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NASDR Requests Comment on Ad and Sales Literature Proposals
Washington, DC, September 10, 1999 - NASD Regulation, Inc. has issued Notice to Members 99-79 requesting comment on proposed amendments to its rules governing member communications with the public. The notice describes the proposals as "the most comprehensive set of amendments to the NASD advertising rules in recent history." It further states that the proposed amendments are intended to enhance the effectiveness with which the advertising rules protect investors, and are based in part on suggestions the NASD received in response to its request for comment on whether any of its rules should be modernized, repealed as obsolete, or should distinguish between retail and institutional customers in their application. According to the notice, one of the most significant aspects of the proposal is to exempt all member firm communications to institutional investors from pre-use approval and NASDR filing requirements. Comments are due to NASDR by October 29, 1999.
Filing Requirements and Review Procedures
The NASD’s proposal would create a separate category of advertisements and sales literature distributed solely to institutional investors, which would be exempt from Rule 2210’s pre-use approval and filing requirements, although such material would continue to be subject to the rule’s content and recordkeeping requirements. The proposal would define "institutional investor" as (1) any natural person or entity described in Rule 3110(c)(4) and (2) any NASD member or associated person of a member. The proposal would also exempt from the pre-use approval and filing requirements all form letters and group e-mail sent to existing retail customers and to fewer than 25 prospective retail customers. Additionally, the proposal would exempt from Rule 2210’s filing requirements third-party article reprints used as sales literature that have not been materially altered by the member, and press releases regarding investment companies that are made available only to members of the media. The notice invites comment on whether mutual fund shareholder reports that are used as sales material and/or generic fund advertisements should be exempt from Rule 2210’s filing requirements, and whether the backup filing requirement for sales material that contains rankings should be eliminated.
Among other amendments, the NASD also proposes: (1) to make several changes to the Ranking Guidelines contained in Interpretive Material 2210-3, (2) to substantially shorten and simplify the standards applicable to communications with the public that are contained in Rule 2210(d), including eliminating the distinction between general and specific standards and rewriting many of the standards in "plain English," and (3) to simplify both the provisions concerning disclosure of member names and the requirements in Interpretive Material 2210-4 concerning the use of the NASD’s name.