[Federal Register Volume 62, Number 136 (Wednesday, July 16, 1997)]
[Notices]
[Pages 38156-38178]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-18728]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38831; File No. SR-NASD-97-28]
Self-Regulatory Organizations; Notice of Filing of Amendment No.
2 to a Proposed Rule Change by the National Association of Securities
Dealers, Inc., Relating to Procedures for Limitations on Operations,
Suspensions, Cancellations, Bars, Denials of Access, Eligibility
Proceedings and Exemptions
July 11, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'')\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given that
on July 10, 1997, the National Association of Securities Dealers, Inc.
(``NASD'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') Amendment No. 2 to the proposed rule change, as
described in Items I, II, and III below, which Items have been prepared
by the self-regulatory organization.\3\ The Commission is publishing
this notice to solicit comments on Amendment No. 2 from interested
persons.
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\1\ 15 U.S.C. Sec. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ The proposed rule change, including Amendment No. 1, was
previously noticed in the Federal Register. See Exchange Act Release
No. 38545 (April 24, 1997), 62 FR 25226 (May 8, 1997) (the
``Original Proposal''). Two comment letters were received on the
Original Proposal. See letter from Faith Colish, Attorney, Faith
Colish P.C., to Jonathan G. Katz, Secretary, Commission, dated June
9, 1997; letter from George S. Frazza, Chair, Section of Business
Law and Barry F. McNeil, Chair, Section of Litigation, American Bar
Association, to Jonathan G. Katz, Secretary, Commission, date June
17, 1997.
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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 amend the proposed rule change filed in
SR-NASD-97-28. The Amendment contains revisions to the proposed Rule
9400 and 9500 Series of the Code of Procedure of the NASD and a
proposed Rule 9600 Series setting forth procedures for applying for
exemptions. As amended, the proposed Rule 9400-9500 Rule Series sets
forth procedures for limitations on operations, suspensions,
cancellations, bars, denials of access to NASD services, and
eligibility proceedings. As noted in the Original Proposal, the NASD
proposes to rescind the Rule 9500 and 9600 Series. The Association is
requesting permanent approval of the proposed rule change as set forth
in this
[[Page 38157]]
Amendment. Attached as Exhibit A is the amended text of the proposed
rule change. Proposed new language is in italics; proposed deletions
are in brackets.
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 self-regulatory organization
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 self-regulatory organization
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
a. Introduction: The NASD is amending the Original Proposal
relating to the Rule 9400 and 9500 Series to request permanent approval
of the Rule 9400 and 9500 Series as proposed in this amendment,
consolidate and reorganize certain procedures, provide additional
procedural rights and specificity for each proceeding, and conform the
proposed Rule 9400 and 9500 Series to the proposed Rule 9200 and 9300
Series. Further, the NASD is proposing a new Rule 9600 Series that
would require members to apply to the staff in the first instance for
an exemption under various rules and provide a right of appeal to the
National Business Conduct Committee.
The Original Proposal requested temporary approval for five
separate procedures for: (1) Regulating the activities of members
experiencing financial or operating difficulty (proposed Rule 9410);
(2) approval of a change in business operations that will result in a
change in exemptive status under SEC Rule 15c3-3 (proposed rule 9420);
(3) summary suspension (proposed Rule 9510); (4) non-summary
suspension, cancellation, and bar (proposed Rule 9520); and (5)
eligibility proceedings (proposed Rule 9530). The Original Proposal
also indicated that the NASD would comprehensively review the Rule 9400
and 9500 Series and consider submitting a revision to its proposal
based on that review.
As a result of its review, the NASD now proposes to amend its
Original Proposal to reduce the number of separate proceedings from
five to three, and seeks permanent approval of these three procedures.
First, the NASD is proposing that the Rule 9410 Series for limitations
on operations remain as a separate rule. Second, the NASD is proposing
to eliminate the Rule 9420 Series as a separate rule series and instead
require a member that wishes to change its exemptive status under SEC
Rule 15c3-3 to apply for a change to its membership agreement if such
agreement covers the member's exemptive status, or file a notice and
application for approval of a material change in the member's business
operations if the membership agreement does not specifically address
the member's exemptive status. Procedures for applying for a change to
a membership agreement or for approval of a material change in business
operations are set forth in the proposed rule 1010 Series. The NASD
will inform the membership of this change in procedure in a notice to
members. Third, the NASD proposes to consolidate the Exchange Act
summary suspension proceedings (proposed Rule 9510), non-summary
suspension, cancellation, and bar proceedings (proposed Rule 9520), and
new denial of access procedures in the revised Rule 9510 Series.
Finally, eligibility proceedings remain in a separate rule series and
are renumbered as the Rule 9520 Series.
The NASD also proposes to amend the Rule 9400 and Rule 9500 Series
to provide members, associated persons, and others with enhanced
procedural protections in the conduct of these proceedings and to
expedite the hearing and review processes, especially under the
proposed Rule 9510 Series. The amendments to the proposed rules include
a variety of new provisions regarding the time in which a hearing
requested by a member must be held (proposed Rule 9413(c) and 9514(d));
the disclosure of documents by NASD staff to the member prior to
hearing (proposed Rules 9413(d), 9514(e) and 9523(a)); and the rights
of parties at a hearing (proposed Rules 9413(e), 9514(f) and 9523(a)).
Some of the more significant proposed changes are discussed below.
b. Proposed Rule 9410 Series: The original proposal did not provide
for timely notice to the member of the date, time, and location of the
hearing. As amended, proposed Rule 9413(c) now provides that the
Department of Member Regulation must provide written notice of such
information to the member at least five business days prior to the
hearing.
Similarly, no provision was made in the Original Proposal for
disclosure to the member, prior to the hearing, of the Department of
Member Regulation's documents. The NASD now proposes that not less than
five business days prior to the hearing, the member shall receive all
documents considered by the Department of Member Regulation in imposing
the limitations on the member's business activities, except any
document that meets the criteria of Rule 9251(b)(1) (A), (B), or (C).
That Rule describes certain documents that are privileged, constitute
attorney work product, or otherwise relate to confidential
investigatory or examination techniques. As a matter of practice, the
NASD does not turn over such documents in any of its proceedings. As
noted in the original proposal, proposed Rule 9251 is based on SEC Rule
of Practice 230, 17 C.F.R. 201.230. The proposed rule also provides for
the exchange of proposed exhibit and witness lists (proposed Rule
9413(d)).
The NASD also proposes to amend the Rule 9410 Series to set forth
the contents of the record (proposed Rule 9413(f)); designate the
obligations of the custodian of the record (proposed Rules 9413(g) and
9414(a)(4)); and a requirement that the Department issue a written
decision (proposed Rule 9413(i)). If a decision imposes limitations,
the decision must state the grounds for the limitations and the
conditions for terminating such limitations (proposed Rule 9413(i)).
The appeal and review procedures for the Rule 9410 Series are
largely unchanged from the original proposal. Amendment No. 2 adds a
new provision that additional relevant and material evidence may be
considered by the Subcommittee of the National Business Conduct
Committee (proposed Rule 9414(b)(4)).
In the original proposal, proposed Rule 9417(b), Enforcement of
Sanctions, did not provide the time in which a hearing must be held if
requested by a member. The NASD proposes to provide that the hearing
must be held within ten days after service of the Department of Member
Regulation's order imposing sanctions. The NASD also proposes to amend
proposed Rule 9417 to provide that a request for hearing shall not stay
the effectiveness of the order imposing sanctions.
Proposed Rule 9418 clarifies that if additional limitations are
imposed, the member may apply for relief by filing a written
application for hearing under rule 9413, and that Rules 9413 through
9417 apply to such a request.
[[Page 38158]]
c. Proposed Rule 9510 Series: The original proposal proposed
separate rules for summary suspension as authorized by Section
15A(h)(3) of the Exchange Act (proposed Rule 9510) and non-summary
suspension, cancellation, and bar proceedings (proposed Rule 9520). The
NASD now proposes to consolidate these procedures under the proposed
Rule 9510 Series and add new denial of access procedures. The proposed
amendments make clear, however, the different bases for summary and
non-summary procedures (proposed Rule 9511).
The proposed amendments are intended to expedite these proceedings
by providing that computation of time under the Rule 9510 Series at all
times includes intermediate Saturdays, Sundays, and holidays. In
contrast, proposed Rule 9138 includes such days unless the period is
ten days or less. In addition, to conform with proposed Rule 9143 and
the proposed amendment to the Rule 9410 Series, ex parte rules apply
when NASD staff has knowledge that a member, associated person, or
other person intends to request a hearing under proposed Rule 9514.
Although the procedures for hearing and review have been
consolidated, the different procedures for the initiation of summary
and non-summary proceedings (proposed Rules 9512 and 9513) remain
largely unchanged from the original proposal.
To expedite these proceedings, the request for hearing must be
filed within seven days after service of the notice initiating the
proceeding (proposed Rule 9514(a)). As amended, proposed Rule 9514(b)
also provides for the designation of a department or office of the NASD
to act as a party in the proceeding and for the appointment of a
Hearing Panel.
To conform with the proposed Rule 9410 Series, the proposed Rule
9510 Series provides for the time in which the hearing must be held;
written notice of the location, date, and time of the hearing;
transmission of the NASD's documents; and exchange of proposed exhibit
and witness lists prior to the hearing (proposed Rule 9514 (d) and
(e)). With respect to the transmission of the NASD's documents, the
NASD does not anticipate that a notice of summary suspension will be
based solely on documents that meet the exclusion criteria of Rule
9251(b)(1)(A)-(C). In all cases, the notice of summary suspension must
include the factual basis for the NASD's action and those facts may be
derived from documents that meet the criteria of Rule 9251(b)(1)(A)-
(C). Provisions to proposed Rule 9413 also define the contents of the
record and designate a custodian of the record (proposed Rule
9514(f)(4) and (5)). The provision defining the contents of the
decision issued by the hearing panel (proposed Rule 9514(g)(3)) has
been amended to conform with proposed Rule 9268, which describes the
initial decision in a disciplinary proceeding.
The NASD also has added a procedure for reinstatement after a non-
summary suspension or limitation. This procedure is similar to the
procedure set forth in proposed Rule 8225. A member or person who is
subject to a summary suspension, limitation, or prohibition or a non-
summary prohibition under the proposed Rule 9510 Series could not use
this reinstatement procedure; such member or person would have to
reapply for membership, registration, or access under other Rules of
the NASD.
The NASD also has specifically provided for the imposition of costs
in denial of access proceedings, which are not otherwise covered by
Rule 8330.
