Interpretive Letter to Robert E. Lee, Counsel, P&A Administrative Services, Inc.
October 29, 1999
Robert E. Lee
P&A Administrative Services, Inc.
17 Court Street, Suite 500
Buffalo, NY 142202-0945
Re: Application of NASD Conduct Rules to Group Variable Contracts
Dear Mr. Lee:
I am responding to your letter of September 27, 1999, to the National Association of Securities Dealers, Inc. ("NASD") wherein you ask whether changes adopted to the NASD Conduct Rules in August 1996 applying expanded sales practice authority to the sale of group variable contracts also apply to group variable contracts sold before the new rules became effective. In particular, you ask whether pre-August 1996 group variable contracts should be reported through a broker/dealer, and whether it is relevant to our response that deposits had been made into the contract or investment advice had been given with respect to the contract after August 1996.
In the past, with respect to similar questions regarding group variable contracts, NASD Regulation, Inc. ("NASD Regulation") has taken the position that broker/dealers must treat their pre-August 1996 sales of group variable contracts in the same fashion that they treat their post-August 1996 sales of group variable contracts. In particular, all contracts are now subject to the books and records requirements, regardless of when they were established. Thus, broker/dealers who had not set up record-keeping procedures for pre-August 1996 contracts must now do so. NASD Regulation would consider recordkeeping systems similar to those discussed and recommended in NASD Notice to Members 96-33 regarding investment advisory transactions subject to Rule 3040 as satisfying the requirement to maintain adequate books and records regarding group variable contracts.
I hope this letter responds to your inquiry. Please not 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 as described, and does not address any other rule or interpretation of the Association, or all the possible regulatory and legal issues involved.
Robert J. Smith
Office of General Counsel
NASD Regulation, Inc.