[Federal Register Volume 63, Number 39 (Friday, February 27, 1998)]
[Notices]
[Pages 10058-10060]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-5067]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39693; File No. SR-NSCC-97-13]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of Proposed Rule Change Relating to
Changes in Membership Standards
February 23, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on October 30, 1997, the
National Securities Clearing Corporation (``NSCC'') filed with the
Securities and Exchange Commission (``Commission'') and on December 31,
1997, amended the proposed rule change as described in Items I, II, and
III below, which items have been prepared primarily by NSCC. The
Commission is publishing this notice to solicit comments from
interested persons on the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change will amend NSCC's rules regarding
membership standards to allow for consideration of applicants' and
participants' regulatory history.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NSCC 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. NSCC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of such
statements.\2\
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\2\ The Commission has modified the text of the summaries
prepared by NSCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
NSCC believes that when a person with significant managerial
responsibility for a firm or who otherwise has significant ability to
influence the policies and actions of a firm has a record that fails to
reflect a history of good character, citizenship, commercial honor, and
a respect for the letter and intent of the legal and regulatory
structure in which the firm operates, there is an increased likelihood
that the firm will present additional risk to NSCC's participants.
Currently NSCC's rules provide that it will establish, as deemed
necessary or appropriate, standards of financial responsibility,
operational capability, experience, and competence for membership, as
well as guidelines for the application of membership standards.\3\ The
purpose of the proposed rule change is to provide definition to the
bases upon which NSCC may take action to deny an applicant membership
or to cease to act for a participant by establishing specific
membership standards for NSCC applicants and participants.\4\
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\3\ Rule 15 of NSCC's Rules and Procedures.
\4\ NSCC has taken note of the findings set forth in the April
15, 1997, memorandum entitled, ``The Joint Regulatory Sales Practice
Sweep; Heightened Supervisory Procedures,'' which was the product of
an initiative involving the National Association of Securities
Dealers, Inc., the New York Stock Exchange, Inc., the Securities and
Exchange Commission, and the North American Securities
Administrators Association, Inc.
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The revised rule will allow NSCC to deny membership to any
applicant or to cease to act for any participant when a person with
significant managerial responsibility or with significant ability to
influence the policies and actions of the applicant or participant
(through ownership interest, contract, or otherwise), whether or not
the person
[[Page 10059]]
currently acts as a principal or registered representative, has a
record that reflects:
(1) Any felony conviction or plea of guilty or nolo contendere,
pending felony indictment, information of or other institution of
felony proceedings, any investment-related \5\ misdemeanor conviction
or plea of guilty or nolo contendere, or pending investment-related
misdemeanor;
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\5\ The term ``investment-related'' pertains but is not limited
to securities, commodities, banking, insurance, or real estate.
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(2) A permanent bar or temporary suspension from acting as a
principal or registered representative or otherwise to be associated
with or perform designated functions for a firm engaging in an
investment-related business other than any temporary suspension for
minor or technical violations;
(3) Other disciplinary or adverse regulatory or administrative
actions (except for actions that are both isolated and minor) taken by
any governmental, regulatory, or self-regulatory body or authority;
(4) Arbitrations, administrative proceedings, civil actions, or
other proceedings not resolved in favor of the person except for
proceedings that are both minor and isolated, including but not limited
to proceedings ending in settlements involving a payment and
proceedings that have not yet been adjudicated,\6\ provided however
that (a) unadjudicated proceedings brought by someone other than a
regulatory authority shall not by themselves constitute grounds for
NSCC to deny membership to an applicant or to cease to act for a
participant and (b) unadjudicated proceedings brought by a regulatory
authority shall not by themselves constitute grounds to cease to act
for a participant but may constitute grounds to deny membership to an
applicant;
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\6\ The term ``adjudicated'' for purposes of the rule means any
arbitration, proceeding, or action that has been resolved subject to
appeal, whether or not the resolution has been stayed pending
appeal.
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(5) Multiple customer complaints;
(6) A termination or permitted resignation after an investigation
or allegation of sales practice problems or violation of investment-
related statutes, regulations, rules, or industry standards of conduct;
or
(7) Being subject to heightened supervision in accordance with
guidelines or recommendations promulgated by a regulatory authority.
any action, complaint, or proceeding referred to in the enumerated
items above that is not taken against a person will nonetheless be
deemed to be taken against that person if his or her activities are
cited in whole or in part as being a contributing cause.
Single instances under items (3) or (4) above may also be
considered as part of the adverse regulatory history if there exists
other instances of actions constituting an adverse regulatory history
or if that single instance indicates that the person has a propensity
to act in a manner that could cause significant financial cost to the
applicant or participant. However, no person will be deemed to have an
adverse regulatory history under items (4) or (5) above due to being
named in customer complaints or adverse civil proceedings merely
because of the person's management or ownership position in the
applicant or participant (as opposed to actually engaging in wrongful
conduct, including failure to supervise) unless the number of
complaints or proceedings are disproportionate to the size of the firm.
The proposed rule will also allow NSCC to deny membership to an
applicant or to cease to act for a participant if a correspondent of
the applicant or participant or any entity for which the applicant or
participant is financially responsible would fail to meet the above
membership standards but only if the size of the business of the
correspondent or other entity is significant relative to the capital of
the applicant or participant.
NSCC intends to construe the new rule so as to not limit its
authority to deny membership to, to cease to act for, or to obtain
further assurances from any applicant or participant in accordance with
the NSCC's rules and procedures when the circumstances warrant even if
such circumstances include or consist solely of items that are
specifically not grounds for such action under the proposed rule. For
example, any unadjudicated proceeding that could create significant
financial difficulties for an applicant or participant may be grounds
for such action even if it would not constitute adverse regulatory
history as defined in the proposed rule.
NSCC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act \7\ and the rules and
regulations thereunder because it will clarify the rules of NSCC
relating to standards required for membership and thereby facilitate
the prompt and accurate clearance and settlement of securities
transactions.
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\7\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition
NSCC does not believe that the proposed rule change will impose 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
NSCC received one comment letter on the proposed rule change.\8\
NSCC will notify the Commission of any other written comments it
receives.
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\8\ Letter from William C. Alsover, President, Centennial
Securities Company, to David F. Hoyt, NSCC (November 7, 1997).
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Acting
Within thirty-five 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 ninety 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 self-regulatory organization 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, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 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. Sec. 552, will be available for inspection and copying in
the Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such filing also will be available
for inspection and copying at the principal office of NSCC. All
submissions should
[[Page 10060]]
refer to File No. SR-NSCC-97-13 and should be submitted by March 20,
1998.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-5067 Filed 2-26-98; 8:45 am]
BILLING CODE 8010-01-M
