RCA - Fall 1999 - Ask the Analyst - Correspondence

Q. Under NASD Notice to Members 98-83 correspondence is defined as a communication prepared for delivery to a single current or prospective customer. Does this mean that any letter or e-mail that goes to more than one person meets the definition of sales literature? If not, at what point does a communication become sales literature?

A. Currently, any communication such as a letter or e-mail message sent to more than one person is deemed to be "sales literature" under the definition set forth in NASD Conduct Rule 2210(a)(2).

Q. Does NASD Regulation have any percentage guidelines as to what would be an appropriate sample size for review of correspondence under NASD Conduct Rule 3010(d)?

A. Although there is no percentage guideline for sampling correspondence, NASD Notice to Members 98-11 regarding Rule 3010(d) does provide a list of "Guidelines for Supervision and Review." In part, these guidelines advise member firms creating procedures for the review of correspondence to consider their structure, the nature, and size of their business, and whether procedures must be tailored to different segments of their business or to different types of representatives. Members should review carefully NASD Notice to Members 98-11 and 99-03 before establishing procedures for the sampling of correspondence.

Q. Does NASD Regulation expect member firms to monitor "internal" correspondence such as communications between a branch manager and the firm's main office the same way as correspondence with customers?

A. NASD Conduct Rule 3010(d) only refers to correspondence with the public relating to a member firm's investment banking or securities business. Members are reminded that the requirements of NASD Conduct Rule 2210 may apply to internal correspondence if the correspondence itself is distributed to members of the public, or if information in the correspondence is communicated to members of the public, particularly if the information concerns the desirability of a owning a specific security.