RealTime IT News

NASD Ups Instant Messaging Ante

The National Association of Securities Dealers has decided it's time to make certain that regulations are in place requiring financial services firms to save and store instant messaging conversations.

The group, a non-profit self-regulatory agency funded by the securities industry, on Thursday issued a Notice to Members indicating that brokers and traders need to begin archiving their IM records in much the same way that they now set aside old e-mail correspondence, as per rules from the NASD and the Securities and Exchange Commission (SEC).

"If you are allowing staff to use instant messaging , there must be systems in place which are able to capture and retain the messages for at least three years," NASD spokesperson Nancy Condon said in a statement.

Condon said the announcement was merely a "clarification" of the rules for the communications of securities dealers -- and not in response to any particular incident, such as the millions of dollars in fines levied by the SEC in recent months when it discovered that Wall Street firms weren't archiving their e-mail.

As a result, the new NASD notice clarifies that the SEC's provisions apply also to instant messaging -- specifically, that no electronic communication, of any kind, can violate NASD Rules 3010 and 3110, which together govern the transmission of sales literature and correspondence and document retention.

"Our members have to have the appropriate systems in place which archive the information," Condon said. "From now on, instant messages are treated like e-mail communications."

There are a number of vendors selling software able to capture instant messages in an archived format, and securely store those messages, so that they can be retrieved, if regulators or internal compliance officers want to see them. Condon said NASD periodically examines its member companies and their computing systems.

"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," Mary Schapiro, NASD Vice Chairman and President of Regulatory Policy and Oversight, said in a press release.

As IM becomes a compelling application in corporate environments, NASD said it's just making sure that everyone knows that IM is no different than any other communications, such as an e-mail or phone conversations.

But by making an official Notice, the NASD is placing the onus on its more than 5,000 brokerage firm members to make sure they've upgraded their systems to be in position to save and store the potentially huge numbers of instant messages flowing across their networks.

One company quick to tout its solution to bring firms in compliance with the new NASD IM rules is IMlogic. The company boasts its IM Manager platform gives companies full monitoring, security and usage data. In addition to NASD compliance, IMlogic said its software also helps companies meet the requirements as outlined by the March 5, 2003 New York Stock Exchange (NYSE) memo stating that record retention within NYSE Rule 440 and the Securities Exchange Act Rule 17a-4 apply to all communications, including instant messages."

There are other companies offering solutions to the new NASD IM regulations, including FaceTime Communications, which this week came out with its IM Auditor 4.0.

Other companies that potentially stand to gain include Communicator Inc. based in White Plains, New York, and Iron Mountain Inc. .

Although NASD members are expected to work to come in compliance with the Notice, what remains less clear is whether they will devise new corporate IM policies, which could be more restrictive on the technology's use within the enterprise.

The move by NASD brings its 3010 rule in compliance with SEC rules 17 CFR 240 and 17a-4, for monitoring electronic communications in brokerage firms.