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87-2 Adoption of Amendments to Article III, Section 28 of the NASD Rules of Fair Practice Regarding Securities Accounts of Associated Persons at Non-NASD Members
TO: All NASD Members and Other Interested Persons
This notice announces the adoption of amendments to Article III, Section 28 of the NASD Rules of Fair Practice and were made effective by the SEC on December 12, 1986. The amendments were adopted in response to a concern of the NASD Board of Governors regarding members' ability to supervise associated persons at non-NASD members.
The amendments impose disclosure requirements for securities activities in securities accounts held at any non-NASD member by NASD members' associated persons.
The text of the amended section is attached.
The proposed amendments were adopted in response to a concern of the NASD Board of Governors that the inapplicability of the Rules of Fair Practice to securities activities in accounts of associated persons at non-NASD members would undermine NASD members' ability to supervise their associated persons and may possibly lead to abuses. The Board of Governors has also noted the dramatic increase in the securities activities of investment advisers, banks and other financial institutions, which are not members of the NASD.
SUMMARY OF AMENDMENTS
The amendments add a new paragraph (d) to Section 28 that imposes the additional disclosure obligation on NASD members' associated persons if they intend to open a securities account at a non-NASD member. Paragraph (e) was added to provide that the disclosure obligation of Section 28 should only apply to accounts or orders in which an associated person has a financial interest or discretionary authority. In addition, transactions in unit investment trusts were added to the list of transactions in paragraph (f) that are exempt from the disclosure provisions of Section 28.
Questions regarding this notice should be directed to Craig Landauer, Attorney, NASD Office of the General Counsel, at (202) 728-8291.
Frank J. Wilson
Executive Vice President
Legal and Compliance
AMENDMENTS TO ARTICLE HI, SECTION 28 OF THE NASD RULES OF FAIR PRACTICE
The following is the full text of the amendments to Article III, Section 28. New language is underlined; deleted language is bracketed.
Transactions for [Personnel of Another Member] or by Associated Persons
Determine Adverse Interest
Obligations of Executing Member
Obligations of Associated Persons [Associated] Concerning an Account with a Member.
Obligations of Associated Persons Concerning an Account with an Investment Adviser, Bank, or Other Financial Institution
provided, however, that if an account subject to this subsection (d) was established prior to a person's association with a member, the person shall comply with this subsection promptly after becoming so associated.
Exemption for Transactions in Investment Company Shares and Unit Investment Trusts