Application of registration requirements to persons inquiring about potential clients' present accounts and other firms and current securities trades.

June 19, 1997

 

Bill T. Singer
Singer Zamansky LLP
40 Exchange Place
20th Floor
New York, New York 10005

 

Re: Customer Communications by Unregistered Representatives

 

Dear Mr. Singer:

 

This is in response to your letter dated April 24, 1997, in which you request guidance concerning the permissible activities of unregistered associated persons. Your letter presents two questions:

 

1. Can an unregistered person affiliated with a registered NASD member firm in communicating with potential clients inquire as to the potential clients' present accounts at other financial services firms?

 

2. Can an unregistered person affiliated with a registered NASD member firm in communicating with potential clients inquire as to the potential clients' current securities trades?

 

NASD Notice to Members 88-50 (NTM 88-50) sets forth guidelines concerning unregistered persons' contact with prospective customers. NTM 88-50 permits unregistered persons to contact prospective customers for the following purposes: (1) extending invitations to firm-sponsored events at which any substantive presentations and account or order solicitation will be conducted by appropriately registered personnel; (2) inquiring whether the prospective customer wishes to discuss investments with a registered person; and (3) determining whether the prospective customer wishes to receive investment literature from the firm. In addition, NTM 88-50 states that "unregistered persons may not discuss general or specific investment products or services offered by the firm, pre-qualify prospective customers as to financial status and investment history and objectives, or solicit new accounts or orders." (emphasis added).

 

We believe that the activities contemplated by your two questions would constitute pre-qualification of prospective customers. As stated above, NTM 88-50 prohibits unregistered persons from "pre-qualify[ing] prospective customers as to financial status and investment history and objectives." (emphasis added). The prohibited activities include, in our view, inquiries regarding matters such as "present accounts at other financial services firms" and "current securities trades." Further, we note that the permissible activities discussed in NTM 88-50 relate to offers to provide information about the services of the firm at some future time. By contrast, the questions described in your letter are designed to elicit information about the prospective investor, e.g., his or her securities accounts and securities trades. Based upon the foregoing, we must answer both of your questions in the negative; unregistered persons affiliated with an NASD member may not undertake the activities identified in your two questions.

 

Please note that the opinions expressed herein are staff opinions only and have not been reviewed or endorsed by the Board of Directors of NASD Regulation, Inc. This letter responds solely to the issues raised in your letter and does not necessarily address all the possible regulatory and legal issues involved.

Very truly yours,

 

Gary L. Goldsholle

 

cc: John M. Ramsay, Deputy General Counsel, NASD Regulation