[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Notices]
[Pages 30269-30272]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15181]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37291; File No. SR-NASD-96-21]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by National Association of Securities Dealers, Inc. Relating to
Mandatory Electronic Filing of Forms U-4, U-5 and BD
June 7, 1996.
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 June 7,
1996, the National Association of Securities Dealers, Inc. (``NASD'' or
``Association'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'')
[[Page 30270]]
the proposed rule change as described in Items, I, II, and III below,
which Items have been prepared by the NASD. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The NASD is herewith filing a proposed rule change to the NASD By-
Laws and Membership and Registration Rules. Below is the text of the
proposed rule change. Proposed new language is italicized; proposed
deletions are in brackets.
By-Laws
Ineligibility of Certain Persons for Membership or Association
Article II Sec. 3(a)
No registered broker, dealer, municipal securities broker or
dealer, or government securities broker or dealer shall be admitted to
membership, and no member shall be continued in membership, if such
broker, dealer, municipal securities broker or dealer, or government
securities broker or dealer, or member * * * or if such member fails to
comply with the requirement that all forms filed pursuant to these By-
Laws be filed via electronic process or such other process the
Corporation may prescribe.
Application for Membership
Article III Sec. 1(a)
Application for membership in the Corporation, properly signed by
the applicant, shall be made to the Corporation via electronic process
or such other process the Corporation may prescribe, on the form to be
prescribed by the corporation, and shall contain: * * *
Article III Sec.1 (d)
Each member shall ensure that its membership application with the
Corporation is kept current at all times by supplementary amendments
via electronic process or such other process the Corporation may
prescribe to the original application. Such amendments to the
application shall be filed with the Corporation not later than thirty
(30) calendar days after learning of the facts or circumstances giving
rise to the amendment.
Executive Representative
Article III Sec. 3
Each member shall appoint and certify to the Secretary of the
Corporation one ``executive representative'' who shall represent, vote
and act for the member in all the affairs of the Corporation, except
that other executives of a member may also hold office in the
Corporation, serve on the Board of Governors or committees of the
Corporation, or otherwise take part in the affairs of the Corporation.
A member may change its executive representative upon giving [written]
notice thereof via electronic process or such other process the
Corporation may prescribe to the Secretary, or may, when necessary,
appoint, by [written] notice via electronic process to the Secretary, a
substitute for its executive representative. An executive
representative of a member or a substitute shall be a member of senior
management and registered principal of the member.
Resignation of Members
Article III Sec. 5
Membership in the Association may be voluntarily terminated only by
formal resignation. Resignations of members must be filed via
electronic process or such other process the Corporation may prescribe
[in writing] and addressed to the Corporation which shall immediately
notify the appropriate District Committee. Any member may resign from
the Corporation at any time. Such resignation shall not take effect
until thirty (30) calendar days after the receipt thereof by the
Corporation and until all indebtedness due the Corporation from such
member shall have been paid in full and so long as any complaint or
action is pending against the member under the Code of Procedure. The
Corporation, however, may in its discretion declare a resignation
effective at any time.
Registration of Branch Offices
Article III Sec.8(b)
Each member of the Corporation shall promptly advise the
Corporation via electronic process or such other process the
Corporation may prescribe of the opening, [or] closing, relocation,
change in designated supervisor or change in designated activities of
any branch office of such member not later than thirty (30) calendar
days after the effective date of such change.
Application for Registration
Article IV Sec.2(a)
Application by any person for registration with the Corporation,
properly signed by the applicant, shall be made to the Corporation via
electronic process or such other process the Corporation may prescribe,
on the form to be prescribed by the Corporation [Board of Governors]
and shall contain: * * *.
Article IV Sec.2(c)
Every application for registration filed with the Corporation shall
be kept current at all times by supplementary amendments via electronic
process or such other process the Corporation may prescribe to the
original application. Such amendments to the application shall be filed
with the Corporation not later than thirty (30) calendar days within
learning of the facts or circumstances giving rise to the amendment. If
such amendment involves a statutory disqualification as defined in
Section 3(a)(39) and Section 15(b)(4) of the Act, such amendment shall
be filed not later than ten (10) calendar days after such
disqualification occurs.
