[Federal Register Volume 62, Number 99 (Thursday, May 22, 1997)]
[Notices]
[Pages 28086-28088]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13458]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38645; File No. SR-NASD-96-29; Amendment No. 4]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Temporary Accelerated Approval of Proposed Rule Change by
National Association of Securities Dealers, Inc. Relating to the
Allocation and Delegation of Authority and Responsibilities by the
National Association of Securities Dealers, Inc., to NASD Regulation,
Inc., and The Nasdaq Stock Market, Inc.
May 15, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on May 14,
1997, the National Association of Securities Dealers, Inc. (``NASD'')
filed with the Securities and Exchange Commission (``Commission'')
Amendment No. 4 to the proposed rule change as described in Items I, II
and III below, which Items have been prepared by the NASD.\1\ The
Commission is publishing this notice to solicit comments on the
proposed rule change as further amended by Amendment No. 4 from
interested persons and is simultaneously granting accelerated approval
to the proposed rule change for a period of six months.
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\1\ The NASD originally filed the rule change on July 2, 1996.
On July 8, 1996, the NASD filed Amendment No. 1 to the proposed rule
change. Amendment No. 1 amended the language of proposed new
Subsections II.C.4. and III.C.3 of the Delegation Plan to clarify
that it is proposed that the NASD Board of Governors have authority
to determine to both call for review or not call for review a matter
of the subsidiary Board during the 15-day period provided for
consideration by the NASD Board.
On July 10, 1996, the NASD filed Amendment No. 2 to the proposed
rule change. Amendment No. 2 requests temporary approval of the
proposed rule change for a period of 120 days. See Letter from T.
Grant Callery, Senior Vice President and General Counsel, NASD to
Katherine A. England, Assistant Director, Division of Market
Regulation, Commission (dated July 10, 1996).
On November 12, 1996, the NASD filed Amendment No. 3 to the
proposed rule change. Amendment No. 3 requested temporary approval
of the proposed rule change for a period of six months. See Letter
from T. Grant Callery, Senior Vice President and General Counsel,
NASD to Katherine A. England, Assistant Director, Division of Market
Regulation, Commission (dated November 12, 1996). The Commission
previously published notice of the proposed rule change and granted
accelerated approval to the proposed rule change for periods of 120
days and six months (Securities Exchange Act Release No. 37425 (July
11, 1996), 61 FR 37518 (July 18, 1996) (``Release 34-37425'') and
Securities Exchange Act Release No. 37957 (November 15, 1996), 61 FR
59267 (November 21, 1997) (``Release 34-37957'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The NASD is proposing to extend the effectiveness of: (1) Rule 0130
to the NASD's rules delegating to the subsidiaries of the NASD, NASD
Regulation, Inc. (``NASDR'') and The Nasdaq Stock Market, Inc.
(``Nasdaq''), the authority to act on behalf of the Association as set
forth in a Plan of Allocation and Delegation adopted by the NASD Board
of Governors and approved by the Commission pursuant to its authority
under the Act; and (2) adopt a Plan of Allocation and Delegation of
Functions by NASD to Subsidiaries (``Delegation Plan'') setting forth
the purpose, function, governance, procedures and responsibilities of
the NASD, NASDR and Nasdaq, following the reorganization of the NASD.
Rule 0130 and the Delegation Plan originally were filed with the
Commission in SR-NASD-96-16 and were simultaneously published for
comment and approved by the Commission on a temporary basis for a
period of 90 days.\2\ Release 34-37107 contained the full text of Rule
0130 and the Delegation Plan with the exception of three changes
thereto. On July 11, 1996, the Commission issued a release publishing
for comment the three changes to the Delegation Plan and further
approving Rule 0130 and the Delegation Plan as amended for a period of
120 days.\3\ Release 34-37107 and
[[Page 28087]]
Release 34-37425 published the complete text of the rule change. On
November 15, 1996, the Commission extended temporary approval of the
instant proposed rule change for a six month period.\4\
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\2\ Securities Exchange Act Release No. 37107 (April 11, 1996),
61 FR 16948 (April 18, 1996) (``Release 34-37107'').
\3\ Release 34-37425.
\4\ Release 34-37957.
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The NASD hereby files this Amendment No. 4, pursuant to Section
19(b)(1) of the Act and Rule 19b-4 thereunder, to obtain authorization
for an interim extension of the Delegation Plan as amended for an
additional period of six months.\5\ During this interval, there will be
no further amendments to the Delegation Plan, absent Commission
approval of a corresponding Rule 19b-4 filing.\6\
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\5\ The NASD also filed Amendment No. 5 to SR-NASD-96-20,
requesting an extension of the Commission's temporary approval of
the amended NASD By-Laws for a period of six months. The Commission
is separately approving that rule change as further amended by
Amendment No. 5. See Securities Exchange Act Release No. 38644 (May
15, 1997).
