NASD Notice to Members 04-07 - June 2004

NASD Requests Comment on Proposed Amendments to Rules 2710 (Corporate Financing) and 2810 (Direct Participation Programs); Comment Period Expires March 12, 2004

Executive Summary

This Notice addresses the regulation of certain pooled investment vehicles under NASD Rule 2710 (the Corporate Financing Rule)1 and NASD Rule 2810 (the Direct Participation Programs Rule or DPP Rule). These pooled investment vehicles include publicly offered limited partnership securities, real estate investment trusts (REITs), and closed-end investment companies. This Notice proposes amendments to the Corporate Financing Rule and DPP Rule (together, the Rules), and describes policies in the Corporate Financing Department’s Public Offering Review program that will clarify the Rules’ application to these products. This Notice:

• Requests comment on the rescission of an NASD interpretive policy regarding trail commissions charged by commodity DPPs;
• Requests comment on proposed amendments to prohibit sales loads on reinvested dividends in REITs, DPPs, and closed-end funds;
• Requests comment on proposed amendments to the non-cash compensation provisions in the Rules regarding the “appropriate location” for training and education meetings;
• Requests comment on proposed amendments to the non-cash compensation provisions in the Rules to include “equal weighting” and “total production” limitations for internal sales contests;
• Addresses due diligence practices and disclosure in connection with DPP and REIT programs; and
• Addresses the allocation of compensation and organization and offering expenses in the review of DPP and REIT programs by NASD’s Corporate Financing Department (Department).

Questions concerning this Notice should be directed to Joseph E. Price, Vice President, or Minh Le, Assistant Supervisor, Corporate Financing Department, NASD, at (240) 386-4623.

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