MSRB NOTICE 2005-20 (MARCH 23, 2005)

AMENDMENT RELATING TO FREQUENCY OF UPDATES FROM THE NATIONAL DO-NOT-CALL REGISTRY PURSUANT TO RULE G- 39

On March 23, 2005, the Municipal Securities Rulemaking Board (“MSRB”) filed with the Securities and Exchange Commission (“SEC”) an amendment to Rule G-39, on telemarketing, to require a broker, dealer or municipal securities dealer that seeks to qualify for the safe harbor set forth in Rule G-39 to, among other things, use a process to prevent telephone solicitations to any telephone number in a version of the national do-not-call registry obtained from the administrator of the registry no more than thirty-one (31) days prior to the date any call is made. [1]   This amendment is consistent with recent amendments to the comparable do-not-call rules of the Federal Trade Commission (“FTC”) and the Federal Communications Commission (“FCC”).  The amendment to Rule G-39 will become effective on May 1, 2005.

BACKGROUND

In 2003, the FTC, via its Telemarketing Sales Rule, and the FCC, via its Miscellaneous Rules Relating to Common Carriers, established requirements for sellers and telemarketers to participate in a national do-not-call registry. [2]   Since June 2003, consumers have been able to enter their home telephone numbers into the national do-not-call registry, which is maintained by the FTC.  Under rules of the FTC and FCC, sellers and telemarketers generally are prohibited from making telephone solicitations to consumers whose numbers are listed in the national do-not-call registry.  The FCC’s do-not-call rules apply to brokers, dealers and municipal securities dealers while the FTC’s rules do not. 

In July 2003, the SEC requested that the MSRB amend its telemarketing rules to require brokers, dealers and municipal securities dealers to participate in the national do-not-call registry. [3]   Because brokers, dealers and municipal securities dealers are subject to the FCC’s do-not-call rules, the MSRB modeled its rules in this area after those of the FCC and codified these do-not-call requirements in Rule G-39, with minor modifications tailoring the rules to broker, dealer and municipal securities dealer activities and the securities industry.  The SEC approved these rules in January 2004. [4]  

SAFE HARBOR PROVISION FOR THE NATIONAL DO-NOT-CALL REGISTRY REQUIREMENTS

The FCC and FTC each provided persons subject to their respective do-not-call rules a “safe harbor” providing that a seller or telemarketer is not liable for a violation of the do-not-call rules that is the result of an error if the seller or telemarketer’s routine business practice meets certain specified standards.  The MSRB has provided a parallel safe harbor in paragraph (c) of Rule G-39; this safe harbor is limited to a violation of subparagraph (a)(iii) of Rule G-39, which prohibits initiating any telephone solicitation to any person who has registered his or her telephone number with the national do-not-call registry.

Today, to be eligible for this Rule G-39 safe harbor, a broker, dealer or municipal securities dealer or person associated with a broker, dealer or municipal securities dealer must demonstrate that the broker, dealer or municipal securities dealer’s routine business practice meets four standards.  First, the broker, dealer or municipal securities dealer must have established and implemented written procedures to comply with the national do-not-call rules.  Second, the broker, dealer or municipal securities dealer must have trained its personnel, and any entity assisting it in its compliance, in procedures established pursuant to the national do-not-call rules.  Third, the broker, dealer, or municipal securities dealer must have maintained and recorded a list of telephone numbers that the broker, dealer or municipal securities dealer may not contact.  Fourth, the broker, dealer or municipal securities dealer must use 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 FTC no more than three months prior to the date any call is made, and must maintain records documenting this process.

Shortly after the MSRB’s rules were approved, Congress instructed the FTC to amend it telemarketing rules to require use of a national do-not-call registry no more than thirty-one days old. [5]   Accordingly, in March 2004, the FTC amended its Telemarketing Sales Rule to require sellers and telemarketers seeking to qualify for the FTC’s do-not-call safe harbor to use a version of the national do-not-call registry obtained from the FTC no more than thirty-one days prior to the date any call is made.  In August 2004, the FCC adopted a conforming amendment to its Miscellaneous Rules Relating to Common Carriers, requiring that persons who seek to qualify for a similar safe harbor provided in the rule use a version of the national do-not-call registry obtained from the administrator of the national do-not-call registry (i.e., the FTC) no more than thirty-one days prior to the date any call is made. [6]   The FTC and FCC rule amendments took effect on January 1, 2005.

The MSRB is amending Rule G-39 to conform to this change in the rules of the FTC and FCC.  The MSRB believes that this change is necessary to maintain the consistency between the telemarketing rules of the MSRB and the FTC and FCC (particularly given that the FCC’s rules already directly apply to broker-dealers), and that investors generally expect the MSRB’s telemarketing standards to be comparable to those of the FTC and FCC.  Additionally, under the Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, the SEC has requested that the MSRB amend its do-not-call rules to conform to the recent amendments to the FTC’s do-not-call rules. 

The amendment to Rule G-39 will take effect on May 1, 2005.  Accordingly, as of that date, a broker, dealer or municipal securities dealer seeking to qualify for the safe harbor in Rule G-39 will be required to use a process to prevent telephone solicitations to any telephone number in a version of the national do-not-call registry obtained from the administrator of the registry (i.e., the FTC) no more than thirty-one days prior to the date any call is made.

Questions about the amendment may be directed to Ronald W. Smith, Senior Legal Associate.

March 23, 2005

*  *  *  *  *

 

TEXT OF AMENDMENT [7]

Rule G-39. Telemarketing

(a) – (b) No Change.

(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) – (iii) No change.

(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] thirty-one (31) days prior to the date any call is made, and maintains records documenting this process.

(d) – (g) No change.


[1] File No. SR-MSRB-2005-06.  Comments on the amendment should be submitted to the SEC and should reference this file number.

[2] The do-not-call rules of the FCC and FTC are very similar in terms of substance, in part, because Congress directed the FCC to consult with the FTC to maximize consistency between their respective do-not-call rules. See The Do-Not-Call Implementation Act, 108 P.L. 10, 117 Stat. 557 (Mar. 11, 2003).

[3] The Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994 (codified at 15 U.S.C. § 6102) requires the SEC to promulgate telemarketing rules substantially similar to those of the FTC or to direct self-regulatory organizations to promulgate such rules unless the SEC determines that such rules are not in the interest of investor protection.

[4] Exchange Act Release No. 49127 (January 26, 2004); 69 Fed. Reg. 4548 (January 30, 2004).

[5] 69 Fed. Reg. 16368 (Mar. 29, 2004). 

[6] 69 Fed. Reg. 60311 (Oct. 8, 2004); CG Docket No. 02-278, FCC 04-204 (adopted Aug. 25, 2004; released Sept. 21, 2004). 

[7] New language is underlined; deletions are in brackets.