NASDR Proposes "Interpretive Material" Governing Unregistered Persons' Communications with the Public

Washington, DC, September 11, 1997 - NASD Regulation, Inc. has issued a Notice to Members seeking comment on proposed Interpretive Material 1031 ("IM 1031"), which would prohibit unregistered persons from communicating on behalf of a member with members of the public to solicit the purchase of securities or related services or to identify prospective customers. According to the Notice, IM 1031 is intended to curb abusive cold calling practices. Comments on the proposed interpretive material must be filed by October 31st.

IM 1031 would require any person associated with an NASD member who communicates with members of the public for the purpose of soliciting the purchase of securities or related services or for the purpose of identifying prospective customers to register as a representative. In addition, it would prohibit NASD members from engaging or using any person to communicate on their behalf with members of the public to solicit the purchase of securities or related services or to identify prospective customers unless the person is registered as a broker or dealer or as a representative.

Notwithstanding these provisions, IM 1031 would permit unregistered persons associated with a member to communicate with "existing customers" (defined as a customer for whom the broker or dealer, or a clearing broker or dealer on behalf of such broker or dealer, carries an account) for limited purposes. These would include: (1) extending invitations to firm-sponsored events at which any substantive presentations and account or order solicitation will be conducted by registered personnel; (2) inquiring whether the existing customer wishes to discuss investments with a registered person; and (3) determining whether the existing customer wishes to receive investment literature from the firm. Firms "employing or seeking to employ" unregistered persons for these purposes would have to comply with a series of guidelines including, among other things, that unregistered persons (a) would not be permitted to discuss general or specific investment products or services offered by the firm, pre-qualify customers as to financial status and investment history and objectives, or solicit new accounts or orders, and (b) could not be compensated on any basis other than a salary or hourly wage.

The Notice states that IM 1031 is not intended to "restrict a member's administrative personnel, in the normal course of their duties, from contacting customers regarding routine administrative matters." Thus, it would not prohibit such personnel from engaging in activities such as confirming mailing addresses and acknowledging receipt of communications.

The Notice specifically requests comments on, among other things, "the nature and scope of permissible contact between unregistered persons and existing customers" and whether the NASD should develop a separate registration category for cold calling activity.