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90-50 Proposed Amendment to Article III, Section 28 of the Rules of Fair Practice Re: Associated Person Notifying and Obtaining Approval of Employer Prior to Opening Securities Account With Another Member; Last Date for Comment: September 4, 1990
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REQUEST FOR COMMENTS
The NASD requests comments on proposed amendments to Article III, Section 28 of the NASD Rules of Fair Practice that will require an associated person to notify the executing member in writing of the employment relationship that exists with the employing member, and to notify and receive approval from the employing member prior to opening an account or transacting business with the executing member.
Article III, Section 28(c) now requires a registered representative, prior to opening an account or executing trades at a firm other than his or her employer, to inform the executing member firm of his or her status as an associated person. This provision does not, however, require the notice to be in writing. In addition, there is no specific provision in the Association's Rules of Fair Practice that require the registered representative to inform his/her employing member that he/she is executing trades through another firm.1 The rule, as currently structured, places the burden upon the executing member to notify the employing member and to provide duplicate confirmations or such other information as the employing member may require. Currently, many, but not all, firms have internal compliance procedures requiring that notice be given to the employer. If such notification was required, the Board of Governors believes that notification may allow member firms to more directly detect the existence of possible rule violations, including potential insider trading by associated persons.
The proposed rule change provides that an associated person shall be required to (1) provide written notice to and obtain approval from his/her employer prior to opening or trading in a securities account with another member, and (2) provide notice in writing to the executing member of his/her association with the employing member.
The NASD Board of Governors believes the proposed rule amendments will provide additional assurances that the registered representative, the employing member firm, and the executing member firm have satisfied their respective obligations under the federal securities laws and the Rules of Fair Practice. The amendments also would, among other things, prevent instances where trades may be made on inside information because the employing member was not aware of the existence of the account with another member, the Board feels.
The Board of Governors asks all members and interested persons to comment on this proposed amendment. Comments should be directed to:
Mr. Lynn Nellius, Secretary
National Association of Securities Dealers, Inc.
1735 K Street, NW
Washington, DC 20006-1506.
Questions concerning this notice may be directed to T. Grant Gallery, Vice President and Deputy General Counsel, or Maureen Eisenberg, Attorney, Office of General Counsel, at (202) 728-8285 or (202) 728-8245, respectively.
Comments must be received no later than September 4, 1990. Changes to the NASD Rules of Fair Practice must be approved by the Board of Governors and by a vote of the membership and filed with and approved by the SEC before becoming effective.
PROPOSED SECTION 28 TO ARTICLE III OF THE NASD RULES OF FAIR PRACTICE
(Note: New text is underlined; deleted text is in brackets.)
Sec. 28. Transactions for or by Associated Persons
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Obligations of Associated Persons Concerning an Account with a Member.
1The transactions subject to Section 28 are not considered to be private securities transactions that need to be approved by the employing member pursuant to Article III, Section 40 of the Rules of Fair Practice.