[Federal Register Volume 62, Number 176 (Thursday, September 11, 1997)]
[Notices]
[Pages 47858-47862]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-24140]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39025; File No. SR-NASD-97-57]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by National Association of Securities Dealers, Inc. Relating to 
the Electronic Delivery of Information Between Members and Their 
Customers

September 5, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 30, 1997,\2\ the 
National Association of Securities Dealers, Inc. (``NASD'' or 
``Association'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by NASD 
Regulation, Inc. (``NASD Regulation'' or ``NASDR'').\3\ The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ On August 27, 1997, the NASD Regulation amended its NTM 
attached as Exhibit A to this notice. See letter from Mary N. 
Revell, Associate General Counsel, NASD Regulation, Inc., to 
Katherine A. England, Assistant Director, Division of Market 
Regulation, SEC, dated August 26, 1997.
    \3\ The Board of Governors reviewed the proposed rule change at 
its meeting on August 7, 1997. See letter from Mary N. Revell, 
Assistant General Counsel, NASD Regulation, Inc., to Katherine A. 
England, Assistant Director, Division of Market Regulation, SEC, 
dated August 11, 1997.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDR has filed a Notice to Members (``NTM'') setting forth the 
policy of NASDR applicable to the electronic delivery of information 
between members and their customers.

II. Self-Regulatory Organization's Statement of the Purpose of and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NASDR included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. NASDR has prepared summaries, set forth in Sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Commission, in Release Nos. 34-37182 \4\ and 33-723,\5\ set 
forth guidelines establishing a framework under which broker-dealers 
and others may use electronic media as an

[[Page 47859]]

alternative to paper-based media to satisfy delivery obligations under 
federal securities laws. The Commission also indicated in the releases 
that an electronic communication from a customer to a broker-dealer 
generally would satisfy the requirements for written consent or 
acknowledgment under these laws.
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    \4\ See Securities Exchange Act Release No. 37182, May 9, 1996; 
61 FR 24644, May 15, 1996, (Commission's interpretation concerning 
the delivery of the information through electronic media in 
satisfaction of broker-dealer and transfer agent requirements to 
deliver information under the Act and the rules thereunder) (``May 
1996 Release'').
    \5\ See Securities Act Release No. 7233, Oct. 6, 1995; 60 FR 
53458, Oct. 13, 1995, (Commission's interpretation concerning the 
use of electronic media as a means of delivering information 
required to be disseminated pursuant to the Securities Act of 1933, 
the Securities Exchange Act of 1934, and the Investment Company Act 
of 1940).
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    The NTM, attached as Exhibit A, establishes NASD Regulation policy 
regarding the use by members of electronic media to electronically 
transmit documents that they are required or permitted to furnish to 
customers under Association rules and to receive electronic 
communications from customers.\6\ The Notice states that use of 
electronic media is permitted provided members comply with the 
standards contained in the Commission releases. The Notice summarizes 
these standards, which address, among other things, notice, access, 
evidence to show delivery, communication of personal financial 
information, and consent.
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    \6\ In the May 1966 Release, the Commission stated that broker-
dealers should be cognizant of their responsibilities to prevent, 
and the potential liability associated with, unauthorized 
transactions when ``receiving'' or ``obtaining'' electronic 
responses from their customers. The Commission therefore requests 
comment on what types of security measures broker-dealers employ or 
will employ to reasonably assure themselves that the responses they 
receive electronically from customers are authentic. See, e.g., NASD 
Rules 3110(g) (2) and (3), (requiring members to obtain written 
customer authorization before obtaining a check drawn on a 
customer's account), attached as Exhibit A.
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    The Notice also contains a list of current Association rules that 
require or permit communications between members and their customers 
for which electronic delivery may be used in accordance with the 
standards contained in the Commission releases. The Notice states that 
electronic delivery also may be used for a new rule or an amendment to 
an existing Rule that requires or permits communications between 
members and their customers unless NASDR specifies otherwise at the 
time of adoption of the rule or amendment.
    NASDR believes that use of electronic media to satisfy delivery 
requirements under Association rules will be beneficial to both members 
and their customers, particularly when conducted in accordance with 
Commission standards.
2. Statutory Basis
    The proposed rule change is consistent with the requirements of 
Section 15A(b)(6).\7\ The NASDR believes that providing standards that 
allow members to effectively and efficiently supply required documents 
to customers is consistent with this requirement.
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    \7\ Section 15A(b)(6) requires that the rules of the Association 
be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, and, 
in general, to protect investors and the public interest.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDR does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received. The proposed 
rule change was reviewed by the NASDR Executive and Membership 
Committees. The members of these Committees were in favor of the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
NASD. All submissions should refer to the file number in the caption 
above and should be submitted by October 2, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.

