MSRB NOTICE 2004-05 (FEBRUARY 2, 2004)

AMENDMENTS APPROVED REGARDING THE NATIONAL DO-NOT-CALL REGISTRY

On January 26, 2004, the Securities and Exchange Commission approved amendments to Rules G-39, on telemarketing, and G-8, on books and records, to require that brokers, dealers and municipal securities dealers participate in the Federal Trade Commission’s national do-not-call registry.[1] A notice providing details about the amendments can be found at [click here to access MSRB Notice 2003-35].  The SEC’s approval order includes amendments that the MSRB filed to the proposed rule change on January 21, 2004. The amendments expand the definition of “established business relationship.” As originally drafted, an established business relationship would have existed between the customer and a broker, dealer or municipal securities dealer as long as the call’s recipient had made a financial transaction with the broker, dealer or municipal securities dealer within 18 months preceding the date of the telemarketing call, or if the recipient had contacted the broker, dealer or municipal securities dealer to inquire about a product or service offered by the broker, dealer or municipal securities dealer within the three months preceding the date of the telemarketing call. In response to commentators concerns about the narrowness of the exception, the MSRB expanded the definition of “established business relationship” to include situations where the telemarketing call recipient has a security position, a money balance, or account activity at a clearing firm on behalf of such broker, dealer or municipal securities dealer within the previous 18 months, and where a broker, dealer or municipal securities dealer was the “broker, dealer or municipal securities dealer of record” for an account of a person within the 18 months immediately preceding the date of the telemarketing call. The amendments are consistent with those of the NASD regarding their telemarketing rule.

February 2, 2004

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Text of Amendments [2]

Rule G- 39. Telemarketing

[(a) No broker, dealer or municipal securities dealer or person associated with a broker, dealer or municipal securities dealer shall:]

[(i) make outbound telephone calls to the residence of any person for the purpose of soliciting the purchase of municipal securities or related services at any time other than between 8 a.m. and 9 p.m. local time at the called person’s location, without the prior consent of the person; or]

[(ii) make an outbound telephone call to any person for the purpose of soliciting the purchase of municipal securities or related services without disclosing promptly and in a clear and conspicuous manner to the called person the following information:]

[(A) the identity of the caller and the firm;]

[(B) the telephone number or address at which the caller may be contacted; and]

[(C) that the purpose of the call is to solicit the purchase of municipal securities or related services.]

[(b) The prohibitions of section (a) shall not apply to telephone calls by any person associated with a broker, dealer or municipal securities dealer, or another associated person acting at the direction of such person for the purpose of maintaining and servicing the accounts of existing customers of the broker, dealer or municipal securities dealer under the control of or assigned to such associated person:]

[(i) to an existing customer who, within the preceding twelve months, has effected a securities transaction in, or made a deposit of funds or securities into, an account that, at the time of the transaction or the deposit, was under the common control of or assigned to, such associated person;]

[(ii) to an existing customer who previously has effected a securities transaction in, or made a deposit of funds or securities into, an account that, at the time of the transaction or deposit, was under the control of or assigned to, such associated person, provided that such customer’s account has earned interest or dividend income during the preceding twelve months; or]

[(iii) to a broker, dealer or municipal securities dealer.]

[For the purposes of section (b), the term “existing customer” means a customer for whom the broker, dealer or municipal securities dealer, or a clearing broker or dealer on behalf of such broker, dealer or municipal securities dealer, carries an account.  The scope of this rule is limited to the telemarketing calls described herein; the terms of this rule shall not otherwise expressly or by implication impose on brokers, dealers or municipal securities dealers any additional requirements with respect to the relationship between a broker, dealer or municipal securities dealer and a customer or between a person associated with a broker, dealer or municipal securities dealer and a customer.]

