October 2, 2000
Mr. Allan H. Pessin
Securities Compliance Consultants Inc.
P.O. Box 3708
North New Hyde Park, NY 11040
Dear Mr. Pessin:
I am writing in response to our phone conversation on September 19, 2000 and your letter dated August 10, 2000. You have asked for guidance as to whether a director of an NASD member firm needs to be registered as a principal.
The director in question is not employed by the member firm, but does have voting control of the firm through its Board of Directors. The director acquired the controlling interest in the broker/dealer through inheritance. You have stated that the director will not actively participate in the management of the member firm.
NASD Notice to Members 99-49 states that outside directors of member firms are not required to register if they are not actively engaged in the management of the member's investment banking or securities business. The NASD considers outside directors to include directors who are not officers or employees of the member. "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. An outside director's regular participation in board and board committee meetings, during which corporate policies may be developed or adopted, would not by itself rise to the level of being actively engaged in a member's management.
Based on the facts that you have described, the staff of the Office of General Counsel, NASD Regulation, believes that the director in question does not need to register as a principal. The director, however, will need to register if he or she wishes to participate in the day-to-day conduct of the member's securities business and the implementation of corporate policies related to such business.
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
Frank McAuliffe, Vice President
Fred McDonald, District Director