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November 9, 2006, the SEC approved an amendment to IM-2210-4, putting limitations on the use of NASD’s name and now requiring a member firm, or a person associated with a member firm, which makes reference to its membership in NASD on its Web site to provide a hyperlink to NASD’s home page, www.nasd.com.  This hyperlink should be located close to any reference that could reasonably draw the public’s attention to NASD membership.  Only one hyperlink to www.nasd.com needs to be provided, as long as the hyperlink is placed in close proximity to any NASD reference.

This amendment does not create an independent obligation requiring a member firm to refer to its NASD membership on its Web site.  It applies only when a member firm or person associated with a member firm chooses to represent on a Web site that the firm is a member of NASD.

The change also applies to a Web site relating to a firm’s investment banking or securities business that is maintained by – or on behalf – of any person associated with the firm.

NASD has stated that a “legend” posted on a member’s Web site indicating the firm is a member of NASD would require the hyperlink; however, it would not be required on references to NASD membership appearing in a disclosure document or other offering document that is merely linked to the member firm’s Web site.

Effective date for this amendment is July 7, 2007.

On September 7, 2006, the SEC approved amendments to Rule 2340 requiring customer account statements to include a statement advising customers to promptly report any inaccuracy or discrepancy in their account to the introducing firm and clearing firm (where these are different firms), and for Broker Dealers to re-confirm any oral communication in writing.  The prior effective date of this rule was March 6, 2007.  The effective date of this requirement has been changed to May 31, 2007.

This Notice further clarifies an interpretation of the SEC’s Division of Market Regulation under the net capital rule and SEC Rule 15c3-3 that requires clearing firms to include in customer account statements a telephone number at the clearing firm that a customer may use to contact the firm with inquiries regarding the customer’s account.  This NtM supersedes NtM 06-60.

NASD Rules 6950 through 6958 (OATS Rules) require member firms to record in electronic form and report to the NASD on a daily basis certain information regarding orders originated, received, transmitted, modified, canceled or executed by NASD members relating to equity securities listed and traded on the NASDAQ Stock Market.  The SEC approved amendments to Rules 6951, 6952, and 6955 to expand the OATS reporting requirements to include over-the counter equity securities.  As a result of these amendments, beginning June 11, 2007, members will be required to record and report to OATS all order information regarding equity securities listed on the NASDAQ Stock Market and OTC equity securities.

NASD has recently become aware of several deficiencies in firms’ compliance procedures relating to Rule 3060.  Because of this, NtM 06-69 was issued to focus on some of the more common compliance weaknesses observed.  The rule prohibits any member or person associated with a member from giving, or permitting to be given, anything of value in excess of $100 per individual per year where such payment is relative to the business of the recipient’s employer.

The prohibitions in Rule 3060 generally do not apply to personal gifts such as wedding gifts or other congratulatory gifts, provided they are not “in relation to the business of the employer of the recipient”.  Factors to be considered include the nature of the pre-existing personal or family relationship between the person giving the gift and the recipient, and whether the registered representative paid for the gift.  When a firm bears the cost of the gift (either directly or by reimbursing the employee) NASD presumes the gift is in relation to the business of the employer of the recipient.

Any promotional items of nominal value that display the firm’s logo – i.e. pens, notepads, shirts, etc. would fall within this exclusion as long as the value is substantially below the $100 limit.

Firms must aggregate all gifts given by the member and each associated person of the member to a particular recipient over the course of a year.  Additionally, each firm must state in its procedures whether it is aggregating all gifts given by the firm and associated person on a calendar year, fiscal year, or on a rolling basis beginning with the first gift to any particular recipient.

Effective November 22, 2006, SEC approved amendments to Rule 2340 to allow DVP/RVP customers to elect not to receive account statements.

Rule 2340 requires any member conducting general securities business that also carries customer accounts or holds customer funds or securities, to send an account statement at least once each quarter to each client whose account had a security position, money balance position, or account activity since the last statement was sent.  These statements must contain a description of the securities positions, any money balances or account activity in the account.

In the event of a DVP/RVP arrangement, payment for securities purchases is made to the selling customer’s agent, and delivery of securities of the securities sold is made to the buy customer’s agent in exchange for payment at time of settlement.  Because they are settled directly with the agent on a transaction-by-transaction basis, account statements by general securities firms with DVP/RVP accounts typically do not reflect any cash or security position at the end of a quarter. 

The amendments to Rule 2340 do not qualify or condition the obligations of a member under SEC Rule 15c3-2 concerning quarterly notices of free credit balances on statements.

On September 28, 2006, the Securities and Exchange Commission approved amendments to NASD Rules, including the rules governing the Alternative Display Facility (ADF) in order to align them with Regulation NMS.   Effective date is February 7, 2007.  In addition, the SEC approved amendments to rules governing quoting, trade reporting, and clearing applicable to the ADF and extended this functionality to all NMS stocks, including stocks listed on the New York Stock Exchange (NYSE), American Stock Exchange (Amex), and certain other exchanges.  The amendments reorganize ADF trade reporting rules and make changes to ADF rules to enhance their clarity.

In addition to re-designating the national market system rules previously adopted under Section 11A of the Securities Exchange Act of 1934 (“Exchange Act”), Regulation NMS includes new substantive rules that are designed to modernize and strengthen the regulatory structure of the U.S. equity markets. The “Order Protection Rule” requires trading centers to establish, maintain and enforce written policies and procedures reasonably designed to prevent the execution of trades at prices inferior to quotations displayed by other trading centers, subject to an applicable exception. To be protected, a quotation must be immediately and automatically accessible.

The “Access Rule” requires fair and non-discriminatory access to quotations, establishes a limit on access fees to harmonize the pricing of quotations across different trading centers, and requires each national securities exchange and national securities association to adopt, maintain, and enforce written rules that prohibit their members from engaging in a pattern or practice of displaying quotations that lock or cross automated quotations.

The “Sub-Penny Rule” prohibits market participants from accepting, ranking, or displaying orders, quotations, or indications of interest in a pricing increment smaller than a penny, except for orders, quotations, or indications of interest that are priced at less than $1.00 per share.