Notification by Member to Corporation and Associated Person of
Termination; Amendments to Notification
Article IV Sec.3(a)
Following the termination of the association with a member of a
person who is registered with it, such member shall [promptly, but] not
[in no event] later than thirty (30) calendar days after such
termination, give [written] notice of the termination of such
association to the Corporation [Association] via electronic process or
such other process the Corporation may prescribe on a form designated
by the Corporation [Board of Governors], and concurrently shall provide
to the person whose association has been terminated a copy of said
notice as filed with the Corporation [Association]. A member which does
not submit such notification [in writing], and provide a copy to the
person whose association has been terminated, within the time period
prescribed shall be assessed a late filing fee as specified by the
Corporation [Board of Governors]. Termination of registration of such
person associated with a member shall not take effect so long as any
complaint or action under the Code of Procedure is pending against a
member and to which complaint or action such person associated with
[[Page 30271]]
a member is also a respondent, or so long as any complaint or action is
pending against such person individually under the Code of Procedure.
The Corporation, however, may in its discretion declare the termination
effective at any time.
Article IV Sec.3(b)
The member shall notify the Corporation [Association] via
electronic process or such other process the Corporation may prescribe
[in writing] by means of an amendment to the notice filed pursuant to
paragraph (a) above in the event that the member learns of facts or
circumstances causing any information set forth in said notice to
become inaccurate or incomplete. Such amendment shall be filed with the
Corporation [Association] and a copy provided to the person whose
association with the member has been terminated not later than thirty
(30) calendar days after the member learns of facts or circumstances
giving rise to the amendment.
Membership and Registration Rules
Electronic Filing Rules
Registration--Electronic Filing
This Part has been prepared pursuant to the provisions of Article
II Section 2, Article III Section 1, and Article IV Sections 2 and 3 of
the NASD By-Laws and contains the requirements of filing the
appropriate forms for members and persons associated with members.
(1) Filing Requirement:
All forms required to be filed by these By-Laws shall be filed
through an electronic process or such other process the Corporation may
prescribe to the Central Registration Depository.
(2) Supervisory Requirements:
(a) In order to comply with the supervisory procedures requirement
in Rule 3010 of the Conduct Rules, each member must identify a
Registered Principal(s) or corporate officer(s) who has a position of
authority over registration functions, to be responsible for
supervising the electronic filing of appropriate forms pursuant to this
Part.
(b) The Registered Principal(s) or corporate officer(s) who has or
have the responsibility to review and approve the forms filed pursuant
to this Part will be required to acknowledge, electronically, that he
is filing this information on behalf of the firm and the member firm's
associated persons.
(3) Form U-4 Filing Requirements:
(a) Initial and transfer electronic application filings will be
based on a signed Form U-4 provided to the firm by the applicant. As
part of the member firm's recordkeeping requirements, it must retain
the applicant's signed Form U-4 and make it available upon regulatory
request.
(b) Amendments to the disclosure information in Item 22 can be
filed electronically without obtaining the associated person's
signature on Form U-4. The member will be required to provide the
associated person with a copy of the amended disclosure information
that was filed. In providing this material to the associated person,
the firm must obtain the written acknowledgement that the information
has been received and reviewed. The member must maintain this
acknowledgement in its books and records and must make it available
upon regulatory request.
(4) Form U-5 Filing Requirements:
(a) Initial filings and amendments of Form U-5 will be done
electronically. As part of the member firm's recordkeeping
requirements, it must make them available upon regulatory request.
(5) A Member may employ a third party to file the required forms
electronically on its behalf, if the member and the third party have
executed NASD's Broker-Dealer Agent--Filing Addendum To CRD Subscribe
Agreement.
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 IV 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
Since 1992, the NASD has undertaken an extensive redesign effort to
improve the Central Registration Depository (``CRD'') with the goal of
requiring total electronic filing of registration-related forms. The
central focus of the redesign effort is to provide efficient, reliable,
effective, state-of-the-art systems and procedures at reasonable cost
to support licensing and regulation of the securities industry.
Implementation of mandatory electronic filing will eliminate delays in
processing information in hard copy. The redesigned CRD will offer
efficient processing of registration-related filings and user friendly
access to information contained in those filings for all industry and
regulatory participants. A detailed discussion of the CRD
implementation plan appeared in the December 1995 issue of Membership
On Your Side.
