NASD Offers Firms Best Practices for Reviewing New Investment Products
Washington, DC - Concerned about the number of increasingly complex investment products that are being introduced to the market, NASD today issued a Notice to Members outlining best practices for developing and vetting new products. The Notice urges firms to improve their procedures for determining what constitutes a new product and for ensuring that the right questions are asked and answered before a new product is offered for sale.
NASD rules already require firms that sell new products to have formal, written procedures in place to ensure that no new product is offered to the public before it has been thoroughly reviewed from a regulatory as well as a business perspective. To help firms determine whether their current procedures are appropriate, NASD surveyed firms that manufacture proprietary products and/or distribute third-party products to identify the best practices recommended in Notice to Members 05-26.
"In the current investment environment, investors and brokers are increasingly turning to alternatives to conventional equity and fixed-income investments in search of higher returns or yields. Those alternatives include products such as asset-backed securities, distressed debt, structured notes and derivative products," said Mary Schapiro, NASD Vice Chairman. "We believe that by establishing appropriate procedures for reviewing new products before they are offered to the public, firms will be able to avoid unsuitable sales, compliance issues, conflicts of interest and other problems before violations occur."
Investors can obtain more information and the disciplinary record of any NASD-registered broker or brokerage firm through NASD's BrokerCheck. NASD makes BrokerCheck available at no charge to the public. In 2004, members of the public used this service to conduct nearly 3.8 million searches for existing brokers or firms and requested more than 190,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to the program by going online to http://www.nasdbrokercheck.com. Investors can also access this service by calling 1-800-289-9999.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business-from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit our Web Site at http://www.nasd.com.