NASD Board Approves Cold-Calling
WASHINGTON (AP) _ In a bid to crack down on abuses in telemarketing sales of stocks, the board of the National Association of Securities Dealers on Thursday approved a new rule specifying the types of unsolicited calls that can be made by certain salespeople.
The rule applies to salespeople who have not passed exams to make them officially registered as brokers with the NASD, a self-policing group. The unregistered salespeople would be allowed to make unsolicited ``cold″ calls to prospective investors only after they agreed to be subject to the NASD’s authority. They also would have to be paid on an hourly or salary basis, with sales commissions prohibited.
The rule, which will be submitted for approval to the federal Securities and Exchange Commission, also would impose new supervision requirements on the salespeople’s brokerage firms. The firms, for example, would have to designate at least one of their top executives to train and monitor the salespeople.
SEC spokesmen had no immediate comment on the rule.
Securities telemarketing, especially of so-called penny stocks, has mushroomed in recent years apace with the booming stock market, and there have been some problems with fraud. Penny stocks are relatively cheap, high-risk stocks that are thinly traded.
Cold-calling and using telephone sales scripts are not illegal as such, but they often become vehicles for telemarketing fraud. The stock pitches can contain false statements regarding, for example, upcoming mergers with big companies or listings on major stock exchanges.
Under the NASD’s proposed rule, unregistered salespeople making ``cold″ calls would only be able to: invite prospective investors to events sponsored by their brokerage firms, or ask the investor whether he or she wants to discuss investments with a registered broker or to receive investment literature from the firm.
In addition to telemarketing, the rule also would apply to sales over the Internet or other forms of electronic communication.
The rule is based on informal standards that have been in place since 1988, the NASD said.