(a) General Telemarketing Requirements

No broker, dealer or municipal securities dealer or person associated with a broker, dealer or municipal securities dealer shall initiate any telephone solicitation, as defined in paragraph (g)(ii) of this rule, to:

(i) Time of Day Restriction

Any residence of a person before the hour of 8:00 a.m. or after 9:00 p.m. (local time at the called party’s location), unless

(A)  the broker, dealer or municipal securities dealer has an established business relationship with the person pursuant to paragraph (g)(i)(A)(1),

(B) the broker, dealer or municipal securities dealer has received that person’s prior express invitation or permission, or

(C) the person called is a broker, dealer or municipal securities dealer;

(ii) Firm-Specific Do-Not-Call List

Any person that previously has stated that he or she does not wish to receive an outbound telephone call made by or on behalf of the broker, dealer or municipal securities dealer; or

(iii) National Do-Not-Call List

Any person who has registered his or her telephone number on the Federal Trade Commission’s national do-not-call registry.

(b) National Do-Not-Call List Exceptions

A broker, dealer or municipal securities dealer making telephone solicitations will not be liable for violating paragraph (a)(iii) if:

(i) Established Business Relationship Exception

The broker, dealer or municipal securities dealer has an established business relationship with the recipient of the call. A person’s request to be placed on the firm-specific do-not-call list terminates the established business relationship exception to that national do-not-call list provision for that broker, dealer or municipal securities dealer even if the person continues to do business with the broker, dealer or municipal securities dealer;

(ii) Prior Express Written Consent Exception

The broker, dealer or municipal securities dealer has obtained the person’s prior express invitation or permission.  Such permission must be evidenced by a signed, written agreement between the person and the broker, dealer or municipal securities dealer which states that the person agrees to be contacted by the broker, dealer or municipal securities dealer and includes the telephone number to which the calls may be placed; or

(iii) Personal Relationship Exception

The associated person making the call has a personal relationship with the recipient of the call.

(c) Safe Harbor Provision

A broker, dealer or municipal securities dealer or person associated with a broker, dealer or municipal securities dealer making telephone solicitations will not be liable for violating paragraph (a)(iii) if the broker, dealer or municipal securities dealer or person associated with a broker, dealer or municipal securities dealer demonstrates that the violation is the result of an error and that as part of the broker, dealer or municipal securities dealer’s routine business practice, it meets the following standards:

(i) Written procedures.  The broker, dealer or municipal securities dealer has established and implemented written procedures to comply with the national do-not-call rules;

(ii)  Training of personnel.   The broker, dealer or municipal securities dealer has trained its personnel, and any entity assisting in its compliance, in procedures established pursuant to the national do-not-call rules;

(iii)  Recording.   The broker, dealer or municipal securities dealer has maintained and recorded a list of telephone numbers that it may not contact; and

(iv) Accessing the national do-not-call database.   The broker, dealer or municipal securities dealer uses a process to prevent telephone solicitations to any telephone number on any list established pursuant to the do-not-call rules, employing a version of the national do-not-call registry obtained from the administrator of the registry no more than three months prior to the date any call is made, and maintains records documenting this process.

(d) Procedures

Prior to engaging in telemarketing, a broker, dealer or municipal securities dealer must institute procedures to comply with paragraph (a).  Such procedures must meet the following minimum standards:

(i)  Written policy.   Brokers, dealers and municipal securities dealers must have a written policy for maintaining a do-not-call list.

(ii)  Training of personnel engaged in telemarketing.   Personnel engaged in any aspect of telemarketing must be informed and trained in the existence and use of the do-not-call list.

(iii)  Recording, disclosure of do-not-call requests.   If a broker, dealer or municipal securities dealer receives a request from a person not to receive calls from that broker, dealer or municipal securities dealer, the broker, dealer or municipal securities dealer must record the request and place the person’s name, if provided, and telephone number on the firm’s do-not-call list at the time the request is made.  Brokers, dealers and municipal securities dealers must honor a person’s do-not-call request within a reasonable time from the date such request is made.  This period may not exceed thirty days from the date of such request.  If such requests are recorded or maintained by a party other than the broker, dealer or municipal securities dealer on whose behalf the telemarketing call is made, the broker, dealer or municipal securities dealer on whose behalf the telemarketing call is made will be liable for any failures to honor the do-not-call request.

(iv)  Identification of sellers and telemarketers.   A broker, dealer or municipal securities dealer or person associated with a broker, dealer or municipal securities dealer making a call for telemarketing purposes must provide the called party with the name of the individual caller, the name of the broker, dealer or municipal securities dealer, an address or telephone number at which the broker, dealer or municipal securities dealer may be contacted, and that the purpose of the call is to solicit the purchase of securities or related service.  The telephone number provided may not be a 900 number or any other number for which charges exceed local or long distance transmission charges.

