Manual processes, email communications and spreadsheet-based tools fall far short of embedding the compliance best practice in this critical area of supervision. Firms that rely on suboptimal processes and tools are often handicapped in their ability to readily produce the reports and documentation requested by internal stakeholders and regulatory examiners. This creates significant non-compliance risk exposure for the firm along with the potential for reputational harm and financial consequences.
FINRA continues to make the supervision of personal trading a top priority. To ensure compliance, member firms must identify technology and processes that enable the efficient management of personal trading submissions, supervisory review, approval / response, status tracking, registered representative attestation, documentation and reporting processes.