May 6, 1991
TO: SEC RULES COMMITTEE NO. 26-91
UNIT INVESTMENT TRUST COMMITTEE NO. 21-91
CLOSED-END FUND COMMITTEE NO. 9-91
BROKER/DEALER ADVISORY COMMITTEE NO. 14-91
RE: NASD REPROPOSAL TO AMEND RULE GOVERNING CASH AND NON-CASH
COMPENSATION
__________________________________________________________
The NASD has reproposed amendments to Article III, Section
26 of its Rules of Fair Practice to revise, simplify and add a
record-keeping requirement to this provision, which regulates
cash and non-cash compensation received by members in connection
with the sale of investment company securities. The NASD
proposed similar amendments in July, 1989, but has not taken any
subsequent action since the NASD Board wanted to further consider
the issue of whether members should be prohibited from receiving
non-cash sales incentives for the sale of investment company
securities. (See Memorandum to SEC Rules Committee No. 35-89,
Unit Investment Trust Committee No. 33-89, Closed-End Fund
Committee No. 24-89 and Broker/Dealer Advisory Committee No. 31-
89, dated July 7, 1989). Attached is a copy of the NASD's
reproposal.
The attached reproposal would permit non-cash compensation
to be paid for the distribution of investment company products,
but would impose a new record-keeping requirement in connection
with such compensation. The reproposal also would revise and
simplify the prospectus disclosure rule governing dealer
concessions. The major provisions of the reproposal include:
(a) NASD members must keep records of the amount and
nature of all compensation, cash and non-cash, received
from offerors for the retail sale of investment company
securities;
(b) associated persons of NASD firms are prohibited from
receiving any compensation, cash or non-cash, for selling
investment company securities except from the member with
which the associated person is affiliated;
(c) compensation in the form of securities of any kind is
prohibited; and
(d) prospectus disclosure of cash and non-cash
compensation must be made unless the compensation is not
conditioned on sales or the promise of sales, and
1. monetary gifts are paid by offerors to associated
persons of up to $100 per person per year; or
2. compensation is paid to NASD members to defray the
costs associated with training or educational meetings held
at locations appropriate to the purpose of such meetings.
The items included in paragraph (d) above are deemed to be
compensation and, thus, would still be subject to the record-
keeping requirement, even though they may not have to be
disclosed in the prospectus. The NASD Investment Companies
Committee is requesting comment on the burden imposed by this
record-keeping requirement.
The comment period for the reproposed amendments to the
NASD Rule of Fair Practice governing cash and non-cash
compensation expires on June 4, 1991. Please provide me with
your comments on the reproposal by May 28, 1991.
Amy B.R. Lancellotta
Assistant General Counsel
Attachment