INSTITUTE COMMENT LETTER ON PROPOSED NASD RULES GOVERNING BROKER/DEALER CONDUCT ON THE PREMISES OF FINANCIAL INSTITUTIONS

1 See Memorandum to Advertising Subcommittee No. 15-97, SEC Rules Committee No. 44-97, and Bank Mutual Fund Task Force, dated April 28, 1997. 2 See Memorandum to Bank Investment Management Members No. 8-96, SEC Rules Committee No. 48-96, and Subcommittee on Advertising No. 9-96, dated May 29, 1996. May 12, 1997 TO: ADVERTISING SUBCOMMITTEE No. 16-97 SEC RULES COMMITTEE No. 50-97 BANK MUTUAL FUND TASK FORCE RE: INSTITUTE COMMENT LETTER ON PROPOSED NASD RULES GOVERNING BROKER/DEALER CONDUCT ON THE PREMISES OF FINANCIAL INSTITUTIONS ______________________________________________________________________________ The Institute has recently submitted the attached comment letter to the Securities and Exchange Commission regarding proposed amendments to NASD Regulation, Inc.
s Conduct Rules concerning the regulation of broker/dealer activities of NASD members operating on the premises of financial institutions.1 The Institute*s comment letter is generally supportive of the proposed rule change and notes our appreciation that the proposal reflects many of the comments we made in a previous comment letter regarding an earlier version of the NASD proposal.2 The Institute*s letter notes, for example, that the proposing release has removed both the referral fee and the confidential financial information provisions, each of which has been reproduced as a separate proposal. The letter also notes that the proposing release clarifies the proposed rule*s applicability with respect to:  physical setting requirements;  broker-dealer services provided on bank premises where retail deposits are taken;  broker/dealer services provided in one-person branches, in walkup windows, kiosks, or desks in public places such as supermarkets;  Interagency Statement disclosure requirements for confirmation statements and account statements regarding bank-sold funds; and  references in member sales materials to relationships between members and banks, and descriptions of relationships between members or products (such as mutual funds) and banks. The Institute*s letter next discusses those areas detailed in our earlier comment letter that are not addressed in the proposing release. For example, the letter requests clarification that the meaning of the phrase "broker/dealer services" excludes mutual fund distributors and underwriters, and that the meaning of the phrase "on the premises" excludes situations where there would be little, if any, risk of customer confusion, such as where a broker/dealer, who is on the bank*s premises, fields incoming calls from customers who are not on the bank*s premises. Finally, the Institute*s letter requests that any reference to insurance other than FDIC insurance be deleted, and requests clarification that NASD members may use discretion in satisfying the disclosure and customer acknowledgment requirements, and be allowed flexibility in determining the placement of such disclosures, such as, for example, on an application to open an account. Barry E. Simmons Assistant Counsel Attachment