[Federal Register Volume 63, Number 234 (Monday, December 7, 1998)]
[Notices]
[Pages 67499-67501]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-32401]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40718; File No. SR-NASD-98-96]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the National Association of
Securities Dealers, Inc. Relating to Correcting Cross-References in
Rules to NASD By-Laws
November 30, 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 November 19, 1998, the National Association of Securities Dealers,
Inc. (``NASD'' or ``Association''), through its wholly-owned regulatory
subsidiary, NASD Regulation, Inc. (``NASD Regulation''), filed with the
Securities and Exchange Commission (``Commission'') the 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 correct cross-references in the
NASD Rules to the NASD By-Laws. The text of the proposed rule change is
set forth below. Proposed new language is italicized; proposed
deletions are in brackets.
Rule 0112. Effective Date
The Rules shall become effective as provided in Section 1 of
Article [XII] XI of the By-Laws.
Rule 0120. Definitions
* * * * *
(i) ``Member''
The term ``member'' means any individual, partnership, corporation
or other legal entity admitted to membership in the Association under
the provisions of Articles [II and] III and IV of the By-Laws.
* * * * *
Rule 1060. Persons Exempt from Registration
(a) No change.
(b) No change.
(1) the member firm has assured itself that the nonregistered
foreign person who will receive the compensation (the ``finder'') is
not required to register in the U.S. as a broker/dealer nor is subject
to a disqualification as defined in Article [II] III, Section 4 of the
Association's By-Laws, and has further assured itself that the
compensation arrangement does not violate applicable foreign law;
* * * * *
Rule 1100. Foreign Associates
(a) No change.
(b) No change.
(1) Such person is not subject to any of the prohibitions to
registration with the Association contained in Article [II] III,
Section 4 of the By-Laws of the Association.
* * * * *
(c) In the event of the termination of the employment of a Foreign
Associate, the member must notify the Association immediately by filing
a notice of termination as required by Article [IV] V, Section 3 of the
By-Laws.
* * * * *
IM-2110-4. Trading Ahead of Research Reports
* * * * *
In accordance with Article VII, Section 1(a)[(2)](ii) of the NASD
By-Laws, the Association's Board of Governors has approved the
following interpretation of Rule 2110.
* * * * *
IM-2210-4. Limitations on Use of Association's Name
(a) Use of Association Name
Members may indicate membership in the Association in conformity
with Article [XVI] XV, Section 2 of the NASD By-Laws in one or more of
the following ways:
* * * * *
IM-2420-1. Transactions Between Members and Non-Members \1\
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\1\ Text of note unchanged.
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(a) Non-members of the Association.
* * * * *
(4) Broker or Dealer Registration Revoked by SEC
Revocation by the Commission of an Association member's
registration as a broker or dealer automatically terminates the
membership of such broker or dealer in the Association as of the
effective date of such order. Under Article [II] III, Section 4 of the
By-Laws of the Corporation, a firm whose registration as a broker or
dealer is revoked is thereby disqualified for membership in the
Association, and from the effective date of such order, the membership
of such broker or dealer in the Association is discontinued. Thereafter
such broker or dealer is a non-member of the Association.
(5) Membership Resigned or Canceled
The membership of a broker or dealer in the Association is
automatically terminated when the Association accepts the resignation
of such member or cancels its membership in the Association under the
provisions of Article [II] III, Section 3; Article [III] IV, Section 5;
or Article [XIV] XIII, Section 1, of the By-Laws. After the date of
acceptance by the Association of the resignation of such member or the
date of cancellation of membership by the Association, such broker or
dealer is a non-member of the Association.
* * * * *
IM-2420-2. Continuing Commissions Policy
* * * * *
[[Page 67500]]
Under no circumstances shall payment of any kind be made by a
member to any person who is not eligible for membership in the
Association or eligible to be associated with a member because of any
disqualification, as set forth in Article [II] III of the Association's
By-Laws, such as revocation, expulsion, or suspension still in effect.
* * * * *
IM-2440. Mark-Up Policy \3\
The question of fair mark-ups or spreads is one which has been
raised from the earliest days of the Association. No definitive answer
can be given and no interpretation can be all-inclusive for the obvious
reason that what might be considered fair in one transaction could be
unfair in another transaction because of different circumstances. In
1943, the Association's Board adopted what has become known as the ``5%
Policy'' to be applied to transactions executed for customers. It was
based upon studies demonstrating that the large majority of customer
transactions were effected at a mark-up of 5% or less. The Policy has
been reviewed by the Board of Governors on numerous occasions and each
time the Board has reaffirmed the philosophy expressed in 1943.
Pursuant thereto, and in accordance with Article VII, Section
1(a)[(2)](ii) of the By-Laws, the Board has adopted the following
interpretation under Rule 2440.
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\3\ In SR-NASD-97-61, which has been published for comment by
the Commission, NASD Regulation proposed to renumber IM-2440 as IM-
2440-1. See Securities Exchange Act Release No. 40511 (Sept. 30,
1998), 63 FR 54169 (Oct. 8, 1998).
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* * * * *
Rule 3010. Supervision
* * * * *
(e) Qualifications Investigated
Each member shall have the responsibility and duty to ascertain by
investigation the good character, business repute, qualifications, and
experience of any person prior to making such a certification in the
application of such person for registration with this Association.
