Interpretive Letter to Henry H. Hopkins and Sarah McCafferty, T. Rowe Price Investment Services, Inc.
June 10, 1999
Henry H. Hopkins, Director
Sarah McCafferty, Vice President
T. Rowe Price Investment Services, Inc.
100 East Pratt Street
Baltimore, MD 21202
Dear Mr. Hopkins and Ms. McCafferty:
This letter responds to your letter of April 6, 1999, in which you inquire whether the limits on giving gratuities to other persons under NASD Conduct Rule 3060 apply to ordinary and usual business entertainment. As you note, Rule 3060 prohibits members and persons associated with members from giving anything of value in excess of $100 per individual per year to any officer, director, employee or agent of another firm when the gratuity is in relation the employer firm’s business. You believe that the limitations on paying gratuities to others under Rule 3060 should not apply to ordinary and usual business entertainment, and have requested that we issue an interpretation to this effect. In particular, you note that the New York Stock Exchange (NYSE) has issued an interpretation of its Rule 350, which is similar to NASD Conduct Rule 3060, that states that NYSE Rule 350 does not limit or address ordinary and usual business entertainment.
The NASD Regulation staff agrees that NASD Conduct Rule 3060 does not limit ordinary and usual business entertainment provided by a member or its associated persons to the member’s clients and their guests. Thus, when a member or its associated persons are hosting clients and their guests at an occasional meal, sporting event, theater production or comparable entertainment event, the staff would not regard such business entertainment as governed by Rule 3060 so long as it is neither so frequent nor so extensive as to raise any question of propriety. This approach is analogous to the NASD’s rules governing non-cash compensation in connection with the offer and sale of investment company shares and variable annuities, which permit non-cash arrangements involving an occasional meal, a ticket to a sporting event or the theater, or comparable entertainment under the same conditions. See NASD Conduct Rules 2820(h)(4)(B) and 2830(l)(5)(B).
On the other hand, if a person associated with a member is not personally hosting the business entertainment, the provision of tickets to sporting events, the theater, and other comparable entertainment events would be governed by Rule 3060. Thus, such gratuities may not exceed the value permitted under Rule 3060, must be valued at cost, and may not be discounted on the theory that they would not otherwise be used.
You have also noted that NYSE Rule 350 allows NYSE members to give gratuities in excess of the rule’s monetary limits with the prior written consent of the recipient’s employer, and have requested that the same flexibility be included in NASD Conduct Rule 3060. Rule 3060 does not currently permit giving gratuities in excess of $100 per individual per year with the written consent of the recipient’s employer. Thus, this flexibility could be included in Rule 3060 only through an amendment to the rule.
I trust that this letter is responsive to your inquiry. 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. This letter responds only to the issues that you have raised based on the facts you have described, and does not address any other rule or interpretation of the Association, or all the possible regulatory and legal issues involved.
R. Clark Hooper
Executive Vice President
John M. Ramsay