03-3943. Self-Regulatory Organizations; Order Approving Proposed Rule Change by the National Association of Securities Dealers, Inc. Regarding the Prohibition Against Guarantees and Sharing in Customer Accounts

February 12, 2003.

On December 18, 2002, the National Association of Securities Dealers, Inc. (“NASD”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) a proposed rule change to amend NASD Rule 2330(e) to clarify that members and their associated persons are prohibited from guaranteeing any customer against loss in connection with any securities transaction or in any securities account of the customer. Additionally, the proposal would require that associated persons obtain written authorization from their employing member firm and the customer before sharing in a customer's account under Rule 2330(f). The proposal would delete the requirement that members and associated persons obtain the written authorization of the member carrying the account before sharing in a customer's account from Rule 2330(f). Notice of the proposed rule change was published for comment in the Federal Register on January 6, 2003.^[1] The Commission received no comments regarding the proposal.

The Commission finds that the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to a national securities association.^[2] The Commission finds that the proposal is consistent with the requirements of section 15A(b)(6) of the Act,^[3] which requires, among other things, that the rules of a registered national securities association 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. Specifically, the Commission believes that the proposal should facilitate compliance with Rule 2330(e) by clarifying that members and their associated persons are prohibited from making guarantees to any customer, not just those whose accounts are carried by the member or those for whom a member is effecting a securities transaction. The proposal should also strengthen the regulatory protections provided in Rule 2330(f) by requiring members and their associated persons to obtain the prior written authorization of the customer before sharing in any customer account. Finally, the Commission believes that requiring associated persons who wish to share in a customer account to obtain authorization from their employer is a more effective way to detect and deter misconduct than requiring such authorization from the member carrying the account.

It is therefore ordered, pursuant to section 19(b)(2) of the Act,^[4] that the proposed rule change (SR-NASD-2002-180) is approved.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[5]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  See Securities Exchange Act Release No. 47103 (December 30, 2002), 68 FR 595.

2.  In approving the proposal, the Commission has considered the rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

3.  15 U.S.C. 78o(b)(6).

4.  15 U.S.C. 78s(b)(2).

5.  17 CFR 200.30-3(a)(12).