Finally, certain existing cross-references to the Rule 9700 Series
in other NASD rules must be changed to reflect that the Rule 9510
Series will now provide procedures for denials of access. That is, the
reference to the Rule 9700 Series in NASD Rules 4730 and 5360 will be
replaced with a reference to the Rule 9510 Series. The NASD proposes to
eliminate the references to the Rule 9700 Series in Rule 5265 because
procedures for resolving matters arising under this rule are provided
for under the Uniform Practice Code, as set forth in the Rule 11000
Series.
d. Proposed Rule 9520 Series: The rules for eligibility proceedings
are now renumbered as the proposed Rule 9520 Series. The length of time
for a member to file a written application for relief is extended from
seven to ten days (proposed Rule 9522(a)). The Amendment also provides
for notice of the location, date, and time of the hearing and the
transmission of the NASD's documents and exchange of exhibit and
witness lists prior to hearing (proposed Rule 9523(a)). The Amendment
also provides for the content of the record and the designation of the
custodian of the record (proposed Rule 9523(a)(6) and (7)).
In keeping with other procedures in the proposed Rule 9000 Series,
the NASD is amending proposed Rule 9522 to provide that applications
for relief and notices of withdrawal of such applications be filed with
the adjudicator, the National Business Conduct Committee, rather than
the Department of Member Regulation, which acts as a Party in the
proceeding. In addition, because departments and offices other than the
Department of Member Regulation may be involved in issuing a notice of
disqualification (e.g., the Membership Department, which maintains the
Central Registration Depository), the NASD is amending proposed Rule
9522 to provide that ``Association staff'' rather than ``the Department
of Member Regulation'' may issue a notice of disqualification.
e. Proposed Rule 9600 Series: As part of the NASD's settlement with
the Commission, the NASD agreed to provide autonomy and independence to
the regulatory staff of the NASD and its subsidiaries such that the
staff: (i) Has sole discretion as to what matters to investigate and
prosecute; (ii) has sole discretion to handle all other regulatory
matters; (iii) prepares rule proposals, rule interpretations, and other
policy matters with any consultations with interested NASD
constituencies made in a fair and evenhanded manner; and (iv) is
generally insulated from the commercial interests of its members and
the Nasdaq market.
As part of the implementation of the requirement in the settlement
to provide autonomy and independence to the regulatory staff in certain
matters, the NASD is proposing a new Rule 9600 Series that would
require members to apply to the staff in the first instance for an
exemption under various rules and provide a right of appeal to the
National Business Conduct Committee.
The proposed rule change is also consistent with amendments
recently filed with the Commission which, among other things, propose
to revise the Rules of the NASD to create greater authority for NASD
Regulation staff regarding applications for membership and the
investigation of complaints, and to provide enhanced procedural rights
and safeguards for new applicants and those subject to a complaint.
The proposed Rule 9600 Series would require a member seeking an
exemption from certain NASD rules to file a written application with
the Office of General Counsel of NASD Regulation. Presently, under
various rules, certain quasi-adjudicative or exemptive authority has
been granted to various standing committees.
The proposed rules provide that any written application for an
exemption must contain the member's name and address, the name of a
person associated with the member who will serve as the primary contact
for the application, the rule from which the member is seeking an
exemption, and a detailed statement of the grounds for granting the
exemption. If the member does not want the application or the decision
on the
[[Page 38159]]
application to be publicly available in whole or in part, the member
also must include in its application a detailed statement, including
supporting facts, showing good cause for treating the application or
decision as confidential in whole or in part.
The proposed rules would require NASD Regulation staff, after
considering an application, to issue a written decision setting forth
its findings and conclusions to be served on the applicant pursuant to
Rules 9132 and 9134. After the decision is served on the applicant, the
application and decision will be made publicly available unless NASD
Regulation staff determines that the applicant has shown good cause for
treating the application or decision as confidential in whole or in
part.
The proposed rules permit an applicant to appeal the decision by
filing a written notice of appeal within 15 calendar days after service
of a decision issued under proposed Rule 9620. The notice of appeal
must contain a brief statement of the findings and conclusions as to
which exception is taken. The National Business Conduct Committee may
order oral argument. If the applicant does not want the National
Business Conduct Committee's decision on appeal to be publicly
available in whole or in part, the applicant must include in its notice
of appeal a detailed statement, including supporting facts, showing
good cause for treating the decision as confidential in whole or in
part. The notice of appeal must be signed by the applicant. Where the
failure to promptly review a decision to deny a request for exemption
would unduly or unfairly harm the applicant, the National Business
Conduct Committee shall provide expedited review. An applicant may
withdraw its notice of appeal at any time by filing a written notice of
withdrawal of appeal with the National Business Conduct Committee.
The proposed rules require the National Business Conduct Committee,
following the filing of a notice of appeal, to designate a Subcommittee
to hear an oral argument, if ordered, consider any new evidence that
the applicant can show good cause for not including in its application,
and recommend to the National Business Conduct Committee a disposition
of all matters on appeal.
The proposed rules require the National Business Conduct Committee,
after considering all matters on appeal and the Subcommittee's
recommendation, to affirm, modify, or reverse the decision issued under
the proposed Rule 9620. The National Business Conduct Committee must
issue a written decision setting forth its findings and conclusions and
serve the decision on the applicant. The decision must be served
pursuant to Rules 9132 and 9134. The decision will be effective upon
service and constitutes final action of the NASD.
The proposed rules also make conforming changes to those particular
rules under which exemptions are currently granted, clarifying that the
authority for granting such exemptions rests with NASD Regulation staff
in the first instance. Currently, this includes rules relating to
registration requirements, categories of principal registration,
qualification examinations and waiver requirements, customer account
statements, margin accounts, underwriting terms and arrangements for
corporate financing matters, conflicts of interest involving
distributions of securities of members and affiliates, direct
participation programs, position limits for index warrants, exercise
limits for index warrants, position limits for options, position limits
for index options, exercise limits for options, securities categorized
as ``failed to receive'' and ``failed to deliver,'' short sales,
customer account transfer contracts, clearance of corporate debt
securities, free-riding and withholding, and Municipal Securities
Rulemaking Board Rule G-37.
In addition, the proposed rules create new authority under Rule
2210 to permit the Advertising Regulation Department to grant
exemptions from the pre-filing requirements of paragraph (c) of that
Rule in order to reflect existing practice. The need for such authority
under Rule 2210 arises when, for example, members are the subject of a
buyout or reorganization, or form a subsidiary firm, and the successor
entity is substantially similar to the predecessor entity, retains the
same control persons, and continues to produce the same securities
products that were previously filed with the Department. In such
situations, the dangers toward which the pre-filing requirements are
directed have already been eliminated.
The proposed amendments do not affect certain existing functions of
committees when the interests represented are fundamentally different,
or when the issues presented are highly technical and do not require a
highly formal process (See Rules 11110 and 2340(d), which will continue
to authorize certain functions for the Financial Responsibility and
Operations Committees, and Rules 10102, 10104, and 10301(b), which will
continue to authorize certain functions for the National Arbitration
and Mediation Committee).
f. Rule 9800 Series: The Rule 9800 Series contains procedures for
committee review of staff decisions regarding corporate financing and
direct participation program matters. The deletion of the Rule 9800
Series is consistent with the changes proposed herein to Rules 2710
(Corporate Financing Rule), 2720 (Distributions of Securities of
Members and Affiliates) and 2810 (Direct Participation Programs) to
subject corporate financing and direct participation program matters to
the new procedures for granting exemptions.
2. Statutory Basis
The NASD believes the proposed rule change is consistent with
Section 15A(b) (6)-(8) of the Act, 15 U.S.C. Sec. 78o-3(b) (6)-(8). The
NASD believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act, which require that the NASD
adopt and amend its rules to promote just and equitable principles of
fair trade, and generally provide for the protection of investors and
the public interest, in that the proposed rule change preserves the
independence of NASD Regulation staff regarding procedures for
exemptions, promotes fairness by creating procedural regularity and
predictability intended to optimize evenhanded results and minimize
disparate results, and clarifies and streamlines the process for
granting exemptions by articulating the application and decision
process and by clearly defining appeal rights. Section 15A(b)(7)
mandates that a national securities association establish rules
providing that ``its members and persons associated with its members
shall be appropriately disciplined for violation of any provision of
this title, the rules or regulations thereunder, the rules of the
Municipal Securities Rulemaking Board, or the rules of the association,
by expulsion, suspension, limitation of activities, functions, and
operations, fine, censure, being suspended or barred from being
associated with a member, or any other fitting sanction.'' Section
15A(b)(8) mandates that a national securities association establish
rules providing for ``a fair procedure for the disciplining of members
and persons associated with members, the denial of membership to any
person seeking membership therein, the barring of any person from
becoming associated with a member thereof, and the prohibition or
limitation by the association of any person with respect to access to
services offered by the association or a member thereof.'' The NASD
believes the proposed rule
[[Page 38160]]
changes will further the goals of Sections 15A(b) (6), (7), and (8).
B. Self-Regulatory Organization's Statement on Burden on Competition
The NASD does not believe 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
The NASD has neither solicited nor received written comments.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of the 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 periods 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 the 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 statements
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. Sec. 552, will be available for inspection and copying at
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. Comments also may be submitted electronically at the following E-
mail address: rule-comments@sec.gov. File Number SR-NASD-97-28 should
be included on the subject line if E-mail is used to submit a comment
letter. Electronically submitted comment letters will be posted on the
Commission's Internet web site (http://www.sec.gov).
All submissions should refer to File Number SR-NASD-97-28,
Amendment No. 2, and should be submitted by August 6, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\4\
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\4\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
Exhibit A
Proposed new language is in italics; proposed deletions are in
brackets.
9400. Limitation[s and Approval] Procedures Under Rules 3130[,] and
3131[, and 3140]
9410. Procedures for Regulating Activities of a Member Experiencing
Financial or Operational Difficulties
9411. Purpose
The Rule 9410 Series sets forth procedures for regulating the
activities of a member that is experiencing the financial or
operational difficulties specified in Rule 3130 or 3131.
9412. Notice of Limitations
The Department of Member Regulation [(hereinafter ``Department'' in
the Rule 9410 Series)] may issue a notice directing a member to limit
its business activities if the Department of Member Regulation has
reason to believe that any condition specified in Rule 3130 or 3131
exists. The notice shall specify the grounds on which such action is
being taken, the nature of the limitations to be imposed, the effective
date of the limitations, [and] a fitting sanction that will be imposed
if the member fails to comply with the limitation set forth in the
notice, and the conditions for terminating such limitations. The
effective date of the limitations shall be at least seven days after
the date of service of the notice. The notice also shall inform the
member that it may request a hearing before the Department of Member
Regulation under Rule 9413. The Department of Member Regulation shall
serve the notice [pursuant to Rules 9131 and 9134] by facsimile or
overnight commercial courier.
9413. Department of Member Regulation Consideration
(a) Request for Hearing
A member aggrieved by a notice issued under Rule 9412 may file a
written request for a hearing before the Department of Member
Regulation. The request shall state the specific grounds for
withdrawing or modifying the limitations specified in the notice. The
request shall be filed pursuant to Rules 9135, 9136, and 9137 within
five days after service of the notice under Rule 9412.
[(b) Hearing]
[If a member requests a hearing under paragraph (a), the Department
shall conduct a hearing within 14 days after service of the notice
under Rule 9412. The member shall be entitled to be heard in person, to
be represented by an attorney, and to submit any relevant evidence. The
hearing shall be recorded and a transcript prepared by a court
reporter. The member may purchase a copy of the transcript from the
court reporter. Any corrections to the transcript shall be submitted
within three days after the hearing or within three days after receipt
of the transcript, whichever is later.]
