NASD Regulation Board Votes to Send Debt Mark-Up and Electronic Communications Rules to Sec; Public Comment Requested on Two New Items
Nancy A. Condon - (202) 728-8379
Washington, D.C.--The NASD RegulationSM Board of Directors, at its meeting on July 18th, voted to submit two rules to the Securities and Exchange Commission (SEC) for approval, and to seek comment from investors, securities industry professionals, and other groups on two other key issues.
The Board agreed to file a rule change with the SEC on the mark-up of government and other debt securities. The Board also agreed to seek SEC approval for a new rule that would allow brokerage firms to communicate with their clients electronically.
The proposed mark-up interpretation would provide guidance on the application of the NASD’s rule that dealers must sell debt securities to customers at fair prices. In particular, the interpretation would provide assistance on how to determine the "prevailing market price," which serves as the price from which the mark-up is determined, in different circumstances.
The prevailing market price is determined on a case-by-case basis, but is based on the dealer’s cost of acquiring the security¾unless it can be shown that another measure (such as the price of a "similar" security) is accurate. This interpretation will also provide a list of factors that can be used to determine whether another security is sufficiently "similar."
The SEC will also be asked to approve a rule that would allow brokerage firms to transmit information to their customers electronically. Currently, the SEC allows the electronic delivery of information and the NASD Regulation proposal would use those same standards. Recently, the SEC issued two interpretative releases that established a framework under which broker/dealers and others can use electronic media as an alternative to conventional paper-based media to satisfy their obligations under federal securities law to deliver information.
NASD Regulation will seek comment on the use of related performance information in mutual fund advertisements and sales materials, including: whether the use of some related performance information is useful to investors; what specific disclosure requirements should be mandated so that investors are not misled; and whether specific requirements should apply to the calculation of this performance information. Currently, NASD Regulation prohibits the use of related performance information in mutual fund advertisements and sales materials. Recent No Action Letters issued by the SEC, coupled with the public’s interest in this issue, prompted NASD Regulation to request these comments.
NASD Regulation is responsible for reviewing mutual fund advertising and sales materials to ensure that they meet proper disclosure requirements and provide accurate information.
NASD Regulation will also seek comment on a proposal to update its rules on mutual fund and variable contracts sales charges. This proposal would establish a maximum aggregate sales charge limit for fund of funds arrangements; permit mutual funds to charge installment loads, but prohibit loads on reinvested dividends; and impose redemption order requirements for shares subject to contingent deferred sales loads.
NASD Regulation will seek public comment on the above items by issuing a Notice To Members; making the information available on NASD Regulation’s Web site, including a return e-mail function; and directly seeking input from an array of interested groups.
NASD Regulation is responsible for assuring that all U.S. stock brokers and brokerage firms comply with securities regulations and laws. NASD Regulation is a subsidiary of the National Association of Securities Dealers, Inc. (NASDÒ), the largest securities-industry self-regulatory organization in the United States.
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