Interpretive Letter to Stuart J. Kaswell, SIA
January 23, 1997
Stuart J. Kaswell
Senior Vice President and General Counsel
Securities Industry Association
New York, New York 10271-0080
RE: NASD Notice to Members 96-60
Dear Mr. Kaswell:
I am responding to your letter dated December 23, 1996 to Mr. John Pinto, Executive Vice President, NASD Regulation Inc., regarding NASD's Notice to Members 96-60 (Notice). This Notice was published to clarify Notice to Members 96-32, which described a member's suitability obligation under NASD Rule 2310 (Rule) when dealing with speculative and low-priced securities.
The Notice clarified that, because the suitability obligation under the Rule applies only to recommendations to customers, it does not apply to situations in which a member acts solely as an "order-taker" with respect to particular transactions. At the same time, the Notice attempted to make clear that the determination of whether a transaction is recommended does not necessarily depend on the member's classification of the security as "solicited or unsolicited", which may be done for purposes other than identifying transactions subject to suitability obligations. In connection with this point, the Notice contains the following statement: "In particular, a transaction will be considered to be recommended when the member brings a specific security to the attention of the customer through any means, including, but not limited to, direct telephone communication, the delivery of promotional material through the mail, or the transmission of electronic messages."
This quoted language was intended only to stress that recommendations may be made in a variety of ways, and that the determination of whether a recommendation has been made in any given case does not depend on the mode of communication. This point is particularly salient in connection with transactions in low-priced, speculative securities, which often are promoted through a variety of media. The language was not meant to describe the content of communications that may result in a recommendation, or to suggest that every statement that includes mention of a security would be considered a recommendation. Whether a particular transaction is in fact recommended depends on an analysis of all the relevant facts and circumstances, which the Notice was not intended to define.
I hope that this letter is responsive to your inquiry. Please feel free to contact me with any further questions you may have concerning this issue.
John M. Ramsay
Deputy General Counsel