(b) Stay
A request for hearing shall stay the notice of limitations served
under Rule 9412 unless the National Business Conduct Committee orders
otherwise.
(c) Time of Hearing
If a member requests a hearing under paragraph (a), the Department
of Member Regulation shall conduct a hearing within 14 days after
service of the notice under Rule 9412. Not less than five business days
before the hearing, the Department of Member Regulation shall provide
written notice to the member of the location, date, and time of the
hearing by facsimile or overnight commercial courier.
(d) Transmission of Documents
(1) Not less than five business days before the hearing, the
Department of Member Regulation shall provide to the member by
facsimile or overnight commercial courier all documents that were
considered in imposing the limitations on business activities set forth
in the notice served under Rule 9412, unless a document meets the
criteria of Rule 9251(b)(1) (A), (B), or (C). A document that meets
such criteria shall not constitute part of the record, but shall be
retained by the Association until the date upon which the Association
serves a final decision or, if applicable, upon conclusion of any
review by the Commission or the federal courts.
(2) Not less than five business days before the hearing, the
Department of Member Regulation and the member shall exchange proposed
exhibit and witness lists. The exhibit and witness
[[Page 38161]]
lists shall be served by facsimile or by overnight commercial courier.
(e) Hearing and Rights of Member
The member shall be entitled to be heard in person, to be
represented by an attorney, and to submit any relevant evidence. The
hearing shall be recorded and a transcript prepared by a court
reporter. The member may purchase a copy of the transcript from the
court reporter at prescribed rates. A witness may purchase a copy of
the transcript of his or her own testimony from the court reporter at
prescribed rates. Proposed corrections to the transcript may be
submitted by affidavit to the Department of Member Regulation within a
reasonable time determined by the Department of Member Regulation. Upon
notice to the participants in the hearing, the Department of Member
Regulation may order corrections to the transcript as requested or sua
sponte.
(f) Record
The record shall consist of:
(1) the notice issued pursuant to Rule 9412;
(2) all documents transmitted to the member under Rule 9413(d);
(3) the request for hearing filed pursuant to Rule 9413(a);
(4) any other submissions by the member and the Department of
Member Regulation at the hearing;
(5) any evidence considered at the hearing; and
(6) the transcript of the hearing and any corrections thereto.
(g) Custodian of the Record
The custodian of the record shall be the Department of Member
Regulation.
(h) Evidence Not Admitted
Evidence that is proffered but not admitted during the hearing
shall not be part of the record, but shall be retained by the custodian
of the record until the date when the Association's decision becomes
final or, if applicable, upon the conclusion of any review by the
Commission or the federal courts.
[(c)](i) Decision
Within seven days after the hearing, the Department of Member
Regulation shall issue a written decision approving, modifying, or
withdrawing the limitations specified in the notice. If the decision
imposes limitations, the decision shall state the grounds for the
limitations, the conditions for terminating such limitations, and
provide for a fitting sanction to be imposed under Rule [9417] 9416 if
the member fails to comply with the limitations. The Department of
Member Regulation shall promptly serve the decision [pursuant to Rules
9132 and 9134. The decision] by facsimile or overnight commercial
courier. The limitations imposed shall become effective upon service of
the decision.
[(d)] (j) Failure To Request Hearing
If a member does not request a hearing under paragraph (a), the
limitations specified in the notice shall become effective on the date
specified in the notice. Unless the National Business Conduct Committee
calls the notice for review under Rule 9414(a)(2), the limitations
specified in the notice shall remain in effect until the Department of
Member Regulation reduces or removes [or modifies] the limitations
pursuant to Rule 9418(b).
9414. National Business Conduct Committee Review
(a) Initiation of a Review
(1) Application by Member
A member aggrieved by a decision issued under Rule 9413 may file a
written application for review by the National Business Conduct
Committee. The application shall state the specific grounds for the
review and whether oral argument is requested. The application shall be
filed pursuant to Rules 9135, 9136, and 9137 within seven days after
service of the decision. The member may withdraw its application for
review at any time by filing a written notice with the National
Business Conduct Committee pursuant to Rules 9135, 9136, and 9137.
(2) Motion of National Business Conduct Committee
A decision issued under Rule 9413 shall be subject to a call for
review by any member of the National Business Conduct Committee or the
Review Subcommittee described in Rule 9312(a)(1) within 30 days after
service of the decision. If a member that receives a notice under Rule
9412 does not request a hearing under Rule 9413, the notice shall be
subject to a call for review by any member of the National Business
Conduct Committee or the Review Subcommittee[,] within 30 days after
the effective date of the notice. If the National Business Conduct
Committee or the Review Subcommittee calls a decision or notice for
review, a written notice of review shall be served promptly on the
member pursuant to Rules 9132 and 9134. The notice of review shall
state the specific grounds for the review and whether an oral argument
is ordered. If a decision is called for review by a member of the
National Business Conduct Committee or the Review Subcommittee, [the
decision shall be reviewed by] the National Business Conduct Committee
shall review the decision.
(3) Stay
Unless otherwise ordered by the National Business Conduct
Committee, the initiation of a review under this paragraph shall stay
the decision of the Department of Member Regulation or an uncontested
notice until a decision constituting final action of the Association is
issued.
(4) Transmission of the Record
If a review is initiated under this paragraph, the Department of
Member Regulation shall assemble and prepare an index of the record,
transmit the record and index to the National Business Conduct
Committee, certify to the National Business Conduct Committee that the
record is complete, and serve a copy of the record and index on the
member.
[(4)] (5) Ex Parte Communications
The prohibitions against ex parte communications in Rule 9143 shall
become effective under the Rule 9410 Series when Association staff has
knowledge that a member intends to file a written application for
review or that the National Business Conduct Committee intends to
review a decision on its own motion under this Rule.
(b) Subcommittee Consideration
(1) Appointment of Subcommittee
The National Business Conduct Committee shall appoint a
Subcommittee to participate in the review. The Subcommittee shall be
composed of two or more members. One member shall be a member of the
National Business Conduct Committee, and the remaining member or
members shall be current or former Directors of the NASD Regulation
Board or former Governors of the NASD Board.
(2) Oral Argument
If oral argument is timely requested by the member, oral argument
shall be held before the Subcommittee within 14 days after service of
the decision under Rule 9413. If oral argument is ordered by the
Subcommittee, oral argument shall be held before the Subcommittee
within [seven] 14 days after service of the order under paragraph
(a)(2). The member shall be entitled to be represented by an attorney.
The oral argument shall be recorded and a transcript prepared by a
court reporter.
The member may purchase a copy of the transcript from the court
reporter at prescribed rates. [Any corrections to the
[[Page 38162]]
transcript shall be submitted within three days after the oral argument
or within three days after receipt of the transcript, whichever is
later.] A witness may purchase a copy of the transcript of his or her
own testimony from the court reporter at prescribed rates. Proposed
corrections to the transcript may be submitted by affidavit to the
Subcommittee within a reasonable time determined by the Subcommittee.
Upon notice to the participants in the hearing, the Subcommittee may
order corrections to the transcript as requested or sua sponte.
(3) Review on Record
[If oral argument is not requested or ordered, the] The
Subcommittee shall conduct its review on the basis of the record [and],
any written submissions by the [Parties.] member and the Department of
Member Regulation, and the decision issued pursuant to Rule 9413(i). If
oral argument is requested or ordered, the Subcommittee also may
consider any submissions or additional arguments by the member and the
Department of Member Regulation.
(4) Additional Evidence
The Subcommittee may consider any additional relevant and material
evidence if the member shows good cause for not previously submitting
such evidence. If additional evidence is accepted by the Subcommittee,
the evidence shall be included in the record. Proffered evidence that
is not accepted into the record by the Subcommittee shall be retained
until the date when the Association's decision becomes final, or, if
applicable, upon the conclusion of any review by the Commission or the
federal courts.
(5) Recommendation
The Subcommittee shall present a recommended decision in writing to
the National Business Conduct Committee and all other Directors not
later than seven days before the meeting of the National Business
Conduct Committee at which the proceeding shall be considered.
(c) Decision
(1) Decision of National Business Conduct Committee, Including Remand
After considering all matters presented in the review and the
written recommended decision of the Subcommittee, the National Business
Conduct Committee may affirm, modify, or reverse the [Department's]
Department of Member Regulation's decision or remand the proceeding
with instructions. The National Business Conduct Committee shall
prepare a proposed written decision pursuant to subparagraph (2).
(2) Contents of Decision
The decision shall include:
(A) a description of the [Department's] Department of Member
Regulation's decision, including its rationale;
(B) a description of the principal issues regarding the imposition
of limitations raised in the review and a statement supporting the
disposition of such issues;
(C) a summary of the evidence on each issue;
(D) a statement of whether the [Department's] Department of Member
Regulation's decision is affirmed, modified, or reversed, and a
rationale therefor; and
(E) if any limitations are imposed[,]: (i) a description of the
limitations and a statement describing a fitting sanction that will be
imposed under Rule 9417 if the member fails to comply with any of the
limitations; and
(ii) the conditions for terminating the limitations.
(3) Issuance of Decision After Expiration of Call for Review Period
The National Business Conduct Committee shall provide its proposed
written decision to the NASD Regulation Board, and, if the proceeding
is not called for review by the NASD Regulation Board, to the NASD
Board. The NASD Regulation Board may call the proceeding for review
pursuant to Rule 9415. The NASD Board may call the proceeding for
review pursuant to Rule 9416. If neither the NASD Regulation Board nor
the NASD Board calls the proceeding for review, the proposed written
decision of the National Business Conduct Committee shall become final,
and the National Business Conduct Committee shall serve its written
decision on the member and the Department of Member Regulation pursuant
to Rules 9132 and 9134. The decision shall be effective upon service.
The decision shall constitute the final action of the Association,
unless the National Business Conduct Committee remands the proceeding.
9415. Discretionary Review by the NASD Regulation Board
(a) Call for Review by Director
A Director may call a proceeding for review by the NASD Regulation
Board if the call for review is made within the period prescribed in
paragraph (b).
(b) Seven Day Period; Waiver
After receiving the proposed written decision of the National
Business Conduct Committee pursuant to Rule 9414, a Director shall have
not less than seven days to determine if the proceeding should be
called for review. A Director shall call a proceeding for review by
notifying the General Counsel of NASD Regulation. By a unanimous vote
of the NASD Regulation Board, the NASD Regulation Board may shorten the
period to less than seven days. By an affirmative vote of the majority
of the NASD Regulation Board then in office, the NASD Regulation Board
may, during the seven day period, vote to extend the period to more
than seven days.
(c) Review at Next Meeting
If a Director calls a proceeding for review within the period
prescribed by paragraph (b), the NASD Regulation Board shall review the
proceeding not later than the next meeting of the NASD Regulation
Board. The NASD Regulation Board may order the filing of briefs in
connection with its review proceedings pursuant to this Rule.
