04-5840. Self-Regulatory Organizations; Order Approving Proposed Rule Change and Amendment Nos. 1 and 2, and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 3 to the Proposed Rule Change by the National Association of ...

March 9, 2004.

I. Introduction

On July 15, 2003, the National Association of Securities Dealers, Inc. (“NASD”) filed with the Securities and Exchange Commission (“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 to create a new rule series, the proposed NASD Rule 9550 Series, to consolidate, clarify and streamline those existing procedural rules that have an expedited proceeding component. On September 2, 2003, the NASD amended the proposed rule change.^[3] On November 18, 2003, the NASD again amended the proposed rule change.^[4] The proposed rule change, as amended, was published for comment in the Federal Register on December 16, 2003.^[5] The Commission received no comment letters with respect to the proposal.

On February 4, 2004, the NASD amended the proposed rule change.^[6] This order approves the proposed rule change, as amended by Amendment Nos. 1 and 2; solicits comments on the proposed rule change from interested persons; and grants accelerated approval to Amendment No. 3 to the proposed rule change.

II. Description of the Proposal and Amendment Nos. 1, 2 and 3 Thereto

The NASD submitted the proposed rule change and Amendment Nos. 1 and 2 thereto to create a new rule series, the proposed Rule 9550 Series, to consolidate, clarify and streamline those existing procedural rules that have an expedited proceeding component.

After the proposed rule change, as amended, was published for comment in the Federal Register, the NASD submitted Amendment No. 3 to the proposed rule change, in order to address comments from Division staff. Specifically, Amendment No. 3 provides that: (1) Notices will indicate that hearing officers can impose any appropriate sanctions; (2) certain timelines do not provide any substantive rights to parties; (3) if service of a notice is by fax and the NASD knows that the fax number on file with the NASD is incorrect, NASD staff shall serve the notice via overnight or personal delivery; (4) service is complete upon sending the notice by fax, mailing the notice by overnight courier, or delivering it in person, except that, where duplicate service is required, service is complete upon sending the duplicate service; (5) an immediately effective summary suspension or other limitation under the proposed summary proceedings rule will remain in effect unless the respondent shows good cause for a stay; and (6) where two consolidated matters contain different timelines under NASD Rule 9559, the Chief Hearing Officer assigned to the matter has discretion to determine which timeline is appropriate under the facts and circumstances of the case.^[7]

III. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 3 to the proposed rule change, including whether Amendment No. 3 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 20549-0609. Comments should be submitted electronically at the following e-mail address: [e-mail]. All comment letters should refer to File No. SR-NASD-2003-110. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, comments should be sent in hard copy or by e-mail but not by both methods. 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-2003-110 and should be submitted by April 6, 2004.

IV. Discussion and Commission Findings

After careful review, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association.^[8] In particular, the Commission believes that the proposed rule change is consistent with section 15A(b)(6) of the Act,^[9] which requires, among other things, that the NASD'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. Specifically, the Commission believes that the consolidation of rules relating to expedited proceedings should make the expedited proceedings process clearer, and enable market participants to better understand the expedited proceedings process.

The Commission finds good cause for approving Amendment No. 3 to the proposed rule change prior to the thirtieth day after the amendment is published for comment in the Federal Register pursuant to section 19(b)(2) of the Act.^[10] In Amendment No. 3, the NASD further clarified the expedited proceeding process by addressing procedural concerns raised by Division staff. Granting accelerated approval will enable the NASD to implement these changes more expeditiously.

V. Conclusion

For the foregoing reasons, the Commission finds that the proposed rule change, as amended, is consistent with the Act and the rules and regulations thereunder applicable to a national securities association, and, in particular, section 15A(b)(6) of the Act.^[11]

It is therefore ordered, pursuant to section 19(b)(2) of the Act,^[12] that the proposed rule change (SR-NASD-2003-110) is approved, as amended, and that Amendment No. 3 is approved on an accelerated basis.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[13]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  See letter from Barbara Z. Sweeney, Senior Vice President and Corporate Secretary, NASD, to Katherine England, Assistant Director, Division of Market Regulation (“Division”), Commission dated August 29, 2003 (“Amendment No. 1”). Amendment No. 1 replaced and superseded the proposed rule change in its entirety.

4.  See letter from Barbara Z. Sweeney, Senior Vice President and Corporate Secretary, NASD, to Katherine England, Assistant Director, Division, Commission dated November 17, 2003 (“Amendment No. 2”). Amendment No. 2 replaced and superseded the proposed rule change in its entirety.

5.  See Securities Exchange Act Release No. 48887 (December 5, 2003), 68 FR 70066.

6.  See letter from James S. Wrona, Associate General Counsel, NASD, to Katherine England, Assistant Director, Division, Commission dated February 3, 2004 (“Amendment No. 3”). In Amendment No. 3, the NASD addressed staff comments relating to the service of notice on parties and the ability of hearing officers to promote sanctions. See Section II infra.

7.  Parties involved in a given case will be promptly notified of the appropriate timeline chosen by the Chief Hearing Officer. Telephone conversation between James S. Wrona, Associate General Counsel, NASD, Katherine England, Assistant Director, Division, Commission, Joseph Morra, Special Counsel, Division, Commission, and Ian Patel, Attorney, Division, Commission on January 14, 2004.

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

9.  15 U.S.C. 78 o-3(b)(6).

10.  15 U.S.C. 78s(b)(2).

11.  15 U.S.C. 78 o-3(b)(6).

12.  15 U.S.C. 78s(b)(2).

13.  17 CFR 200.30-3(a)(12).