Exhibit A--NASD Notice to Members

Electronic Delivery of Information Between Members and Their Customers

Executive Summary

    This Notice sets forth the policy of NASD Regulation, Inc. (NASD 
Regulation) applicable to electronic delivery of information between 
members and their customers as required or permitted by National 
Association of Securities Dealers (NASD) Rules.

Discussion

Background

    On May 9, 1996, the Securities and Exchange Commission (SEC or 
Commission) issued an interpretive release publishing its views on 
the use of electronic media by broker-dealers for delivery of 
information.\1\ The SEC stated that broker-dealers and others may 
satisfy their delivery obligations under federal securities laws by 
using electronic media as an alternative to paper-based media within 
the framework established in its October 1995 interpretive release 
on the use of electronic media for delivery purposes.\2\ The SEC 
also indicated that an electronic communication from a customer to a 
broker-dealer generally would satisfy the requirements for written 
consent or acknowledgment under the federal securities laws.
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    \1\ See Securities Exchange Act Release No. 37182, May 9, 1996; 
61 FR 24644 (May 15, 1996) (May 1996 Release). The release also 
contained a list of current Rules to which broker-dealers apply the 
guidance provided in the interpretation.
    \2\ See Securities Act Release No. 7233, Oct. 6, 1995; 60 FR 
53458 (October 13, 1995) (October 1995 Release).
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    NASD Regulation will permit members that wish to electronically 
transmit documents that they are required or permitted to furnish to 
customers under NASD Rules to do so, provided they adhere to the 
standards contained in the SEC Releases summarized below. Members 
also may receive electronic communications from customers. Members 
are urged to review the May 1996 and October 1995 Releases in their 
entirety to ensure they comply with all aspects of the SEC's 
electronic delivery requirements.

SEC Releases

    According to the standards established by the SEC, broker-
dealers may use electronic media to satisfy their delivery 
obligations, provided the electronic communication satisfies the 
following principles:

[[Page 47860]]

