Letter - March 2003
Dear Small NASD Member Firms:
As you know, a few years ago NASD established the Small Firm Advisory Board (SFAB) to provide a voice to small firms in matters that affect them and their customers. As SFAB Chairman, I wanted to take the opportunity to communicate with you again on some important matters.
Mutual Funds Breakpoint Self-Assessment
Recently, many firms were notified that NASD is requiring member firms that sold front-end load mutual funds in the last two years to conduct a self-assessment of breakpoint compliance. This self-assessment is being mandated as a result of the findings in recent examinations focused on this issue. Specifically, regulators found errors in the calculation of sales loads on Class A mutual fund shares at virtually all of the firms examined.
Self-assessment results need to be reported to NASD by May 15, 2003. Member firms that had more than a de minimis number of mutual fund transactions in Class A shares during the period beginning January 1, 2001, through December 31, 2002, will follow a standard methodology provided by NASD – an online self-assessment. Self-assessment instructions detail the manner in which firms are required to conduct and report the results of the assessment.
Working with the SEC, NASD was able to raise the threshold number of transactions that trigger the need to conduct the self-assessment. NASD has designed the survey procedures and document to be as simple as possible and still be sufficient to serve as a substitute for a transaction-by-transaction analysis. This effort is important to our shared goal of investor protection, and I encourage you to get started soon in order to meet the fast-approaching deadline.
For your convenience, here again is a link to NASD's Breakpoints Assessment Web Page.
To help you in this effort, NASD has set up a toll-free number at (800) 334-0668 (hours of operation 8:00 a.m. - 8:00 p.m., Eastern Time) where NASD staff can answer your questions and provide guidance.
Small Broker/Dealer Seminar
NASD is hosting a Small Broker/Dealer Compliance Seminar on April 30, in connection with its annual Spring Securities Conference being held May 1-2, in Hollywood, Florida. This half-day Seminar will provide an update on new and emerging issues, and the impact on smaller brokerage firms. For more information about the Small Broker/Dealer Seminar and the NASD Spring Securities Conference, view the Conference brochure online. Note that NASD has also extended the early-bird registration fee cut-off another week to April 7, so you still have a chance to take advantage of the lower fees to attend. I hope to see you there, so we can discuss issues of importance to you.
Small Firms Regulatory Deadlines Web Page
At the suggestion of the SFAB, NASD staff recently published an online document listing regulatory deadlines of interest to small NASD member firms. This information will be updated on a regular basis. The listing is in three parts: Upcoming Deadlines, Deadlines Passed Within the Last Quarter, and Annual Deadlines with No Fixed Date. Please visit Small Firms Regulatory Deadlines.
Common Exam Violations/Best Practices
In a previous letter, I alerted you to NASD's new communication to assist members' compliance efforts. "Improving Examination Results" provides information alerting firms to issues found through the NASD's examination process. By citing frequently found violations and top examination priorities, NASD hopes to alert firms to areas where it sees recurring problems and to offer some practical advice on how to avoid common pitfalls. This online publication was recently updated this month, and I encourage you to take a look.
The SFAB looks to you for your guidance and suggestions. To help facilitate this communication, view a list of SFAB members along with phone numbers where you may reach us.
Chairman, NASD Small Firm Advisory Board