02-12986. Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Order Granting Approval to a Proposed Rule Change and Amendment No. 1 Thereto Relating to the Establishment of a Subordination Agreement Investor Disclosure ...

May 17, 2002.

On January 17, 2002, the National Association of Securities Dealers, Inc. (“NASD”), 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 require, as part of a subordination agreement, the execution of a Subordination Agreement Investor Disclosure Document (“Disclosure Document”). On March 21, 2002, NASD Regulation filed Amendment No. 1 to the proposed rule change with the Commission.^[3] The proposed rule change, as amended by Amendment No. 1, was published for comment in the Federal Register on April 16, 2002.^[4] The Commission received no comment letters on the proposal. This order approves the proposed rule change, as amended.

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 and, in particular, the requirements of section 15A of the Act ^[5] and the rules and regulations thereunder. Specifically, the Commission believes that the proposed rule change is consistent with section 15A(b)(6) of the Act,^[6] which, among other things, requires that 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. The Commission believes that the Disclosure Document should provide investors with an understanding of the key risks associated with loaning money or securities to a broker-dealer under a subordination agreements.^[7]

It is therefore ordered, pursuant to section 19(b)(2) of the Act,^[8] that the proposed rule change and Amendment No. 1 thereto (File No. SR-NASD-2002-12) are approved.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[9]

Margaret H. McFarland

Deputy Secretary

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  In Amendment No. 1, NASD Regulation made certain clarifications to the Disclosure Document (“Amendment No. 1”). Letter from Patrice M. Gliniecki, Vice President and Acting General Counsel, NASD Regulation, to Katherine A. England, Assistant Director, Division of Market Regulation, Commission, dated March 21, 2002.

4.  Securities Exchange Act Release No. 45721 (April 10, 2002), 67 FR 18661.

5.  15 U.S.C. 78 o-3.

6.  15 U.S.C. 78 o-3(b)(6).

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

8.  15 U.S.C. 78s(b)(2).

9.  17 CFR 200.30-3(a)(12).