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November 10, 2009

FINRA To Examine Options Desks

By Peter Chapman

TMMS exams are coming to options desks. The Financial Industry Regulatory Authority has started a new trading examinations program aimed at options trading desks that will look at all aspects of trading and order handling.

The exams are modeled on the Trading and Market Making Surveillance, or TMMS (pronounced "tams") program that targets cash equities desks. This program was instituted under the NASD and focuses on broker-dealer compliance with such rules as best execution, limit order protection, limit order display, front-running and short sales.

"This is new," Gene DeMaio, an exec in FINRA's market regulation department, recently told a crowd at the FIA/OIC options conference. "Some firms have already started getting letters. Some of the on-sites have already started. But certainly you will be hearing a lot more about this in the coming weeks and months."

DeMaio stressed that the reviews are not merely Written Supervisory Procedures, checklists (WSPs), but full-blown trading exams where FINRA staffers visit desks and gather information.

Because there is no Order Audit Trail System (OATS) for options, as with cash equities, FINRA plans to gather information from traders' electronic correspondence, including IMs, text messages and email, DeMaio said.

 

 

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