    Notice: The electronic communication should provide timely and 
adequate notice to customers that the information is available 
electronically. If necessary, broker-dealers should consider 
supplementing the electronic communication with another 
communication that would provide notice similar to that provided by 
delivery in paper through the postal mail that information has been 
sent that the recipient may wish to review.
    Access: Customers who are provided information through 
electronic delivery should have access to that information 
substantially equivalent to that which would be provided if the 
information were delivered in paper form (i.e., the electronically 
transmitted document must convey all material and required 
information). For instance, if a paper document is required to 
present information in a certain order, then the information 
delivered electronically should be in substantially the same order. 
The use of a particular electronic medium should not be so 
burdensome that intended recipients cannot effectively access the 
information provided. A recipient should have the opportunity to 
retain the information through the selected medium or have ongoing 
access equivalent to personal retention.\3\ Also, as a matter of 
policy, the SEC believes that a person who has a right to receive a 
document under the federal securities laws and chooses to receive it 
electronically should be provided with a paper version of the 
document if consent to receive documents electronically is revoked 
or upon specific request.\4\
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    \3\ The SEC stated that the ability to download the document or 
print from the electronic medium would be sufficient to satisfy this 
need.
    \4\ See May 1996 Release, n.17.
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    Evidence to Show Delivery: Broker-dealers must have reason to 
believe that electronically delivered information will result in the 
satisfaction of the delivery requirements under the federal security 
laws. Broker-dealers should consider the need to establish 
procedures to ensure that applicable delivery obligations are met, 
and should take reasonable precautions to ensure that information 
transmitted using either electronic or paper media is delivered as 
intended. Broker-dealers may be able to evidence satisfaction of 
delivery obligations, for example, by:
    (1) Obtaining the intended recipient's informed consent \5\ to 
delivery through a specified electronic medium, and ensuring that 
the recipient has appropriate notice and access;
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    \5\ The SEC described an informed consent as one that specifies 
the electronic medium or source through which the information will 
be delivered and the period during which the consent will be 
effective, and describes the information that will be delivered 
using such means. Except where manual consent is required under the 
Penny Stock Rules (see discussion infra), broker-dealers may obtain 
consents either manually or electronically. See May 1996 Release, 
n.23.
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    (2) Obtaining evidence that the intended recipient actually 
received the information, such as by an electronic mail return-
receipt or by confirmation that the information was accessed, 
downloaded, or printed; or
    (3) Disseminating information through certain facsimile methods.
    The SEC also made the following statements regarding the 
communication of personal financial information (e.g., confirmations 
and account statements).
    Confidentiality and Security: Broker-dealers sending personal 
financial information through electronic means or in paper form 
should take reasonable precautions to ensure the integrity, 
confidentiality, and security of that information. Broker-dealers 
transmitting personal financial information electronically must 
tailor those precautions to the medium used in order to ensure that 
the information is reasonably secure from tampering or alteration.
    Consent: Prior to delivering personal financial information 
electronically, the broker-dealer must notify the intended recipient 
that the information will be delivered electronically and obtain the 
recipient's informed consent. The customer's consent may be made 
either by a manual signature or by electronic means.
    The SEC also stated that an electronic communication from a 
customer to a broker-dealer will satisfy requirements under certain 
Commission Rules to receive or obtain written customer consent or 
acknowledgment.\6\ Further, the SEC reminded broker-dealers that 
they must reasonably supervise firm personnel to prevent violations, 
and suggested that firms should evaluate the need for systems and 
procedures to deter or detect misconduct by firm personnel in 
connection with the delivery of information, whether by electronic 
or paper means.
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    \6\ The SEC, however, cautioned broker-dealers that they should 
be aware of their responsibilities to prevent unauthorized 
transactions. In this regard, the Commission stated its belief that 
broker-dealers should have reasonable assurance that the response 
received from a customer is authentic. The SEC also will continue to 
require broker-dealers to obtain the manual signature of customers 
on certain disclosure documents required under the Penny Stock 
Rules. See May 1996 Release, nn.23, 29, & 50.
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    The SEC release stated that the above standards are intended to 
permit broker-dealers to comply with their delivery obligations 
under the federal securities laws when using electronic media. While 
compliance with the guidelines is not mandatory for the electronic 
delivery of non-required information that, in some cases, is being 
provided voluntarily to customers, NASD Regulation believes 
adherence to the guidelines should be considered, especially with 
respect to documents furnished pursuant to agreements or other 
specific arrangements with customers.

Conclusion

    A list of current NASD Conduct Rules, Marketplace Rules, and 
Procedural Rules that require or permit communications between 
members and their customers for which electronic delivery may be 
used in accordance with the standards set forth in the SEC May 1996 
and October 1995 Releases is set forth below. The summary of 
delivery obligations provided is intended for reference only, and is 
not intended to be a statement of all requirements under the Rules 
listed. NASD Regulation believes this list is complete. The 
interpretation set forth in this Notice also will apply to a new 
Rule or an amendment to an existing Rule that requires or permits 
communications between members and their customers unless NASD 
Regulation specifies otherwise at the time of adoption of the Rule 
or amendment.

