Generally, current NYSE Rule 350 prohibits any member or member organization from giving any gift or gratuity in excess of $100 per person per year. The guidance on entertainment has been less clear, causing NYSE Regulation and NASD in recent months to work together to develop consistent guidance that will provide greater clarity concerning the forms of business entertainment that are appropriate.
"The purpose of the rule is to prohibit the employees of a broker-dealer from providing business entertainment to a client, particularly one who is acting in a fiduciary capacity, that is intended to cause the client to act in a manner inconsistent with the best interests of his or her employer or customer," said Grace Vogel, executive vice president of NYSE Regulation’s division of Member Firm Regulation.
The rule will require each member or member organization to develop written policies and procedures, tailored to that organization's business model, designed to define forms of entertainment that are appropriate and inappropriate and to detect and prevent entertainment that is intended as an inducement for obtaining customer business, or could give rise to a conflict of interest. Each firm is expected to develop specific dollar limits or require supervisory approval at certain dollar thresholds. The rule will require firms to effectively supervise compliance with these policies and to provide for periodic verification and testing. Further, the firms will be expected to train all applicable personnel. Members and member organizations will also be required to maintain detailed records of these expenses. The rule will also require member organizations to give notice to clients, acting in a fiduciary capacity, that detailed information on the entertainment of their employees is available upon request.
About NYSE Regulation
On December 17, 2003, the SEC approved a new governance structure for the NYSE. Under the new design, the NYSE Board of Directors is comprised solely of independent directors, except for the chief executive officer, who have no affiliation with any regulated member firm. A new position of chief regulatory officer was created and reports directly to the board of directors through a new Regulatory Oversight Committee. As a result, NYSE Regulation is insulated from potential influence from NYSE members and member firms, operates separately from the business side and is independent in its decision-making.
NYSE Regulation plays a critical role in monitoring and regulating the activities of its members, member firms and listed companies, as well as enforcing compliance with NYSE rules and federal securities laws. Nearly 400 of the largest securities firms in America are members of the New York Stock Exchange. These firms service 98 million customer accounts, or 84 percent of the total public customer accounts handled by broker-dealers, with total assets of over $4 trillion. They operate from 20,000 branch offices around the world and employ 144,000 registered personnel.
Nearly 700 employees, or more than 40 percent of the Exchange’s staff, work for NYSE Regulation, which consists of four divisions: Market Surveillance, Member Firm Regulation, Enforcement and Listed Company Compliance, as well as a Risk Assessment Unit and Dispute Resolution/Arbitration.
