Fuming over stories of drugs, prostitutes and so-called "party dwarves" charged as corporate giveaways for Fidelity traders, NASD and the New York Stock Exchange  announced new rules governing gift giving, according to Primedia Insight.

The proposed rules, designed jointly by the NASD and the NYSE Regulation Division, follow an investigation by the U.S. Attorney's Office in Boston and highlight industry concerns that lavish gifts may unduly influence fund managers at the expense of shareholders' interests. The proposed rule is open for comment until Feb. 23.

The existing NASD rule is vague allowing for meals, sporting and other events as long as they are "neither so frequent nor so extensive as to raise any question of propriety." The revised rule would require member firms to each have written policies that enumerate acceptable and unacceptable forms of entertainment. Firms would also be required to keep detailed lists of entertainment expenses to be made available to customers for inspection upon written request.

While gifts are limited to $100 by NASD and NYSE regulations, limits on entertainment spending would be left to individual firms, according to the proposed revisions. Swiss giant UBS, for example, limits broker spending to $500 per financial adviser per event for a total of no more than  $1,000 per year.  New York-based Smith Barney limits spending to $300 per event for an annual total of $1,000.

Furthermore, a member of the third party of investment company that is paying for the event must also attend, otherwise, the event will be considered a gift, and subject to a $100 limit.

 "[The new rule] will eliminate potential conflicts of interest and quid pro quo arrangements," said Donald van Weezel, vice president of regulatory affairs for NYSE Regulation. "It's in the best interest of the industry," van Weezel told Primedia Insight.

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