NASD Rules That Require or Permit Delivery of Information Between Firms 
and Customers

Conduct Rules

    Rule 2210(d)(2)(B) (i), (ii), and (iv) (Communications with the 
Public; Standards Applicable to Communications with the Public; 
Specific Standards; Recommendations) requires a member to disclose 
certain ``conflicts of interest'' situations, if applicable, when 
making a recommendation; requires a member to provide, or offer to 
furnish upon request to the customer, available investment 
information to support a recommendation; and allows a member to 
offer to furnish a list of all recommendations made within the past 
year or over longer periods of time.
    Rule 2220(d)(2)(D)(i) (Options Communications with the Public; 
Standards Applicable to Communications with the Public; Specific 
Standards) requires a member to state in sales literature pertaining 
to options that supporting documentation for any claims, 
comparisons, recommendations, statistics, or other technical data 
will be supplied upon request.
    Rule 2230 (Confirmations) requires a member at or before the 
completion of each transaction to give or send to a customer written 
notification disclosing the member's role and other facts in 
connection with the transaction. In addition, if the member was 
acting as a broker for the customer, the member must disclose from 
whom the security was purchased or to whom it was sold or the fact 
that such information will be furnished upon request of the 
customer.
    IM-2230 (``Third Market'' Confirmations) requires a member that 
acts as a broker for customers in listed securities in the ``third 
market'' to provide certain disclosures in a legend on the 
confirmation to the customer.
    Rule 2240 (Disclosure of Control Relationship with Issuer) 
requires a member who has a control relationship with the issuer of 
the security being purchased or sold to provide written disclosure 
of the relationship to the customer at or before the completion of 
the transaction.
    Rule 2250 (Disclosure of Participation or Interest in Primary or 
Secondary Distribution) requires a member to provide written 
disclosure to the customer at or before completion of a transaction 
in a primary or secondary distribution of the security, if the 
member is participating or has an interest in the distribution.
    Rule 2260 (Forwarding of Proxy and Other Materials) requires a 
member to forward proxy materials, annual reports, information 
statements, and other material to each beneficial owner of shares of 
a stock held by the member.
    Rule 2270(a) (Disclosure of Financial Condition to Customers) 
requires that, upon

[[Page 47861]]

