[Federal Register Volume 62, Number 99 (Thursday, May 22, 1997)]
[Notices]
[Pages 28088-28091]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13461]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38644; File No. SR-NASD-96-20, Amendment No. 5]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Temporary Accelerated Approval To Proposed Rule Change by
National Association of Securities Dealers, Inc. Relating To Changes in
the Structure of the NASD Board of Governors
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. 5 to the proposed rule change as described in Items I, II
and III below, which Items have been prepared by the NASD.\1\ The
[[Page 28089]]
Commission is publishing this notice to solicit comments on the
proposed rule change as further amended by Amendment No. 5 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 May 28, 1996.
On June 5, 1996, the NASD filed Amendment No. 1 to the proposed rule
change. Amendment No. 1 amended Article VI, Section 5 of the NASD
By-Laws (``By-Laws'') to clarify that, in a contested election, the
term of office of a candidate certified by the National Nominating
Committee for inclusion on the ballot for the election of Governors
pursuant to Article VI, Section 7(c) would be identical to the term
of office of a candidate nominated by the National Nominating
Committee pursuant to Article VI, Section 7(c). Amendment No. 1 also
amended Article VI, Section 7(a) of the By-Laws to clarify that any
person elected to the Board of Governors must be nominated or
certified by the National Nominating Committee. See Letter from
Suzanne E. Rothwell, Associate General Counsel, NASD to Katherine A.
England, Assistant Director, Division of Market Regulation,
Commission (dated June 4, 1996).
On July 2, 1996, the NASD filed Amendment No. 2 to the proposed
rule change. Amendment No. 2 provided the final report of the vote
of the NASD membership with respect to the proposed rule change.
2,227 valid ballots were received from NASD members. 2,101 voted to
approve the proposed rule change, 117 voted to disapprove the
proposed rule change and 9 did not vote.
On July 10, 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 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. 4 to the
proposed rule change. Amendment No. 4 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 (Securities Exchange Release No. 37282 (June 6, 1996), 61 FR
29777 (June 12, 1996)) and granted accelerated approval to the
proposed rule change for periods of 120 days and six months
(Securities Exchange Act Release No. 37424 (July 11, 1996), 61 FR
37515 (July 18, 1996) and Securities Exchange Act Release No. 37956
(November 15, 1996), 61 FR 59265 (November 21, 1996), respectively).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
In 1995, the NASD Board of Governors (``Board'') appointed The
Select Committee on Structure and Governance (``Select Committee'') to
examine the corporate structure, governance, and functions of the NASD
and to recommend changes and improvements to enable the NASD to meet
its regulatory and business obligations. In September 1995, the Select
Committee recommended, among other things, that the NASD establish two
distinct subsidiaries; one to perform the regulatory functions of the
NASD and the other to run The Nasdaq Stock Market, Inc. (``Nasdaq'').
The Select Committee recommended that each subsidiary have an
independent Board of Directors with at least 50% public representation
and that the NASD remain as parent corporation overseeing the
operations of both subsidiaries. The Select Committee recommended that
the NASD Board of Governors be composed of a majority of public
directors.
In January 1996, the NASD created a new subsidiary, NASD
Regulation, Inc. (``NASD Regulation'') to provide regulation and member
and constituent services, with the NASD retaining responsibility for
general oversight over the effectiveness of the self-regulatory and
business operations of the NASD and its major subsidiaries, Nasdaq and
NASD Regulation, and final policymaking authority for the association
as a whole. The NASD also adopted Select Committee proposals to
restructure and reduce the size of the NASD Board and to implement
policies to ensure a balance of non-industry and industry
representation on the Nasdaq and NASD Regulation Boards.
