August 1, 1989
TO: SEC RULES COMMITTEE NO. 44-89
UNIT INVESTMENT TRUST COMMITTEE NO. 42-89
ADVERTISING SUBCOMMITTEE
RE: PROCEDURES ADOPTED UNDER AMENDED NASD SUPERVISORY RULES
__________________________________________________________
Set forth below is a list of practices and procedures that
several members have adopted in response to the amended NASD
supervisory rules. These procedures are not necessarily
inclusive of the procedures that should be adopted under
applicable SEC rules and regulations and NASD rules. As stated
above, the procedures are representative of what several fund
groups have adopted to comply with the amended NASD rules and, in
some instances, to bring their procedures into compliance with
existing requirements.
The supervisory rules and the procedures listed below will
be discussed at the August 8 Advertising Subcommittee meeting.
To accommodate those members who are attending the meeting solely
for that purpose, we will discuss the rules and procedures first
and then move on to the advertising related items.
In addition, attached is the July NASD Alert which includes
on pages 7-9 a useful compilation of questions and answers on the
amended rules. You should also note that on page 6 of the Alert,
the NASD warns firms that have not already adopted procedures
under the Insider Trading and Securities Fraud Enforcement Act of
1988 to take immediate action to establish such procedures.
PROCEDURES
1. Establishment and maintenance of written supervisory
procedures that describe the supervisory system implemented
pursuant to the amended rules and that list the titles,
registration status and locations of the required supervisory
personnel and the specific responsibilities assigned to them.
- 2 -
2. Designation of an appropriately registered principal to
carry out the firm's supervisory obligations for each type of
business in which the firm engages.
3. Designation as an OSJ each location that meets the
definition in the amended rules. Attached as an exhibit to the
written procedures a list of designated OSJs.
4. Designation of registered principal(s) in each OSJ,
including the main office, and designation of registered
representative(s) or principal(s) in each branch office.
Attached as an exhibit to the written procedures a list of each
branch office and all registered persons including their name,
CRD number, title, status and location.
5. Assignment of each registered person to a supervisor.
Maintenance on an internal record for at least three years, the
first two years in an easily accessible place, the names of
persons designated as supervisory personnel and the date of such
designation.
6. Exercise reasonable efforts to insure that all
supervisory personnel are properly qualified. See the response
to question three in the attached NASD Alert concerning what
constitutes "reasonable efforts."
7. Conduct annual interviews or meetings with registered
representatives at which relevant compliance matters are
discussed. See the response to question four in the attached
NASD Alert regarding the requirements for these interviews.
8. Designation and identification to the NASD of
registered principal(s) who will review the firm's supervisory
procedures and take or recommend to senior management appropriate
action to ensure compliance.
9. Establishment of a schedule for examination of branch
office taking into account the nature of the activity, volume of
business, and number of persons at each office. Retention of a
written record of the dates on which each inspection and review
was conducted.
- 3 -
10. Review of business, at least annually, for purpose of
detecting and preventing abuses. At a minimum, periodically
examine and review of customer accounts to detect and prevent
irregularities and abuses.
11. Review and endorsement by a registered principal in
writing, on an internal record, of all transactions and all
correspondence of its registered representatives pertaining to
the solicitation or execution of any securities transaction.
12. Maintenance at each OSJ and each other location where
supervisory activities are conducted a copy of the firm's
supervisory procedures, or the relevant parts thereof.
13. Review and approval of all advertising and sales
literature by a registered principal (or his designee).
Maintenance of a separate file of all advertisements and sales
literature, including the name(s) of the persons who prepared
them, for a period of three years from the date of each use.
14. Designation of additional branch offices to enable
registered representatives to identify themselves in local
advertising.
Amy B. Rosenblum
Assistant General Counsel
Attachment