Assistant General Counsel
December 7, 1998
Wall Street Financial Group
95 Allens Creek Road
Executive Square, Building 1, Suite 301
Rochester, N.Y. 14618
Dear Ms. Bach-Fink:
You asked in a letter dated November 24, 1998, if Wall Street Financial Group, a registered broker/dealer and an NASD member ("WS"), is allowed under NASD Rule 2420 to make "override" payments to an insurance company that is not registered as a broker/dealer. The override payments would compensate the insurance company for securities transactions executed through WS by representatives who work for the insurance company and who are also registered representatives of WS. An override payment would be calculated by multiplying the total dollar amount of such transactions during a fixed period times a percentage.
Your letter raises the issue of whether Section 15(a) of the Securities Exchange Act of 1934, the broker/dealer registration requirements, apply to the insurance company. The NASD has generally interpreted Rule 2420 to prohibit the payment of fees or compensation to non-member broker/dealers. WS and the insurance company should first request interpretive advice from the Securities and Exchange Commission concerning the applicability of Section 15(a) to the insurance company; the NASD has been able to provide interpretive guidance under Rule 2420 only to the extent that the SEC has previously provided guidance regarding the applicability of Section 15(a).
Although I am not able to provide a complete response due to the nature of the facts, I have tried to respond to your inquiry as completely and quickly as possible. 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, Inc. This letter responds only to the issues you have raised based on the facts as you have described them in your letter, and does not necessarily address any other rule or interpretation of the NASD or all the possible regulatory and legal issues involved.
If you have any questions, please call me at 202-728-8985.
Very truly yours,
|cc:||John Ramsay, Deputy General Counsel
Gary Liebowitz, District 10 Acting Director