On April 11, 1996, the Commission granted temporary approval for a
period of 90 days to: (i) amendments to Article VII of the NASD By-Laws
to create a national nominating committee to nominate persons to serve
on the Board of Governors and reconstitute the Board as a majority non-
industry Board; \2\ (ii) NASD Rule 130 providing for the delegation of
authority to act on behalf of the NASD to NASD Regulation and Nasdaq
pursuant to the ``Plan of Allocation and Delegation of Functions by
NASD to Subsidiaries'' (``Delegation Plan''); and (iii) the Delegation
Plan.\3\ The Delegation Plan sets forth certain purposes, functions and
governance procedures of the three corporations working together.
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\2\ Securities Exchange Act Release No. 37106 (April 11, 1996),
61 FR 16944 (April 18, 1996) (``Release 34-37106'').
\3\ Securities Exchange Act Release No. 37107 (April 11, 1996),
61 FR 16948 (April 18, 1996) (``Release 34-37107'').
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On June 11, 1996, the Commission approved the instant proposed rule
change for a period of 120 days. The rule change amended the By-Laws to
conform them to the Delegation Plan. The rule change provided for the
creation of a national nominating committee to identify and nominate
for election industry and non-industry persons to serve on the Board;
deleted references to the District and local administration, because
responsibility for the local administration of regulatory affairs under
the Delegation Plan has been assigned to NASD Regulation; conformed
terms and rule citations to those used in the reorganized NASD Manual
and made miscellaneous clarifying corrections to the By-Laws; and
replaced all references to the NASD ``Certificate of Incorporation''
with references to the ``Restated Certificate of Incorporation'' to
reflect that the Certificate of Incorporation has been amended to be
consistent with the changes previously adopted and proposed herein to
the By-Laws. On November 15, 1996, the Commission extended temporary
approval of the instant proposed rule change for an additional six
months.\4\
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\4\ The Commission separately approved SR-NASD-96-29, amending
the Delegation Plan, for periods of 120 days and six months. See
Securities Exchange Act Release No. 37425 (July 11, 1996), 61 FR
37518 (July 18, 1996) and Securities Exchange Act Release No. 37957
(November 15, 1996), 61 FR 59267 (November 21, 1996), respectively.
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The NASD hereby files this Amendment No. 5, pursuant to Section
19(b)(1) of the Act and Rule 19b-4 thereunder, to obtain authorization
for an interim extension of the amendments to the By-Laws for a period
for six months.\5\ During this interval, there will be no further
amendments to the By-Laws, absent Commission approval of a
corresponding Rule 19b-4 filing.\6\
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\5\ The NASD also filed Amendment No. 4 to SR-NASD-96-29,
requesting an extension of the Commission's temporary approval of
the Delegation Plan for a period of six months. The Commission is
separately approving that rule change as further amended by
Amendment No. 4. See Securities Exchange Act Release No. 38645, May
15, 1997).
\6\ The NASD filed SR-NASD-97-28, to propose 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; the
filing contains proposed amendments to the NASD By-Laws. The comment
period for this rule filing expires on June 6, 1997. See Securities
Exchange Act Release No. 34-38545 (April 24, 1997, 62 FR 25226 (May
8, 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 Amendment No. 5 is to ensure continued effectiveness
of the amended NASD By-Laws while the Commission considers whether to
grant permanent approval to the instant NASD rule filing. Amendment No.
5 is intended to ensure that the NASD continues to possess the
requisite
[[Page 28090]]
corporate authority to continue the restructuring necessary to
implement the principles articulated in the report of the Select
Committee.
2. Statutory Basis
The NASD believes that the proposed rule change as further amended
by Amendment No. 5 is consistent with the provisions of Sections 15A(b)
(2), (4), and (6) of the Act \7\ in that the restructured organization
will: (1) 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; (2) provide for the
fair representation of members, issuers and investors on the Board of
Governors and in the administration of the NASD's affairs; and (3)
enhance the NASD's ability to protect investors and the public interest
in furtherance of the purposes of the Act.