Where an applicant for registration has previously been registered with
the Association, the member shall obtain from the Firm Access Query
System (FAQS) or from the applicant a copy of the Uniform Termination
Notice of Securities Industry Registration (Form U-5) filed with the
Association by such person's most recent previous NASD member employer,
together with any amendments thereto that may have been filed pursuant
to Article [IV]V, Section 3 of the Association's By-Laws. The member
shall obtain the Form U-5 as required by this Rule no later than sixty
(60) days following the filing of the application for registration or
demonstrate to the Association that it has made reasonable efforts to
comply with the requirement. A member receiving a Form U-5 pursuant to
this Rule shall review the Form U-5 and any amendments thereto and
shall take such action as may be deemed appropriate.
* * * * *
6120. Participation in ACT
(a) Mandatory Participation for Clearing Agency Members
(1) Pursuant to Article VII, Section 1(a)[(6) and (7)](vi) and
(vii) of the By-Laws participation in ACT is mandatory for all brokers
that are members of a clearing agency registered with the Commission
pursuant to Section 17A of the Act, and for all brokers that have a
clearing arrangement with such a broker.
* * * * *
10101. Matters Eligible for Submission
This Code of Arbitration Procedure is prescribed and adopted
pursuant to Article VII, Section 1(a)[(4)](iv) of the By-Laws of the
Association for the arbitration of any dispute, claim, or controversy
arising out of or in connection with the business of any member of the
Association, or arising out of the employment or termination of
employment of associated person(s) with any member, with the exception
of disputes involving the insurance business of any member which is
also an insurance company.
* * * * *
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
1. Purpose
The purpose of the proposed rule change is to correct cross-
references to the NASD By-Laws in Rules 0112, 0120, 1060, 1100, 3010,
6120, and 10101 and Interpretive Material 2110-4, 2210-4, 2420-1, 2420-
2, and 2440. In late 1997, the Commission approved substantial
amendments to the NASD's corporate documents that were designed to: (1)
implement a corporate restructuring developed in 1997; (2) comply with
the SEC's August 8, 1996 Order making certain findings and imposing
remedial sanctions,\4\ and (3) implement certain recommendations found
in the Report of the NASD Select Committee on Structure and Governance
to the NASD Board of Governors.\5\ A number of articles and sections
were added or removed from the NASD By-Laws, resulting in the need to
renumber the By-Laws. A substantial number of corrections to By-Law
cross-references in the NASD Rules were made in the rule filing that
substantially amended the NASD's corporate documents. The purpose of
the proposed rule change is to completer the corrections of the cross-
references to the currently approved By-Laws so that all of the NASD
Rules conform to the By-Laws.\6\
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\4\ Report and Appendix to Report Pursuant to Section 21(a) of
the Securities Exchange Act of 1934 Regarding the NASD and the
Nasdaq Stock Market (August 8, 1996) and Securities Exchange Act
Release No. 37538 (August 8, 1996) (SEC Order Instituting Public
Proceedings Pursuant to Section 19(h)(1) of the Securities Exchange
Act of 1934, Making Findings and Imposing Remedial Sanctions, In the
Matter of National Association of Securities Dealers, Inc.)
\5\ In November 1994, the NASD Board of Governors appointed the
Select Committee on Structure and Governance to review the NASD's
corporate governance structure and to recommend changes to enable
the NASD to meet its regulatory and business obligations.
\6\ The Commission recently approved other changes to the NASD
By-Laws. See Securities Exchange Act Release No. 40615 (Oct. 28,
1998), 63 FR 59614 (Nov. 4, 1998). None of these changes require
corrections to the cross-references in the NASD Rules.
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2. Statutory Basis
NASD Regulation believes that the proposed rule change is
consistent with the provisions of Section 15A(b)(6) of the Act,\7\
which requires, among other things, that the Association's rules 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
[[Page 67501]]
proposed rule change simply corrects cross-references to the NASD By-
Laws in the NASD Rules and would not result in a substantive change in
any rule.
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\7\ 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.
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
The proposed rule change has become effective upon filing pursuant
to Section 19(b)(3)(A)(i) of the Act,\8\ and Rule 19b-4(e)(1) \9\
thereunder, in that it is designated by the NASD as constituting a
stated policy, practice, or interpretation with respect to the meaning,
administration, or enforcement of an existing rule. At any time within
60 days of the filing of such rule change, the Commission may summarily
abrogate such rule change if it appears to the Commission that such
action is necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the purposes of
the Act.\10\
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\8\ 15 U.S.C. 78s(b)(3)(A)(i).
\9\ 17 CFR 240.19b-4(e)(1).
\10\ In reviewing this proposal, the Commission has considered
its impact on efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the foregoing is
consistent with the Act. Persons making written submissions should file
six copies thereof with the Secretary, Securities 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 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-98-86 and should be
submitted by December 28, 1998.
It is therefore ordered, pursuant to Section 19(b)(2) \11\ of the
Act, that the proposed rule change be, and hereby is, approved.
\11\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-32401 Filed 12-4-98; 8:45 am]
BILLING CODE 8010-01-M
