Registration of Persons Soliciting on Behalf of Members Under Schedule C of the NASD By-Laws.
In response to member inquiries, the NASD is publishing guidelines that apply to the employment of unregistered persons to contact prospective customers. Unregistered persons may extend invitations to firm-sponsored events and inquire whether the prospective customer wishes to discuss investments with a registered representative or receive investment literature from the firm, provided that the firm observes certain practices with regard to the qualification, training, compensation, and supervision of the unregistered persons.
Section (l)(b), Part ffl of Schedule C to the NASD By-Laws defines "representative" as:
"Persons associated with a member.... who are engaged in the investment banking or securities business for the member, including the functions of supervision, solicitation or conduct of business in securities..."
In Notice to Members 85-8, dated July 17,1985, the NASD reviewed the applicability of Schedule C to the employment of unregistered persons to solicit hew accounts on behalf of a member. The notice stated:
"This definition has been consistently interpreted by the NASD to require registration of persons who engage in activities that only constitute a portion of registered representatives' traditional dealings with public customers. Thus, for example, members are required to register persons who are hired to accept orders from public customers, even if these orders are unsolicited; persons who share in the commissions generated from customer accounts; and persons who solicit accounts on behalf of members, notwithstanding any limitation of such solicitations to prepared scripts discussing generic products and services offered by the member."
On March 30,1988, the NASD issued Notice to Members 88-24 and emphasized that the registration requirement articulated above is not intended to "restrict a member's administrative personnel, in the normal course of their duties, from contacting customers regarding routine administrative matters involving customers' accounts or from extending invitations to the public to firm-sponsored events, such as investment seminars at which any substantive presentations and account or order solicitations will be made by appropriately registered personnel."
In response to inquiries from members resulting from Notice to Members 88-24, the NASD wants to clarify the circumstances under which a member may employ unregistered persons to contact prospective customers.
PERMISSIBLE ACTIVITIES OF UNREGISTERED PERSONS
Unregistered persons may contact prospective customers for purposes of:
- extending invitations to firm-sponsored events at which any substantive presentations and account or order solicitation will be conducted by appropriately registered personnel;
- inquiring whether the prospective customer wishes to discuss investments with a registered person; and
- determining whether the prospective customer wishes to receive investment literature from the firm.
Firms employing unregistered persons to perform these functions should observe the following guidelines:
As stated in Notice to Members 88-24, the registration requirements of Section (l)(b), Part n of Schedule C to the NASD By-Laws do not apply to a member's administrative personnel who, in the normal course of their duties, contact existing customers regarding clerical or ministerial matters affecting such customers' accounts.
Members are advised to review the activities of unregistered employees to ascertain that such persons are not functioning in a manner requiring registration
Questions concerning this notice can be directed to either Frank J. McAuliffe, Vice President, NASD Qualifications, at (301) 738-6694, or Jacqueline D. Whelan, Senior Attorney, NASD Office of the General Counsel, at (202) 728-8270.