* See Memorandum to Closed-End Investment Company Committee No. 28-99, SEC Rules Committee No. 63-99 and
Unit Investment Trust Committee No. 19-99, dated September 7, 1999.
[11287]
October 1, 1999
TO: CLOSED-END INVESTMENT COMPANY COMMITTEE No. 33-99
SEC RULES COMMITTEE No. 74-99
UNIT INVESTMENT TRUST COMMITTEE No. 26-99
RE: DRAFT COMMENT LETTER ON NASD SALESPERSON COMPENSATION
PROPOSALS
______________________________________________________________________________
We recently sent you NASD Notice to Members 99-81, in which NASD
Regulation, Inc. requested comments on three proposals relating to salesperson compensation.*
The proposals include: (1) a rule prohibiting "single security sales contests;" (2) a rule
prohibiting the payment of higher payout ratios to salespersons for the sale of proprietary, vs.
non-proprietary, investment company products; and (3) a rule requiring disclosure of
accelerated payout arrangements for salespersons who change firms. Attached for your review
is a draft of the Institute’s comment letter, which addresses only the first two proposals. The
draft letter is summarized below.
Comments on the proposals are due on October 29th. If you have comments on the
attached draft letter, please contact Tami Reed at (202) 326-5825 (or by e-mail to
tamara@ici.org), or Frances Stadler at (202) 326-5822 (or by e-mail to frances@ici.org) by
Monday, October 18th.
Single Security Sales Contests
The draft letter expresses support for the policy objectives of the proposed new rule
prohibiting "single security sales contests," but notes that the same objectives underlie the
NASD’s recent amendments to its non-cash compensation rule. The letter reiterates the
Institute’s view that for this very reason, the same standards should apply to all sales contests
involving investment company securities, regardless of the form of compensation to be
awarded. The letter therefore recommends that with respect to sales contests involving
investment company securities, in lieu of applying the proposed new rule prohibiting "single
security sales contests," NASDR should revise Rule 2830 to apply to all sales contests the
restrictions currently applicable to sales contests that award non-cash compensation to
registered representatives.
2Payment of Differential Cash Compensation
The draft letter also supports the goals of the proposal concerning differential payouts
for proprietary vs. non-proprietary investment company products. It expresses concerns,
however, about whether the proposal would be workable as currently drafted. Based on the
many open issues about how or whether the proposal would work, the draft letter suggests that
NASDR defer action on it at this time. The letter further notes that by adopting the sales
contest proposal as modified to reflect the Institute’s comments, NASDR could make progress
on achieving the goals of the differential payout proposal without raising numerous
interpretive issues.
Regulation of Cash Compensation Paid to Broker-Dealer Firms
The draft letter briefly discusses the broader issue of how to regulate cash compensation
paid to broker-dealer firms in connection with the sale or distribution of investment company
securities. It states that the Institute continues to support a disclosure approach to regulating
such compensation arrangements, and urges NASDR to improve disclosure of these
arrangements to investors.
Frances M. Stadler
Deputy Senior Counsel
Attachment