Executive Summary

The NASD^® is publishing this Notice to clarify its position on the use of logos and names of banks and other financial institutions under the current NASD rules and regulations and the federal securities laws generally.

Discussion

In the November 1994 account statement, the NASD Advertising Regulation Department notified each member currently filing material with the Department of, among other things, the use of bank logos on advertisements and sales literature for member firms. This memorandum is to clarify the NASD's position on the use of logos of banks and other financial institutions under the current NASD rules and regulations and the federal securities laws generally.

The NASD views a logo as representative of the name of an entity. Thus, in communications containing the name of an NASD member, the use of any logo of a nonmember (including banks and other financial institutions) is subject to the same rules and regulations that are applicable to the use of the name of a nonmember. Article III, Sections 35(d)(1)(D)(i) and (ii) of the NASD Rules of Fair Practice require that, in judging whether the communication, in whole or in part, is misleading, the overall context in which a statement is made and the audience to which a communication is directed must be considered. Article III, Section 35(f)(2) requires that, in communications where a nonmember is named, the relationship between the member and the nonmember shall be clear, no confusion shall be created as to which entity is offering which products and services, and securities products and services must be clearly offered by the member. The existing rules also recognize that the position of any disclosure can create confusion, even if the disclosure is accurate. If in fact such confusion occurs, it will violate NASD rules.

The current NASD rules under Article III, Section 35 of the Rules of Fair Practice on the use of nonmembers' names have been supplemented by the terms and conditions in the Securities and Exchange Commission's (SEC) no-action letter issued to Chubb Securities Corporation in November 1993 (Chubb letter), which was distributed in Notice to Members 94-47, dated June 1994. The Chubb letter sets forth the SEC's Division of Market Regulation policy regarding third-party networking broker/dealers operating on the premises of financial institutions. The Chubb letter says that references to the financial institution "will be for identifying the location where brokerage services are available only, and will not appear prominently in such materials." The NASD believes that, consistent with Chubb and the NASD's view that NASD rules have equal applicability to the logos and actual name of the nonmember, the misuse of a logo of a financial institution will raise the same question of prominence as the actual name of the institution.

The logo of a nonmember that is representative only of the nonmember entity (such as, a bank logo that is recognized solely as representative of the bank and not of the bank's holding company, affiliates, or other related entities), may be used in a communication on behalf of an NASD member, provided that it is used only to identify the nonmember entity, in accordance with the provisions of the Chubb letter and the applicable NASD Rules of Fair Practice. Additionally, the logo may not be used in a way that is misleading or confusing, such as appearing in a disproportionate size so that it is unclear as to which entity is offering broker/dealer services. This application is consistent with the general requirement that the context and audience to which the communication is directed be considered.

The logo of a financial conglomerate, such as a bank holding company, may be used in a communication on behalf of an NASD member, provided, once again, that the logo is not used in a way that is misleading or confusing, consistent with the general requirement above.

While this memorandum specifically addresses the clarification of the use of bank and/or financial institution logos and names, please note that the position set forth applies to the use of logos and names for any non-member entity. Any questions regarding this Notice should be directed to Thomas

A. Pappas, Assistant Director, Advertising Regulation Department, (202) 728-8330.