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November 24, 2004
TO: BOARD OF GOVERNORS No. 80-04
CHIEF COMPLIANCE OFFICER COMMITTEE No. 29-04
CLOSED-END INVESTMENT COMPANY COMMITTEE No. 43-04
COMPLIANCE ADVISORY COMMITTEE No. 114-04
EQUITY MARKETS ADVISORY COMMITTEE No. 47-04
INDEPENDENT DIRECTORS COUNCIL No. 13-04
PRIMARY CONTACTS - MEMBER COMPLEX No. 100-04
SEC RULES COMMITTEE No. 92-04
RE: GIFT POLICIES AND PRACTICES; REPORTED SEC AND NASD INVESTIGATIONS
It has been reported in the media that the SEC and the NASD are investigating whether
certain brokerage firms have provided gratuities, through gifts and entertainment, to employees
of investment advisers in violation of NASD Rule 3060. NASD Rule 3060 generally prohibits
broker-dealers from giving “anything” valued in excess of $100 per year to any person where
such gift is “in relation to the business” of the recipient’s employer. The NASD staff has
interpreted Rule 3060 to “not limit ordinary and usual business entertainment” provided by an
NASD member to clients and guests, so long as it is “neither so frequent nor so extensive as to
raise any question of propriety.”∗
Receipt of gifts or entertainment that are deemed to be improper could raise issues
under the federal securities laws. No further details of the NASD’s or SEC’s inquiry are
available at this time. Nonetheless, in light of these reports, Institute members may wish to
review policies and practices in this area.
Paul Schott Stevens
President
∗ NASD Interpretive Letter dated June 10, 1999. A copy of the NASD interpretive letter is attached. The text of Rule
3060 is available on the NASD’s website (www.nasd.com).