The revisions to the By-Laws include amendments that require filers
to submit information on Forms U-4, U-5, and BD via electronic
means.\1\ The impact of this requirement on small member firms with
limited access and form filing needs was considered by the Board of
Governors. The Board addressed this concern, by providing all firms
with the option to contract with third party vendors to handle the
filings with the CRD. The Board also determined to give firms who have
less than fifty registered persons the option to file electronically,
utilize a third-party service bureau or file with the NASD's internal
processing unit. Member firms can choose for themselves based upon
their needs whether to access the system directly by acquiring the
necessary hardware and software and training their registration staff
or to access the system indirectly via a third party agent or service
bureau. NASD Membership staff are working with the vendors and service
bureaus to make sure they are prepared to provide this service to
members.
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\1\ The Commission is simultaneously publishing notice of NASD's
proposed rule changes amending Forms U-4 and U-5. File No. SR-NASD-
96-19; Securities Exchange Act Release No. 37289 (June 7, 1996).
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Specific By-Law provisions which currently require filers to use
``forms'' or provide ``written notification'' are changed to require
filing by electronic process or such other process as the NASD may
prescribe. The provisions which refer to the filer obligations to keep
applications ``current'' have been revised to set out more specific
requirements including specific time frames (usually 30 days) for the
filing of information. In addition, the NASD's membership eligibility
criteria are amended to require firms to file via the electronic
process. Firms who fail to comply with the electronic filing
requirement may be subject to suspension or cancellation of membership.
[[Page 30272]]
The NASD has established a rollout schedule which began in May 1996
with approximately eleven member firms and one service bureau being
involved in a pilot test. It is anticipated that the pilot firms will
file all forms electronically in the new CRD system on approximately
July 29, 1996.
The NASD Board in assessing the impact of mandatory electronic
filing on smaller members decided to divide the membership into two
groups. This was done by analyzing the average number of filings a firm
makes in conjunction with the number of registered persons employed at
the firm. The analysis revealed that firm which employ 50 or more
registered persons are responsible for an overwhelming majority of the
filings. Therefore, the Board used this criteria as the dividing point
for the two groups. The NASD used April 26, 1996 as the date to divide
the members. On that date, there were 813 members who employed 50 or
more registered persons (``Group I'') and approximately 4,600 members
with less than 50 registered persons (``Group II'').
The rollout schedule for all NASD members is as follows. These
firms have been divided among the five NASD Service and Quality teams.
Team 1 goes into production on approximately September 9, 1996, Teams 2
and 3 on approximately October 7, 1996, and Teams 4 and 5 on
approximately November 4, 1996.
Firms in Group II may comply with the electronic filing requirement
through any of three methods: (1) they may file electronically on their
own; (2) they may utilize a third-party vendor to file on their behalf;
or (3) for a period of one year commencing on September 9, 1996 and
ending on September 9, 1997, for a prescribed fee, these firms may file
paper forms with the NASD which through its own internal processing
unit will file the forms with the new CRD system.
The NASD is also amending its Membership and Registration Rules to
establish electronic filing protocols. Under these protocols the member
will:
(1) Designate a Registered Principal(s) or corporate officer(s) to
be responsible for supervising the electronic filing of appropriate
filings with such responsibility to acknowledge, electronically, that
the filing is on behalf of the firm and the member firm's associated
persons.
(2) Retain and provide upon regulatory request original, signed
Form U-4s which were electronically processed as initial or transfer
applications as part of the recordkeeping requirements.
(3) File amendments to administration data without the signature of
the subject individual. Such information includes the addition of state
or SRO registration, exam scheduling and updates to residential,
business and personal history.
(4) File amendments to disclosure data electronically provided that
the subject person has acknowledged that the information has been
received and reviewed. This acknowledgement must be retained and
provided upon regulatory request.
(5) File initial and amended Form U-5 Notice of Terminations
electronically. The filing firm must make the filings available upon
regulatory request.
The NASD believes that the proposed rule changes are consistent
with the provisions of Section 15A(b)(6) of the Act in that mandatory
electronic filing with the new CRD system will provide efficient
processing of registration-related filings and will allow for easy
access to information in these filings by all industry and regulatory
participants.
(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.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
A. By order approve such proposed rule change, or
B. Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. 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 July 5, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-15181 Filed 6-13-96; 8:45 am]
BILLING CODE 8010-01-M