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\7\ 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 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 of certain parts of the proposed rule
change for member vote in Notice to Members 95-101, attached as Exhibit
2 to rule filing SR-NASD-96-02, the NASD received three comments, which
were attached as Exhibit 4 to SR-NASD-96-02. The NASD's statement on
the comments received with respect to Notice to Members 95-101 is set
forth in rule filing SR-NASD-96-02 and was published by the Commission
in Release 34-37106.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The NASD requests that the Commission find good cause, pursuant to
Section 19(b)(2) of the Act, for approving the proposed rule change
prior to the 30th day after its publication in the Federal Register to
avoid any interruption of the effectiveness of the amended By-Laws. The
current authorization is scheduled to expire by May 15, 1997. Hence it
is imperative that the Commission approve the instant filing on or
before that date. Otherwise, the NASD will be required to suspend
operation of the self-regulatory organization functions currently
assumed by NASD Regulation and Nasdaq pending Commission action on the
proposed extension.
IV. Discussion
The Commission finds that the proposed rule change as further
amended by Amendment No. 5 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-96-29 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 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 in Releases 34-37424 and 34-37956,
respectively. 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
Delegation Plan submitted in rule filing SR-NASD-96-29, which also was
previously granted temporary approval for periods of 120 days and six
months.\8\ The Commission is also extending its temporary approval of
that proposed rule change.\9\
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\8\ See Securities Exchange Act Release No. 37425 (July 11,
1996), 61 FR 37518 (July 18, 1996) and Securities Exchange Act
Release No. 37957 (November 15, 1996), 61 FR 59267 (November 21,
1996), respectively.
\9\ Securities Exchange Act Release No. 38645 (May 15, 1997).
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The Commission finds good cause for approving the instant 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 NASD
Regulation 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.
Accordingly, the Commission believes that accelerating the approval
of the proposed rule change as further amended by Amendment No. 5 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, NW., Washington, DC 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 file number SR-NASD-96-20,
Amendment No. 5 and should be submitted by June 12, 1997.
VI. Commission's Findings and Order Granting Accelerated Approval
The Commission finds that the proposed rule change is consistent
with the provisions of Sections 15A(b)(2), (4),
[[Page 28091]]
and (6) of the Act \10\ in that the restructured organization will: (1)
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 NASD members and persons associated with members with the
Act, the rules and regulations thereunder, the rules of the Association
and the federal securities laws; (2) provide for the fair
representation of members, issuers and investors on the Board of
Governors and in the administration of the NASD's affairs; and (3)
enhance the NASD's ability to protect investors and the public interest
in furtherance of the purposes of the Act.
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\10\ 15 U.S.C. Sec. 78o-3.
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The NASD has requested that the Commission approve the proposed
rule change on or before May 15, 1997, which is prior to the 30th day
following publication of notice of the filing of the proposed rule
change in the Federal Register, in order to permit the uninterrupted
authorization of those corporate actions necessary to effectuate the
Delegation Plan.
Pursuant to Section 19(b)(2) of the Act,\11\ the Commission finds
good cause for approving the proposed rule change, as further amended
by Amendment No. 5, prior to the 30th day after publication in the
Federal Register. The proposed rule change will permit the NASD to
continue to carry out the functions and organize itself in the manner
contemplated by the Delegation Plan, which is intended to enable the
NASD to meet its regulatory and business obligations. Because the
Commission believes that the proposed rule change facilitates the
ability of the NASD to manage its affairs in a manner that enhances its
ability to carry out the purposes of the Act and enforce compliance by
NASD members and their associated persons with the provisions of the
Act, the Commission believes that the rule filing should be approved
without delay, for a six-month period.
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\11\ 15 U.S.C. 78s(b)(2).
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that SR-NASD-96-20, as further amended by Amendment No. 5, be, and
hereby is, approved effective through November 15, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Jonathan G. Katz,
Secretary.
[FR Doc. 97-13461 Filed 5-21-97; 8:45 am]
BILLING CODE 8010-01-M
