Rare U.S. Coins and Bullion Products: Special Considerations for Registered Representatives<br />Requirements Under NASD ...
 Many financial planners have approached their broker-dealers on the subject of offering rare U.S. coins and bullion prod...
NASD Code 3030<br /> 3030. Outside Business Activities of an Associated Person <br /> No person associated with a ...
NASD Rules of Fair Practice as reviewed in Notice to Members 94-44 and 96-33<br />“Article III, Section 40 requires that ...
NASD Rules of Fair Practice as reviewed in Notice to Members 94-44 and 96-33<br />“Where the RR/IA does not participate i...
NASD Rules of Fair Practice as reviewed in Notice to Members 94-44 and 96-33<br />“That section requires a RR to provide ...
NASD Rules of Fair Practice as reviewed in Notice to Members 01-79<br />A registered person who sells a security away fro...
NASD Rules of Fair Practice as reviewed in Notice to Members 01-79<br />Rule 3040 applies to all sales of securities, inc...
NASD Rules of Fair Practice as reviewed in Notice to Members 01-79<br />Rule 3040 requires registered persons to provide ...
NASD Rules of Fair Practice as reviewed in Notice to Members 01-79<br />If the (item) in question is not a security, the ...
NASD Code 3040<br /> 3040. Private Securities Transactions of an Associated Person <br />(a) Applicability<br />	No p...
NASD Code 3040<br />	(3) If the member disapproves a person’s participation pursuant to paragraph (c)(1), the person shall...
Sample 3030 Notification Letter from Representative to Broker Dealer : Prior to Transaction<br />TO BE RETYPED –NOT COMP...
Sample 3030 Notification Letter from Representative to Broker Dealer : After Transaction<br />TO BE RETYPED –NOT COMPLET...
Are Rare Coins and Bullion Considered a Security?<br />In the normal circumstance, rare coins and bullion are not securiti...
Are Rare Coins and Bullion Considered a Security?<br />The elements of "common enterprise" and "expectation of profits sol...
Are Rare Coins and Bullion Considered a Security?<br />Further analysis of the "Howey" tests regarding "common enterprise"...
Are Rare Coins and Bullion Considered a Security?<br />In addition, in the Series 65 Uniform Investment Adviser law Licens...
 Commodities such as precious metalsand grains
 Condominiums used as a personal residence; and
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Nasd 3030 2011

Special Rules for Reg. Reps. concerning rare coins and bullion
Published on: Mar 3, 2016
Source: www.slideshare.net


Transcripts - Nasd 3030 2011

  • 1. Rare U.S. Coins and Bullion Products: Special Considerations for Registered Representatives<br />Requirements Under NASD Code 3030 and 3040<br />
  • 2. Many financial planners have approached their broker-dealers on the subject of offering rare U.S. coins and bullion products to their clients. Many compliance officers are unfamiliar with this area and provide incorrect information as to the status of rare coins as being a security and the ability of the representative to market them without broker dealer approval. <br /> In addition, many representatives are wrongly advised by coin wholesalers that the offer of rare coins or bullion to their clients need not be reported to their broker-dealer.<br /> In fact, close examination of the regulations reveals that all that is required of a representative to engage in outside activity under NASD Code 3030 in a non-security product, is to provide prompt written notice to the broker-dealer. Approval by the broker-dealer is not a required element.<br /> The following information is intended to provide guidance to both compliance officers and registered representatives on the current regulations and opinion with respect to U.S. rare coin purchases.<br />NOTE:This presentation is intended as a discussion point to examine current requirements of NASD 3030 and NASD 3040 as they related to rare coin sales. This presentation is not to be construed as approved by FINRA or any other regulatory body. <br />
  • 3. NASD Code 3030<br /> 3030. Outside Business Activities of an Associated Person <br /> No person associated with a member in any registered capacity shall be employed by, or accept compensation from, any other person as a result of any business activity, other than a passive investment, outside the scope of his relationship with his employer firm, unless he has provided prompt written notice to the member.Such notice shall be in the form required by the member. Activities subject to the requirements of Rule 3040 shall be exempted from this requirement. <br />[Adopted effective Oct. 13, 1988.] <br /> Selected Notices to Members: 88-45, 88-86, 89-39, 90-37, 94-44, 94-93, 96-33, 01-79.<br />Source: NASD Manual, Conduct Rules 2000-3410<br />
