New Books and Records Rules Take Effect 05/2/03

All NASD member firms are reminded that the new Books and Records Rules take effect on May 2, 2003. The following is a summary of three significant changes which are included in the new rules, which have the potential to impact many broker/dealers.

Branch Offices - Under the new rules, Branch Offices have been redefined to include any location where one or more associated persons regularly conducts the business of handling funds or securities or effecting any transactions in, or inducing or attempting to induce the purchase or sale of a security.

If an associated person works out of his/her home (or multiple associated persons who reside at the home and are members of the same immediate family) regularly conducts business, and is not held out to the public as an office nor are any funds or securities handled there, the broker/dealer may not maintain records at that office, but the records must be maintained at another location within the same state.

Further, each broker/dealer is required to maintain a listing of each office location, together with a listing of all associated persons who conduct business from such office location.

Customer Account Information - Under the new rules, all broker/dealers must obtain the following information where a natural person is a customer or owner; name, tax identification number, address, telephone number, date of birth, employment status, whether the customer is an associated person of a broker/dealer, annual income, net worth (excluding value of primary residence) and investment objectives. If the account is a joint account the information must be provided for each individual or the financial information for both individuals can be combined. The new account form should be signed by the associated person responsible for the account and approved and accepted by a principal.

Additionally, all broker/dealers are required to request updated customer account information from each customer and confirm all customer account information on all existing accounts no later than May 2, 2006. As part of a firm's customer account verfication procedures, all member firms are required to provide each customer with a copy of his/her customer account form for review and verification. All accounts opened after May 2, 2003, all broker/dealers must obtain customer account information within 30 days of opening an account and thereafter at intervals at no greater than 36 months. The notification may be sent with the next account statement being mailed to the customer or owner. Included with the new account form will be an explanation of the terms describing the investment objectives and prominent statements that the customer or owner should make any corrections and return the form. When an account reflects a change in name or address, notification will be provided to the old address and the associated person within 30 days of receiving notification of the address change.If there is a change in an account's investment objectives a copy of the entire new account form must be provided to the customer or owner for verification and updating within 30 days of receiving notice of the change.If a customer or owner neglects, refuses or is unable to provide or update the account information the Company will be excused from obtaining the information.The requirement to obtain and update account information only applies when a broker/dealer is required to make a suitability determination.

Finally, all firms are required to prepare and maintain a log which reflects each request for customer account information from a firm's customers and the date of such request.

Order Tickets - Under the new rules, all order tickets are now required to reflect three seperate time and date stamps which represent the following times and dates:

• Order was received.
• Order was placed.
• Order was reported as executed.