[Federal Register Volume 62, Number 94 (Thursday, May 15, 1997)]
[Notices]
[Pages 26841-26843]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12748]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38591; File No. SR-NASD-96-46]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change by NASD Regulation, Inc. Relating to the Submission of
Information in Electronic Form
May 9, 1997.
I. Introduction
On March 17, 1997,\1\ the National Association of Securities
Dealers Regulation, Inc. (``NASDR'') submitted to the Securities and
Exchange Commission (``SEC'' or ``Commission''), pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934
[[Page 26842]]
(``Act'') \2\ and Rule 19b-4 thereunder,\3\ a proposed rule change to
amend Rule 8210 of the Procedural Rules of the National Association of
Securities Dealers, Inc. (``NASD'' or ``Association'') to request that
members provide regulatory information in electronic form and to
establish electronic submission programs for regularly filed regulatory
information. A notice of the proposed rule change appeared in the
Federal Register on April 8, 1997.\4\ The Commission received no
comment letters concerning the proposed rule change. The Commission is
approving the proposed rule change.
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\1\ On December 17, 1996, the NASDR filed the proposed rule
change with the Commission. However, Amendment No. 1, which modified
the rule language, replaced the original rule filing. See Amendment
No. 1, from Joan C. Conley, Secretary, NASD Regulation, Inc., to
Katherine A. England, Assistant Director, Division of Market
Regulation, SEC, dated March 17, 1997.
\2\ 15 U.S.C. 78s(b)(1) (1988).
\3\ 17 CFR 240.19b-4 (1995).
\4\ Securities Exchange Act Release No. 38468 (April 2, 1997);
62 FR 16884 (April 8, 1997).
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The proposed rule change addresses an NASDR rule that requires
members to maintain records of compliance so that information will be
available to NASDR staff for on-site examination. Rule 8210 of the
Association's Conduct Rules (formerly, Article IV, Section 5 of the
Rules of Fair Practice) requires members to respond to any NASD request
for information for the purpose of any investigation or determination
as to the filing of a complaint or any hearing of a complaint and to
submit such information ``orally or in writing.'' This provision covers
the Association's request for investigatory information in the context
of an individual examination or investigation of a member firm and also
covers the Association's programs for the receipt of regular reports
from members.
II. Description of the Proposal
The Association believes that the current provision of Rule 8210
that permits the Association to request that a member or a person
associated with a member report ``in writing'' covers information
stored by a member in the form of electronic media, as the electronic
format merely retains the written record. Thus, NASDR is proposing to
amend Rule 8210 to provide specifically that a member may be required
to submit a report in electronic form where the member maintains the
information in that manner. The proposed rule change would amend
subparagraph (a)(1) to require ``* * * any member of the Association,
person associated with a member, or person no longer associated with a
member when such person is subject to the Association's jurisdiction to
report, either informally or on the record, orally or in writing or
electronically (if the requested information is maintained in
electronic form) with regard to any matter involved in any such
investigation or hearing * * *'' and would amend subparagraph (b) to
insert the word ``electronic'' in the provision regarding the receipt
of any notice requiring a report (emphasis provided).
The NASDR has also worked with the membership over many years to
develop procedures for the electronic submission of periodic reports or
other frequently requested investigatory data that would otherwise be
submitted in written form in order to better fulfill its regulatory
responsibilities under the federal securities laws. Programs for
electronic submissions have already been established for filing of
members' FOCUS Reports, Blue Sheet Reports, Short Interest Reports,
Form U-4 and U-5 with the Central Registration Depository (``CRD'').\5\
The Association is, therefore, proposing to amend rule 8210 to add new
paragraph (c) to provide general authority for the Association to
establish programs for the submission of information on a regular basis
through direct or indirect electronic interface between the Association
and members, upon approval by the Commission.
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\5\ The FOCUS Filing Plan was approved in Securities Exchange
Act Rel. No. 29105 (April 18, 1991); 56 FR 19131 (April 25, 1991).
The Short Interest Reporting requirement was permanently approved in
Securities Exchange Act Rel. No. 23482 (July 30, 1986); 51 FR 28472
(Aug. 7, 1986). The Blue Sheet Reporting Plan was approved in
Securities Exchange Act Rel. No. 26539 (Feb. 13, 1989); 54 FR 7318
(Feb. 17, 1989). The Central Registration Depository electronic
filing requirements were approved, but the revised Forms U-4 and U-5
are not being used at this time. See Securities Exchange Act Rel.
No. 37439 (July 15, 1996); 61 FR 37950 (July 22, 1996).
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III. Discussion
The Commission believes that the proposed rule change is consistent
with the Act and the rules and regulations promulgated thereunder.\6\
Specifically, the Commission believes that approval of the proposed
rule change is consistent with Sections 15A(b)(6) \7\ and 15A(b)(7) \8\
of the Act. Consistent with Section 15A(b)(6), the proposal should
improve NADSAD's ability to monitor its members' compliance with its
rules, those of the Commission and of the MSRB, thus possibly detecting
fraudulent and manipulative acts and practices before they seriously
harm investors and the public interest. Consistent with Section
15A(b)(7), the speed of receipt of information should enable the NASDAR
to detect violations rapidly and discipline accordingly.
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\6\ In approving the rule, the Commission has considered the
proposal's impact on efficiency, competition and capital formation,
consistent with Section 3 of the Act. 15 U.S.C. 78c(f) (1996).
\7\ Section 15A(b)(6) requires the Commission to determine that
a registered national securities association's rules are designated
to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market
and a national market system, and to protect investors and the
public interest.
\8\ Section 15A(b)(7) requires that the rules of the Association
provide that its members and persons associated with its members be
appropriately disciplined for violation of the rules of the MSRB or
the rules of the Association.
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The proliferation of securities transactions and attendant increase
in volume has increased the need for rapid computer-based
(``electronic'') technology. According to the NASDR, most of its
members currently maintain their trading records in electronic, rather
than hard copy form. Surveys conducted by the Association indicate that
most members store their primary trading records in some from of
electronic storage media.\9\ To the extent that members stores their
important trading records in electronic storage media, the Commission
agrees that allowing Association members to electronically disseminate
this information in response to inquiries will both increase
examination efficiency and eliminate costs associated with providing
electronically maintained information to examine in hard copy form.
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\9\ See, e.g., Survey and Analysis Concerning the Redesign of
the Short Position Reporting System and the Electronic Submission
Mechanism, submitted by Suzanne E. Rothwell, Associate General
Counsel, NASD Regulation, Inc., to Katherine A. England, Assistant
Director, Division of Market Regulation, SEC, dated March 25, 1997.
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As the Association continue to increase services to its membership
and enhance its ability to surviel for regulatory compliance through
the use of computer-based technology, the Commission agrees that it
should establish electronic submission programs for information
required to be submitted by members on a regular basis, upon approval
by the Commission. Similar programs have been established for which
members are currently submitting information electronically.\10\ The
Commission supports these programs and believers they provide a
framework for future programs. The Commission believes that
implementing such programs will benefit the Association and its members
as any delays associated with paper submission will be decreased and
any errors detected can be easily corrected.
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\10\ See supra note 5.
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IV. Conclusion
For the above reasons, the Commission believes that the proposed
rule change is consistent with the
[[Page 26843]]
provisions of the Act, and in particular with Sections 15A(b)(6) and
15A(b)(7).
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\11\ that the proposed rule change (SR-NASD-96-46) be, and hereby
is approved.
\11\ 15 U.S.C. 78s(b)(2) (1988).
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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. 97-12748 Filed 5-14-97; 8:45 am]
BILLING CODE 8010-01-M