(d) Decision of NASD Regulation Board, Including Remand
After review, the NASD Regulation Board may affirm, modify, or
reverse the proposed written decision of the National Business Conduct
Committee or remand the proceeding with instructions. The NASD
Regulation Board shall prepare a proposed written decision that
includes all of the elements described in Rule 9414(c)(2).
(e) Issuance of Decision After Expiration of Call for Review Period
The NASD Regulation Board shall provide its proposed written
decision to the NASD Board. The NASD Board may call the proceeding for
review pursuant to Rule 9416. If the NASD Board does not call the
proceeding for review, the proposed written decision of the NASD
Regulation Board shall become final, and the NASD Regulation Board
shall serve its written decision on the member and the Department of
Member Regulation pursuant to Rules 9132 and 9134. The decision shall
be effective upon service. The decision shall constitute the final
action of the Association, unless the NASD Regulation Board remands the
proceeding.
9416. Discretionary Review by the NASD Board
(a) Call for Review by Governor
A Governor may call a proceeding for review by the NASD Board if
the call for review is made within the period prescribed in paragraph
(b).
[[Page 38163]]
(b) Seven Day Period; Waiver
(1) Proceeding Called for Review by NASD Regulation Board
If the NASD Regulation Board reviewed the proceeding under Rule
9415, a Governor shall make his or her call for review not later than
the next meeting of the NASD Board that is at least seven days after
the date on which the NASD Board receives the proposed written decision
of the NASD Regulation Board.
(2) Proceeding Not Called for Review by NASD Regulation Board
If no Director of the NASD Regulation Board called the proceeding
for review under Rule 9415, a Governor shall make his or her call for
review not later than the next meeting of the NASD Board that is at
least seven days after the date on which the NASD Board receives the
proposed written decision of the National Business Conduct Committee.
(3) Waiver
By a unanimous vote of the NASD Board, the NASD Board may shorten
the period in subparagraph (1) or (2) to less than seven days. By an
affirmative vote of the majority of the NASD Board then in office, the
NASD Board may, during the seven day period in subparagraph (1) or (2),
vote to extend the period in subparagraph (1) or (2) to more than seven
days.
(c) Review at Next Meeting
If a Governor calls a proceeding for review within the period
prescribed in paragraph (b), the NASD Board shall review the proceeding
not later than the next meeting of the NASD Board. The NASD Board may
order the filing of briefs in connection with its review proceedings
pursuant to this Rule.
(d) Decision of NASD Board, Including Remand
After review, the NASD Board may affirm, modify, or reverse: (1)
the proposed written decision of the NASD Regulation Board, or (2) if
the NASD Regulation Board did not call [a] the proceeding for review
under Rule 9415, the proposed written decision of the National Business
Conduct Committee, Alternatively, the NASD Board may remand the
proceeding with instructions. The NASD Board shall prepare a written
decision that includes all of the elements described in Rule
9414(c)(2).
(e) Issuance of Decision
The NASD Board shall issue and serve its written decision on the
member and the Department of Member Regulation pursuant to Rules 9132
and 9134. The decision shall be effective upon service. The decision
shall constitute the final action of the Association, unless the NASD
Board remands the proceeding.
9417. Enforcement of Sanctions
(a) Order
If the Department of Member Regulation determines that a member has
failed to comply with any limitations imposed by a decision [under Rule
9413, 9414, 9415, or 9416,] or an effective notice under [Rule
9413(d),] the Rule 9410 Series that has not been stayed, the Department
of Member Regulation shall issue an order [to be served pursuant to
Rules 9132 and 9134] imposing the sanctions set forth in the decision
or notice and specifying the effective date and time of such sanctions.
The Department of Member Regulation shall serve the order on the member
by facsimile or overnight commercial courier.
(b) Hearing
(1) A member aggrieved by an order issued under paragraph (a) may
file a written request for a hearing before the Department of Member
Regulation. The request shall be filed pursuant to Rules 9135, 9136,
and 9137 within [four days] seven days (including intermediate
Saturdays, Sundays, and Federal holidays) after service of the order.
The hearing shall be held within ten days after service of the order
under paragraph (a).
(2) The member shall be entitled to be heard in person, to be
represented by an attorney, and to submit any relevant evidence.
(3) The hearing shall be recorded and a transcript prepared by a
court reporter. The member may purchase a copy of the transcript from
the court reporter at prescribed rates. [Any corrections to the
transcript shall be submitted within two days after the hearing or
within two days after receipt of the transcript, whichever is later.] A
witness may purchase a copy of the transcript of his or her own
testimony from the court reporter at prescribed rates. Proposed
corrections to the transcript may be submitted by affidavit to the
Department of Member Regulation within a reasonable time determined by
the Department of Member Regulation. Upon notice to the participants in
the hearing, the Department of Member Regulation may order corrections
to the transcript as requested or sua sponte.
(c) No Stay of Sanctions
Unless otherwise ordered by the National Business Conduct
Committee, a request for a hearing pursuant to this Rule shall not stay
the effectiveness of the order issued under paragraph(a).
[(c)] (d) Decision
Within four days after the hearing, the Department of Member
Regulation shall affirm, modify, or reverse the order issued under
paragraph (a). The Department of Member Regulation shall serve the
decision on the member pursuant to Rules 9132 and 9134. The decision
shall become effective upon service and shall constitute final action
of the Association.
9418. Additional Limitations; [Modification] Reduction or Removal of
Limitations
(a) Additional Limitations
If a member continues to experience financial or operational
difficulty specified in Rule 3130 or 3131, notwithstanding an effective
notice or decision under the Rule 9410 Series, the Department of Member
Regulation may impose additional limitations by issuing a notice under
Rule 9412. The notice shall state that the member may apply for relief
from the additional limitations by filing a written application for a
hearing under Rule 9413 and that the procedures in Rules 9413 through
9417 shall be applicable. An application for a hearing also shall
include a detailed statement of the member's objections to the
additional limitations.
(b) [Modification] Reduction or Removal of Limitations
If the Department of Member Regulation determines that any
limitations previously imposed under the Rule 9410 Series should be
[modified] reduced or removed, the Department of Member Regulation
shall serve a written notice on the member pursuant to Rules 9132 and
9134.
9419. Application to Commission for Review; Other Action Not Foreclosed
(a) [Any person aggrieved by final action pursuant to the Rule 9410
Series may apply for review by the Commission under] The right to have
any action taken by the Association pursuant to this Rule Series
reviewed by the Commission is governed by Section 19 of the Act. The
filing of an application for review shall not stay the effectiveness of
[final] the action taken by the Association, unless the Commission
otherwise orders.
(b) Action by the Association under the Rule 9410 Series shall not
foreclose action by the Association under any other Rule.
[[Page 38164]]
[9420. Approval of Change in Business Operations That Will Result in a
Change in Exemptive Status under SEC Rule 15c3-3]
[9421. Purpose]
[The Rule 9420 Series sets forth procedures for Rule 3140, which
requires the Association's approval of a change in a member's business
activities that will result in a change in the member's exemptive
status under SEC Rule 15c3-3.]
[9422. Department of Member Regulation Consideration]
[(a) Application]
[A member shall apply for approval of a change in its business
operation that will result in a change in its exemptive status under
SEC Rule 15c3-3 by filing a written application with the Department of
Member Regulation (hereinafter ``Department'' in the 9420 Rule Series)
at the district office in the district in which it has its principal
place of business. The application shall address the criteria set forth
in Rule 3140 and shall be filed pursuant to Rules 9135, 9136, and
9137.]
[(b) Decision]
[Within 21 days after receipt of the application, the Department
shall issue a decision approving or denying the application in whole or
in part. If the decision denies the application in whole or in part,
the decision shall set forth the specific grounds for such action. The
decision shall provide a fitting sanction to be imposed in accordance
with Rule 9426 if the member fails to comply with any limitations
imposed. The Department shall serve the decision pursuant to Rules 9132
and 9134.]
[9423. National Business Conduct Committee Review]
[(a) Initiation of Review]
[(1) Application by Member]
[A member aggrieved by a decision issued under Rule 9422 may file a
written application for review by the National Business Conduct
Committee. The application shall state the specific grounds for the
review and whether oral argument is requested. The application shall be
filed pursuant to Rules 9135, 9136, and 9137 within seven days after
service of the decision. The member may withdraw its application at any
time by filing a written notice with the National Business Conduct
Committee pursuant to Rules 9135, 9136, and 9137.]
[(2) Motion of National Business Conduct Committee]
[A decision issued under Rule 9422 shall be subject to a call for
review by any member of the National Business Conduct Committee or the
Review Subcommittee described in Rule 9312(a)(1) within 30 days after
service of the decision. If the National Business Conduct Committee or
the Review Subcommittee calls a decision for review, a written notice
of review shall be served promptly on the member pursuant to Rules 9132
and 9134. The written notice of review shall state the specific grounds
for the review and whether oral argument is ordered. If a decision is
called for review by any member of the National Business Conduct
Committee or the Review Subcommittee, the decision shall be reviewed by
the National Business Conduct committee.]
[(3) No Stay of Action]
[Unless otherwise ordered by the National Business Conduct
Committee, the initiation of a review under this paragraph shall not
stay the decision of the Department.]
[(4) Ex Parte Communications]
[The prohibitions against ex parte communications in Rule 9143
shall become effective under the Rule 9420 Series when Association
staff has knowledge that a member intends to file a written application
for review or that the National Business Conduct Committee intends to
review a decision on its own motion under this Rule.]
[(b) Subcommittee Consideration]
[(1) Appointment of Subcommittee]
[The National Business Conduct Committee shall appoint a
Subcommittee to participate in the review. The Subcommittee shall be
composed of two or more members. One member shall be a member of the
National Business Conduct Committee, and the remaining member or
members shall be current or former Directors of the NASD Regulation
Board or former Governors of the NASD Board.]
[(2) Oral Argument]
[If oral argument is requested by the member, oral argument shall
be held before the Subcommittee within 14 days after service of the
decision under Rule 9422. If oral argument is ordered by the
Subcommittee, oral argument shall be held before the Subcommittee
within seven days after service of the order. The oral argument shall
be recorded and a transcript prepared by a court reporter. The member
may purchase a copy of the transcript from the court reporter. Any
corrections to the transcript shall be submitted within three days
after the oral argument or within three days after receipt of the
transcript, whichever is later.]
[(3) Review on Record]
[If oral argument is not requested or ordered, the Subcommittee
shall conduct its review on the basis of the record and any written
submissions by the Parties.]
[(4) Additional Evidence]
[The Subcommittee may consider additional evidence if the member
shows good cause for not previously submitting such evidence.]
[(5) Recommendation]
[The Subcommittee shall present a recommended decision in writing
to the National Business Conduct Committee and all other Directors not
later than seven days before the meeting of the National Business
Conduct Committee at which the proceeding shall be considered.]
[(c) Decision]
[(1) Decision of National Business Conduct Committee, Including Remand.
