Summary: In April 2006, NASD filed with the SEC a proposed IM (Interpretive Material) to Rule 3060 to more explicitly outline the polices and procedures a member must adopt in connection with its business entertainment practices concerning employees of a customer. The proposed IM would supersede a 1999 NASD interpretative letter stating that Rule 3060 does not prohibit "ordinary and usual business entertainment" (such as an occasional meal, sporting event, theater production, or comparable entertainment event) provided that the entertainment "is neither so frequent nor so extensive as to raise any question of propriety." The proposed IM is intended to replace the 1999 letter with an approach that allows firms to adopt policies and procedures that are tailored to the firm's business needs. The proposal requires that each firm assess its use of business entertainment, determine what limitations are appropriate and meet the general guidelines set forth in the proposed rule change, and adopt written polices and procedures to ensure that persons associated with the member are following those limitations.
In April 2007, the NASD filed an amendment to the proposed IM, in an effort to harmonize the language with the NYSE's companion proposal (Rule 350A). The proposal also responds to comments raised in connection with the initial proposal and provides clarification on certain issues. The filing notes that small firms may lack resources to affect the decision making in the manner the IM seeks to prohibit. In response, the NASD has created a limited exemption for firms whose entertainment expense is annually below $7500. Also, the NASD responds to members concern of excessive burdens being created from the proposed IM's record keeping obligations by no longer requiring record keeping procedures for expenses under $50.
Status: The proposal awaits further action by the SEC.