INSTITUTE COMMENT LETTER ON NASD'S PROPOSED RULE CHANGE GOVERNING BANK BROKER/DEALER ACTIVITIES

1 See Memorandum to Advertising Subcommittee No. 38-97, SEC Rules Committee No. 110-97, and Bank Mutual Fund Task Force, dated November 17, 1997. [9470] December 2, 1997 TO: ADVERTISING SUBCOMMITTEE No. 41-97 SEC RULES COMMITTEE No. 118-97 BANK MUTUAL FUND TASK FORCE RE: INSTITUTE COMMENT LETTER ON NASD’S PROPOSED RULE CHANGE GOVERNING BANK BROKER/DEALER ACTIVITIES ______________________________________________________________________________ As we previously informed you, the Securities and Exchange Commission recently approved the fifth amendment to the National Association of Securities Dealers, Inc.
s proposed rule change governing broker-dealers operating on the premises of financial institutions ("Rule 2350").1 The Commission approved Amendment No. 5 to Rule 2350 on an accelerated basis and solicited comment on it. In response to that request, the Institute recently filed the attached comment letter. The Institute
s comment letter generally supports Rule 2350 but makes several recommendations to clarify certain aspects of the Rule as well as to ease the burden on NASD members. First, the letter recommends that Rule 2350 should not apply to the services of investment company distributors and underwriters operating on bank premises, noting that subjecting them to the full panoply of disclosure obligations of the Rule would be unnecessary and inappropriate. Second, the letter recommends that the application of the Rule should be limited to situations where a member is providing broker-dealer services to a customer where both the member and the customer are on the premises of a financial institution, and should not be imposed on telecommunications to or from such premises where there would be little, if any, risk of customer confusion. Third, the Institute
s letter recommends that members
responsibilities for obtaining customer acknowledgment of required disclosures should reflect the requirements provided in Rule 2350(c)(3)(B), rather than the additional, conflicting regulatory burdens suggested in the Commission
s comments contained in the release accompanying the Rule. The letter notes that although the text of the Rule allows members to make reasonable efforts to obtain written customer acknowledgment of the disclosures required by the Rule, the Commission
s comments express the expectation that members would obtain such acknowledgments in "all but rare circumstances (e.g. when a customer refuses to sign the acknowledgment)." The comments also mention that in instances where acknowledgment is not obtained, heightened supervisory procedures would be necessary, including having the registered representative document the customer
s refusal to sign the written acknowledgment and receive approval from the member
s compliance department prior to opening the account. The Institute
s letter expresses the view that documenting a customer
s refusal to sign the written acknowledgment should suffice, noting that requiring prior approval would be administratively burdensome and would cause an unnecessary delay in the account-opening process. Barry E. Simmons Assistant Counsel Attachment (in .pdf format)