December 4, 1990
TO: SEC RULES MEMBERS NO. 81-90
BROKER/DEALER ADVISORY COMMITTEE NO. 45-90
BROKER/DEALER ASSOCIATE MEMBERS NO. 5-90
RE: NASD CUSTOMER ACCOUNT INFORMATION RULE
__________________________________________________________
As we previously informed you, the NASD adopted amendments
to Sections 2 and 21 of its Rules of Fair Practice to require a
member to obtain additional information pertaining to customer
accounts. These amendments are effective January 1, 1991. (See
Memorandum to SEC Rules Members No. 58-90, Broker/Dealer Advisory
Committee No. 27-90 and Broker/Dealer Associate Members No. 3-90,
dated August 2, 1990.)
The change to Section 21(c) requires all NASD members to
make a reasonable effort to obtain additional information from
each customer, including his or her occupation and name and
address of the customer's employer. The Institute requested the
NASD to consider exempting direct marketing funds from this
requirement. We commented that, among other things, since these
funds are sold without the recommendation of a broker, there was
no justifiable reason for them to obtain this information. In
addition, we noted that this requirement would be onerous since
all funds would have to amend and reprint all of their
application forms, as well as modify their computer systems for
storing and retrieving the required information account by
account, which involves a considerable expense. We also
expressed our concern that inquiries on account applications of
this nature may be considered to be intrusive by potential
investors and, thus, may discourage some investors from
purchasing fund shares.
The National Business Conduct Committee of the NASD, which
was responsible for these amendments, denied our request to
exempt direct marketing funds from the new requirement under
Section 21(c). However, that Committee did clarify that the
requirements concerning customer account information under
Section 2 only apply when a recommendation is made to customers.
Attached is a copy of the NASD's letter responding to our
request.
Amy B.R. Lancellotta
Assistant General Counsel
Attachment