  • 4. NASD Rules of Fair Practice as reviewed in Notice to Members 94-44 and 96-33<br />“Article III, Section 40 requires that any person associated with an NASD member who participates in a private securities transaction must, before participating in the transaction, provide written notice to the member with which he or she is associated.”<br />
  • 5. NASD Rules of Fair Practice as reviewed in Notice to Members 94-44 and 96-33<br />“Where the RR/IA does not participate in the execution of securities transactions, NTM 94-44 reminds members and their RR/IAs that while Section 40 may not apply, the activity, nonetheless, may be subject to the notification provisions of Article III, Section 43…”<br />
  • 6. NASD Rules of Fair Practice as reviewed in Notice to Members 94-44 and 96-33<br />“That section requires a RR to provide written notice* to the NASD member with which he or she is associated of any proposed employment or outside business activity pursuant to which he or she will receive compensation from others. The form and content of an Article III, Section 43 notice is to be determined by the NASD member.”<br /> * Samples of an NASD 3030 representative letter is provided at the end of the regulations section on pages 13 and 14 of this presentation<br />
  • 7. NASD Rules of Fair Practice as reviewed in Notice to Members 01-79<br />A registered person who sells a security away from his or her firm without first obtaining written approval from the firm violates NASD Rule 3040, and a registered person who engages in an outside business activitywithout prior notice to his or her firm, including thesaleof non-securities products, violates NASD Rule 3030.<br />
  • 8. NASD Rules of Fair Practice as reviewed in Notice to Members 01-79<br />Rule 3040 applies to all sales of securities, including promissory notes that are securities. Rule 3040 ensures that, if a firm approves an associated person’s participation in a securities transaction,7 the firm assumes certain critical regulatory responsibilities that go with offering and selling securities to customers. In addition to requiring that the transactions be recorded on the firm’s books and records, the firm must exercise appropriate supervision over the associated person in order to prevent violations of the securities laws. <br />
  • 9. NASD Rules of Fair Practice as reviewed in Notice to Members 01-79<br />Rule 3040 requires registered persons to provide notice of the proposed transaction, in writing, to his or her firm, before the sale is made. The notice must describe the proposed transaction(s) in detail and the associated person’s proposed role and must also state whether the individual has received or may receive selling compensation (including any type of referral fee).Oral notice to the firm is not sufficient to meet the requirements of Rule 3040. If the associated person expects to receive compensation, the firm must advise the registered person, in writing, whether it approves or disapproves the person’s participation in the proposed transaction. If the firm disapproves the person’s participation, he or she may not participate in the transaction in any manner, directly or indirectly. <br />
  • 10. NASD Rules of Fair Practice as reviewed in Notice to Members 01-79<br />If the (item) in question is not a security, the registered person is required under Rule 3030 to provide prompt written notice to his/her member firm that he or she has accepted compensation outside the scope of his relationship with the firm. . <br />
  • 11. NASD Code 3040<br /> 3040. Private Securities Transactions of an Associated Person <br />(a) Applicability<br /> No person associated with a member shall participate in any manner in a private securitiestransaction except in accordance with the requirements of this Rule. <br />(b) Written Notice<br /> Prior to participating in any private securities transaction, an associated person shall provide written notice to the member with which he is associated describing in detail the proposed transaction and the person’s proposed role therein and stating whether he has received or may receive selling compensation in connection with the transaction; provided however that, in the case of a series of related transactions in which no selling compensation has been or will be received, an associated person may provide a single written notice.