After considering all matters presented in the review and the
written recommended decision of the Subcommittee, the National Business
Conduct Committee may affirm, modify, or reverse the Department's
decision or remand the proceeding with instructions. The National
Business Conduct Committee shall prepare a proposed written decision
pursuant to subparagraph (2).]
[(2) Contents of Decision]
[The decision shall include:
(A) a description of the Department's decision, including its
rationale;
(B) a description of the principal issues regarding the change in
the member's exemptive status raised in the review and a statement
supporting the disposition of such issues;
(C) a summary of the evidence on each issue;
(D) a statement of whether the Department's decision is affirmed,
modified, or reversed, and a rationale therefor; and
(E) if any limitations are imposed, a description of the
limitations and a statement describing a fitting sanction that will be
imposed under Rule 9426 if the member fails to comply with any of the
limitations.]
[[Page 38165]]
[(3) Issuance of Decision After Expiration of Call for Review Period]
[The National Business Conduct Committee shall provide its proposed
written decision to the NASD Regulation Board, and, if the proceeding
is not called for review by the NASD Regulation Board, to the NASD
Board. The NASD Regulation Board may call the proceeding for review
pursuant to Rule 9424. The NASD Board may call the proceeding for
review pursuant to Rule 9425. If neither the NASD Regulation Board nor
the NASD Board calls the proceeding for review, the proposed written
decision of the National Business Conduct Committee shall become final,
and the National Business Conduct Committee shall serve its written
decision pursuant to Rules 9132 and 9134. The decision shall constitute
the final action of the Association, unless the National Business
Conduct Committee remands the proceeding.]
[9424. Discretionary Review by the NASD Regulation Board]
[(a) Call for Review by Director]
[A Director may call a proceeding for review by the NASD Regulation
Board if the call for review is made within the period prescribed in
paragraph (b).]
[(b) Seven Day Period; Waiver]
[After receiving the proposed written decision of the National
Business Conduct Committee pursuant to Rule 9423, a Director shall have
not less than seven days to determine if the proceeding should be
called for review. A Director shall call a proceeding for review by
notifying the General Counsel of NASD Regulation. By a unanimous vote
of the NASD Regulation Board, the NASD Regulation Board may shorten the
period to less than seven days. By an affirmative vote of the majority
of the NASD Regulation Board then in office, the NASD Regulation Board
may, during the seven day period, vote to extend the period to more
than seven days.]
[(c) Review at Next Meeting]
[If a Director calls a proceeding for review within the period
prescribed by paragraph (b), the NASD Regulation Board shall review the
proceeding not later than the next meeting of the NASD Regulation
Board. The NASD Regulation Board may order the filing of briefs in
connection with its review proceedings pursuant to this Rule.]
[(d) Decision of NASD Regulation Board, Including Remand]
[After review, the NASD Regulation Board may affirm, modify, or
reverse the proposed written decision of the National Business Conduct
Committee or remand the proceeding with instructions. The NASD
Regulation Board shall prepare a proposed written decision that
includes all of the elements described in Rule 9423(c)(2).]
[(e) Issuance of Decision After Expiration of Call for Review Period]
[The NASD Regulation Board shall provide its proposed written
decision to the NASD Board. The NASD Board may call the proceeding for
review pursuant to Rule 9425. If the NASD Board does not call the
proceeding for review, the proposed written decision of the NASD
Regulation Board shall become final, and the NASD Regulation Board
shall serve its written decision pursuant to Rules 9132 and 9134. The
decision shall constitute the final action of the Association, unless
the NASD Regulation Board remands the proceeding.]
[9425. Discretionary Review by NASD Board]
[(a) Call for Review by Governor]
[A Governor may call a proceeding for review by the NASD Board if
the call for review is made within the period prescribed in paragraph
(b).]
[(b) Seven Day Period; Waiver]
[(1) Proceeding Called for Review by NASD Regulation Board]
[If the NASD Regulation Board reviewed the proceeding under Rule
9424, a Governor shall make his or her call for review not later than
the next meeting of the NASD Board that is at least seven days after
the date on which the NASD Board receives the proposed written decision
of the NASD Regulation Board.]
[(2) Proceeding Not Called for Review by NASD Regulation Board]
[If no Director of the NASD Regulation Board called the proceeding
for review under Rule 9424, a Governor shall make his or her call for
review not later than the next meeting of the NASD Board that is at
least seven days after the date on which the NASD Board receives the
proposed written decision of the National Business Conduct Committee.]
[(3) Waiver]
[By a unanimous vote of the NASD Board, the NASD Board may shorten
the period in subparagraph (1) or (2) to less than seven days. By an
affirmative vote of the majority of the NASD Board then in office, the
NASD Board may, during the seven day period in subparagraph (1) or (2),
vote to extend the period in subparagraph (1) or (2) to more than seven
days.]
[(c) Review at Next Meeting]
[If a Governor calls a proceeding for review within the period
prescribed in paragraph (b), the NASD Board shall review the proceeding
not later than the next meeting of the NASD Board. The NASD Board may
order the filing of briefs in connection with its review proceedings
pursuant to this Rule.]
[(d) Decision of NASD Board, Including Remand]
[After review, the NASD Board may affirm, modify, or reverse: (1)
the proposed written decision of the NASD Regulation Board, or (2) if
the NASD Regulation Board did not call a proceeding for review under
Rule 9424, the proposed written decision of the National Business
Conduct Committee. Alternatively, the NASD Board may remand the
proceeding with instructions. The NASD Board shall prepare a written
decision that includes all of the elements described in Rule
9423(c)(2).]
[(e) Issuance of Decision]
[The NASD Board shall issue and serve its written decision pursuant
to Rules 9132 and 9134. The decision shall constitute the final action
of the Association, unless the NASD Board remands the proceeding.]
[9426. Enforcement of Sanctions]
[(a) Order]
[If the Department determines that a member has failed to comply
with limitations imposed by a decision under Rule 9422, 9423, 9424, or
9425, the Department shall issue an order to be served pursuant to
Rules 9132 and 9134 imposing the sanctions set forth in the decision
and specifying the effective date and time of such sanctions.]
[(b) Hearing]
[A member aggrieved by an order issued under paragraph (a) may file
a written request for a hearing before the Department. The request
shall be filed pursuant to Rule 9135, 9136, and 9137 within four days
after service of the order. The member shall be entitled to be heard in
person, to be represented by an attorney, and to submit any relevant
evidence. The hearing shall be recorded and a transcript prepared by a
court reporter. The member may purchase a copy of the transcript from
the court reporter. Any corrections to the transcript shall be
submitted within two days after the hearing or within two days after
receipt of the transcript, whichever is later.]
[[Page 38166]]
[(c) Decision]
[Within four days after the hearing, the Department shall affirm,
modify, or reverse the order issued under paragraph (a). The Department
shall serve the decision on the member pursuant to Rule 9132 and 9134.
The decision shall become effective upon service and shall constitute
final action of the Association.]
[9427. Application to Commission for Review]
[Any person aggrieved by final action pursuant to the Rule 9420
Series may apply for review by the Commission under Section 19 of the
Act. The filing of an application for review shall not stay the
effectiveness of final action by the Association, unless the Commission
otherwise orders.]
9500. Suspension, Cancellation, Bar, Denial of Access, and
Eligibility Procedures
[9510. Procedures for Summary Suspension by NASD]
[9511. Purpose]
[Section 15A(h)(3) of the Act authorizes a registered securities
association to summarily: (1) Suspend a member or person associated
with a member who has been and is expelled or suspended from any self-
regulatory organization or barred or suspended from being associated
with a member of any self-regulatory organization, (2) suspend a member
who is in such financial or operating difficulty that the association
determines and so notifies the Commission that the member cannot be
permitted to continue to do business as a member with safety to
investors, creditors, other members, or the association, or (3) limit
or prohibit any person with respect to access to services offered by
the association if (1) or (2) applies to such person or, in the case of
a person who is not a member, if the association determines that such
person does not meet the qualification requirements or other
prerequisites for such access and such person cannot be permitted to
continue to have such access with safety to investors, creditors,
members, or the association.
Summary suspension procedures for the grounds listed in Section
15A(h)(3) of the Act are set forth in the Rule 9510 Series. Other
procedures for suspending the membership of a member, suspending the
registration of an associated person, or suspending a person from
association with any member are found in Rules 8220, 8320, and 9520.]
[9512. Notice]
[(a) Authorization]
[The NASD Board may authorize the President of NASD Regulation or
Nasdaq to issue a written notice that:
(1) Summarily suspends a member or person associated with a member
who has been and is expelled or suspended from any self-regulatory
organization or barred or suspended from being associated with a member
of any self-regulatory organization;
(2) Summarily suspends a member who is in such financial or
operating difficulty that the Association determines and so notifies
the Commission that the member cannot be permitted to continue to do
business as a member with safety to investors, creditors, other
members, or the Association; or
(3) Limits or prohibits any person with respect to access to
services offered by the Association if subparagraph (1) or (2) applies
to such person or, in the case of a person who is not a member, if the
NASD Board determines that such person does not meet the qualification
requirements or other prerequisites for such access and such person
cannot be permitted to continue to have such access with safety to
investors, creditors, members, or the Association.]
[(b) Contents and Service of Notice]
[A notice issued under this Rule shall state the specific grounds
for the summary suspension and state that the member or associated
person may file a written request for a hearing under Rule 9513. The
notice shall be served by facsimile or pursuant to Rules 9131 and 9134.
A copy of a notice served on a person who is associated with a member
shall be served on such member pursuant to Rule 9134.]
[(c) Effective Date]
[A summary suspension shall be effective on the date and time
specified in the notice.]
[9513. Hearing and Decision]
[(a) Request]
[(1) Request by Member or Associated Person]
[A member or associated person subject to a summary suspension may
file a written request for a hearing with the NASD Board. The request
shall state the specific grounds for reversing the summary suspension.
The request shall be filed pursuant to Rules 9135, 9136, and 9137
within ten days after service of the notice under Rule 9512. The member
or associated person may withdraw its request for a hearing by filing a
written notice with the NASD Board pursuant to Rules 9135, 9136, and
9137.]
[(2) Failure To File Request]
[If the member or associated person subject to a summary suspension
does not file a written request for a hearing under subparagraph (1),
the notice of summary suspension shall constitute final action by the
Association.]
[(3) No Stay of Summary Suspension]
[A request for a hearing shall not stay the effectiveness of a
summary suspension under Rule 9512.]
[(b) Hearing Panel Consideration]
[(1) Appointment of Hearing Panel]
[If a member or associated person subject to a summary suspension
files a written request for a hearing, a hearing shall be held before a
Hearing Panel within 15 days after service of the notice under Rule
9512. The Hearing Panel shall be composed of two or more members. One
member shall be a Governor of the NASD Board, and the remaining member
or members shall be current or former members of the NASD Regulation
Board, the Nasdaq Board, or the NASD Board.]
[(2) Rights of Member or Associated Person]
[A member or associated person subject to a summary suspension
shall be entitled to be heard in person, to be represented by an
attorney, and to submit any relevant evidence.]
