New supervisory control requirements for
branch and remote offices
Amy N. Kroll and Anders W. Franzon
Abstract
Purpose – To provide an overview of the new uniform definition of ‘‘branch office’’ and to discuss how
that definition will influence broker-dealer supervisory programs.
Design/methodology/approach – Discusses the new definition of ‘‘branch office’’, describes new
NASD and New York Stock Exchange supervisory control system requirements and supervisory
requirements for branch offices and other locations, and suggests guidelines for developing a branch
office or remote office supervisory program.
Findings – In the current regulatory environment, no broker-dealer should overlook regular and rigorous
attention to supervision of branch offices and other remote locations. And in light of the new definition of
a branch office, each broker-dealer must include in its review and analysis a close evaluation of how the
broker-dealer supervises every location where broker-dealer personnel engage in activities on behalf of
the broker-dealer and must document that evaluation.
Originality/value – Important reference for broker-dealers’ branch office supervisory programs that
underscores the need to pay proper attention to remote locations.
Keywords Control systems, Office buildings, Supervisory programs, United States of America
Paper type General review
Introduction
Regulatory changes in the past 18 months require that broker-dealers revisit, and to the
extent, necessary substantially enhance their supervisory systems to ensure compliance
with New York Stock Exchange (‘‘NYSE’’) and NASD (together ‘‘SROs’’) rules with regard to
supervisory and supervisory control systems. The new uniform definition of ‘‘branch office’’
creates important new issues influencing many broker-dealer supervisory programs. In this
initial period, broker-dealers must evaluate many locations previously assumed not to be
branch offices to determine whether they are swept up by the new definition. Depending on
whether offices are or are not branch offices, broker-dealers will have to determine the
appropriate supervisory structure for each location. This article will provide an overview of
the new definition and supervisory rules and factors to consider in structuring supervision of
branch offices. This article also will discuss briefly several related issues.
Background – applicable definitions and supervisory system requirements
Definition of ‘‘branch office’’
For the first time, a branch office is uniformly defined in NYSE and NASD rules as:
[A]ny location where one or more associated persons of a member or member organization
regularly conduct the business of effecting any transactions in, or inducing or attempting to
induce the purchase or sale of any security’’ or any location held out as such[1].
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VOL. 6 NO. 3 2005, pp. 32-44, Q Emerald Group Publishing Limited, ISSN 1528-5812 DOI 10.1108/15285810510659301
Amy N. Kroll
(AKroll@foley.com) is
Senior Counsel, and
Anders W. Franzon
(AFranzon@foley.com) is an
Associate, both at Foley &
Lardner LLP, Washington,
DC, USA.