<br />(c) Transactions for Compensation<br /> (1) In the case of a transaction in which an associated person has received or may receive selling compensation, a member which has received notice pursuant to paragraph (b) shall advise the associated person in writing stating whether the member: <br /> (A) approves the person’s participation in the proposed transaction; or <br /> (B) disapproves the person’s participation in the proposed transaction. <br /> (2) If the member approves a person’s participation in a transaction pursuant to paragraph (c)(1), the transaction shall be recorded on the books and records of the member and the member shall supervise the person’s participation in the transaction as if the transaction were executed on behalf of the member. <br />
  • 12. NASD Code 3040<br /> (3) If the member disapproves a person’s participation pursuant to paragraph (c)(1), the person shall not participate in the transaction in any manner, directly or indirectly<br />(d) Transactions Not for Compensation<br /> In the case of a transaction or a series of related transactions in which an associated person has not and will not receive any selling compensation, a member which has received notice pursuant to paragraph (b) shall provide the associated person prompt written acknowledgment of said notice and may, at its discretion, require the person to adhere to specified conditions in connection with his participation in the transaction. <br />(e) Definitions<br /> For purposes of this Rule, the following terms shall have the stated meanings: <br /> (1) “Private securities transaction” shall mean any securities transaction outside the regular course or scope of an associated person’s employment with a member, including, though not limited to, new offerings of securities which are not registered with the Commission, provided however that transactions subject to the notification requirements of Rule 3050, transactions among immediate family members (as defined in IM-2110-1, Free-Riding and Withholding), for which no associated person receives any selling compensation, and personal transactions in investment company and variable annuity securities, shall be excluded. <br /> (2) “Selling compensation” shall mean any compensation paid directly or indirectly from whatever source in connection with or as a result of the purchase or sale of a security, including, though not limited to, commissions; finder’s fees; securities or rights to acquire securities; rights of participation in profits, tax benefits, or dissolution proceeds, as a general partner or otherwise; or expense reimbursements. <br /> [Adopted effective Nov. 12, 1985.] <br /> Selected Notices to Members 85-54,85-84, 94-44, 96-33.<br />
  • 13. Sample 3030 Notification Letter from Representative to Broker Dealer : Prior to Transaction<br />TO BE RETYPED –NOT COMPLETED AS A FORM<br /> <br /> (DATE)<br /> (COMPLIANCE OFFICER)<br /> (NAME OF BROKER DEALER)<br /> (ADDRESS)<br /> (CITY), (STATE), (ZIPCODE)<br /> <br /> Dear Sir:<br /> <br /> I have been asked by my clients to assist them in purchasing portfolios of certified rare coins from (NAME OF COIN FIRM) of (CITY STATE). Under the terms of NASD Rule 3030, I am hereby making notification that my clients wish to make these acquisitions and that I will receive compensation for my assistance in the transaction.<br /> <br /> The proposed purchases are retail transactions and NOT outside securities transactions subject to reporting requirements under NASD Code 3040. Certified rare coin portfolios are not currently being offered or sold by (NAME OF BROKER DEALER). My clients have evaluated these transactions and are relying upon that information in making their purchase decision. They do not look to (NAME OF BROKER DEALER) for any information, advice or assistance in this matter.<br /> <br />This letter will meet the requirements of NASD Code 3030 and allow me to continue to properly serve my clients.<br /> <br /> Sincerely,<br /> <br /> (NAME OF REGISTERED REPRESENTATIVE)<br />
