RCA - March 1999 - Ask the Analyst - Electronic Communications
Q: Must a member firm's written supervisory procedures regarding advertising address electronic communications?
A: As with any other aspect of your securities business, if a firm or its registered representatives use advertisements, sales literature, or correspondence, the firm's written procedures must address how these communications with the public will be supervised. While no specific rule requires separate procedures for electronic communications, given their widespread use, members' procedures for communications with the public should address them. Many firms have amended their supervisory procedures to include electronic methods of communication such as electronic mail, Web sites, bulletin boards, and chat rooms when defining, or giving examples of, communications with the public. Some procedures contain provisions specific to selected electronic communication methods. For example, a firm might restrict the use of electronic mail in the conduct of the firm's securities business to a centrally controlled mail system.
Q: Does NASD Regulation have any suggestions for how firms can ensure their Web sites are compliant?
A: The most important factor in ensuring compliance is that a registered principal must review and approve in writing, prior to posting, all Web sites, including updates to an existing site (see NASD Conduct Rule 2210(b)(1)). To ensure continued compliance, many firms regularly monitor Web sites or choose to conduct random spot checks of their sites. Firms may also restrict the ability to make changes to a Web site to qualified, authorized individuals.
Q: How can a member firm supervise the use of Web sites by individual registered representatives?
A: Web sites used by individual representatives to promote their securities business must also receive written approval of a registered principal prior to posting. To facilitate the compliance process, many firms require representatives to use firm-approved formats for their Web sites. After the initial approval, a member firm can ensure that the representative's Web site remains compliant using the monitoring approaches mentioned above. At a minimum, firms should obtain and maintain records of the domain name(s) of all Web sites used by their representatives.
Q: If a registered representative participates in a chat room, is that discussion subject to the advertising rules?
A: As stated in the Internet Guide for Registered Representatives (the Guide), chat rooms are subject to the same guidelines as radio and television public appearances. Representatives must follow the same requirements for participating in a chat room that they would if they were speaking in person before a group of investors. There are no filing requirements, but individuals are accountable under NASD Conduct Rules and the federal securities laws for what they say regarding securities or services. Also, member firms are responsible for supervising the investment-related activities of their registered personnel, including chat room participation.
Q: How can a member firm supervise its representatives' participation in chat rooms and bulletin boards?
A: Because of the difficulties of supervision and the potential liabilities from participating in chat rooms and bulletin boards, many firms limit or prohibit participation altogether. If a firm permits its representatives to discuss securities in chat rooms or bulletin boards, its procedures must reflect how the firm will supervise this activity. If a firm permits participation in extemporaneous chat room discussions, it must ensure that the representatives conform to the content standards set forth in Conduct Rule 2210. Some firms require representatives to obtain written approval before participating in these activities. In addition, firms have adopted content guidelines that their representatives must review, acknowledge in writing, and adhere to during chat room discussions. Firms may also require their representatives to provide print copies of chat room comments to their compliance department for monitoring purposes. Some firms may also permit the use of scripted chat room presentations or bulletin boards. Firms must supervise these activities in the same way as any other advertisement. Bulletin board postings and scripted chat room presentations must receive approval by a registered principal prior to use and in writing.