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Notice To Members 93-44

SEC Approves Increase In Non-Cash Sales Incentive Compensation

Published Date:


Senior Management
Legal & Compliance

Executive Summary

On June 23, 1993, the Securities and Exchange Commission (SEC) approved an amendment to Section 5(e)(1) of Appendix F to Article III, Section 34 of the Rules of Fair Practice. The amendment raises from $50 to $100 the yearly limit on aggregate non-cash sales incentive compensation that a sponsor or affiliate of a sponsor of a public direct participation program (DPP) may pay to an associated person of a member. The rule change makes the standard in Appendix F consistent with other existing limitations on the receipt of non-cash compensation.

Background and Description of The Amendment

On December 28, 1992, the SEC approved an amendment to Article III, Section 10(a) of the Rules of Fair Practice that raised from $50 to $100 the maximum value of gratuities or gifts a member or associated person may provide to another person annually.

The NASD® Direct Participation Programs Committee subsequently recommended to the Board of Governors a corresponding change to Section 5(e) of Appendix F to Article III, Section 34 of the Rules of Fair Practice. The change was to raise from $50 to $100 per year the value of non-cash sales incentive compensation that may be accepted by each associated person of a member participating in the distribution of a public DPP. Such compensation typically involves small souvenir-type items that program sponsors provide associated persons of a member after executing a selling agreement with them. The Board concurred with raising the yearly limit to $100 to conform to existing standards and the SEC approved the change on June 23, 1993.

The rule change is also consistent with the New York Stock Exchange's (NYSE) recently approved Rule 350(a), which raised from $50 to $100 the amount of a gratuity that one NYSE member may give to another without obtaining prior written consent of the recipient's employer. This rule change simplifies compliance by NASD/NYSE member firms.

Questions concerning this Notice may be directed to Eugene Buchanan or Paul M. Mathews, Supervisors, NASD Corporate Financing Department, at (202) 728-8258.

Text of Amendment to Appendix F To Article III, Section 34 of the Rules of Fair Practice

(Note: New text is underlined; deleted text is in brackets.)

Sec. 5. Organization and Offering Expenses

(e) . . . Further, this section shall not prohibit a person associated with a member from accepting any noncash sales incentive item offered directly to that person by a sponsor, affiliate of sponsor or program where:
(1) the aggregate value of all such items paid by any sponsor or affiliate of a sponsor to each associated person during any year does not exceed [$50.00] $100.