Instant Messaging Clarified

The National Association of Securities Dealers sent out a notice to members clarifying the "supervisory obligations and record-keeping requirements for instant messaging." The bottom line is that all document retention rules include electronic communications.

Below is an excerpt from the NASD's Notice to Members:

Members must supervise the use of instant messaging consistent with the required supervision of e-mail messaging. Depending on the circumstances, instant messaging could be either sales literature or correspondence. Compliance in each of these situations depends on clear supervision and review procedures that are consistently followed. If a member is unable to establish an adequate supervisory program, the member must prohibit the use of instant messaging in customer communications.

Members must also ensure that their use of instant messaging complies with applicable SEC and NASD record-keeping requirements. Messages exchanged on many popular instant-messaging platforms cannot be saved or subsequently retrieved, making them inappropriate for communications that must be retained at firm records. Members that permit instant messaging must use a platform that enables the member to monitor, archive, and retrieve message traffic.

NASD Rule 3010 requires:

Each member to establish and maintain a system to supervise the activities of each registered representative and associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with (NASD) Rules.

NASD rules do not specifically require member firms to review or approve internal communications. However, members must be certain that they have procedures adequate to supervise the activities of each registered representative and associated person, including their use of electronic-communications technology.

Members must also assure themselves that their use of electronic-communications media enables them to make and keep records as required by SEC Rules 17a-3, 17a-4 and NASD Rule 3110.

Rule 17a-4 is not limited to physical documents ... internal e-mail communications relating to a broker or dealer's "business as such" fall within the purview of Rule 17a-4.

SEC Rule 17a-4(b)(4) and NASD Rule 3110

Require firms to preserve for a period of not less than three years (the first two years in an easily accessible place) originals of all communications received and copies of all communications sent by the firm or its employees relating to its business. Those rules apply to electronic communications.