[Federal Register Volume 61, Number 174 (Friday, September 6, 1996)]
[Notices]
[Pages 47224-47227]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-22814]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37626; File No. SR-MSRB-96-06]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Municipal Securities Rulemaking Board Relating to 
Telemarketing Rules

August 30, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), \1\ notice is hereby given that on July 30, 1996, the 
Municipal Securities Rulemaking Board (``Board'' or ``MSRB'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the self-regulatory organization. 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. Sec. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The MSRB is filing herewith a proposed rule change relating to 
telemarketing rules. Below is the text of the proposed rule change. 
Proposed new language is underlined; proposed deletions are in 
brackets.

Rule G-39, Telemarketing

    No broker, dealer or municipal securities dealer or person 
associated with a broker, dealer or municipal securities dealer shall:
    (a) 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
    (b) 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:
    (i) the identity of the caller and the firm;
    (ii) the telephone number or address at which the caller may be 
contacted; and
    (iii) that the purpose of the call is to solicit the purchase of 
municipal securities or related services.
    (c) The prohibitions of paragraphs (a) and (b) 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 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 paragraph (c), the term ``existing customer'' 
means a customer for who 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.
Rule G-21. Advertising
    (a) Definition of ``Advertisement.'' For purposes of this rule, the 
term ``advertisement'' means any material (other than listings of 
offerings) published or designed for use in the public, including 
electronic, media, or any promotional literature designed for 
dissemination to the public, including any notice, circular, report, 
market letter, form letter, telemarketing script or reprint or excerpt 
of the forgoing. The term does not apply to preliminary official 
statements or official statements, but does apply to abstracts or 
summaries of official statements, offering circulars and other such 
similar documents prepared by [municipal securities] brokers, dealers 
or municipal securities dealers.
    (b)-(e) No change.
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.
    (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.
    (b)-(e) No change.
    (f) Compliance with Rule 17a-3. Brokers, dealers and municipal 
securities dealers other than bank dealers which are in compliance with 
rule 17a-3 of the Commission will be deemed to be in compliance with 
the requirements of this rule, provided that the information required 
by subparagraph (a)(iv)(D) of this rule as it relates to uncompleted 
transactions involving customers; paragraph (a)(viii); paragraph 
(a)(xi); paragraph (a)(xii); paragraph (a)(xiii); paragraph (a)(xiv); 
paragraph (a)(xv); paragraph (a)(xvi); [and] paragraph (a)(xviii); and 
paragraph (a)(xix) shall in any event be maintained.
Rule G-9. Preservation of Records
    (a) No change.
    (b) Records to be Preserved for Three Years. Every [municipal 
securities] broker, dealer and municipal securities dealer shall 
preserve the following records for a period of not less than three 
years:
    (i)-(ix) No change.
    (x) all records of deliveries of rule G-32 disclosures required to 
be retained as described in rule G-8(a)(xiii); [and]
    (xi) the records to be maintained pursuant to rule G-8(a)(xv);
    (xii) the authorization required by rule G-8(a)(xix)(B); and

[[Page 47225]]

    (xiii) each advertisement from the date of each use.
    (c)-(g) No change.
* * * * *