\6\ The NASD filed SR-NASD-97-28, the Notice of Filing of a
Proposed Rule Change by the National Association of Securities
Dealers, Inc. (``NASD'') to Proposed Changes in the By-Laws of the
NASD, NASD Regulation, Inc., The Nasdaq Stock Market, Inc., the Plan
of Allocation and Delegation of Functions by the NASD to
Subsidiaries, Membership Application Procedures, Disciplinary
Proceedings, Other Proceedings, and Other Conforming Changes, which
contains proposed amendments to the Delegation Plan. The comment
period for this rule filing expires on June 6, 1997.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the NASD 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 V below. The NASD has prepared summaries, set forth in Sections
(A), (B), and (C) below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this Amendment No. 4 is to ensure continued
effectiveness of the Delegation Plan while the Commission considers
whether to grant permanent approval to the instant NASD rule filing.
Description of Delegation Plan
The Delegation Plan is organized in three principal parts, one for
each of the three major entities that will constitute the reorganized
NASD: the parent corporation, National Association of Securities
Dealers, Inc.; the regulatory subsidiary, NASD Regulation, Inc.; and
the stock market operating subsidiary, The Nasdaq Stock Market, Inc.\7\
The Delegation Plan, the contents of which are self-explanatory,
describes the purposes, functions, governance, procedures and
responsibilities of each entity.
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\7\ The Delegation Plan does not discuss other wholly owned
subsidiary corporations of the NASD, such as, the Securities Dealers
Risk Purchasing Group, Inc. and Securities Dealers Insurance Co.,
Ltd. These and any other wholly owned subsidiaries of the NASD not
described in the Delegation Plan do not perform any of the
Association's regulatory functions or the operating functions
related to the operation of The Nasdaq Stock Market. In addition,
the Delegation Plan does not address the NASD's ownership role in
corporations such as the National Securities Clearing Corporation or
the Depository Trust Company.
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The first part of the Delegation Plan describes the parent
corporation, National Association of Securities Dealers, Inc. The
Delegation Plan sets forth the purpose and function of the NASD; the
composition of the Board of Governors, including provisions relating to
the qualifications for Governors, election procedures, creation of a
National Nominating Committee,\8\ term of office, vacancies and removal
from office; the function, composition and reporting structure of the
Audit Committee and the Office of Internal Review; the function and
composition of the Management Composition Committee; and the
Commission's access to and status of officers, directors, employees,
books, records and premises of the subsidiaries.
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\8\ The National Nominating Committee is composed of at least
six and not more than nine members equally balanced between Industry
and Non-Industry Committee Members (including at least two Public
Committee Members). Two members of the National Nominating Committee
are selected by each of the Subsidiaries and the NASD, of which it
is anticipated that at least three will be Non-Industry Members.
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The second part of the Delegation Plan describes the regulatory
subsidiary, NASD Regulation, Inc. The Delegation Plan sets forth the
delegation of authority to NASDR by the NASD; the purpose, function and
authority of NASDR; the composition of and qualifications for members
of the Board of Directors from 1997 forward, including provisions
relating to election procedures; the function and composition of the
National Business Conduct Committee; the Board's procedures for
reviewing disciplinary actions, statutory disqualification decisions
and proposed rule change recommendations; and the Board's procedures
for initiating actions.
The third part of the Delegation Plan describes the stock market
operating subsidiary, The Nasdaq Stock Market, Inc. The Delegation Plan
sets forth the delegation of authority to Nasdaq; the purpose and
function of Nasdaq; the composition of and qualifications for members
of the Board of Directors, including, provisions relating to election
procedures and the authority of the Board; the Board's procedures for
reviewing listing/delisting decisions, and rule change recommendations;
the Board's procedures for initiating actions; the functions and
composition of the Quality of Markets Committee; and functions of the
Stockwatch Department.
2. Statutory Basis for the Proposed Rule Change
The NASD believes that the proposed rule change as further amended
by Amendment No. 4 is consistent with the provisions of Section
15A(b)(2) of the Act \9\ in that the terms of the Delegation Plan will
provide for the organization of the Association in a manner that will
permit the Association, through its operating subsidiaries, to carry
out the purposes of the Act, to comply with the Act, and to enforce
compliance by Association members and persons associated with members
with the Act, the rules and regulations thereunder, the rules of the
Association and the federal securities laws.
