The NASD has completed the implementation of the Rule 3012 Exception Notification System. This means that NASD member firms that are relying on the limited size and resource exemption are now required to give the NASD electronic notification of this fact between February 14, 2006 and March 16, 2006. The process includes logging onto the Rule 3012 Exception Notification System and completing and submitting the notification form.

By way of background, NASD Rule 3012 requires NASD members to implement supervisory control policies and procedures that include, among other things, procedures to review and supervise the customer account activity conducted by its producing managers. These reviews must be conducted by someone that is senior or otherwise independent of the producing manager; however, the rule was drafted so that if a firm is so limited in size and resources that there is no qualified person senior to or otherwise independent of a producing manager, the firm may avail itself of the limited size and resource exception contained within the rule. Ultimately, the SEC had required notification when the rule was amended, but it has taken time for technology to catch up with the requirement.

Since technology and systems are now in place, on a go forward basis, firms relying on the exemption must take steps to notify the NASD. The notification must be given to the NASD within 30 days of the date that the firm began relying on the exemption and annually thereafter. However, as the electronic notification system will not be activated until February 14, 2006, the initial notification must occur between February 14 and March 16, 2006.