From: Joseph W. Mays, Jr.
Re: File Number SR-NASD-2004-025
I am writing to comment on the proposed rule change as it relates to the term “associated person”. The statement “the term associated persons to be consistent with Section 15A(b)(8) of the Act” is misleading.
The NASD uses the term “associated person” very broadly. For example, a shareholder of a broker-dealer, directly or indirectly falls under the definition of “associated person” to mean that a person or entity must adhere to NASD rules. The NASD’s term associated person does not exempt a passive shareholder. Also, the term does not make a distinction between public or private shareholder as an associated person. Does that mean that the associated person must adhere to all rules of the NASD?
As the term is described by the NASD, the associated person has no rights under their rules. I believe the term associated person under federal statutes are in direct conflict with NASD rules.
The term associated person under Sec 3 of the 34 Act for municipal securities in part reads “any person directly engaged in the management, direction, supervision, or performance of any of the municipal securities dealer’s activities with respect to municipal securities, and any person directly or indirectly controlling such activities” is defining a person who is directly involved in the business.
Also, the term associated person, as described above, has similar meaning for “person associated with a government securities broker or government securities dealer.” Transfer agents also have similar definition as described above.
It is essential to understand that a majority shareholder of a securities broker-dealer (directly or indirectly) may not control the activities of said securities broker-dealer. For a shareholder to “control the activities” (management, supervision, direction, performance or other activities) of the securities broker-dealer requires registration as a Series 24 Principal. Should a person only invest as a passive shareholder the term “control or controlled by” should not be labeled as such.
Therefore, the SEC should advise the NASD accordingly.
Joseph W. Mays, Jr.