[Federal Register Volume 60, Number 194 (Friday, October 6, 1995)]
[Notices]
[Pages 52443-52444]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-24913]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36321; File No. SR-NASD-95-36]
Self-Regulatory Organizations; Order Granting Accelerated
Approval to Proposed Rule Change by National Association of Securities
Dealers, Inc., Relating to Schedule B to the NASD By-Laws
September 29, 1995.
On August 22, 1995, the National Association of Securities Dealers,
Inc. (``NASD'' or ``Association'') filed with the Securities and
Exchange Commission (``SEC'' or ``Commission'') a proposed rule change
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder.\2\ The proposed rule change
amends Schedule B to the NASD By-Laws \3\ to delete informational text
on the number of members of the NASD Board of Governors (``Board'')
elected from each district.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ NASD Manual, Schedules to the By-Laws, Schedule B (CCH)
para. 1772.
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Notice of the proposed rule change, together with the substance of
the proposal, was provided by issuance of a Commission release
(Securities Exchange Act Release No. 36153, August 25, 1995) and by
publication in the Federal Register (60 FR 45506, August 31, 1995). No
comment letters were received. This order grants accelerated approval
to the proposed rule change.
Article VII, Section 4(b) of the By-Laws requires that each
district shall elect one Board member, authorizes the Board to
determine which districts, if any, shall elect more than one Governor,
and--in general--authorizes the Board to make appropriate changes in
the number or boundaries of the districts or the number of Governors
elected by each district to provide fair representation of members and
districts. Pursuant to Article VII, Section 4(b), a total of 15 current
members have been elected by the districts.
Schedule B currently provides that two members shall be elected
from two of the districts and three members shall be elected from one
of the districts. The NASD has stated that inclusion of the text
regarding district representation on the Board in Schedule B to the
NASD By-Laws was intended to be informational only. The NASD also has
stated that it believes that the informational language in Schedule B
to the NASD By-Laws specifying the number of Governors from each
district unnecessarily limits the ability of the Board to act under
Section 4(b) to make changes in the composition of the Board.
The NASD's proposal also may assist the NASD in adopting certain
recommendations recently made by the NASD Select Committee on Structure
and Governance (``Select Committee''). The Select Committee recently
issued a report (``Committee Report'') recommending changes in the
NASD's existing governance structure.\4\ The Committee Report
recommended, among other things, that the NASD increase public
representation on its governing bodies, reform its disciplinary
procedures and act to regulate broker-dealers and their personnel
separately from regulation of the over-the-counter market, including
The Nasdaq Stock Market (``Nasdaq'').\5\ The NASD Board has agreed in
principle to increase its public representation as recommended in the
Committee Report.
\4\ NASD, Report of The NASD Select Committee on Structure and
Governance to the NASD Board of Directors (September 19, 1995).
\5\ See id. at C-21-22.
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Therefore, the NASD proposed to amend Schedule B to the NASD By-
Laws to delete provisions that specify the number of members of the
Board currently approved to be elected from each district in order to
ensure that the Board has flexibility to act with respect to the
composition of the Board of Governors.
The Commission finds that the proposed rule change is consistent
with the provisions of Section 15A(b)(4) of the Act.\6\ Section
15A(b)(4) requires that
[[Page 52444]]
NASD rules provide for the fair representation of its members in the
selection of its directors and administration of its affairs, as well
as for the inclusion of Board members who represent issuers and
investors. The proposed rule change satisfies both the basic
requirements of Section 15A(b)(4) and the provision's overall objective
in seeking to ensure effective public representation on the governing
boards of the NASD.\7\ The proposed rule change also diminishes the
ability of one segment of the NASD membership to dominate the NASD
Board, thereby enhancing the ability of the NASD Board to act in the
best interests of the public and the NASD membership as a whole.\8\ The
Commission, therefore, concludes that the proposed amendments to
Schedule B are consistent with Section 15A(b)(4) of the Act.
\6\ 15 U.S.C. 78o-3.
\7\ The Commission has previously addressed issues of
proportional representation on the boards of directors of national
securities exchanges. Section 6(b)(3) of the Act imposes the same
requirements on national securities exchanges as Section 15A(b)(4)
imposes on the NASD. The Commission disapproved a proposal by the
Chicago Board Options Exchange (``CBOE'') (Securities Exchange Act
Release No. 22058 (May 21, 1985), 50 FR 23090) which would have
increased the minimum number of On-Floor Directors. The Commission
noted that domination by the floor membership of the CBOE Board and
a resulting decrease in the proportion of retail firm and public
governors on the Board would have seriously weakened the ability of
the Board to carry out the purposes of the Act and enforce
compliance with Exchange and Commission rules, as required by
Section 6(b)(1). In addition, the Commission stated that the
numerical domination by one faction of the CBOE membership, in
contravention of Section 6(b)(3) of the Act, might make it difficult
for the Board to act in the best interests of the public or the CBOE
as a whole and could impede efforts by the Board to vigorously
enforce Commission or Exchange rules not favored by the floor
membership. The Commission also viewed the proposal as being
inconsistent with Section 6(b)(5) which requires the rules of an
exchange to be designed to protect investors and their public
interest.
\8\ Cf. id.
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The NASD has requested that the Commission approve the proposed
rule change on or before September 30, 1995, which is prior to the 30th
day following publication of notice of the filing of such Amendments in
the Federal Register, in order that the new rule may be effective with
respect to the NASD's election procedures which commence on October 1,
1995 with respect to Board membership in 1996.
Pursuant to section 19(b)(2) of the Act,\9\ the Commission finds
good cause for approving the proposed rule change, as amended, prior to
the 30th day after publication in the Federal Register. The proposed
rule change will permit the NASD to reduce the proportionate
representation of industry-affiliated Governors on the NASD Board,
thereby increasing the proportionate representation of public Governors
on the NASD Board. The Commission also believes it is important to
enhance the representation of other NASD constituencies on the NASD
Board. Because the Commission believes that the proposed rule change
will enhance the opportunities of various NASD constituencies to play a
meaningful role in NASD affairs, the Commission believes that the rule
filing should be approved without delay.
\9\ 15 U.S.C. 78s(b)(2).
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that SR-NASD-95-36 be, and hereby is, approved effective immediately.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Jonathan G. Katz,
Secretary.
[FR Doc. 95-24913 Filed 10-5-95; 8:45 am]
BILLING CODE 8010-01-M
