NASD ISSUES STATUS REPORT ON THE IMPLEMENTATION OF THE JOINT NASD/INDUSTRY BREAKPOINT TASK FORCE RECOMMENDATIONS
As we previously advised you, last July, the Joint NASD/Industry Task Force on breakpoints issued a report setting forth thirteen recommendations (Recommendations A-M) to address errors and failures in providing breakpoint discounts to investors in connection with the purchase of mutual fund shares that carry a front-end sales load.[1] The report called for voluntary implementation of the recommendations, and encouraged the Securities and Exchange Commission and self-regulatory organizations to monitor implementation efforts. The NASD recently published a status report of the progress that has been made towards implementing the Task Force’s recommendation. It notes, in part, that the “NASD, ICI, SIA and representatives of the financial service industry have made substantial progress toward implementing the recommendations of the Task Force.” The status of each of the Task Force’s recommendations is briefly summarized below.[2]
Recommendations Fully Implemented
According to the Status Report, “the financial industry has taken the steps necessary to fully implement seven of the Task Force’s thirteen recommendations.” The seven are:
- Recommendation C – Mutual fund prospectus and website disclosure;[3]
- Recommendation E – Standardized checklists or order verifications;
- Recommendation F – Record of linkage information;
- Recommendation G – Prospectus disclosure regarding the customer’s role in assisting a broker-dealer in securing breakpoint discounts;
- Recommendation I – Written disclosure statement;
- Recommendation J – Registered representative training; and
- Recommendation K – Investor Education.
The Status Report discusses how each of these recommendations was implemented and, where appropriate, provides a website address where more detailed information may be found regarding the implementation.
Recommendations in Progress
The Task Force’s recommendations that remain in progress and that have expected completion dates are:
- Recommendation A – Commission definitional terms (Expected completion: April 2004); and
- Recommendation B – Centralized breakpoint schedule and rules database (NSCC anticipates that it will have completed the work to make the database structure available to mutual fund companies by the end of May 2004).
With respect to the final four recommendations, the Status Report notes that implementation of these recommendations must be coordinated with recent SEC proposals on point of sale and confirmation disclosure,[4] and mandatory redemption fees.[5] The final four recommendations are: Recommendations D and H, relating to the contents of breakpoint information in confirmations, and Recommendations L and M, relating to the introduction of automated processing solutions designed to facilitate the delivery of breakpoint discounts.
Tamara K. Salmon
Senior Associate Counsel
2
hr align="left" size="1" width="33%"[1] See Institute Memorandum No. 16347 (July 24, 2003).
[2] A copy of the NASD’s report, “STATUS REPORT: Implementation of Recommendations of Joint NASD/Industry Breakpoint Task Force,” (March 19, 2004) (the “Status Report”), is available on the NASD’s website at: http://www.nasdr.com/breakpoints_status.asp.
[3] The Status Report notes the Institute’s recommendations to the SEC on implementation of this recommendation, as well as the amendments the Commission subsequently proposed to Form N-1A to implement this recommendation. See SEC Release Nos. 33-8347 and IC-26298 (Dec. 17, 2003). The Institute filed a letter with the Commission that supported the Commission’s proposal but recommended minor revisions to the provisions in it relating to website disclosure. See Letter from Tamara K. Salmon, Senior Associate Counsel, Investment Company Institute, to Mr. Jonathan G. Katz, Secretary, SEC, dated Feb. 5, 2004.
[4] See SEC Release Nos. 33-8358l; 34-49148; and IC-26341 (Jan. 29, 2004). Comments on this proposal must be filed with the Commission by April 12, 2004.
[5] See SEC Release No. IC-26375A (Mar. 5, 2004). Comments on this proposal must be filed with the Commission by May 10, 2004.