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WASHINGTON – CUNA Brokerage Services, Inc. recently requested clarification to the SEC on what is considered an “established business relationship” and the role of a “dual employee” regarding the National Do-Not-Call Registry. In an April 22 comment letter, Kevin Thompson, vice president and deputy general counsel for CUNA Brokerage, wrote to SEC Secretary Jonathan Katz saying the firm is “greatly concerned” that any amendments to NASD Rules 2211 and 3110(g) File No. SR-NASD-2003-131 will do away with opportunities to “educate investors about the variety of financial products and services available to them beyond deposit products and services.” The proposed definition of an “established business relationship is particularly confusing when read in the context of a networking arrangement,” Thompson wrote. “In networking arrangements, customers reasonably expect that their business relationships provide opportunities to learn about and obtain depository or nondepository investment products made available through the dual employee,” Thompson wrote. The role of the dual employee is further described in a No-Action Letter issued to Chubb Securities Corp., dated November 24, 1993, and the resulting NASD rules, Thompson said. A new definition of `networking arrangement’ would comply with all applicable securities regulations, NASD rules and regulatory guidelines. “We believe the ambiguity of the proposed rule will have a chilling effect on these communications. For these reasons, we request that the Commission clarify or modify the proposed definition of “established business relationship,” Thompson suggested. He said pursuant to proposed Rule 2211(g)(1)(A), “customer interactions need to satisfy certain requirements in order to qualify as an established business relationship” and that relationship must be established by way of a transaction or product or service inquiry with the first occurring within 18 months and the second within three months preceding an unsolicited call. “Given the broad regulatory oversight the NASD has established over a dual employee’s conduct, a reasonable interpretation of the definition suggests that any transaction or inquiry involving the dual employee would satisfy these elements,” Thompson wrote. However, the second part of the definition, found in proposed Rule 2111(g)(1)(B), “raises questions about what existing business relationships a dual employee may rely upon.” “We do not believe that the customer’s reasonable expectation turns on whether the communication or transaction is with or from an affiliated or nonaffiliated entity but rather, whether it is reasonable to receive the communication in light of the underlying business relationship,” Thompson wrote. “In our experience, customers in networking arrangements would indeed expect that their relationship with a dual employee would constitute an “established business relationship.” Further, “in light of the importance of the rule to the conduct of the dual employee and the regulatory risk that might be created by the uncertainty noted above, (CUNA Brokerage) respectfully requests that the proposed rule be modified to address this ambiguity.” He suggested the proposed rule could be clarified with respect to networking arrangements by the addition of a reference to such arrangements in paragraph (g)(1)(B), as follows: “A person’s established business relationship with a member does not extend to the member’s networking or affiliated entities unless the person would reasonably expect them to be included. Similarly, a person’s established business relationship with a member’s networking entity or affiliate does not extend to the member unless the person would reasonably expect the member to be included.” Thompson said CUNA Brokerage recognizes that proposed Rule 2111 has been “tailored to address requirements adopted by the Federal Trade Commission and the Federal Communications Commission.” “We are concerned, however, that if the proposed rule is not clarified to acknowledge the existence of networking arrangements, the delivery of services to numerous customers that comprise a significant portion of the broker/dealer industry will be negatively impacted,” Thompson wrote. [email protected]

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