Notice to Members 03-07
NASD Reminds Members of Obligations When Selling Hedge Funds
As a result of a recent review of members that sell hedge funds and registered products (closed-end funds) that invest in hedge funds ("funds of hedge funds"), NASD staff is concerned that members may not be fulfilling their sales practice obligations when selling these instruments, especially to retail customers. In issuing this Notice to Members, NASD reminds members of their obligations when selling hedge funds and funds of hedge funds, including: (1) providing balanced disclosure in promotional efforts; (2) performing a reasonable-basis suitability determination; (3) performing a customer-specific suitability determination; (4) supervising associated persons selling hedge funds and funds of hedge funds; and (5) training associated persons regarding the features, risks, and suitability of hedge funds.
Questions regarding this Notice may be directed to Daniel Sibears, Senior Vice President and Deputy, Member Regulation, NASD Regulatory Policy and Oversight, at (202) 728-6911, or Gary L. Goldsholle, Associate General Counsel, Office of General Counsel, NASD Regulatory Policy and Oversight, at (202) 728-8104.