Notice To Members 91-48

Proposed New Rule Re: Definition of Branch Office in Article III, Section 27(g)(2) and (g)(3) of the Rules of Fair Practice; Last Voting Date: September 25, 1991

Published Date:
Last Voting Date: September 25, 1991

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Senior Management
Legal & Compliance
Registration
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MAIL VOTE

EXECUTIVE SUMMARY

The NASD invites members to vote on proposed amendments to Article III, Section 27(g)(2) and a new Paragraph (g)(3) of the Rules of Fair Practice that would codify certain interpretations by the NASD regarding the definition of branch office.

BACKGROUND

In 1989, the NASD Qualifications Committee, a predecessor to the current NASD Membership Committee, issued several interpretations under Article III, Section 27(g)(2) of the NASD Rules of Fair Practice, which defines branch office. These interpretations were intended to clarify the rule's definition of a branch office and the exemption from branch-office registration available for nonbranch business locations that meet certain conditions under the rule. The interpretations were reviewed by the NASD Board of Governors in November 1989 and published in the February 1990 issue of NASD Regulatory & Compliance Alert.

While these interpretations clarify the rule's intent, they also materially expand the range of actions that may be performed in the field without triggering the branch-office registration requirement. The absence in the rule itself of language reflecting these interpretations has resulted in some confusion among members, especially with the passage of time. To address this situation, the NASD Board proposes to codify the earlier interpretations into the branch-office definition in the Supervision Rule (Article III, Section 27 of the NASD Rules of Fair Practice). Since these interpretations have been used for more than a year and have been found workable in practice, the Board believes it is appropriate to proceed directly to a membership vote without the formality of a comment period.

SUMMARY OF PROPOSED AMENDMENTS

Under the current rule, a location may be exempt from registration as a branch office if it is identified to the public only in telephone book listings, business cards, or stationery that also include the address and telephone number of the branch office or office of supervisory jurisdiction (OSJ) responsible for supervising the nonbranch business location.

Under the proposed amendments, members' sales literature (as this term is defined in Article III, Section 35(a)(2) of the NASD Rules of Fair Practice) may include the local address of a non-branch business location. However, the literature also must identify the location and telephone number of the appropriate supervisory branch office or OSJ of the member. In addition, members' advertisements (as this term is defined in Article III, Section 35(a)(1) of the NASD Rules of Fair Practice) may include a local telephone number and/or local post-office box of a nonbranch location if the advertisements also identify the location and telephone number of the appropriate branch office or OSJ. These advertisements may not include the address of the nonbranch location.

A new Paragraph (g)(3) allows a member to use the firm's main-office address and telephone number for reply purposes on sales literature, advertisements, business cards, and business stationery. However, a member wishing to list such a central site instead of a supervisory branch or OSJ must show that it has in place a significant and geographically dispersed supervisory system appropriate to its business. In addition, any complaints coming through the central site have to be sent to and resolved in conjunction with the office or offices with jurisdiction over the nonbranch business location.

The Board also notes that these exemptions from the branch-office definition were intended as a reasonable accommodation to firms with widely dispersed sales personnel selling limited product lines such as variable contracts and mutual funds. Branch-office registration would still be required for locations that: (1) perform any function under the definition of Office of Supervisory Jurisdiction; (2) publicly display signage other than on lobby directories or doors in office-building internal corridors; (3) operate from public areas of buildings, such as bank branches, even when such locations are temporarily staffed; and (4) advertise an address in any public media.

REQUEST FOR VOTE

The NASD Board of Governors believes that these changes to the Rules of Fair Practice are necessary and appropriate and recommends that members vote their approval. Please mark the enclosed 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 September 25, 1991.

Questions concerning this notice may be directed to Frank J. McAuliffe in the Membership & Qualifications Department at (301) 590-6694, R. Clark Hooper in the Advertising Department at (202) 728-8330, or Craig Landauer in the Office of General Counsel at (202) 728-8291.

TEXT OF PROPOSED CHANGES TO ARTICLE III, SECTION 27 OF THE RULES OF FAIR PRACTICE

Supervision

(Note: New text is underlined; deleted text is in brackets.)

(g)(2) "Branch Office" means any location identified by any means to the public or customers as a location at which the member conducts an investment banking or securities business, excluding:
(i) any location identified [solely] in a telephone directory line listing or on a business card or letterhead, which listing, card, or letterhead also sets forth the address and telephone number of the branch office or OSJ of the firm from which the person(s) conducting business at the non-branch location are directly supervised [.];
(ii) any location referred to in a member advertisement, as this term is defined in Article HI, Section 35(a)(1) of the NASD Rules of Fair Practice, by its local telephone number and/or local post office box provided that such reference may not contain the address of the non-branch location and, further, that such reference also sets forth the address and telephone number of the branch office or OSJ of the firm from which the person(s) conducting business at the non-branch locations are directly supervised; or
(iii) any location identified by address in a member's sales literature, as this term is defined in Article III, Section 35(a)(2) of the NASD Rules of Fair Practice provided that the sales literature also sets forth the address and telephone number of the branch office or OSJ of the firm from which the person(s) conducting business at the non-branch locations are directly supervised.
(g)(3) A member may substitute a central office address and telephone number for the supervisory branch office and OSJ locations referred to in paragraph (g)(2) above provided it can demonstrate to the NASD District Office having jurisdiction over the member that it has in place a significant and geographically dispersed supervisory system appropriate to its business and that any investor complaint received at the central site is provided to and resolved in conjunction with the office or offices with responsibility over the non-branch business location involved in the complaint.