Currently, NASD Rule 3060 prohibits any firm or person associated with a firm from giving anything of value in excess of $100. Existing interpretive material states that Rule 3060 does not prohibit "ordinary and usual business entertainment" provided that that entertainment is "neither so frequent nor so extensive as to raise any question of propriety."
In reviewing the issue in recent months, the staffs of NASD and the New York Stock Exchange (NYSE) have worked together to develop a consistent approach that will provide greater clarity concerning the types of business entertainment that are appropriate. The approach is focused on the procedures that broker-dealers must adopt to guard against providing inappropriate business entertainment -- that is, entertainment intended to cause, or that would be reasonably judged to have the likely effect of causing, the recipient to act in a manner that is inconsistent with the best interests of his or her employer, or would otherwise be inconsistent with the standards that all firms would have to adopt concerning permissible entertainment.
"The foundational principle of this rule is that conduct cannot undermine the performance of an employee's duty to a customer," said NASD Chairman and CEO Robert R. Glauber. "Firms must design standards for entertainment that are consistent with high standards of commercial honor, and they must develop robust policies and procedures to ensure compliance."
Today, NASD published Notice to Members 06-06 proposing IM-3060, which outlines written policies and procedures registered firms must adopt, including requirements to: determine and define the forms of business entertainment that are appropriate or inappropriate; promote conduct that does not undermine the performance of a recipient's duty to his or her employer; maintain detailed records of the nature and expense of business entertainment and make such information available to a recipient's employer upon written request; establish standards for the supervision, approval and documentation of business entertainment expenses; and, periodically monitor for compliance with such policies and procedures, by an independent reviewer where practicable.
Proposed IM-3060 expressly precludes offering any gift or entertainment that is illegal or that would expose the registered firm, its employees, its customer or the recipient of the gift or entertainment to any civil liability to any governmental authority or agency.
The deadline for submitting comments is February 23.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit our Web site at www.nasd.com.
("Copyright 2005 National Association of Securities Dealers, Inc.")