request, a member must make available to inspection by any bona fide 
regular customer financial condition information disclosed in its 
most recent balance sheet.
    Rule 2310 (a) and (b) (Recommendations to Customers 
(Suitability)) requires a member to make a suitability determination 
based on information disclosed by the customer as to his other 
security holdings and his financial situation and need and requires 
a member to make reasonable efforts to obtain specified information 
concerning non-institutional customers.
    IM-2310-2(e) (Fair Dealing with Customers with Regard to 
Derivative Products or New Financial Products) requires a member to 
make every effort to make customers aware of the pertinent 
information regarding certain products. To meet this obligation, 
members may deliver written documents to the customer under certain 
circumstances.
    Rule 2330(c) (Customers' Securities or Funds; Authorization to 
Lend) requires a member to obtain from a customer a written 
authorization permitting the lending of securities carried by the 
member.
    Rule 2330(f)(2) (D) and (G) (Customer's Securities or Funds; 
Sharing in Accounts; Extent Permissible) requires that a 
compensation arrangement to share profits in an account must be set 
forth in a written agreement executed by the customer and the 
member, and that the member must disclose to the customer all 
material information relating to the arrangement, including the 
method of compensation and potential conflicts of interest that may 
result from the compensation formula.
    Rule 2340(a) (Customer Account Statements) requires delivery of 
a statement of account containing a description of any securities 
positions, money balances, or account activity to each customer 
whose account had a security position, money balance, or account 
activity during the period since the last statement was sent to the 
customer (See May 1996 Release which covers confirmations of 
transactions pursuant to Securities Exchange Act Rule 10b-10).
    Rule 2510(b) (Discretionary Accounts; Authorization and 
Acceptance of Account) requires the customer's prior written 
authorization before a member may exercise discretionary power in a 
customer's account.
    Rule 2510(d) (Discretionary Accounts; Exceptions) allows an 
exception from the requirements of the rule under certain 
circumstances for members utilizing negative response letters for 
bulk exchanges of net asset value of money market mutual funds.
    Rule 2710(c)(8)(A) (Corporate Financing Rule--Underwriting Terms 
and Arrangements; Underwriting Compensation and Arrangements; 
Conflicts of Interest) requires disclosure of conflicts of interest 
and the name of the qualified independent underwriter assuming the 
role of pricing the offering and conducting due diligence.
    Rule 2720 (d) and (h) (Distributions of Securities of Members 
and Affiliates--Conflicts of Interest; Disclosure and Periodic 
Reports) requires a member to make certain disclosures in the 
registration statement, offering circular, or similar document and 
requires a member that makes a distribution to the public of its 
securities pursuant to this Rule to send to each of its shareholders 
or investors: (1) quarterly, a summary statement of its operations 
and (2) annually, independently audited and certified financial 
statements.
    Rule 2720(k) (Distributions of Securities of Members and 
Affiliates--Conflicts of Interest; Suitability) requires a member 
underwriting an issue of securities where a conflict of interest 
exists to make a suitability determination based on information 
furnished concerning the customer's investment objectives, financial 
situation, and needs.
    Rule 2720(l) (Distributions of Securities of Members and 
Affiliates--Conflicts of Interest; Discretionary Accounts) requires 
specific written approval of the customer prior to execution in a 
discretionary account of a transaction in securities issued by a 
member or an affiliate of a member, or by a company with which a 
member has a conflict of interest.
    Rule 2730(b) (Securities Taken in Trade) defines the term 
``taken in trade'' as a purchase by a member as principal, or as 
agent for the account of another, of a security from a customer 
pursuant to an agreement or understanding that the customer purchase 
securities from the member which are part of a fixed price offering.
    Rule 2810(b)(2) (Direct Participation Programs; Requirements; 
Suitability) requires a member to obtain information from a 
participant concerning his investment objectives, other investments, 
financial situation, and needs before making a recommendation.
    Rule 2810(b)(3)(D) (Direct Participation Programs; Requirements; 
Disclosure) requires that prior to executing a purchase transaction 
in a direct participation program, a member must inform the 
prospective participant of all pertinent facts relating to the 
liquidity and marketability of the program during the term of the 
investment.
    Rule 2830(n) (Investment Company Securities; Disclosure of 
Deferred Sales Charges) requires, in addition to the disclosures 
required by Rule 2230, additional disclosure on written 
confirmations if the transaction involves the purchase of shares of 
any investment company that imposes a deferred sales charge on 
redemption. In addition, a specified legend on the confirmation is 
required.
    Rule 2845 (Discretionary Accounts) requires a customer's prior 
written authorization for trading of warrants in a discretionary 
account, pursuant to the requirements of Options Rule 2860(b)(18).
    Rule 2848 (Communications with the Public and Customers 
Concerning Index Warrants, Currency Index Warrants, and Currency 
Warrants). The requirements of Rule 2220(d)(2)(D)(i) apply to 
communications to the public and customers concerning warrants. Rule 
2848, therefore, requires the member to state in its sales 
literature that supporting documentation for any claims on behalf of 
the warrants will be supplied upon request.
    Rule 2860(b)(11) (Options; Requirements; Delivery of Current 
Disclosure Document) requires delivery of the appropriate Options 
Clearing Corporation disclosure document to each customer at or 
prior to the time the customer's account is approved for options 
trading. Thereafter, delivery must be made to each customer of 
amendments or revisions to the disclosure document.
    Rule 2860(b)(12) (Options; Requirements; Confirmations) requires 
members to promptly furnish customers with a written confirmation of 
each transaction in option contracts.
    Rule 2860(b)(15) (Options; Requirements; Statements of Account) 
requires a member to send monthly statements to options account 
holders.
    Rule 2860(b)(16)(A) (Options; Requirements; Opening of Accounts: 
Approval Required) prohibits a member from accepting an options 
order from a customer or from approving a customer's account for 
options trading unless the broker-dealer has furnished to the 
customer the appropriate options disclosure document(s).
    Rule 2860(b)(16)(B) (Options; Requirements; Opening of Accounts; 
Diligence in Opening Accounts) requires a member to exercise due 
diligence to ascertain the essential facts relative to a customer 
before approving a customer's account for options trading.
    Rule 2860(b)(16)(C) (Options; Requirements; Opening of Accounts: 
Verification of Customer Background and Financial Information) 
requires that background and financial information on every new 
options account natural person customer be sent to the customer for 
verification within fifteen days after the account is approved for 
options trading.
    Rule 2860(b)(16)(D) (Options; Requirements; Opening of Accounts; 
Account Agreement) requires a member to obtain from the customer a 
written agreement that the customer is aware of and agrees to be 
bound by the NASD Rules applicable to the trading of option 
contracts within fifteen days after a customer's account has been 
approved for trading of options contracts.
    Rule 2860(b)(16)(E)(v) (Options; Requirements; Opening of 
Accounts: Uncovered Short Option Contracts) requires that a short 
written description of the risks inherent in writing uncovered short 
option transactions must be furnished to applicable customers.
    IM-2860-2 (Diligence in Opening Options Accounts)
    Paragraph (a) requires members to seek to obtain certain 
information at a minimum with respect to options customers who are 
natural persons in order to fulfill their obligations under Rule 
28860(b)(16)(b).
    Paragraph (c) recommends that members consider utilizing a 
standard account approval form so as to ensure the receipt of all 
required information.
    Paragraph (e) states that the requirements of Rule 
2860(b)(16)(C), regarding initial and subsequent verification of 
customer background and financial information, can be satisfied by 
sending to the customer the information required in paragraphs 
(a)(1) through (a)(6) of IM-2860-2 and providing the customer with 
an opportunity to correct or complete the information.
    Rule 2860(b)(18)(A) (Options; Requirements; Discretionary 
Accounts;

