[Federal Register Volume 63, Number 223 (Thursday, November 19, 1998)]
[Notices]
[Pages 64303-64304]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-30890]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40676; File No. SR-NASD-98-81]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the National Association of Securities Dealers, Inc. Relating
to Application of the Corporate Financing Rule to Certain Offerings by
Charitable Organizations
November 12, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 29, 1998, NASD Regulation, Inc. (``NASD Regulation'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
a proposed rule change as described in Items I, II, and III below,
which Items have been prepared by NASD Regulation. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
NASD Regulation is proposing to amend Rule 2710 of the National
Association of Securities Dealers, Inc. (``NASD'' of ``Association'')
to exempt certain offerings by charitable organizations from the pre-
offering review requirements of the Corporate Financing Rule. Below is
the text of the proposed rule change. Proposed new language is in
italics; proposed deletions are in brackets.
* * * * *
2710. Corporate Financing Rule--Underwriting Terms and Arrangements
(a) No change.
(b) Filing Requirements
(1)-(6) No change.
(7) Offerings Exempt from Filing
Notwithstanding the provisions of subparagraph (1) above, documents
and information related to the following public offerings need not be
filed with the Association for review, unless subject to the provisions
of Rule 2720. However, it shall be deemed a violation of this Rule or
Rule 2810, for a member to participate in any way in such public
offerings if the underwriting or other arrangements in connection with
the offering are not in compliance with this Rule or Rule 2810, as
applicable:
(A)-(C) No change.
(D) securities offered pursuant to a redemption standby ``firm
commitment'' underwriting arrangement registered with the Commission on
Forms S-3, F-3 or F-10 (only with respect to Canadian issuers); [and]
(E) financing instrument-backed securities which are rated by a
nationally recognized statistical rating organization in one of its
four (4) highest generic rating categories; and
(F) offerings of securities by a church or other charitable
institution that is exempt from SEC registration pursuant to Section
3(a)(4) of the Securities Act.
(8) No change.
(9) Offerings Required to be Filed
Documents and information relating to all other public offerings
including, but not limited to, the following must be filed with the
Association for review:
(A)-(E) No change.
(F) securities offered by a bank, savings and loan association,
[church or other charitable institution,] or common carrier even though
such offering may be exempt from registration with the Commission;
(G)-(H) No change.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, The Proposed Rule Change
In its filing with the Commission, NASD Regulation included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. NASD Regulation has prepared summaries, set
forth in Sections A, B, and C below, of the most significant aspects of
such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
(a) Purpose
When the Act was amended in the early 1980s to require that most
SEC-registered broker/dealers be members of the NASD, the NASD
regulated for the
[[Page 64304]]
first time broker/dealers that assist churches and other non-profit
charitable organizations that raise money through the issuance of
securities. Certain church bond and similar offerings by religious and
charitable organizations are exempt from SEC registration under Section
3(a)(4) of the Securities Act of 1933 (``Securities Act''),\3\ but
generally are subject to review by state regulatory authorities. NASD
Rule 2710 (the ``Corporate Financing Rule'') subjects ``church bond''
offerings to a filing requirement with the Corporate Financing
Department of NASD Regulation (``Department'') so that the Department
has an opportunity to determine whether compensation terms and
arrangements are fair and reasonable for purposes of the rule.
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\3\ 15 U.S.C. 77c(a)(4). The Commission notes that in order for
the proposed exemption to apply the offering must qualify under
Section 3(a)(4) of the Securities Act, which requires that the
offering not be for pecuniary profit, and no part of the net
earnings can inure to the benefit of any person, private
stockholder, or individual.
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Department staff have found that the aggregate underwriting
compensation received by church bond broker/dealers has been
significantly below the maximum amount of underwriting compensation
that is permitted under Rule 2710. Although initially there was an
issue in some cases of appropriate compliance with SEC Rule 15c2-
4,4 the staff has not recently identified any problems in
this area.
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\4\ 17 CFR 240,15c2-4. Rule 15c2-4 under the Act requires that
investor funds forwarded to a broker/dealer in a contingent offering
be held in an escrow or special account, depending on whether the
broker/dealer can carry customer funds or accounts, until the
contingency is reached before the funds can be released to the
issuer.
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In order to more appropriately focus the review efforts of
Department staff on the types of offerings that present significant
regulatory issues, NASD Regulation proposes to amend the Corporate
Financing Rule to exempt certain church bond offerings from the filing
requirements, but not the substantive requirements, of the Corporate
Financing Rule. NASD Regulation proposes to implement the proposed rule
change on the date of SEC approval.
(b) Basis
NASD Regulation believes that the proposed rule change is
consistent with the provisions of Section 15A(b)(6) 5 of the
Act, which requires, among other things, that the Association's rules
must be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, and, in
general, to protect investors and the public interest. The elimination
of the requirement in Rule 2710 to file certain church bond offerings
will allow NASD Regulation to better allocate its Department staff
resources.
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\5\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
NASD Regulation does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Association consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Persons making written submissions
should file six copies thereof with the Secretary, Security and
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549. Copies
of the submission, all subsequent amendments, all written statements
with respect to the proposed rule change that are filed with the
Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying in the
Commission's Public Reference Room. Copies of such filing will also be
available for inspection and copying at the principal office of the
NASD. All submissions should refer to File No. SR-NASD-98-81 and should
be submitted by December 10, 1998.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.6
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\6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-30890 Filed 11-18-98; 8:45 am]
BILLING CODE 8010-01-M