(v)  Affiliated persons or entities.   In the absence of a specific request by the person to the contrary, a person’s do-not-call request shall apply to the broker, dealer or municipal securities dealer making the call, and will not apply to affiliated entities unless the consumer reasonably would expect them to be included given the identification of the caller and the product being advertised.

(vi)  Maintenance of do-not-call lists.   A broker, dealer or municipal securities dealer making calls for telemarketing purposes must maintain a record of a caller’s request not to receive further telemarketing calls.  A firm-specific do-not-call request must be honored for five years from the time the request is made.

(e) Wireless Communications

The provisions set forth in this rule are applicable to brokers, dealers and municipal securities dealers telemarketing or making telephone solicitations calls to wireless telephone numbers.

(f) Outsourcing Telemarketing

If a broker, dealer or municipal securities dealer uses another entity to perform telemarketing services on its behalf, the broker, dealer or municipal securities dealer remains responsible for ensuring compliance with all provisions contained in this rule.

(g) Definitions

(i) Established business relationship.

(A) An established business relationship exists between a broker, dealer or municipal securities dealer and a person if:

(1) the person has made a financial transaction or has a security position, a money balance, or account activity with the broker, dealer or municipal securities dealer or at a clearing firm that provides clearing services to such broker, dealer or municipal securities dealer within the eighteen months immediately preceding the date of the telemarketing call;

(2) the broker, dealer or municipal securities dealer is the broker, dealer or municipal securities dealer of record for an account of the person within the eighteen months immediately preceding the date of the telemarketing call; or

(3) the person has contacted the broker, dealer or municipal securities dealer to inquire about a product or service offered by the broker, dealer or municipal securities dealer within the three months immediately preceding the date of the telemarketing call.

(B) A person’s established business relationship with a broker, dealer or municipal securities dealer does not extend to the broker, dealer or municipal securities dealer’s affiliated entities unless the person would reasonably expect them to be included.  Similarly, a person’s established business relationship with a broker, dealer or municipal securities dealer’s affiliate does not extend to the broker, dealer or municipal securities dealer unless the person would reasonably expect the broker, dealer or municipal securities dealer to be included.

(ii) The terms telemarketing and telephone solicitation mean the initiation of a telephone call or message for the purpose of encouraging the purchase or rental of, or investment in, property, goods, or services, which is transmitted to any person.

(iii) The term personal relationship means any family member, friend, or acquaintance of the telemarketer making the call.

(iv) the term “account activity” shall include, but not be limited to, purchases, sales, interest credits or debits, charges or credits, dividend payments, transfer activity, securities receipts, or deliveries, and/or journal entries relating to securities or funds in the possession or control of the broker, dealer or municipal securities dealer.

(v) the term “broker, dealer or municipal securities dealer of record” refers to the broker, dealer or municipal securities dealer identified on a customer’s account application for accounts held directly at an issuer of municipal fund securities or by the issuer’s agent.

Rule G-8. Books and Records to be Made by Brokers, Dealers and Municipal Securities Dealers

(a) Description of Books and Records Required to be Made. Except as otherwise specifically indicated in this rule, every broker, dealer and municipal securities dealer shall make and keep current the following books and records, to the extent applicable to the business of such broker, dealer or municipal securities dealer:

(i) – (xviii) No change.

(xix) [Telemarketing Requirements] Negotiable Instruments Drawn From a Customer’s Account

[(A) Each broker, dealer and municipal securities dealer shall make and maintain a centralized do-not-call list of persons who do not wish to receive telephone solicitations from such broker, dealer or municipal securities dealer or its associated persons.]

[(B)] No broker, dealer or municipal securities dealer or person associated with such broker, dealer or municipal securities dealer shall obtain from a customer or submit for payment a check, draft or other form of negotiable paper drawn on a customer’s checking, savings, share, or similar account, without that person’s express written authorization, which may include the customer’s signature on the negotiable instrument.

(xx) – (xxii) No change.

(b) – (g) No change.


[1] See Release No. 34-49127 (January 26, 2004).

[2] Underlining indicates additions; brackets denote deletions.