[(3) Witnesses]
[A person who is subject to the jurisdiction of the Association
shall testify under oath or affirmation. The oath or affirmation shall
be administered by a court reporter.]
[(4) Recordation of Hearing]
[The hearing shall be recorded and a transcript prepared by a court
reporter. The member or associated person may purchase a copy of the
transcript from the court reporter. Any corrections to the transcript
shall be submitted within three days after the hearing or within three
days after receipt of the transcript, whichever is later.]
[(c) Decision]
[(1) Decision of the Hearing Panel]
[The Hearing Panel shall affirm, modify, or reverse the summary
suspension. The Hearing Panel shall prepare a proposed written decision
pursuant to subparagraph (2).]
[[Page 38167]]
[(2) Contents of Decision]
[The decision shall include a statement describing the
investigative or other origin of the proceeding, the grounds for
issuing the notice under Rule 9512, and a rationale for the disposition
of the proceeding, and, if a suspension continues to be imposed, the
specific grounds for imposing such sanction and the terms of the
suspension.]
[(3) Issuance of Decision After Expiration of Call for Review Period]
[The Hearing Panel shall provide its proposed written decision to
the NASD Board. The NASD Board may call the proceeding for review
pursuant to Rule 9514. If the NASD Board does not call the proceeding
for review, the proposed written decision of the Hearing Panel shall
become final, and the Hearing Panel shall serve its written decision
pursuant to Rules 9132 and 9134. The decision shall constitute final
action of the Association.]
[9514. Discretionary Review by the NASD Board]
[(a) Call for Review by Governor]
[A Governor may call a proceeding for review by the NASD Board if
the call for review is made within the period prescribed by paragraph
(b).]
[(b) Seven Day Period; Waiver]
[After receiving the proposed written decision of the Hearing Panel
pursuant to Rule 9513, a Governor shall have not less than seven days
to determine if the decision should be called for review. A Governor
shall call the proceeding for review by notifying the General Counsel
of the NASD. By a unanimous vote of the NASD Board, the NASD Board may
shorten the period to less than seven days. By an affirmative vote of
the majority of the NASD Board then in office, the NASD Board may,
during the seven day period, vote to extend the period in to more than
seven days.]
[(c) Review at Next Meeting]
[If a Governor calls a proceeding for review within the period
prescribed by paragraph (b), the NASD Board shall review the decision
not later than the next meeting of the NASD Board. The NASD Board may
order the filing of briefs in connection with its review proceedings
pursuant to this Rule.]
[(d) Decision of the NASD Board, Including Remand]
[After review, the NASD Board may affirm, modify, or reverse the
proposed written decision of the Hearing Panel. Alternatively, the NASD
Board may remand the proceeding with instructions. The NASD Board shall
prepare a written decision that includes all of the elements of Rule
9513(c)(2).]
[(e) Issuance of Decision]
[The NASD Board shall issue and serve its decision pursuant to
Rules 9132 and 9134. The decision shall constitute the final action of
the Association, unless the NASD Board remands the proceeding.]
[9515. Application to Commission for Review]
[Any person aggrieved by final action pursuant to the Rule 9510
Series may apply for review by the Commission under Section 19 of the
Act. The filing of an application for review by the Commission shall
not stay the effectiveness of final action by the Association, unless
the Commission otherwise orders.]
[9516. Other Action Not Foreclosed]
[Action by the Association under the Rule 9510 Series shall not
foreclose action by the Association under any other Rule.]
9510. Procedures for Summary and Non-Summary Suspension, Cancellation,
Bar, Limitation, or Prohibition
9511. Purpose and Computation of Time
(a) Purpose
(1) The purpose of the Rule 9510 Series is to set forth procedures
for certain suspensions, cancellations, bars, and limitations and
prohibitions on access to the Association's services authorized by the
Act and the NASD By-Laws. Pursuant to Section 15A(h)(3) of the Act, the
Association may summarily:
(A) suspend a member or associated person who has been and is
expelled or suspended from any self-regulatory organization or barred
or suspended from being associated with a member of any self-regulatory
organization;
(B) suspend a member who is in such financial or operating
difficulty that the Association determines and so notifies the
Commission that the member cannot be permitted to continue to do
business as a member with safety to investors, creditors, other
members, or the Association; or
(C) limit or prohibit any person with respect to access to services
offered by the Association if subparagraph (A) or (B) applies to such
person, or in the case of a person who is not a member, if the
Association determines that such person does not meet the qualification
requirements or other prerequisites for such access and such person
cannot be permitted to continue to have such access with safety to
investors, creditors, members, or the Association.
(2) The Association also may take the following actions, after
notice and opportunity for hearing:
(A) cancel the membership of a member that becomes ineligible for
continuance in membership, or that continues to be associated with an
ineligible person, or suspend or bar a person from continuing to be
associated with a member because such person is or becomes ineligible
for association under Article II, Section 3 of the NASD By-Laws;
(B) suspend or cancel the membership of a member or the
registration of a person for failure to pay fees, dues, assessments, or
other charges; failure to submit a required report or information
related to such payment; or failure to comply with arbitration award or
a settlement agreement related to an arbitration or mediation under
Article V, Section 2 of the NASD By-Laws;
(C) cancel the membership of a member for failure to file or submit
on request any report, document, or other information required to be
filed with or requested by the Association under Article VI, Section 2
of the NASD By-Laws; and
(D) limit or prohibit any member, associated person, or other
person with respect to access to services offered by the Association or
a member thereof if the Association determines that such person does
not meet the qualification requirements or other prerequisites for such
access or such person cannot be permitted to continue to have such
access with safety to investors, creditors, members, or the
Association.
(3) Other procedures for suspending the membership of a member,
suspending the registration of an associated person, or suspending a
person from association with any member are found in the Rule 8220
Series and Rule 8320. Procedures for listing qualification matters are
found in the Rule 9700 Series; the Rule 9510 Series does not apply to
listing qualification matters.
(b) Computation of Time
For purposes of the 9510 Rule Series, time shall be computed as set
forth in Rule 9138, except that intermediate Saturdays, Sundays, and
holidays shall be included in the computation.
[[Page 38168]]
9512. Initiation of Proceedings for Summary Suspension, Limitation, or
Prohibition
(a) Authorization
(1) The NASD Board may authorize the President of NASD Regulation
to issue on a case-by-case basis a written notice that:
(A) summarily suspends a member or associated person who has been
and is expelled or suspended from any self-regulatory organization or
barred or suspended from being associated with a member of any self-
regulatory organization; or
(B) summarily suspends a member who is in such financial or
operating difficulty that the Association determines and so notifies
the Commission that the member cannot be permitted to continue to do
business as a member with safety to investors, creditors, other
members, or the Association.
(2) The NASD Board may authorize the President of NASD Regulation
or the President of Nasdaq to issue on a case-by-case basis a written
notice that summarily limits or prohibits any person with respect to
access to services offered by the Association if paragraph (a)(1)
applies to such person or, in the case of a person who is not a member,
if the NASD Board determines that such person does not meet the
qualification requirements or other prerequisites for such access and
such person cannot be permitted to continue to have such access with
safety to investors, creditors, members, or the Association.
(b) Contents and Service of Notice
A notice issued under this subsection shall state the specific
grounds and include the factual basis for the summary suspension,
limitation, or prohibition and state that the member, associated
person, or other person may file a written request for a hearing under
Rule 9514. The notice shall be served by facsimile or overnight
commercial courier.
(c) Effective Date
A summary suspension, limitation, or prohibition shall be effective
upon service of the notice under paragraph (b).
9513. Initiation of Proceeding for Non-Summary Suspension,
Cancellation, Bar, Limitation, or Prohibition
(a) Notice
Association staff shall initiate a proceeding authorized under
Section 3 of Article II, Section 2 of Article V, or Section 2 of
Article VI of the NASD By-Laws, or Rule 9511(a)(2)(D), by issuing a
written notice to the member, associated person, or other person. The
notice shall specify the grounds for and effective date of the
cancellation, suspension, bar, limitation, or prohibition and shall
state that the member, associated person, or other person may file a
written request for a hearing under Rule 9514. The notice shall be
served by facsimile or overnight commercial courier.
(b) Effective Date
For any cancellation, suspension, or bar under Section 3 of Article
II of the NASD By-Laws, the effective date shall be at least seven days
after service of the notice on the member or associated person. For any
cancellation or suspension under Section 2 of Article V or Section 2 of
Article VI of the NASD By-Laws, the effective date shall be at least 15
days after service of the notice on the member or associated person.
For any limitation or prohibition on access to services offered by the
Association or a member thereof pursuant to Rule 9511(a)(2)(D), the
effective date shall be upon receipt of the notice with respect to
services to which the member, associated person, or other person does
not have access and shall be at least seven days after service of the
notice with respect to services to which the member, associated person,
or other person already has access.
9514. Hearing and Decision
(a) Request
(1) Request by Member, Associated Person, or Other Person
A member, associated person, or other person who is subject to a
notice issued under Rule 9512(a) or 9513(a) may file a written request
for a hearing with the Association. The request shall state either the
specific grounds for reversing the summary suspension, limitation, or
prohibition or for opposing the cancellation, suspension, bar,
limitation, or prohibition. The request shall be filed pursuant to
Rules 9135, 9136, and 9137 within seven days after service of the
notice under Rule 9512 or 9513. The member, associated person, or other
person may withdraw its request for a hearing at any time by filing a
written notice with the Association pursuant to Rules 9135, 9136, and
9137.
(2) Failure To File Request
If the member, associated person, or other person subject to the
notice issued under Rule 9512(a) or 9513(a) does not file a written
request for a hearing under subparagraph (1), the notice shall
constitute final action by the Association.
(3) Ex Parte Communications
The prohibition against ex parte communications in Rule 9143 shall
become effective under the Rule 9510 Series when Association staff has
knowledge that a member, associated person, or other person intends to
request a hearing under this paragraph.
(b) Designation of Party for the Association and Appointment of Hearing
Panel
If a member, associated person, or other person subject to a notice
under Rule 9512 or 9513 files a written request for a hearing, an
appropriate department or office of the Association shall be designated
as a Party in the proceeding, and a Hearing Panel shall be appointed.
(1) If the President of NASD Regulation or NASD Regulation staff
issued the notice initiating the proceeding under Rule 9512(a) or
9513(a), the President of NASD Regulation shall designate an
appropriate NASD Regulation department or office as a Party, and the
NASD Regulation Board shall appoint a Hearing Panel. The Hearing Panel
shall be composed of two or more members. One member shall be a
Director of NASD Regulation, and the remaining member or members shall
be a current or former Director of NASD Regulation or a former Governor
of the NASD. The President of NASD Regulation may not serve on the
Hearing Panel.
(2) If the President of Nasdaq or Nasdaq staff issued the notice
under Rule 9512(a) or 9513(a), the President of Nasdaq shall designate
an appropriate Nasdaq department or office as a Party, and the Nasdaq
Board shall appoint a Hearing Panel. The Hearing Panel shall be
composed of two or more members. One member shall be a Director of
Nasdaq, and the remaining member or members shall be a current or
former Director of Nasdaq or a former Governor of the NASD. The
President of Nasdaq may not serve on the Hearing Panel.
