SEC Approves Changes to NASD Rules Governing Customer Correspondence

Washington, DC, September 4, 1998 - The Securities and Exchange Commission recently approved changes 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 NASD's original proposal in June 1997 would have subjected customer correspondence to all of the general and specific standards in NASD Rule 2210 that govern advertising and sales literature. In response to numerous comments opposing the original proposal, in May 1998 the SEC published for comment a revised NASD proposal that narrowed the application of Rule 2210 to correspondence. As proposed in May 1998, customer correspondence would still be subject to Rule 2210(d)(1)'s general standards, but generally would not be subject to the standards of Rule 2210(d)(2) that require specific disclosures.

The final rule reflects several changes to the May 1998 proposal. First, the phrase "or a single customer" was deleted from subparagraph (d)(1)(D)(ii) of Rule 2210. This change eliminates the proposed requirement that communications directed to a single customer be drafted with a broader audience in mind. Second, Rule 2210(d)(2)(L), which requires certain disclosures in connection with tax-advantaged funds or accounts, was revised to apply solely to advertising and sales literature. Previously the proposal also would have applied it to customer correspondence.