* See Memorandum to Advertising Subcommittee No. 31-96 and SEC Rules Committee No. 124-96, dated November 26, 1996.
December 19, 1996
TO: ADVERTISING SUBCOMMITTEE No. 34-96
SEC RULES COMMITTEE No. 131-96
RE: INSTITUTE LETTER ON NASD NOTICE ON SUITABILITY
RESPONSIBILITIES
______________________________________________________________________________
As we previously informed you, NASD Regulation, Inc. recently published a Notice to
Members concerning NASD members fair dealing and suitability responsibilities with respect
to speculative and low-priced securities.* The Notice attempted to clarify that the NASDs
suitability requirements apply only to securities that have been "recommended" by an NASD
member.
The Institute has sent the attached letter to the NASD Regulation staff stating its concern
that the language of the Notice could potentially be misinterpreted to extend the NASDs
suitability requirements to the distribution of advertisements and sales literature by investment
companies and to factual statements made by an employee or associated person of an
investment company in response to an inquiry by an investor. The letter argues that it would
be inappropriate to interpret the language of the Notice in such a fashion and that the NASD
Regulation staff should issue a clarification in order to eliminate any possibility of such a
misinterpretation.
Alexander C. Gavis
Assistant Counsel
Attachment