  • 14. Sample 3030 Notification Letter from Representative to Broker Dealer : After Transaction<br />TO BE RETYPED –NOT COMPLETED AS A FORM<br /> <br /> (DATE)<br /> (COMPLIANCE OFFICER)<br /> (NAME OF BROKER DEALER)<br /> (ADDRESS)<br /> (CITY), (STATE), (ZIPCODE)<br /> <br /> Dear Sir:<br /> <br /> I have been asked by my clients to assist them in purchasing portfolios of certified rare coins from (NAME OF COIN FIRM) of (CITY STATE). Under the terms of NASD Rule 3030, I am hereby making notification that my clients have made make these acquisitions and that I have received compensation for my assistance in the transaction.<br /> <br /> The proposed purchases are retail transactions and NOT outside securities transactions subject to reporting requirements under NASD Code 3040. Certified rare coin portfolios are not currently being offered or sold by (NAME OF BROKER DEALER). My clients have evaluated these transactions and are relying upon that information in their purchase decision. They do not look to (NAME OF BROKER DEALER) for any information, advice or assistance in this matter.<br /> <br />This letter will meet the requirements of NASD Code 3030 and allow me to continue to properly serve my clients.<br /> <br /> Sincerely,<br /> <br /> (NAME OF REGISTERED REPRESENTATIVE)<br />
  • 15. Are Rare Coins and Bullion Considered a Security?<br />In the normal circumstance, rare coins and bullion are not securities. The definition of a security involves several factors. The Securities Act of 1933 defines the term "security" to include any "investment contract". In SEC vs. W.J. Howey Company, 328 U.S. 293 (1946), the Supreme Court defined the term "investment contract" as follows:<br /> <br />"(A)n investment contract for purposes of the Securities Act means a contract, transaction or scheme, whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party..."<br />
  • 16. Are Rare Coins and Bullion Considered a Security?<br />The elements of "common enterprise" and "expectation of profits solely from the efforts of the promoter or third party" are generally held not to be present in sales of commodities, precious metals or rare coins where the purchaser acquires control over the commodity and is dependent on the state of the market and his own evaluation of it for any return on his investment. References for review are:<br /> 1) .Madison Mint Corporation, Inc. 1976-77 CCH Federal Securities Law Reporter Paragraph 80,619 (1976) <br /> 2).Charles Anthony Diamond Investments, Inc., 1976-77 CCH Federal Securities Law Reporter, Paragraph 80,623 (1976)<br /> 3).Investment Diamonds, Inc. 1971-72 CCH Federal Securities Law Reporter, Paragraph 78,350 (1971) <br />
  • 17. Are Rare Coins and Bullion Considered a Security?<br />Further analysis of the "Howey" tests regarding "common enterprise" and "profits solely from the efforts of others" caused the court in SEC vs. Glenn Turner Enterprises, Inc. (CA-9 1973), '72-'73 CCH Federal Securities Law Reporter, Paragraph 93,748 to define "solely" to be read as undeniably significant efforts, those essential managerial efforts that affect the failure or success of the venture. It is opined that if rare coins are held by the purchaser, with no guarantee or advertisements that the value of coins will equal the purchase price; there will be no guarantee of profit, nor any investment advisory services or monthly investment plans, it would indicate the lack of "security" status. Therefore, NASD Code 3040 does not apply. There are forms where rare coins are definitely a security. These were the various limited partnerships, such as the Merrill Lynch World Coin Fund and the Kidder-Peabody American Coin Fund. Rare coins are simply packaged in a securitized form, that of a registered fund or LP. <br />
  • 18. Are Rare Coins and Bullion Considered a Security?<br />In addition, in the Series 65 Uniform Investment Adviser law License Exam Manual (12th Edition referenced), on page 95 in the chapter entitled State Regulation of Securities and Transactions the following is noted:<br />“in addition, there are four other items that can be investments but are not securities underthe act. They are:<br /><ul><li>Collectibles
  • 19. Commodities such as precious metalsand grains
  • 20. Condominiums used as a personal residence; and
  • 21. Currency”</li></li></ul><li>Are Rare Coins and Bullion Considered a Security?<br />Finally, rare coin sales and bullion sales are not subject to regulations of the Securities Exchange Commission or the National Association of Securities Dealers. The Federal Trade Commission is the regulatory agency that oversees rare coin firms as they do other retail sales organizations.<br />
  • 22. For further information please contact:<br /> 908 Audelia Road, Suite 200-150<br />Richardson, TX 75081<br /> Telephone: 972-644-6117<br />www.ircbs.com<br />NOTE: This presentation is for informational purposes only. Our services are offered to qualified investors, independent RIA’s and fee-based advisors (under rules of NASD 3030 where applicable), trustees, estate attorneys, and previous clients of IRCBS.<br />

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