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\9\ 15 U.S.C. Sec. 78o-3.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The NASD does not believe that the proposed rule change as further
amended by Amendment No. 4 will result in any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received. However, in
connection with the publication for member vote of proposed amendments
to the By-Laws to implement the Delegation Plan in Notice to Members
95-101 (December 11, 1995), attached as Exhibit 2 to proposed rule
change SR-NASD-96-02, the NASD received three comments which were
attached as Exhibit 4 to that proposed rule change. The NASD's
statement on the comments received with respect to Notice to
[[Page 28088]]
Members 95-101 is set forth in SR-NASD-96-02 and was published by the
Commission in Securities Exchange Act Release No. 37106 (April 11,
1996), 61 FR 16944 (April 18, 1996). SR-NASD-96-02 proposed certain of
the By-Law amendments issued for member vote in Notice to Members 95-
101 (December 11, 1995) in order to permit the reorganization of its
Board of Governors consistent with the Delegation Plan submitted in SR-
NASD-96-16.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The NASD has requested that the Commission find good cause pursuant
to Section 19(b)(2) for approving the proposed rule change as further
amended by Amendment No. 4 prior to the 30th day after publication in
the Federal Register.
IV. Discussion
The Commission finds that the proposed rule change as further
amended by Amendment No. 4 is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to the NASD
and, in particular, the requirements of Section 15A of the Act and the
rules and regulations thereunder. The Commission believes that the
proposed rule change will allow the NASD to carry out the purposes of
the Act to comply with, and enforce compliance by its members and
associated persons with, the provisions of the Act, the rules and
regulations thereunder, and the rules of the NASD. Furthermore, the
amendments are designed (with amendments to the NASD By-Laws
simultaneously approved in SR-NASD-96-20, as set forth below) to assure
a fair representation of the NASD's members, in the selection of its
directors and administration of its affairs as well as comply with the
public and non-industry participant requirements of the Act. It is
envisioned that these rules and any subsequent changes that may be
implemented from time-to-time will enable the NASD to better comply
with the requirements of Section 15A(b)(2) in particular and the Act in
general.
The Commission finds good cause for approving the proposed rule
change prior to the 30th day after the date of publication of notice of
filing thereof in that accelerated approval will enhance the NASD's
ability to carry out its regulatory obligations under the Act. The
Commission believes that the proposed rule change is intended to
accomplish certain allocations and delegations of authority necessary
to reorganize the NASD, and establish as separate subsidiaries the
NASDR and Nasdaq in accordance with the September 1995 recommendations
of The Select Committee on Structure and Governance in order to enable
the NASD to meet its regulatory and business obligations. The
Delegation Plan, which is part of this proposed rule change, sets forth
the purpose, functions, governance, procedures, and responsibilities of
the NASD, the NASDR and Nasdaq following the reorganization of the
NASD. The NASD's Board of Governors, which has been reorganized to be
consistent with the proposed rule change, has held meetings to carry
out the business of the Association. The subsidiaries also have held
meetings of the Board of Directors of NASDR and Nasdaq in order to
carry out the business of the subsidiaries during the period in which
the Delegation Plan has been effective.
The instant proposed rule change was previously published for
comment and approved by the Commission on a temporary basis for periods
of 120 days and six months.\10\ The six month approval period is
scheduled to expire by May 15, 1997. No comment letters concerning the
instant proposed rule change were received by the Commission. The
reorganization of the NASD Board of Governors is also reflected in rule
changes to the NASD By-Laws submitted in rule filing SR-NASD-96-20,
which also was previously granted temporary approval for six
months.\11\ The Commission is also extending its temporary approval of
that proposed rule change.\12\
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\10\ Release Nos. 34-37425 and 34-37957, respectively.
\11\ Securities Exchange Act Release No. 37956 (November 15,
1996), 61 FR 59265 (November 21, 1996).
\12\ See Securities Exchange Act Release No. 38644 (May 15,
1997).
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Accordingly, the Commission believes that accelerating the approval
of the proposed rule change as further amended by Amendment No. 4 will
benefit members and the public interest by fully implementing the
reorganization of the NASD and its subsidiaries.
V. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. 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. 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 the file number in the caption
above and should be submitted by June 12, 1997.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change SR-NASD-29, as amended by Amendment No.
4, be, and hereby is, approved through November 15, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 97-13458 Filed 5-21-97; 8:45 am]
BILLING CODE 8010-01-M
