02-9458. Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Order Granting Approval to Proposed Rule Change Relating to Amendments to NASD Rule 2260 To Require Members To Make Reasonable Efforts To Forward Issuer and ...

April 11, 2002.

On January 17, 2002, the National Association of Securities Dealers, Inc. (“NASD” or “Association”), through its wholly-owned subsidiary, NASD Regulation, Inc. (“NASD Regulation”) 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 amend Rule 2260 of the rules of the NASD to require a member to make reasonable efforts to forward a communication from an issuer or trustee regarding a debt security other than a municipal security to the beneficial owner of such security. The proposed rule change also clarifies IM-2260 (Suggested Rate of Reimbursement) to reflect that, in forwarding proxies and other materials, members may not charge for envelopes that are provided by the issuer or the trustee, as well as by persons soliciting proxies.

The proposed rule change was published for comment in the Federal Register on March 6, 2002.^[3] The Commission received no comments on the proposal.

The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association ^[4] and, in particular, the requirements of Section 15A of the Act ⁵ and the rules and regulations thereunder. The Commission finds specifically that the proposed rule change is consistent with Section 15A(b)(6) of the Act,⁶ which requires, among other things, that the rules of an 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.⁷ The Commission believes that the proposed rule change is a reasonable customer protection measure for holders of non-municipal debt securities, as it clarifies that members have an affirmative obligation to make reasonable efforts to forward certain information regarding these debt securities to their beneficial owners.

In addition, the Commission notes that this proposed rule change is consistent with a similar proposed rule change relating to municipal securities submitted by the Municipal Securities Rulemaking Board (“MSRB”) and recently approved by the Commission.^[8] In that filing, the MSRB amended its Rule G-15 to provide that brokers, dealers and municipal securities dealers that safekeep municipal securities must make reasonable efforts to retransmit official communications to their safekeeping clients.

It is therefore ordered, pursuant to Section 19(b)(2) of the Act,^[9] that the proposed rule change (File No. SR-NASD-2002-11) be, and it hereby is, approved.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[10]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  See Securities Exchange Act Release No. 45483 (February 27, 2002), 67 FR 10245.

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

5.  15 U.S.C. 78 o-3.

6.  15 U.S.C. 78 o-3 (b)(6).

7.  Id.

8.  See Securities Exchange Act Release No. 45562 (March 14, 2002), 67 FR 13030 (March 20, 2002).

9.  15 U.S.C. 78s(b)(2).

10.  17 CFR 200.30-3(a)(12).