Notice To Members 91-57

Adoption of Amendments to Interpretation of the Board of Governors — Forwarding Of Proxy and Other Materials, Article III, Section 1 of the NASD Rules of Fair Practice Re: Forwarding of Material on the Issuer's Behalf to Beneficial Owners

Published Date:

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EXECUTIVE SUMMARY

The Securities and Exchange Commission has approved amendments to the Interpretation of the Board of Governors — Forwarding of Proxy and Other Materials, Article III, Section 1 of the NASD Rules of Fair Practice to require NASD members to forward on the issuer's behalf all material in addition to material required by law to be sent to beneficial owners. The text of this amendment, which took effect September 14, 1991, follows this notice.

BACKGROUND AND SUMMARY OF AMENDMENTS

On July 31, 1991, the Securities and Exchange Commission (SEC or "Commission") approved amendments to the Interpretation of the Board of Governors — Forwarding of Proxy and Other Materials, Article III, Section 1 of the NASD Rules of Fair Practice (the "Interpretation of the Board") to require members, on the issuer's behalf, to forward material in addition to that required by law to be sent to beneficial owners.

Prior to the approval of these amendments, the Interpretation of the Board required NASD members to forward on the issuer's behalf only proxy material, annual reports, information statements, and other material required by law to be sent to stockholders periodically. The NASD member's duty to forward did not extend to materials not required by law to be sent periodically.

The NASD became aware that a disparity existed among different NASD members regarding the duty to forward material not required by law to be sent periodically, and that such disparity could create unnecessary confusion in the area of issuer communications. The disparity existed because NASD members affiliated with the New York Stock Exchange (NYSE) are required to forward all material on the request of either NYSE-listed or unlisted companies.1 Therefore, a Nasdaq issuer that requested the forwarding of material not required to be sent by law could receive a different level of service from an NASD member, depending on the member's affiliation or nonaffiliation with the NYSE.

This amendment eliminates the disparity among NASD members regarding their duty to forward material on behalf of the issuer to beneficial owners. As amended, the Interpretation of the Board requires that NASD members forward other material on behalf of the issuer. The amended requirement is not limited to material required by law to be sent periodically.

Currently, NASD members are reimbursed for expenses incurred in forwarding other material pursuant to Section 4 of the Interpretation. The rates for such reimbursement are set forth under the Appendix to the Interpretation of the Board. As amended, Section 4 and the Appendix to the Interpretation clarify that the application of the reimbursement rate applies to the additional material required to be forwarded under this amendment.

TEXT OF RULE CHANGE

The following is the full text of amendments to Interpretation of the Board of Governors — Forwarding of Proxy and Other Materials, Article III, Section 1 of the NASD Rules of Fair Practice.

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

Rules of Fair Practice Article III

Section 1

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Interpretation of the Board of Governors

Forwarding of Proxy and Other Materials Introduction

A member has an inherent duty in carrying out high standards of commercial honor and just and equitable principles of trade to forward all proxy material, annual reports, information statements and other material [required by law to be] sent to stockholders [periodically], which are properly furnished to it by the issuer of the securities, to each beneficial owner of shares of that issue which are held by the member for the beneficial owner thereof. For the assistance and guidance of members in meeting their responsibilities, [therefore,] the Board of Governors has promulgated this interpretation. The provisions hereof shall be followed by all members and failure to do so shall constitute conduct inconsistent with high standards of commercial honor and just and equitable principles of trade in violation of Article III, Section 1 of the Rules of Fair Practice of the Association.

Interpretation

* * * * *

Section 4. A member when so requested by an issuer and upon being furnished with:

(1) sufficient copies of annual reports, information statements or other material [required by law to be] sent to stockholders [periodically], and
(2) satisfactory assurance that it will be reimbursed by such issuer for all out-of-pocket expenses, including reasonable clerical expenses, shall transmit promptly to each beneficial owner of stock of such issuer which is in its possession and control and registered in a name other than the name of the beneficial owner all such material furnished.

This section shall not apply to beneficial owners residing outside of the United States of America though members may voluntarily comply with the provisions hereof in respect to such persons if they so desire.

* * * * *

Appendix

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Charges for Interim Report [Mailings], Post Meeting Report and Other Material Mailings

30 cents for each copy, plus postage, for interim reports, post meeting reports; or other material with a minimum of $2.00 for all sets mailed;
Members may charge for envelopes, provided that they are not furnished by the person soliciting proxies.
Members are reminded that Article III, Section 3 of the Rules of Fair Practice requires that any such charges must be reasonable. Accordingly, this is a guide and a member may request reimbursement of expenses at other rates after taking into consideration all relevant factors.

1 NYSE Rule 465 and Section .10 of Supplementary Material to Rule 465.