SEC Approves NASD Rule Amendments Regarding Public Correspondence

Washington, DC, January 16, 1998 - The Securities and Exchange Commission recently approved amendments to National Association of Securities Dealers, Inc. Rules 3010 and 3110 to allow member firms to develop flexible supervisory procedures for the review of correspondence with the public. NASD has issued a Notice to Members containing the text of these amendments. The rule amendments will be effective on February 15, 1998.

Rule 3010(d)(1), as amended, provides that procedures for review of correspondence with the public relating to a member's investment banking or securities business must be designed to provide reasonable supervision for each registered representative, described in an organization's written supervisory procedures, and evidenced in an appropriate manner. New Rule 3010(d)(2) requires each member to develop written procedures that are appropriate to its business, size, structure, and customers for the review of incoming and outgoing written and electronic correspondence of its representatives with the public relating to the member's investment banking or securities business. Members are not required to employ pre-use review and may employ sampling techniques in conducting reviews. However, if the procedures do not require pre-use review, they must include provisions for the education and training of associated persons as to the firm's procedures governing correspondence, documentation of such education and training, and surveillance and follow-up to ensure that such procedures are implemented and adhered to. The Notice to Members also provides detailed requirements members must meet in adopting review procedures pursuant to Rule 3010.

New Rule 3010(d)(3) and amendments to Rule 3110(a) require members to retain correspondence of registered representatives relating to their investment banking or securities business as prescribed by SEC Rules 17a-3 and 17a-4 under the Securities Exchange Act of 1934. The records must indicate the names of the persons who prepared and reviewed outgoing correspondence, and must be readily available to the NASD upon request.