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90-62 Proposed Amendment Re: Use and Disclosure of Member Names; Last Voting Date: November 5, 1990
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The NASD invites members to vote on a proposed revision to an amendment to Article ill, Section 35 of the NASD Rules of Fair Practice. The membership has previously approved an amendment to Section 35 to establish standards regarding the use and disclosure of member names in public communications, including business cards and letterhead.
Following membership approval, the NASD filed the proposed amendment with the Securities and Exchange Commission (SEC), which published the amendment for public comment. In response to comments that the SEC received regarding the proposed amendment, the NASD proposes to make certain revisions to the planned amendment.
The revisions would create a limited exception to the general requirement that all advertising and sales literature contain the full name of a member. Under the proposed exception, advertising and sales literature would be permitted to include only a "derivative" of a member's name if the derivative name was used to promote a specific area of the member's business and was not misleading in context. The text of the amendment, as revised, follows this notice.
BACKGROUND AND SUMMARY
Pursuant to Board of Governors approval and membership vote, the NASD filed with the SEC a proposed amendment to Article III, Section 35 of the Rules of Fair Practice. The proposed amendment would establish standards regarding the use and disclosure of member names in public communications, including business cards and letter-head. The proposed amendment reflects the concern of the Board that members of the public may be confused by public communications that either fail to refer to an NASD member firm by its registered name or include unclear references to both NASD member firms and entities that are not NASD members. The proposed amendment rests on the premise that, unless the identity of and the products offered by an NASD member firm are made clear in such communications, there is a possibility that the public will be confused or misled regarding the identity of the entity that is, in fact, offering securities. The proposed amendment seeks to address this problem by establishing both general and specific standards governing the manner in which member names must be disclosed in communications with the public. Currently, Section 35(d)(2)(A) of the Rules requires the disclosure of the member's name in all advertising and sales literature.
The proposed amendment was submitted to the membership for comment in 1988. In response to the 41 detailed comment letters that were received, the NASD made significant modifications to the proposed amendment. Notices to Members 88-65 and 89-22 should be consulted regarding the differences between the amendment as originally proposed and as approved by the membership. The proposed amendment was filed with the SEC on April 25, 1990, and was published for comment in the Federal Register. The SEC received three comment letters.
In response to these comment letters, the NASD proposes to revise the amendment so as to create a narrow exception to the general requirement that the full name of a broker-dealer appear in all of its advertising and sales literature. Under this proposed exception, a member would be permitted to use a "derivative" of its name, without also including the member's full name, if: (1) the derivative name was used to promote a specific area of the firm's business; and (2) use of the derivative would not be misleading in context. Thus, for example, if a member firm had a "derivative" name that it used to promote its investment banking business, the firm might be permitted to omit the full firm name from typical "tombstone" advertisements on the ground that the use of a derivative would not be misleading in the context of advertisements that are primarily directed to an institutional, nonretail audience.
The NASD contemplates that the availability of the proposed exception would be limited to instances in which the use of a derivative name would not be misleading in a particular context. In this regard, the NASD emphasizes that, while the use of derivative names (without disclosure of the full broker-dealer name) might not be misleading in the context of advertising and sales literature directed to an institutional audience, the use of derivative names may well be deemed misleading if used in promotional materials disseminated to the general public.
If the foregoing proposal is approved by the membership and by the SEC, the Board of Governors believes that it is appropriate to provide members with sufficient time following SEC approval to use existing supplies of such business stationery as letterhead, business cards, confirmation forms, and similar printed material. Accordingly, the Board has concluded that, insofar as the proposed amendment affects printed business stationery, the amendment should not take effect until six months after publication of a Notice to Members announcing SEC approval of the amendment. The Board contemplates, however, that in all other respects the proposed amendment would become effective 30 days after the publication of a Notice to Members announcing SEC approval of the amendment.
The Board believes that the proposed revision to the amendment is necessary and appropriate and recommends that members vote their approval.
Please mark the attached ballot according to your convictions and return it in the enclosed, stamped envelope to The Corporation Trust Company. Ballots must be postmarked no later than November 5, 1990.
Questions concerning this notice can be directed to R. Clark Hooper, Director, NASD Advertising Department, at (202) 728-8330 or Anne H. Wright, Senior Attorney, NASD Office of General Counsel, at (202) 728-8815.
COMMUNICATIONS WITH THE PUBLIC
(Note: Language that has been deleted from the version of Section 35 that was previously approved by the membership is bracketed; language that has been added to that version is underlined.)
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In addition to the foregoing general standards, the following specific standards apply:
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[In addition to the foregoing general standards, the following specific standards apply:]
The foregoing standards set forth in subsections (g)(l) and (g)(2) shall apply to all communications unless at least one of the following special circumstances exists, in which case the standards set forth herein would supersede the standards in subsections (g)(l) and (g)(2).