NASD Requires Firms to Use Archiving IM Technology

With instant messaging becoming as critical to the daily work world as the computer and the telephone, the National Association of Securities Dealers has advised its 5,300 brokerage firm members on the requirement to archive instant messages just as they would archive e-mail communications to clients.

Instant messaging allows for "real-time" communication between traders and their clients. NASD has not uncovered any wrongdoing among firms using instant messaging, but is trying to prevent any potential future abuses. Federal law requires all securities firms doing business with the American public to belong to NASD.

"Instant messaging is something that comes up more and more," Ellen Zimiles, partner in the forensic accounting practice at KPMG, told the Financial Times. "Whether intentional or not, it is a method that can subvert requirements to retain communications."

Brokerage firms are required to keep e-mail messages for three years. Archived e-mails helped investigators make their case against brokers who were recommending stocks they privately considered to be losers. A recent case between regulators and brokerage houses was settled in April for $1.4 billion.

NASD has told its members that they must either find a way to archive the instant message traffic between brokers and their clients for the customary three years or prohibit their employees from instant messaging with their clients.

"Firms have to remember that regardless of the informality of instant messaging, it is still subject to the same requirements as e-mail communications and members must ensure that their use of instant messaging is consistent with their basic supervisory and record keeping obligations," NASD Vice Chairman and President of Regulatory Policy and Oversight Mary L. Schapiro said.

NASD went further, requiring that firms reign in employees’ personal use of instant messaging and recommended that firms not currently using archiving instant message technology begin the process of converting to those that do archive. The regulation could be a windfall for makers of business versions of instant messaging, including Yahoo, America Online and Microsoft.


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