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87-24 Request for Comments on Proposed Amendments to Article III, Section 35 of the NASD Rules of Fair Practice

TO: All NASD Members and Other Interested Persons

LAST DATE FOR COMMENT: MAY 14, 1987.

EXECUTIVE SUMMARY

The NASD requests comments on proposed amendments to Article III, Section 35 of the NASD Rules of Fair Practice. The amendments provide that advertisements concerning government securities are to be filed by members with the NASD's Advertising Department within 10 days of first use or publication.

Under the authority granted by the Government Securities Act of 1986 and upon consideration by both the NASD's Ad Hoc Committee on Government Securities and the NASD Board of Governors, it was determined that it was appropriate to adopt requirements for government securities advertising similar to existing advertising requirements for investment company securities.

The text of the proposed amendments is attached.

BACKGROUND

Public Law 99-571 (the Government Securities Act of 1986), enacted by the Congress in October 1986, amended Section 15A(0 of the Securities Exchange Act of 1934 to permit registered securities associations to adopt and implement rules to prohibit fraudulent, misleading, deceptive and false advertising with respect to government securities. This requirement was considered by both the NASD's Ad Hoc Committee on Government Securities and the NASD Board of Governors. It was determined that it was not necessary to amend the NASD's existing standards for advertising by NASD members. However, it was appropriate to adopt an approach similar to that existing for investment company securities by requiring that government securities advertising be filed by members for review by the NASD Advertising Department within 10 days of first use or publication. Further, advertising by government securities brokers and dealers that are new members of the NASD would be subject to the existing requirement that NASD members which have not previously filed advertising with the NASD must do so at least 10 days prior to use for a period of one year.

SUMMARY OF PROPOSED AMENDMENTS

The proposed amendments to Article in, Section 35 of the Rules of Fair Practice would add a new paragraph, (c)(4), to Section 35 requiring the filing of advertising relating to government securities within 10 days of first use, but would recommend the filing of such advertising in advance of use.

The NASD encourages all members and other interested persons to comment on the proposed amendments. Comments should be directed to:

Mr. Lynn Nellius
Secretary
National Association of Securities Dealers, Inc.
1735 K Street, N.W.
Washington, D.C. 20006-1506

Comments must be received no later than May 14, 1987. All comments received by this date will be considered by the NASD National Business Conduct Committee and the NASD Board of Governors. If the proposed amendments are approved by the Board, they will be submitted to the membership for a vote. If approved by the membership, the amendments must be filed with and approved by the Securities and Exchange Commission before becoming effective.

Questions concerning this notice may be directed to either T. Grant Callery, NASD Associate General Counsel at (202) 728-8285, or R. Clark Hooper, Director, NASD Advertising Department at (202) 728-8330.

Sincerely,

Frank J. Wilson
Executive Vice President and General Counsel

Attachment

PROPOSED AMENDMENT TO ARTICLE III, SECTION 35 OF THE NASD RULES OF FAIR PRACTICE

(New language is underscored)

Communications with the Public

Section 35.



(c) Filing Requirements and Review Procedures



(4) Advertisements concerning government securities (as defined in Section 3(a)(42) of the Securities Exchange Act of 1934) shall be filed by members with the Association's Advertising Department for review within ten days of first use or publication.



(5) Except for advertisements related to government securities, municipal securities, direct participation programs or investment company securities, members subject to the requirements of subparagraphs (c)(5)(A) or (c)(5)(B) of this section may, in lieu of filing with the Association, file advertisements on the same basis, and for the same time periods specified in those subparagraphs, with any registered securities exchange having standards comparable to those contained in this section.



(7) In addition to the foregoing requirements, every member's advertising and sales literature shall be subject to a routine spot-check procedure. Upon written request from the Association's Advertising Department, each member shall promptly submit the material under this procedure which has been previously submitted pursuant to one of the foregoing requirements and, except for material related to government securities, direct participation programs, municipal securities, or investment company securities, the procedure will not be applied to members who have been within the preceding calendar year, subjected to a spot-check by a registered securities exchange or other self-regulatory organization utilizing comparable procedures.



(9) Material which refers to investment company securities, options, government securities or direct participation programs solely, as a part of a listing of products and/or services offered by the member, is excluded from the requirements of paragraphs (c)(l), (c)(2), (c)(3) and (c)(4) of this section.

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