(c) Stays
(1) Summary Suspension, Limitation, or Prohibition
Unless the NASD Board orders otherwise, a request for a hearing
shall not stay the effectiveness of a summary suspension, limitation,
or prohibition under Rule 9512.
[[Page 38169]]
(2) Non-Summary Cancellation, Suspension, Bar, Limitation, or
Prohibition
Unless the NASD Board orders otherwise, a request for a hearing
shall stay the notice issued under Rule 9513, except that a request for
a hearing shall not stay a notice of a limitation or prohibition on
services offered by the Association or a member thereof with respect to
services to which a member, associated person, or other person does not
have access.
(d) Time of Hearing
(1) Summary Suspension
If a member, associated person, or other person who is subject to a
notice issued under Rule 9512(a) files a written request for a hearing,
a hearing shall be held within seven days after the filing of the
request for hearing. Not less than five days before the hearing, the
Hearing Panel shall provide written notice to the Parties of the
location, date, and time of the hearing by facsimile or overnight
commercial courier.
(2) Non-Summary Suspension, Cancellation, Bar, Limitation or
Prohibition
If a member, associated person, or other person who is subject to a
notice issued under Rule 9513(a) files a written request for a hearing,
a hearing shall be held within 21 days after the filing of the request
for hearing. The Hearing Panel may, during the initial 21 day period,
extend the time in which the hearing shall be held by an additional 21
days on its own motion or at the request of a Party. Not less than five
days before the hearing, the Hearing Panel shall provide written notice
to the Parties of the location, date, and time of the hearing by
facsimile or overnight commercial courier.
(e) Transmission of Documents
(1) Not less than five days before the hearing, the Association
shall provide to the member, associated person, or other person who
requested the hearing, by facsimile or overnight commercial courier,
all documents that were considered in issuing the notice under Rule
9512 or 9513, unless a document meets the criteria of Rule 9251(b)(1)
(A), (B), or (C). A document that meets such criteria shall not
constitute part of the record, but shall be retained by the Association
until the date upon which the Association serves a final decision or,
if applicable, upon the conclusion of any review by the Commission or
the federal courts.
(2) Not less than five days before the hearing, the Parties shall
exchange proposed exhibit and witness lists. The exhibit and witness
lists shall be served by facsimile or by overnight commercial courier.
(f) Hearing Panel Consideration
(1) Rights of Parties
The Parties shall be entitled to be heard in person, to be
represented by an attorney, and to submit any relevant evidence.
(2) Witnesses
A person who is subject to the jurisdiction of the Association
shall testify under oath or affirmation. The oath or affirmation shall
be administered by a court reporter.
(3) Recordation of Hearing
The hearing shall be recorded and a transcript prepared by a court
reporter. The member, associated person, or other person may purchase a
copy of the transcript from the court reporter at prescribed rates. A
witness may purchase a copy of the transcript of his or her own
testimony from the court reporter at prescribed rates. Proposed
corrections to the transcript may be submitted by affidavit to the
Hearing Panel within a reasonable time determined by the Hearing Panel.
Upon notice to the participants in the hearing, the Hearing Panel may
order corrections to the transcript as requested or sua sponte.
(4) Record
The record shall consist of: (1) The notice issued under Rule 9512
or 9513; (2) all documents transmitted by the Association under Rule
9514(e)(1); (3) the request for hearing; (4) any other submissions by
the Parties; (5) any evidence considered at the hearing; and (6) the
transcript of the hearing and any corrections thereto.
(5) Custodian of the Record
If the President of NASD Regulation or NASD Regulation staff
initiated the proceeding under Rule 9512 or 9513, the Office of the
General Counsel of NASD Regulation shall be the custodian of the
record. If the President of Nasdaq or Nasdaq staff initiated the
proceeding under Rule 9512 or 9513, the Office of the General Counsel
of Nasdaq shall be the custodian of the record.
(6) Evidence Not Admitted
Evidence that is proffered but not admitted during the hearing
shall not be part of the record, but shall be retained by the custodian
of the record until the date when the Association's decision becomes
final or, if applicable, upon the conclusion of any review by the
Commission or the federal courts.
(g) Decision of the Hearing Panel
(1) Summary Suspension, Limitation, or Prohibition
Based on its review of the record, the Hearing Panel shall affirm,
modify, or reverse the summary suspension, limitation, or prohibition.
The Hearing Panel shall prepare a proposed written decision pursuant to
subparagraph (3).
(2) Non-Summary Suspension, Cancellation, Bar, Limitation, or
Prohibition
Based on its review if the record, the Hearing Panel shall decide
whether a cancellation, suspension, bar, limitation, or prohibition
shall be imposed or continue to be imposed. The Hearing panel shall
prepare a proposed written decision pursuant to subparagraph (3).
(3) Contents of Decision
The decision shall include:
(A) A statement setting forth the specific statute, rule, or NASD
by-law that authorized the proceeding;
(B) A statement describing the investigative or other origin of the
proceeding;
(C) The grounds for issuing the notice under Rule 9512 or 9513;
(D) A statement of findings of fact with respect to any act or
practice that was alleged to have been committed or omitted by the
member, associated person, or other person;
(E) A statement in support of the disposition of the principal
issues raised in the proceedings; and
(F) If a summary suspension, limitation, or prohibition continues
to be imposed, the specific grounds for imposing such suspension,
limitation, or prohibition, and the terms of the suspension,
limitation, or prohibition, or, if a non-summary suspension,
cancellation, bar, limitation, or prohibition is to be imposed or
continue to be imposed, the effective date, time, and terms of the
suspension, cancellation, bar, limitation, or prohibition.
(4) Issuance of Decision After Expiration of Call for Review Period
The Hearing Panel shall provide its proposed written decision to
the NASD Board. The NASD Board may call the proceeding for review
pursuant to Rule 9515. If the NASD Board does not call the proceeding
for review, the proposed written decision of the Hearing Panel shall
become final, and the Hearing Panel shall serve its written decision on
the Parties pursuant to Rules 9132 and
[[Page 38170]]
9134. The decision shall be effective upon service and shall constitute
the final action of the Association.
9515. Discretionary Review by the NASD Board
(a) Call for Review by Governor
A Governor may call a proceeding for review by the NASD Board if
the call for review is made within the period prescribed by paragraph
(b).
(b) Seven Day Period; Waiver
A Governor shall make his or her call for review not later than the
next meeting of the NASD Board that is at least seven days after the
date on which the NASD Board receives the proposed written decision of
the Hearing Panel. By a unanimous vote of the NASD Board, the NASD
Board may shorten this period. By an affirmative vote of the majority
of the NASD Board then in office, the NASD Board may, during the
period, vote to extend the period.
(c) Review at Next Meeting
If a Governor calls a proceeding for review within the period
prescribed by paragraph (b), the NASD Board shall review the decision
not later than the next meeting of the NASD Board. The NASD Board may
order the filing of briefs in connection with its review proceedings
pursuant to this Rule.
(d) Decision of the NASD Board, Including Remand
After review, the NASD Board may affirm, modify, or reverse the
proposed written decision of the Hearing Panel. Alternatively, the NASD
Board may remand the proceeding with instructions. The NASD Board shall
prepare a written decision that includes all of the elements of Rule
9514(g)(3).
(e) Issuance of Decision
The NASD Board shall issue and serve its written decision on the
Parties pursuant to Rules 9132 and 9134. The decision shall be
effective upon service. The decision shall constitute the final action
of the Association, unless the NASD Board remands the proceeding.
9516. Reinstatement
A member, associated person, or other person who has been suspended
or limited by a final action of the Association after a non-summary
proceeding under the Rule 9510 Series may file a written request for
reinstatement on the ground of full compliance with the conditions of
the suspension or limitation. The request shall be filed with the
department or office of the Association that acted as a Party in the
proceeding. The head of the department or office shall serve its
response on the member or person via facsimile or overnight commercial
courier within five days after receipt of the request. If the head of
the department or office denies the request, the member or person may
file a written request for relief with NASD Board. The NASD Board shall
respond to the request in writing within 14 days after receipt of the
request. The NASD Board shall serve its response by facsimile or
overnight commercial courier.
9517. Copies of Notices and Decisions to Members
A copy of a notice initiating a proceeding, a notice of a hearing,
or any other notice or decision that is served on a person associated
with a member under the Rule 9510 Series shall be served simultaneously
on such member by the same method of service provided for in the
applicable rule.
9518. Application to Commission for Review
The right to have any action pursuant to this Rule Series reviewed
by the Commission is governed by Section 19 of the Act. The filing of
an application for review by the Commission shall not stay the
effectiveness of final action by the Association, unless the Commission
otherwise orders.
9519. Other Action Not Foreclosed; Costs
(a) Action by the Association under the Rule 9510 Series shall not
foreclose action by the Association under any other Rule.
(b) The Association may impose on a member, associated person, or
other person such costs of a denial of access proceeding as the
Association deems fair and appropriate under the circumstances. Costs
relating to other proceedings under the Rule 9510 Series may be imposed
under Rule 8330.
[9520. Non-Summary Suspension, Cancellation, and Bar Procedures]
[9521. Purpose]
[(a) The rule 9520 Series sets forth procedures for the Association
to:
(1) Cancel the membership of a member that becomes ineligible for
continuance in membership, or that continues to be associated with an
ineligible person, or suspend or bar a person from continuing to be
associated with a member because such person is or becomes ineligible
for association under Article III, Section 3 of the NASD By-Laws;
(2) Suspend or cancel the membership of a member or the
registration of a person for failure to pay fees, dues, assessments, or
other charges; failure to submit a required report or information
related to such payment; or failure to comply with an arbitration award
or a settlement agreement related to an arbitration or mediation under
Article VI, Section 3 of the NASD By-Laws; and
(3) Cancel the membership of a member for failure to file or submit
on request any report, document, or other information required to be
filed with or requested by the Association under Article VII, Section 2
of the NASD By-Laws.]
[(b) Procedures for summarily suspending a member or associated
person on grounds set forth in Section 15A(h)(2) of the Act are found
in the Rule 9510 Series. Other procedures for suspending a member or
associated person for failure to submit required information or failure
to pay fines, monetary sanctions, or costs are found in Rules 8220 and
8320, respectively.]
[9522. Initiation of Proceeding]
[(a) Notice]
[Association of staff shall initiate a proceeding authorized under
Section 3 of Article III, Section 3 of Article VI, or Section 2 of
Article VII of the NASD By-Laws by sending a written notice to the
member or associated person. The notice shall specify the grounds for
and effective date of the cancellation, suspension, or bar and shall
state that the member or associated person may file a written request
for a hearing. The notice shall be served by facsimile or pursuant to
Rule 9131 and 9134.]
[(b) Copy of Notice to Member]
[A copy of a notice served on a person associated with a member
shall be served on such member pursuant to Rule 9134.]
