Inside directors of broker/dealers must register as principals if they wish to participate in the day-to-day conduct of members' securities businesses and the implementation of corporate policies related to such businesses.


November 2, 2000

 

Ms. Joanne Ferrari
Weeden & Co., L.P.
Compliance Director
145 Mason Street
Greenwich, CT 06830


Dear Ms. Ferrari:

 

I am writing in response to my phone conversation with Mr. Robert A. Cervoni of October 23, 2000 and your letter also dated October 23, 2000. You both have asked for guidance as to whether an employee/director of Weeden & Co. ("Weeden"), an NASD member firm, is required to register as a principal.

 

You have represented that the employee/director is not involved in any aspect of Weeden’s management. You have further explained that the employee/director’s employment is limited to exploring possible acquisitions or new lines of business, advising management on the needs of the institutional community and performing other public relations duties.

 

NASD Rule 1021 requires a director of a member firm who is actively engaged in the management of the member’s investment banking or securities business to register as a principal. Notice to Members 99-49 (June 1999) states that "actively engaged in management" means day-to-day conduct of the member’s securities business and the implementation of corporate policies related to such business. This Notice to Members concludes that a director who is an employee of the member is presumed to be involved in the firm’s day-to-day management. The staff of the Office of General Counsel, NASD Regulation (the "staff") believes that this presumption can be rebutted by facts clearly demonstrating that the employee/director does not actively engage in management of the member’s investment banking or securities business. These facts should be thoroughly documented.

 

Based on the facts that you have described, the staff believes that the employee/director in question is not required to register as a principal. However, the employee/director will be required to register if he or she wishes to participate in the day-to-day conduct of Weeden’s securities business and the implementation of corporate policy. He or she also will be required to register as a principal if he or she performs any supervisory functions at Weeden.

 

I hope this letter is responsive to your inquiry. Please note that the opinions expressed in this letter are staff opinions only and have not been reviewed or endorsed by the Board of Directors of NASD Regulation. This letter responds only to the issues you have raised based on the facts as you have described them, and does not necessarily address any other rule or interpretation of the NASD or all the possible regulatory and legal issues involved.

 

Very truly yours,

 

Eric J. Moss
Assistant General Counsel

cc:

Frederick F. McDonald, Jr., District Director
NASD Regulation, Inc., District 11