Staff clarification of NASD Notice to Members 96-60 regarding a member's suitability obligation under NASD Rule 2310 with respect to certain investment company transactions.


 

March 4, 1997

 

Re: NASD Notice to Members 96-60

 

I am writing in response to your letter to Clark Hooper, dated December 17, 1996, in which you requested clarification of certain aspects of NASD Notice to Members 96-60. Notice 96-60 stated in part:

 

[A] broad range of circumstances may cause a transaction to be considered recommended, and this determination does not depend on the classification of the transaction by a particular member as "solicited" or "unsolicited." In particular, a transaction will be considered to be recommended when the member or its associated person brings a specific security to the attention of the customer through any means, including, but not limited to, direct telephone communication, the delivery of promotional material through the mail, or the transmission of electronic messages.

 

Your letter requested clarification that NASD Regulation does not consider (a) factual responses by investment company employees or associated persons to investor inquiries or (b) investment company advertising and sales literature, to be "recommendations" that are subject to the suitability requirements of NASD Conduct Rule 2310.

 

Notice to Members 96-60 was intended to clarify the existing suitability obligations of NASD members. The quoted language was not meant to describe the content of communications that may result in a recommendation or to suggest that every statement that mentions a security would be considered a recommendation.

 

We understand that some persons associated with NASD members may provide factual responses to investor inquiries about investment companies, and that these members have adopted procedures designed to ensure that those factual responses do not constitute "recommendations" for purposes of Rule 2310. Because the Notice was intended to clarify the existing suitability obligations of NASD members, the Notice itself should not necessitate a reappraisal of the adequacy of those procedures by NASD members.

 

Moreover, the staff agrees that a reference to an investment company or an offer of investment company shares in an advertisement or piece of sales literature would not by itself constitute a "recommendation" for purposes of Rule 2310. We assume that in referring to "advertisement" and "sales literature" your letter intended that these terms have the same meaning as under NASD Conduct Rule 2210(a) and NASD Regulation interpretations.

 

I hope that this letter has helped to clarify the issues that you have raised. Please feel free to contact me with any further questions you might have about this issue.

 

Sincerely,

 

Thomas M. Selman
Director
Advertising/Investment Companies Regulation