NASD Requests Comment on Day-Trading Rule Proposals

Washington, DC, April 29, 1999 - The NASD has issued Notice to Members 99-32 requesting comment on two proposed rules to address investor protection concerns that arise in connection with day trading. Both rules would only apply to those NASD member firms that recommend a day trading strategy to customers. The first rule, Rule 2360, would require the firm to approve the individual's account for day trading. The second rule, Rule 2361, would prohibit the firm from effecting a transaction unless, prior to the first transaction, the member has provided to the customer, in writing or electronically, a disclosure statement that discusses the risks of day trading. Comments are due to the NASD by May 31, 1999.

The Notice requests comment on whether the NASD should, for purposes of the rules, define the term "recommendation," and, if so, what types of activities should constitute a recommendation in the context of day trading. (The proposed rules do not currently include a definition of the term.) In its discussion of this issue, the Notice states that, "In general, a member would be recommending a day-trading strategy for purposes of the proposed rules if it affirmatively promoted day trading through advertising, training seminars, or direct outreach programs, and an individual engaged in day trading in response to these solicitations."