[[Page 47862]]

Authorization and Approval) requires the written authorization of a 
customer before a member may exercise any discretionary power with 
respect to trading an options contract in a customer account.
    Rule 2860(b)(19) (Options; Requirements; Suitability) prohibits 
a member from recommending an options transaction unless the member 
has reasonable grounds to believe based on the information furnished 
by the customer that the recommended transaction is not unsuitable 
for the customer.
    Rule 2860(b)(23)(C)(i) (Options; Requirements; Tendering 
Procedures for Exercise of Options; Allocation of Exercise 
Assignment Notices) requires notification to customers of the method 
used to allocate exercise notices to its customers' accounts.
    Rule 3110(c) (Books and Records; Customer Account Information) 
requires members to obtain specified customer information.
    Rule 3110(f)(3) (Books and Records; Requirements when Using 
Predispute Arbitration Agreements with Customers) requires that a 
copy of the agreement containing a predispute arbitration clause 
must be given to the customer, who must acknowledge receipt on the 
agreement or on a separate document.
    Rule 3110(g)(2) and (3) (Books and Records; Telemarketing 
Requirements) requires members to obtain written customer 
authorization before obtaining a check drawn on a customer's 
account.
    Rule 3230(d) (Clearing Agreements) requires notification upon 
the opening of an account to each customer whose account is 
introduced on a full disclosed basis of the existence of the 
clearing or carrying agreement.

Marketplace Rules: The Nasdaq Stock Market Rules

    Rule 4643 (Customer Confirmations) prohibits members from 
effecting transactions in Nasdaq SmallCap Market securities unless, 
at or before completion of the transaction, the member gives or 
sends the customer written notification disclosing specified 
information.

Procedural Rules: Compliants, Investigations and Sanctions

    Rule 8110 (Availability to Customers of Certificate, By-Laws and 
Rules) requires a member to provide customer access to copies of the 
NASD Certificate of Incorporation, By-Laws, and Rules.

Procedural Rules: Uniform Practice Code

    Rule 11860(a)(3) and (4) (Acceptance and Settlement of COD 
Orders) requires a member to deliver to the customer a confirmation, 
or all relevant data customarily contained in a confirmation not 
later than the close of business on the next business day after any 
such execution and to obtain an agreement from the customer to 
furnish instructions regarding the receipt or delivery of the 
securities involved in the transaction.
    Rule 11870(c) (Customer Account Transfer Contracts; Transfer 
Instructions): customers must be informed of the conditions for 
account transfer and must authorize the transfer.
* * * * *
    Questions concerning this Notice may be directed to Mary Revell, 
Assistant General Counsel, NASD Regulation, at (202) 728-8203.

[FR Doc. 97-24140 Filed 9-10-97; 8:45 am]
BILLING CODE 8010-01-M