[Federal Register Volume 62, Number 244 (Friday, December 19, 1997)]
[Notices]
[Pages 66706-66707]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33128]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39442; File No. SR-NASD-97-78]
Self-Regulatory Organizations; Order Granting Partial Approval on
an Accelerated Basis of Proposed Rule Change by National Association of
Securities Dealers, Inc. Relating to the Amended Interpretation of IM-
8310-2, Release of Disciplinary Information
December 11, 1997.
I. Introduction
On October 17, 1997, National Association of Securities Dealers,
Inc. (``NASD'' or ``Association'') submitted to the Securities and
Exchange Commission (``SEC'' or ``Commission''), pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule
19b-4 thereunder,\2\ a proposed rule change which amends the
Interpretation on the Release of Disciplinary Information, IM-8310-2 of
Rule 8310 of the Procedural Rules of the NASD (``Interpretation'' or
``IM-8310-2''). A notice of the proposed rule change was published in
the Federal Register on November 21, 1997.\3\ The Commission, to date,
has received no comment letters on the proposed rule change. For the
reasons discussed below, the Commission is granting partial accelerated
approval of the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Rel. No. 39322 (Nov. 13, 1997), 62
FR 62391.
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In its notice, filed on October 17, 1997, the NASD Regulation, Inc.
(``NASDR'') proposed to amend IM-8310-2 to include the phrase
``electronic inquiry'' in the rule language so that it could respond to
electronic inquiries, as well as written or telephonic inquiries. In
the notice, the NASDR also proposed to amend the rule language to
include the additional information required to be reported on the
amended Forms U-4, U-5, and BD. The NASDR has requested that the
Commission approve, on an accelerated basis, only that portion of the
amended rule language that allows it to respond to electronic
inquiries.\4\ Hence, the Commission is partially approving, on an
accelerated basis, that portion of the NASDR's request which will give
the NASD the option of responding to the electronic inquiries of
persons or entities requesting employment and disciplinary history of
its members and their associated persons.
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\4\ Telephone conversation with Alden S. Adkins, General Counsel
and Mary M. Dunbar, Assistant General Counsel, NASDR, and Belinda
Blaine, Associate Director, Katherine A. England, Assistant
Director, and Mignon McLemore, Staff Attorney, Division of Market
Regulation, November 26, 1997.
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II. Description of Proposal
Under the NASD's Public Disclosure Program (``PDP''),\5\ the NASD,
in response to a written inquiry or telephonic inquiry via a toll-free
telephone listing, releases certain information contained in the
Central Registration Depository (``CRD'') regarding the employment and
disciplinary history of its members and their associated persons. When
an inquiry is made, if the broker-dealer or associated person has a
disciplinary history, the NASD responds by sending the inquirer a copy
of the disclosable information (e.g., information regarding past and
present employment history with Association members).\6\ If there is no
history, the NASD responds by informing the caller of this and
following up with a written record of same, if so requested.\7\
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\5\ See Securities Exchange Act Rel. No. 30629 (April 23, 1992),
57 FR 18535 (April 30, 1992); and Securities Exchange Act Rel. No.
32568 (July 1, 1993), 58 FR 36723 (July 8, 1993).
\6\ See supra note 3. The notice contains a complete list of
disclosable disciplinary information.
\7\ If the request is written and there is no disclosable
history, a record indicating same is sent to the inquirer.
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In past months, the NASD has undertaken a reassessment of the CRD
to take advantage of developing technology and to improve its
performance meeting the NASD's changing business needs. As a result of
this reassessment, the NASD determined that the Internet should be a
component of its PDP. In an effort to expand its PDP and make it more
accessible and convenient for investors, the NASD's proposal amends the
Interpretation to enable the NASD to receive electronic inquiries as
well as written and telephonic inquiries.\8\
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\8\ See supra note 3.
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III. Discussion
NASDR has requested that the Commission find good cause pursuant to
Section 19(b)(2) of the Act,\9\ for approving, prior to the 30 day
after publication in the Federal Register, that part of the proposed
rule change that permits the NASD to respond to electronic
inquiries.\10\ The Commission has reviewed the NASDR's proposed rule
change and believes, for reasons set forth below, that the proposal is
consistent with the requirements of the Act \11\ and the rules and
regulations thereunder applicable to the NASD. Specifically, the
Commission believes the proposal is consistent with Sections 15A(b)(6)
and 15A(i) of the Act. Section 15A(b)(6) provides in relevant part that
the rules of the association be designed to foster cooperation and
coordination with persons engaged in regulating and processing
information with respect to securities and not to permit unfair
discrimination among customers, issuers, brokers or dealers. Section
15A(i) of the Act requires the Association to promptly respond in
writing to inquiries regarding disciplinary actions involving its
members or associated persons.
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\9\ 15 U.S.C. 78s(b)(2).
\10\ See supra note 4.
\11\ In approving this rule, the Commission notes that it has
considered the proposed rule's impact on efficiency, competition,
and capital formation. The ability to use electric media will most
likely enhance efficiency by decreasing the time between when the
request is made and when the response is received. Additionally, the
ready accessibility of CRD information should positively affect
competition in the marketplace; disciplinary histories will be more
accessible to the public. 15 U.S.C. 78c(f).
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The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act, for approving the proposed rule change prior to the 30th day
after publication in the Federal Register. By amending IM-
[[Page 66707]]
8310-2 to include the phrase ``electronic inquiry,'' the NASD has made
it easier and more convenient for interested persons to inquire about
the employment and disciplinary history of its members and their
associated persons. The Commission commends any effort made to improve
investor access to information that could help investors determine
whether to conduct or continue to conduct business with a particular
broker-dealer or associated person. The Commission understands,
however, that the NASD intends to disseminate responses to some
inquiries electronically. As with developing and instituting
information systems technology, the Commission expects the NASD,
consistent with its statutory duties, to assure itself that security
concerns (i.e., the security of its systems and the immutability of the
records after transmittal) have been addressed. Thus, in granting this
partial accelerated approval, the Commission notes that it is approving
only the NASD's ability to respond to electronic inquiries as if they
were either written or telephonic inquiries.
Based on the foregoing, the Commission deems it appropriate to
partially approve the proposed rule change on an accelerated basis,
pursuant to Section 19(b) of the Act and the rules and regulations
thereunder.\12\
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\12\ 15 U.S.C. 78s.
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It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\13\ that the aforementioned portion of proposed rule change SR-
NASD-97-78 be, and hereby is, approved.
\13\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-33128 Filed 12-18-97; 8:45 am]
BILLING CODE 8010-10-M
