SEC Approves Amendments To Article III, Section 21 Of The NASD Rules Of Fair Practice Relating To Cold-Calling Requirements

Executive Summary

On June 9, 1995, the Securities and Exchange Commission (SEC) approved amendments to Article III, Section 21 of the NASD Rules of Fair Practice to require members to make and maintain a centralized do-not-call list of persons who do not wish to receive telephone solicitations from such members or their associated persons.¹ The rule change took effect on June 9, 1995.

Background

Under the Telephone Consumer Protection Act (TCPA), which became law in 1991, the Federal Communications Commission (FCC) developed rules, effective December 20, 1992, to protect the rights of telephone consumers while allowing legitimate telemarketing practices. In addition, the Telemarketing and Consumer Fraud and Abuse Prevention Act (Prevention Act) which became law in August 1994, requires the Federal Trade Commission (FTC) to adopt rules on abusive cold calling within 12 months.

Members that engage in telephone solicitation to market their products and services are subject to the requirements of the FCC and FTC rules relating to telemarketing practices and the rights of telephone consumers and shall refer to FCC rules for specific restrictions on telephone solicitations. This includes, but is not limited to, the requirement to make and maintain a do-not-call list of persons who do not want to receive telephone solicitations.

The Prevention Act also requires the SEC to establish rules, or require the SROs to promulgate telemarketing rules consistent with the legislation. In August 1994, SEC Chairman Arthur Levitt wrote to the NASD and NYSE urging the SROs to adopt a rule similar to the FCC's cold-calling rule. Since then, the SEC and SROs have discussed the structure of a rule or rules to apply with the Prevention Act.

Description

As a first step, the NASD has adopted a rule to implement that portion of the FCC rules that requires establishment and maintenance of a do-not-call list. New Subsection (g) to Section 21 of Article III of the NASD Rules of Fair Practice requires each member, engaged in telephone solicitation to market its products and services, to make and maintain a centralized do-not-call list of persons who do not wish to receive telephone solicitations from such member or its associated persons. The NASD believes that the new rule establishes minimum standards to protect members' customers against abusive telemarketing practices.

To assist members to comply with their obligations under FCC cold-call rules adopted pursuant to the TCPA, members that solicit customers or sales using cold calls are reminded that they must:

• not make cold calls before 8 a.m. or after 9 p.m. at the called party's location;
  
  
• provide the called party with the name of the caller, the person or organization for whom the call is made, and a telephone number and address for contacting the caller;
  
  
• have a written policy concerning cold calling and do-not-call lists; and
  
  
• train all personnel concerning cold-calling rules and the existence and use of do-not-call lists.

For additional information regarding the FCC rules on telephone solicitations, refer to FCC Public Notice DA 92-1716, January 11, 1993.

Questions regarding this Notice may be directed to Daniel M. Sibears, Regulatory Policy, at (202) 728-6911.

¹See, Securities and Exchange Act Rel. No. 34–35831 (June 9, 1995); 60 FR 31527 (June 15, 1995).

Text Of Amendments To Article III, Section 21 Of The Rules Of Fair Practice

(Note: New language is underlined.)

Books and Records

Sec. 21.

Cold Call Requirements