[(c) Effective Date]
[For any cancellation, suspension, or bar under Section 3 of
Article III of the NASD By-Laws, the effective date shall be at least
seven days after service of the notice on the member or associated
person. For any cancellation or suspension under Section 3 of Article
VI or Section 2 of Article VII of the NASD By-Laws, the effective date
shall be at least 15 days after service of the notice on the member or
associated person.]
[9523. Hearing Panel Consideration]
[(a) Request for Hearing]
[A member or associated person who receives a notice under Rule
9522(a) may file a written request for a hearing with the NASD
Regulation Board. The request shall be filed pursuant to Rules 9135,
9136, and 9137 before the
[[Page 38171]]
effective date set forth in the notice. The request shall state the
grounds for opposing the cancellation, suspension, or bar. The member
or associated person may withdraw its request at any time by filing a
written notice with the NASD Regulation Board pursuant to Rules 9135,
9136, and 9137.]
[(b) Stay of Action]
[Unless otherwise ordered by the NASD Regulation Board, a request
for a hearing under paragraph (a) shall stay the notice issued under
Rule 9522.]
[(c) Appointment of Hearing Panel]
[If a member or associated person files a request for a hearing,
the NASD Regulation Board shall appoint a Hearing Panel to conduct a
hearing. The Hearing Panel shall be composed of two or more current or
former Directors of the NASD Regulation Board.]
[(d) Rights of Member]
[The member or associated person shall be entitled to be heard in
person, to be represented by an attorney, and to submit any relevant
evidence.]
[(e) Witnesses]
[A person who is subject to the jurisdiction of the Association
shall testify under oath or affirmation. The oath or affirmation shall
be administered by a court reporter.]
[(f) Recordation of Hearing]
[The hearing shall be recorded and a transcript prepared by a court
reporter. The member or associated person may purchase a copy of the
transcript from the court reporter. Any corrections to the transcript
shall be submitted within three days after the hearing or within three
days after receipt of the transcript, whichever is later.]
[(g) Decision]
[(1) Decision of Hearing Panel]
[The Hearing Panel shall decide whether a cancellation, suspension,
or bar shall be imposed. The Hearing Panel shall prepare a proposed
written decision pursuant to subparagraph (2).]
[(2) Contents of Decision]
[The decision shall include:]
(A) An identification of the article of the NASD By-Laws that
authorizes the proceedings;
(B) A statement describing the origin of the proceeding;
(C) A statement of the nature of the ineligibility or the failure
to take action that is at issue;
(D) A statement of findings of fact and conclusions as to any
violations of the By-Laws;
(E) A rationale for the disposition of the proceeding; and,
(F) If a suspension, cancellation, or bar is imposed, the effective
date and time and the terms of the sanction.]
[(3) Issuance of Decision After Expiration of Call for Review Period]
[The Hearing Panel shall provide its proposed written decision to
the NASD Board. The NASD Board may call the proceeding for review
pursuant to Rule 9524. If the NASD Board does not call the proceeding
for review, the proposed written decision of the Hearing Panel shall
become final, and the Hearing Panel shall serve its written decision
pursuant to Rules 9132 and 9134. The decision shall constitute final
action of the Association.]
[9524. Discretionary Review by NASD Board]
[(a) Call for Review by Governor]
[A Governor may call a proceeding for review by the NASD Board if
the call for review is made within the period described by paragraph
(b).]
[(b) Seven Day Period; Waiver]
[After receiving the proposed written decision of the Hearing Panel
pursuant to Rule 9523, a Governor shall have not less than seven days
to determine if the decision should be called for review. A Governor
shall call a proceeding for review by notifying the General Counsel of
the NASD. By a unanimous vote of the NASD Board, the NASD Board may
shorten the period to less than seven days. By an affirmative vote of
the majority of the NASD Board then in office, the NASD Board may,
during the seven day period, vote to extend the period to more than
seven days.]
[(c) Review at Next Meeting]
[If a Governor calls a proceeding for review within the period
prescribed by paragraph (b), the NASD Board shall review the proceeding
not later than the next meeting of the NASD Board. The NASD Board may
order the filing of briefs in connection with its review proceedings
pursuant to this Rule.]
[(d) Decision and Final Action of the Association]
[After review, the NASD Board may affirm, modify, or reverse the
decision of the Hearing Panel or remand the proceeding with
instructions. The NASD Board shall prepare a written decision that
includes all of the elements of Rule 9523(g)(2).]
[(e) Issuance of Decision After Expiration of Call for Review Period]
[The NASD Board shall issue and serve its decision pursuant to
Rules 9132 and 9134. The decision shall constitute final action of the
Association, unless the NASD Board remands the proceeding.]
[9525. Application to Commission for Review]
[Any person aggrieved by final action pursuant to the Rule 9520
Series may apply for review by the Commission under Section 19 of the
Act. The filing of an application for review shall not stay the
effectiveness of final action by the Association, unless the Commission
otherwise orders.]
[9526. Other Action Not Foreclosed]
[Action by the Association under the Rule 9520 Series shall not
foreclose action by the Association under any other Rule.]
[9530] 9520. Eligibility Proceedings
[9531] 9521. Purpose
The Rule [9530] 9520 Series sets forth procedures for a person to
become or remain associated with a member, notwithstanding the
existence of a statutory disqualification as defined in Section
3(a)(39) of the Act and for a current member or person associated with
[any] a member to obtain relief from the eligibility or qualification
requirements of the NASD By-Laws and the Rules of the Association. Such
actions hereinafter are referred to as ``eligibility proceedings.''
[9532] 9522. Initiation of Eligibility Proceedings
(a) Notice of Disqualification or Ineligibility
(1) Issuance
If [the Department of Member Regulation (hereinafter ``Department''
in the Rule 9530 Series)] Association staff has reason to believe that
a statutory disqualification exists or that a member or person
associated with a member otherwise fails to meet the eligibility
requirements of the Association, [the Department] Association staff
shall issue a written notice to the member or associated person. The
notice shall specify the grounds for such disqualification or
ineligibility.
(2) Notice to Member
A notice issued to a member that is subject to a statutory
disqualification or is otherwise ineligible for membership shall state
that the member may apply for relief by filing a written application
for relief with the [Department] National
[[Page 38172]]
Business Conduct Committee within [seven] ten days after service of the
notice.
(3) Notice to Associated Person
A notice issued to an associated person who is subject to a
statutory disqualification or is otherwise ineligible for association
shall state that [the member with which the person is or may become
associated] a member may apply for relief on behalf of itself and such
person by filing a written application for relief with the [Department]
National Business Conduct Committee within [seven] ten days after
service of the notice.
(4) Service
A notice issued under this section shall be served by facsimile or
pursuant to Rules 9131 and 9134.
(b) Application by Member
A member shall file a written application for relief from the
eligibility requirements of the Association with the [Department]
National Business Conduct Committee if the member:
(1) Determines that it is subject to a statutory disqualification
or otherwise is no longer eligible for membership;
(2) Determines that a person associated with it is subject to a
statutory disqualification or otherwise is no longer eligible for
association with the member; or
(3) Wishes to sponsor the association of a person who is subject to
a statutory disqualification or otherwise is ineligible for association
with a member.
(c) Form of Application for Relief
A written application for relief shall be submitted on Form MC400
and shall include a detailed statement demonstrating why the requested
relief should be granted.
(d) Withdrawal of Application
A member may withdraw its application for relief at any time by
filing a written notice with the [Department] National Business Conduct
Committee pursuant to Rules 9135, 9136, and 9137.
(e) Ex Parte Communications
The prohibitions against ex parte communications set forth in Rule
9143 shall become effective under the Rule [9530] 9520 Series when [the
Department of Member Regulation] Association staff has initiated the
eligibility proceeding and Association staff has knowledge that a
member intends to file a written application for relief with the
[Department] National Business Conduct Committee.
[9533] 9523. National Business Conduct Committee Consideration
(a) Hearing Panel Consideration
(1) Appointment of Hearing Panel
If a member files an application for relief, the National Business
Conduct Committee shall appoint a Hearing Panel composed of two or more
members, who shall be current or former Directors of the NASD
Regulation Board or former Governors of the NASD Board. The Hearing
Panel shall conduct a hearing and recommend a decision on the request
for relief.
(2) Notice of Hearing
Not less than fourteen days before the hearing, the member shall be
notified via facsimile or commercial courier of the location, time, and
date of the hearing.
(3) Transmission of Documents
(i) If Association staff initiated the eligibility proceeding by
issuing a notice under Rule 9522(a), Association staff shall provide to
the member and its current or prospective associated person all
documents that were relied on in issuing the notice. Such documents
shall be served on the member and its current or prospective associated
person by facsimile or commercial courier not less than ten days before
the hearing.
(ii) Not less than ten days before the hearing, the Department of
Member Regulation, who shall act as a Party in the eligibility
proceeding, and the member and its current or prospective associated
person shall exchange proposed exhibit and witness lists. The exhibit
and witness lists shall be served by facsimile or commercial courier.
[(2)] (4) Rights of Member, Current or Prospective Associated Person,
and Department of Member Regulation
The member, [and] its current or prospective associated person, [as
applicable,] and the Department of Member Regulation shall be entitled
to be heard in person, to be represented by an attorney, and to submit
any relevant evidence.
[(3)] (5) Recordation of Hearing
The hearing shall be recorded and a transcript prepared by a court
reporter. The member and the current or prospective associated person
may purchase a copy of the transcript from the court reporter at
prescribed rates. [Any corrections to the transcript shall be submitted
within three days after the hearing or within three days after receipt
of the transcript, whichever is later.] A witness may purchase a copy
of the transcript of his or her own testimony from the court reporter
at prescribed rates. Proposed corrections to the transcript may be
submitted by affidavit to the Hearing Panel within a reasonable time
determined by the Hearing Panel. Upon notice to the participants in the
hearing, the Hearing Panel may order corrections to the transcript as
requested or sua sponte.
(6) Record
The record shall consist of: (1) The notice issued pursuant to Rule
9522(a), if applicable; (2) all documents relied upon in issuing the
notice under Rule 9522(a), if applicable; (3) the application for
relief filed pursuant to Rule 9522(b); (4) any other submissions by the
member, the current or prospective associated person, and the
Department of Member Regulation; (5) any evidence considered at the
hearing; and (6) the transcript of the hearing and any corrections
thereto.
(7) Custodian of the Record
The custodian of the record shall be the Office of General Counsel
of NASD Regulation.
(8) Evidence Not Admitted
Evidence that is proffered but not admitted during the hearing
shall not be part of the record, but shall be retained by the custodian
of the record until the date when Association's decision becomes final
or, if applicable, upon the conclusion of any review by the Commission
or the federal courts.
[(4)] (9) Recommendation
[The] On the basis of the record, the Hearing Panel shall present a
recommended decision in writing on the request for relief to the
Statutory Disqualification Committee. After considering the record and
recommendation of the Hearing Panel, the Statutory Disqualification
Committee shall present its recommended decision in writing to the
National Business Conduct Committee and all other Directors not later
than seven days before the meeting of the National Business Conduct
Committee at which the eligibility proceeding shall be considered.
(b) