NASD Addresses Use of Hyperlinks in Internet Sales Material

Washington, DC, November 21, 1997 - NASD Regulation, Inc. recently sent a letter to the Institute in response to the Institute's October 15, 1996 letter concerning electronic advertisements and sales literature. The ICI's letter made several recommendations regarding the responsibility of an NASD member for the content and filing under the NASD's Conduct Rules of information on a third party's Internet site to which the member's site has been linked. NASDR's letter responds to these recommendations.

Ongoing Hyperlinks to Internet Sites
First, the ICI recommended that an NASD member should not be responsible for the filing and content of a third party's Internet site if the member provides an "ongoing" hyperlink to the site. NASDR responded that it would not hold a member responsible for the content or filing of information contained in an unaffiliated third party's site, provided: (1) the hyperlink is continuously available to investors who visit the member's site; (2) the member has no discretion to alter the information on the third-party site; (3) investors have access to the hyperlinked site whether or not it contains favorable material about the member; and (4) the linked site could be updated or changed by the third party and investors would nonetheless be able to use the hyperlink. NASDR noted that a member may not establish a hyperlink to a site that the member knows or has reason to know contains false or misleading information about the member's products or services. NASDR also indicated that while a member generally could suspend or terminate a hyperlink due to mechanical or technical difficulties, the member would be expected to demonstrate that a suspension or termination was due to these reasons and not because of the presentation of unfavorable information (or the absence of favorable information) about the member's products and services.

Hyperlinks to Educational Material
Second, the ICI recommended that if a member provides a hyperlink to nonmember specific information at an Internet site that is intended for use by the public for general reference and educational purposes, the member should not be responsible for the content or filing of the linked site. NASDR responded that generally, under these circumstances, so long as the site does not refer to the member or any of its affiliates, the member would not be responsible for the filing or content of such a site. If the site has been produced by another member, however, that member would be responsible for the contents of its site.

Hyperlinks to a Home Page
Third, the ICI recommended that if a member provides a hyperlink to the home page of a third party's Internet site, the member should not be responsible for the content or filing of the linked site. NASDR disagreed with the ICI's conclusion concerning a hyperlink to a home page where the hyperlink does not meet the conditions of the first or second situations discussed above. In particular, NASDR expressed concern that a member could hyperlink to the home page of an investment newsletter that contains a misleading article about the member's mutual fund.