Summary: In July 2005, NASD published Notice to Members 05-04, which requested comment on a proposal to prohibit all product-specific sales contests and to apply the non-cash compensation rules to sales of all securities.

The proposal would eliminate the current non-cash compensation rules--Rules 2710(i) (REITS and other publicly offered securities), 2810(c) (direct particpation programs), and 2820(g)(4) (variable contracts), and 2830(l)(5) (investment companies) - and replace them with new Rule 2311. The new rule would apply to the payment or receipt of non-cash compensation with respect to the sale or distribution of any security of type of security.

The new rue would also ban all "sales contests" which would be defined as "any contest among associated persons for cash or non-cash prizes that is preconditioned on the achievement of a sales target within a defined period of time with respect to the sale or distribution of any security or any type of security."

Status: The comment period on the proposal expired on August 5, 2005. The proposal awaits further action by the NASD.