NASD Proposes Changes to Customer Correspondence Standards

Washington, DC, May 8, 1998 - The Securities and Exchange Commission recently published for comment a proposed change to National Association of Securities Dealers, Inc. Rule 2210 to require that customer correspondence be subject to the general and certain specific standards of Rule 2210 that govern advertising and sales literature.

The proposal represents a revision to an NASD Regulation, Inc. earlier proposal that would have generally required customer correspondence to meet the general and specific standards of paragraphs (d) and (f) of Rule 2210. The Institute submitted a comment letter to NASDR opposing the proposal on the ground that it was unnecessary and inappropriate.

Like the former proposal, the current proposal would create a new definition of "correspondence" that would include any written or electronic communication prepared for delivery to a single customer and not for dissemination to multiple customers or the general public. Correspondence would be subject to the general standards of Rule 2210 (d)(1) and those specific standards of Rule 2210(d)(2) that prohibit misleading statements.

Unlike the former proposal, however, correspondence would not be subject to the specific standards of Rule 2210(d)(2) that prescribe specific disclosure (e.g., the disclosure required in connection with discussions of periodic investment plans). Additionally, the current proposal would not amend Rule 2210(f) (regarding use of an NASD member's name) to specifically cover correspondence (although letterhead and business cards would continue to be subject to Rule 2210(f)).