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

    In its filing with the Commission, the self-regulatory organization 
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. The self-regulatory organization 
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
Introduction and Background
    Under the Telemarketing and Consumer Fraud and Abuse Prevention Act 
(``Telemarketing Act''), which became law in August 1994, the Federal 
Trade Commission adopted detailed regulations (``FTC rules'') to 
prohibit deceptive and abusive telemarketing acts and practices that 
became effective on December 31, 1995. The FTC rules, among other 
things, (i) require the maintenance of ``do-not-call'' lists and 
procedures, (ii) prohibit abusive, annoying, or harassing telemarketing 
calls, (ii) prohibit abusive, annoying, or harassing telemarketing 
calls, (iii) prohibit telemarketing calls before 8 a.m. or after 9 
p.m., (iv) require a telemarketer to identify himself, the company he 
works for, and the purpose of the call, and (v) require express written 
authorization or other verifiable authorization from the customer 
before use of negotiable instruments called ``demand drafts.'' \2\
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    \2\ Pursuant to the Telephone Consumer Protection Act, the 
Federal Communications Commission (``FCC'') adopted rules in 
December 1992 that, among other things, (1) prohibit cold-calls to 
residential telephone customers before 8 a.m. or after 9 p.m. (local 
time at the called party's location) and (2) require persons or 
entities engaging in cold-calling to institute procedures for 
maintaining a ``do-not-call'' list that includes, at a minimum, (a) 
a written policy for maintaining the do-not-call list, (b) training 
personnel in the existence and the use thereof, (c) recording a 
consumer's name and telephone number on the do-not-call list at the 
time the request not to receive calls is made, and retaining such 
information on the do-not-call list for a period of at least ten 
years, and (d) requiring telephone solicitors to provide the called 
party with the name of the individual caller, the name of the person 
or entity on whose behalf the call is being made and a telephone 
number or address at which such person or entity may be contacted. 
57 FR 48333 (codified at 47 CFR Sec. 64.1200). With certain limited 
exceptions, the FCC rules apply to all residential telephone 
solicitations, including those relating to securities transactions. 
Id. The term ``telephone solicitation'' refers to 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, other than with the 
called person's express invitation or permission, or to a person 
with whom the caller has an established business relationship, or by 
tax-exempt non-profit organization. Id.
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    While the FCC rules are applicable to brokers, dealers and 
municipal securities dealers that engage in telephone solicitation to 
market their products and services, those regulations cannot be 
enforced by either the SEC or the securities self-regulatory 
organizations (``SROs''). The FTC rules expressly do not apply to 
brokers, dealers, and other securities industry professionals. Under 
the Telemarketing Act, the SEC is required either to promulgate or to 
require the SROs to promulgate rules substantially similar to the FTC 
rules, unless the SEC determines either that such rules are not 
necessary or appropriate for the protection of investors or the 
maintenance of fair and orderly markets or that existing federal 
securities laws or SEC rules already provide for such protection.\3\ 
The staff of the SEC has advised the MSRB that it believes that 
additional rulemaking is necessary to satisfy the requirements of the 
Telemarketing Act. The Board intends to implement requirement (ii) 
referenced above by issuing an interpretation that such conduct is 
violative of existing rules and implement requirements (i) and (iii)-
(v) by amending its rules.\4\
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    \3\ Specifically, Section 3(d)(1)(B) of the Telemarketing Act 
provides that the Commission is not required to promulgate a rule 
under Section 3(d)(1)(A) if it determines that (i) federal 
securities laws or rules adopted by the Commission thereunder 
provide protection from deceptive and other abusive telemarketing by 
persons described in Section 3(d)(2) substantially similar to that 
provided by rules promulgated by the Federal Trade Commission under 
Section 3(a) or (ii) a rule promulgated by the Commission is not 
necessary or appropriate in the public interest, or for the 
protection of investors, or would be inconsistent with the 
maintenance of fair and orderly markets, 15 U.S.C. 
Sec. 6102(d)(1)(B).
    \4\ The Board intends to implement the requirement in (ii) 
referenced above by issuing an interpretation that abusive 
telemarketing calls are inconsistent with just and equitable 
principles of trade. At its July 1996 meeting, the Board authorized 
an interpretive notice of rule G-17, on fair dealing, to clarify 
that the use of threats, intimidation, or profane or obscene 
language, and calling a person repeatedly or continuously, with 
intent to annoy, abuse, or harass the called party, is inconsistent 
with just and equitable principles of trade. The Board intends to 
publish this notice in the near future.
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Description of Proposed Amendments

Do Not Call List

    As noted above, the Commission is required by the Telemarketing Act 
to promulgate, or require the SROs to promulgate, rules substantially 
similar to the FTC rules, unless existing rules provide substantially 
similar protection in securities transactions, or such additional rules 
otherwise are not necessary or appropriate. Brokers, dealers and 
municipal securities dealers who engage in telephone solicitation to 
market their products and services are subject to the requirements of 
the rules of the FCC relating to telemarketing practices and the rights 
of telephone consumers and shall refer to FCC rules for specific 
restrictions on telephone solicitations. This includes, but is not 
limited to, the requirements to make and maintain a list of persons who 
do not want to receive telephone solicitations. The proposed rule 
change amends rule G-8, on books and records, so that each broker, 
dealer and municipal securities dealer that engages in telephone 
solicitation to market its products and services is required to make 
and maintain a centralized do-not-call list of persons who do not wish 
to receive telephone solicitations from a broker, dealer or municipal 
securities dealer or a person associated with a broker, dealer or 
municipal securities dealer.

Time Limitations and Disclosure

    The proposed rule change adds proposed rule G-39, on telemarketing. 
Paragraph (a) prohibits a broker, dealer or municipal securities dealer 
or a person associated with a broker, dealer or municipal securities 
dealer from making outbound telephone calls to a member of the public's 
residence 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. Paragraph (b) requires such broker, dealer 
or municipal securities dealer or a person associated with a broker, 
dealer or municipal securities dealer to promptly disclose to the 
called person in a clear and conspicuous manner the caller's identity 
and firm, the telephone number or address at which the caller may be 
contacted, and that the purpose of the call is to solicit the purchase 
of municipal securities or related services.
    Paragraph (c) to proposed rule G-39 creates exemptions from the 
time-of-day and disclosure requirements of paragraphs (a) and (b) for 
telephone calls by associated persons, or another

