ICI Requests Clarification on Proposal Concerning Business Entertainment Practices

Washington, DC, June 18, 2007 - The Institute supports the efforts of NASD and the NYSE to increase guidance relating to member firm business entertainment practices, but asked for clarification on provisions contained in a recent proposal.

Background
The New York Stock Exchange proposed new Rule 350A to address conflict of interest issues in connection with the provision of business entertainment by member organizations to representatives of customers or prospective customers. The proposed rule addresses the concern that customer representatives' decisions to direct business to a given member organization may be influenced by lavish entertainment provided by a member organization or a person associated with a member organization rather than on the basis of the brokerage services to be provided.

The Exchange worked closely with industry representatives and the NASD to develop a substantially uniform industry business entertainment standard to address the potential for such conflicts of interest. In light of the practical difficulties associated with the imposition of a single quantitative standard across the spectrum of broker-dealer business models, the proposed rule takes a more principle-based approach with flexible prescriptive elements and guidelines.

ICI Position
In a June 11 comment letter, the Institute called for guidance and made recommendations concerning the proposed requirements.

First, the Institute believes that flexibility is necessary in situations where business entertainment expenses unexpectedly exceed a firm's specified dollar threshold and prior approval of such business entertainment cannot reasonably be obtained (e.g., a late night business dinner that unexpectedly exceeds a firm's dollar threshold). To address these type situations, the Institute recommends that member firms have the ability to conduct, in limited circumstances, a prompt post-event review of any business entertainment expenses that exceed a firm's specified dollar thresholds.

Second, ICI recommends that the proposals clarify that personnel whose activities are solely and exclusively clerical or ministerial do not fall within the meaning of "administer" to prevent the proposals from including certain personnel who play a minor and insignificant role in the oversight of business entertainment expenses.

Third, based on ICI member input, ICI believes the proposed effective date of six months from the time of approval of the proposals is insufficient to establish and implement appropriate and effective recordkeeping systems.

Generally, ICI also called on NASD and the NYSE -- in light of their recent consolidation -- to continue to work together to ensure that their respective business entertainment rules and guidance are identical to avoid confusion among member firms.

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