NASD Regulation Department of Enforcement will not, unless directed otherwise, institute enforcement action against NASD member firms that send group e-mails to two or more existing or prospective customers that qualify as "institutional accounts" under Rule 3110(c)(4) or existing customers that qualify as "qualified purchasers" under Section 3(c)(7) of the Investment Company Act of 1940 without securing prior approval by a registered principal of those communications, subject to the condition that the firms supervise and review the group e-mails in accordance with the standards of Rule 3010(d).
December 17, 1999
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037-1420
Re: Electronic Communications with Qualified Recipients
Dear Ms. Lee:
I am responding to your letter of August 26, 1999 to John Ramsay on behalf of various member firms (the "Firms") with respect to the application of the principal approval requirement of National Association of Securities Dealers, Inc. ("NASD") Rule 2210(b) to "institutional group e-mails" as that term is defined in your letter. Based on the representations contained in your letter, and subject to the terms and conditions described below, the Department of Enforcement of NASD Regulation, Inc. ("NASD Regulation") will not, unless directed otherwise by the Board of Governors of the NASD or the Board of Directors of NASD Regulation, institute enforcement action against the Firms if they send group e-mails to two or more existing or prospective customers that qualify as "institutional accounts" under NASD Rule 3110(c)(4) or existing customers that qualify as "qualified purchasers" under Section 3(c)(7) of the Investment Company Act of 1940 (collectively, "Qualified Recipients") without securing prior approval by a registered principal of those communications.
This position is subject to the condition that the Firms will supervise and review group e-mails of the type described in accordance with the standards of NASD Rule 3010(d) and any applicable interpretations published by NASD Regulation, to the same extent as if each such communication were deemed to constitute "correspondence" under that provision. This position does not apply to compliance with the content standards or other requirements of NASD Rule 2210, or to compliance with any other legal or regulatory requirements pertaining to these communications. We note, for example, your representation that the Firms’ procedures will recognize that to the extent that these communications include recommendations to customers, the Firms must make suitability determinations in accordance with the scope of the Firms’ suitability obligations regarding such customers. Further, consistent with the Public Communications Proposal described below, this position will not apply to any communication if a Firm has reason to believe that the communication (or any excerpt thereof) will be forwarded to any person other than Qualified Recipients.
At its meeting on July 28, 1999, the Board of Directors of NASD Regulation approved seeking comment on proposed changes to NASD rules, including Rule 2210, governing member communications with the public (the "Public Communications Proposal"). The Public Communications Proposal has been published for comment in NASD Notice to Members 99-79. Among other things, the Public Communications Proposal would exempt from the pre-use approval and filing requirements of NASD Rule 2210 advertisements and sales literature sent solely to institutional investors, as defined in the proposal, and would exempt from such requirements all form letters and group e-mails sent only to existing retail customers and to fewer than 25 prospective retail customers, provided in each case that such communications are subject to the requirements of NASD Rule 3010(d) regarding the supervision and review of correspondence.
This position with respect to the enforcement of NASD Rule 2210(b) is intended to provide temporary guidance pending further consideration of the Public Communications Proposal by the NASD and the Securities and Exchange Commission ("Commission") and is based in part on your representations as to the practical difficulties involved in seeking to secure prior principal approval of each e-mail transmission sent to Qualified Recipients. This position may be modified or withdrawn at any time, without prior notice. In addition, this position will be deemed to be automatically withdrawn upon the occurrence of any of (i) the effectiveness of rule amendments related to the Public Communications Proposal, or any subsequent, related proposal; (ii) a determination by the Board of Governors of the NASD or the Board of Directors of NASD Regulation to take no further action with regard to the Public Communications Proposal; (iii) the approval by the Board of Governors of the NASD or the Board of Directors of NASD Regulation of rule amendments that would have the effect of prohibiting or limiting the ability of the Firms to disseminate group e-mails on the terms described in your letter; (iv) the withdrawal by the NASD of any rule filing related to the Public Communications Proposal that is submitted by the NASD under Section 19(b) of the Securities Exchange Act of 1934; or (v) the disapproval by the Commission of any such rule filing.
This position concerns the Office of General Counsel’s position on enforcement action only and is not intended to express any conclusions concerning the application of any legal or regulatory requirements. In addition, this position has not been reviewed or endorsed by the Board of Governors of the NASD or the Board of Directors of NASD Regulation.
Alden S. Adkins
Senior Vice President and General Counsel
Brandon Becker, Wilmer, Cutler & Pickering