[[Page 47226]]

associated person acting at the direction of such associated persons, 
for purposes of maintaining and servicing existing customers assigned 
to or under the control of such associated persons, to certain 
categories of ``existing customers.'' Paragraph (c) defines ``existing 
customer'' as 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. 
Proposed subparagraph (c)(i) exempts such calls 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 under the control of or assigned to such associated person at 
the time of the transaction or deposit. Proposed subparagraph (c)(ii) 
exempts such calls to an existing customer who, at any time, has 
effected a securities transaction in, or made a deposit of funds or 
securities into an account that was under the control of or assigned to 
such associated person at the time of the transaction or deposit, as 
long as such customer's account has earned interest or dividend income 
during the preceding twelve months. Proposed subparagraph (c)(iii) 
exempts telephone calls to a broker, dealer or municipal securities 
dealer.
    Subparagraphs (c) (i) and (ii) together exclude only some calls to 
existing customers from the time-of-day and disclosure requirements of 
the proposed rule. An associated person, or another associated person 
acting at the direction of such associated person, may contact a 
customer without complying with the requirements of the rule if the 
customer has effected a transaction or made a deposit during the past 
year into an account controlled by such associated person, or if the 
customer has effected a transaction or made a deposit at any time into 
an account controlled by such associated person and the customer's 
account has earned interest or dividend income during the past year. 
Therefore, calls to certain older or inactive accounts that fall 
outside these parameters would not be covered by the exemption.
    The Telemarketing Act specifically requires the SEC to establish 
rules or require the SROs to promulgate telemarketing rules consistent 
with the legislation, unless the SEC determines that the federal 
securities laws or SEC rules provide protection from abusive 
telemarketing similar to the rules adopted by the FTC or that a rule by 
the SEC is not necessary in the public interest. The Board believes 
that it is both appropriate and necessary to create an exemption for 
calls to a class of customers for whom personal and timely contact with 
a dealer is important, particularly in the emerging environment of 24-
hour trading and trading in multiple time zones across the United 
States where prompt contact with customers to respond to market 
developments may be necessary. Specifically, the Board believes that 
the failure to create such an exemption would be harmful for those 
securities customers for whom the need exists to be called in a timely 
manner on certain occasions, and thus inconsistent with the mandate of 
the Telemarketing Act. The Board, however, also believes that an 
exemption for existing customers should not extend to all customers, 
and should not cover calls to those customers whose accounts do not 
meet certain minimum levels of activity.

Demand Draft Authorization and Recordkeeping

    The proposed rule change amends rule G-8, on books and records, to 
prohibit a member from obtaining from a customer or submitting for 
payment a check, draft, or other form of negotiable paper drawn on a 
customer's checking, savings, share, or similar account (``demand 
draft'') without that person's express written authorization, which may 
include the customer's signature on the instrument. The proposed rule 
change to rule G-9, on preservation of records, requires the retention 
of such authorization for a period of three years. A ``demand draft'' 
is a method for obtaining funds from a customer's bank account without 
that person's signature on a negotiable instrument. The customer 
provides a potential payee with bank account identification information 
that permits the payee to create a piece of paper that will be 
processed like a check, including the words ``signature on file'' or 
``signature pre-approved'' in the location where the customer's 
signature normally appears. Most potential payees obtain a written 
authorization for the use of such a demand draft, but the FTC found 
that in certain cases only oral authorization was provided by the 
customer. The new language in rule G-8(a)(xix) is drawn substantially 
from the FTC rule, with the difference that the proposed rule change 
required that the customer provide written authorization of a 
negotiable instrument, in comparison to the FTC rule which would permit 
both written and oral authorization.\5\ The provision in the proposed 
rule for demand drafts is only intended to reflect and implement the 
same requirement as set forth in the FTC rule.
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    \5\ Sec. 310.3 of FTC Rules.
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Telemarketing Scripts

    The FTC rules contain a recordkeeping requirement that all 
substantially different telemarketing scripts be retained. The Board is 
amending its definition of ``advertisement,'' in rule G-21, to include 
``telemarketing scripts'' within that definition. Thus, the associated 
record retention requirement for advertisements contained in the 
proposed change to rule G-9(b)(xiii), on record retention, will require 
dealers to retain telemarketing scripts for three years.
    The Board is also amending the definition of ``advertisement'' to 
include ``electronic'' messages sent via computer. The inclusion of the 
term ``electronic'' within the definition of ``advertisement'' is 
intended to apply to communication available to all network subscribers 
including items displayed over network bulletin boards, and it is 
intended to apply to messages sent directly to individuals or targeted 
groups.
2. Statutory Basis
    The Board believes the proposed change is consistent with Section 
15B(b)(2)(C) of Act,\6\ which provides that the Board's rules be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in municipal securities, to remove impediments to and 
perfect the mechanism of a free and open market in municipal 
securities, and, in general, to protect investors and the public 
interest.
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    \6\ 15 U.S.C. 78o-4.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The MSRB does not believe that the proposed rule change will impose 
any inappropriate burden on competition.

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

    No written comments were either solicited or received.

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

    Within 35 days of the publication of this notice in the Federal 
Register or

[[Page 47227]]

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 the 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. Comments particularly are requested 
as to whether the proposed rule change satisfies the requirements of 
the Telemarketing Act. 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 submissions, 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 the filing will also be available for 
inspection and copying at the Board's principal offices. All 
submissions should refer to File No. SR-MSRB-96-06 and should be 
submitted by September 27, 1996.

    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.
[FR Doc. 96-22814 Filed 9-5-96; 8:45 am]
BILLING CODE 8010-01-M