Series 7

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Rules and Regulations - Standards for Public Communications

Telephone Solicitation
Phone solicitation, or "cold-calling", is regulated under the Telecommunication Consumer Protection Act of 1991 (TCPA). This prohibits calling the following:

  • An emergency line associated with an ambulance corps, police department, fire department or other first-response organization
  • A guest room at a hospital or eldercare facility
  • A pager or mobile phone where the called party is charged for the call
  • A fax machine

It further prohibits artificial or pre-recorded messages and autodialing more than one line of a multi-line business. Also, you cannot call the same party more than once a year.

TCPA violators are subject to paying $500 in damages - to the aggrieved party, not the court - for each infraction.

The TCPA, passed in 1991, introduced the concept of a do-not-call database. It did not mandate such a measure, however, and that is one reason why the do-not-call list took about 13 more years to become a reality.

The Do-Not-Call-Registry
Established by the Federal Trade Commission and Federal Communications Commission in 2003 to allow consumers to choose whether or not they wished to receive calls by telemarketers, the registry enables any individual to place his or her telephone number on the registry. Only personal residential and cellular telephone numbers are eligible for registration. Members may make outbound calls to an individual's residence for the purpose of soliciting securities purchases or procuring related services only with that person's consent and only between the hours of 8 a.m. and 9 p.m. local time. The caller must identify himself, the member firm, its telephone number and address and that the purpose of the call is to solicit securities purchases.

Telemarketers have a thirty one day window from the date that the number is registered to stop calling it. No third party organizations are allowed to register a consumer's telephone number. Registration is a free service of the federal government and the registration of one's telephone number is permanent, unless that number is disconnected or reassigned.

Registration only pertains to telemarketing organizations. Ergo, calls from political organizations, surveying organizations and charities are exempt from the rule. So, too, are businesses with which the individual has an existing relationship, unless he or she has their numbers blocked through registration.

Broker/Dealer Compliance with the Rule (NASD Notice to Members 05-07 January, 2005)

A broker/dealer must have established, and put in place, written procedures to comply with the do-not-call rules.

Broker/dealer personnel must be trained in the aforementioned procedures.

The broker/dealer must maintain a list of numbers whose owners it may not contact.

The broker/dealer must have in place a procedure to prevent telephone solicitations on any number in the Do-Not-Call Registry and have it documented. It must be in place no sooner than 31 days prior to the date that any call is made to anyone whose number is in the registry.

Rules Regarding the Solicitation of Penny Stocks
Investors in penny stocks must be provided with a written suitability notice and may not be cold-called unless they are "existing customers." An existing customer is an investor who has had an account open with the broker-dealer for at least one year or; has made at least 3 penny stock trades, on 3 different penny stocks, on 3 different days.

Requirements for recommending securities
Rules governing recommendations of securities fall under NASD Rule 2210. The NASD classifies these recommendations, which take the form of public communications, according to six possible types:

Public communications: definition and approval process

  1. Advertisement: advertising in any electronic or other public media, including any website, newspaper, magazine or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures or telephone directories (other than routine listings).

  2. Sales Literature: literature distributed or made generally available to customers or the public, including circulars, research reports, market letters, performance reports or summaries, form letters, telemarketing scripts, seminar texts, reprints (that are not independently prepared reprints) or excerpts of any other advertisement, sales literature or published article, and press releases concerning a member's products or services.

  3. Correspondence: written letter or electronic mail message distributed by a member to existing retail customers and fewer than 25 prospective retail customers within any 30 calendar-day period.

  4. Institutional Sales Material: material distributed or made available only to institutional investors.

  5. Public Appearance: seminar, forum (including interactive electronic forums), radio or television interview, or other public appearance or public speaking activity.

  6. Independently Prepared Reprint: unaltered reprint or excerpt of any article issued by a publisher, provided the publisher is unaffiliated with and uncompensated by the circulating firm or investment company or any underwriter or issuer of a security mentioned in the reprint, and neither the member using the reprint nor any underwriter or issuer of a security mentioned in the reprint or excerpt has commissioned the reprinted or excerpted article.

There are separate standards for public communications about options, municipal bonds, mutual funds and other securities.

Options Disclosure Document

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