NASD Board Approves Cold Calling Rule for Unregistered Individuals
Nancy A. Condon - (202) 728-8379
Alden S. Adkins - (202) 728-8071
Washington, D.C.—The National Association of Securities Dealers, Inc. (NASD®) today announced that its Board of Governors has approved a rule that narrowly specifies the types of cold calls that can be made by individuals who work for brokerage firms but are not registered representatives and imposes explicit supervision requirements on the brokerage firms that employ them.
Under this rule, which will be sent to the Securities and Exchange Commission (SEC) for approval shortly, brokerage firms that employ unregistered cold callers must: designate at least one of the firm’s principals to monitor and oversee the callers’ activities; ensure that the callers are not subject to any of the NASD’s disqualification conditions; and train the callers with respect to the permitted activities.
Unregistered cold callers will be permitted to work only after they acknowledge to the NASD that they are subject to the organization’s jurisdiction. The rule also stipulates that the unregistered callers must be paid on an hourly or salary basis (sales commissions and sales-related incentives will not be allowed).
Brokerage firms will be able to meet their supervisory responsibilities by, for example, periodically monitoring some of the marketing calls and contacting investors who received the calls. Individuals and brokerage firms violating these rules will be subject to appropriate disciplinary actions by NASD Regulation’s Enforcement Department.
Unregistered cold callers, under this rule, will be allowed to: extend invitations to attend brokerage firm-sponsored events; inquire whether an investor wants to discuss investments with a registered broker; and ask whether an investor wants to receive investment literature from the firm. In addition to telephone solicitations, the rule will apply to marketing efforts via the Internet, or other forms of electronic communication. This rule formalizes restrictions on unregistered cold callers that have been in place since 1988.
"Increased supervisory requirements coupled with clear limitations on the types of cold calls that unregistered individuals can make will help to ensure that investors are protected without diminishing brokerage firms’ legitimate marketing efforts," said Frank G. Zarb, NASD Chairman and Chief Executive Officer. "This new rule offers the same protections to existing customers as it does to prospective clients, equalizing regulatory protection for all investors."
The NASD already has rules in place to protect investors from abusive cold calling. In December 1996, the SEC approved a series of NASD telemarketing rules that, among other things: prevents cold calls from being made before 8 a.m. or after 9 p.m. unless the investor receiving the call is already a customer of that firm or has given permission to be contacted outside of the normal calling hours; requires that cold callers immediately provide investors with their name, the name of their brokerage firm, their phone number, and that they are calling to solicit the purchase of securities or related services; and requires brokerage firms to maintain a "Do Not Call List" for any investor who does not wish to be contacted in the future.
The National Association of Securities Dealers is the largest securities-industry self-regulatory organization in the United States. Through its subsidiaries, NASD Regulation, Inc., and The Nasdaq Stock Market, Inc., the NASD develops rules and regulations; provides a dispute resolution forum; conducts regulatory reviews of members’ activities; and designs, operates, and regulates securities markets all for the benefit and protection of investors.