[Federal Register Volume 60, Number 133 (Wednesday, July 12, 1995)]
[Notices]
[Pages 35977-35978]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16998]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35934; File No. SR-NASD-95-19]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change by National Association of Securities Dealers, Inc., Relating to
Limited Partnership Rollup Transactions
July 3, 1995.
On May 4, 1995, the National Association of Securities Dealers,
Inc. (``NASD'' or ``Association'') filed with the Securities and
Exchange Commission (``SEC'' or ``Commission'') the proposed rule
change pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934 (``Act''),\1\ and Rule 19b-4 thereunder.\2\ The proposed rule
change amends the NASD's rule regulating rollups (``Rollup Rule'') by
adding new paragraph 7 to Subsection (b)(2)(B)(vii)d of Article III,
Section 34 of the Rules of Fair Practice and new paragraph (vii) to
Subsection (14)(D) to Part I of Schedule D to the By-Laws to exclude
investment companies and business development companies from the
definition of ``limited partnership rollup transaction.''
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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Notice of the proposed rule change, together with the substance of
the proposal, was given by Commission release (Securities Exchange Act
Release No. 35761, May 24, 1995) and by publication in the Federal
Register (60 FR 28639, June 1, 1995). One comment letter was received.
The Commission is approving the proposed rule change.
I. Background
Federal legislation regulating limited partnership rollups
(``Rollup Reform Act'') was signed into law on December 17, 1993, and
contained a mandate for the NASD to adopt its own rollup rule. On
August 15, 1994,\3\ the SEC approved the Rollup Rule which amended
Article III, Section 34 of the NASD Rules of Fair Practice to prohibit
NASD members and associated persons from participating in a ``limited
partnership rollup transaction'' unless the transaction includes
specified provisions to protect the rights of limited partners. The
Rollup Rule further amended Part III of Schedule D to the By-Laws to
prohibit the authorization for quotation on the Nasdaq National Market
of any security resulting from a ``limited partnership rollup
transaction'' unless the transaction is conducted in accordance with
certain specified procedures designed to protect the rights of limited
partners. The NASD Rollup Rule was designed to conform to the federal
rollup legislation.
\3\ Securities Exchange Act Release No. 34533 (August 15, 1994);
59 FR 43147 (August 22, 1994.)
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Subsequent to approving the NASD's Rollup Rule, the SEC adopted
Rule 3b-11 to exclude from the definition of ``limited partnership
rollup transaction,'' among other things, transactions involving
entities registered under the Investment Company Act of 1940 (``1940
Act'') or any Business Development Company as defined in Section
2(a)(48) of the 1940 Act.\4\ The SEC requested that the NASD amend the
Rollup Rule to conform the NASD's definition of ``limited partnership
rollup transaction'' to the definition adopted by the SEC.
\4\ Securities Act Release No. 7113; Securities Exchange Act
Release No. 35036 (December 2, 1994); 59 FR 63676 (December 8,
1994).
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II. The Terms of Substance of the Proposed Rule Change
The proposed rule change adds new paragraph 7 to Subsection
(b)(2)(B)(vii)d of Article III, Section 34 of the Rules of Fair
Practice and new paragraph (vii) to Subsection (14)(D) to Part I of
Schedule D to the By-Laws to exclude investment companies and business
development companies from the definition of ``limited partnership
rollup transaction.'' The specific text of the rule change would apply
to ``a transaction involving only entities registered under the
Investment Company Act of 1940 or any Business Development Company as
defined in Section 2(a)(48) of that Act.''
[[Page 35978]]
III. Comment Letters
As mentioned above, the Commission received one comment letter.\5\
The ICI strongly supported and urged the Commission to adopt the
proposed rule change. The ICI believed that an explicit exclusion of
registered investment companies from the definition of ``limited
partnership rollup transaction'' under NASD rules is entirely
appropriate because investment companies are already subject to
extensive regulation and have not been perceived as entities connected
with the types of abusive limited partnership rollup transactions for
which the investor protection provisions of the rollup rules were
sought.
\5\ Letter from Frances M. Stadler, Esq., Associate Counsel,
Investment Company Institute (``ICI''), to Jonathan Katz, Secretary,
Securities and Exchange Commission, dated June 22, 1995.
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IV. Discussion
The Commission believes that the proposed rule change is consistent
with the provisions of Section 15A(b)(6) of the Act,\6\ which require
that the rules of the association be designed to prevent fraudulent and
manipulative acts and promote just and equitable principles of trade in
that the proposed rule change provides for regulatory consistency of
the NASD's definition with the SEC's definition of ``limited
partnership rollup transaction'' and appropriately excludes investment
companies and business development companies from unnecessary, and
potentially burdensome, additional regulation. Investment Companies and
Business Development Companies are already subject to extensive
regulation under the 1940 Act and the concerns associated with abusive
limited partnership rollup transactions (e.g., significant conflicts of
interest, adverse changes and differing effects for partnership
investors) for which the investor protection provisions of the rollup
rules were sought have not been apparent in these areas.
\6\ 15 U.S.C. 78o-3.
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change SR-NASD-95-19 be, and hereby is,
approved.
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. 95-16998 Filed 7-11-95; 8:45 am]
BILLING CODE 8010-01-M
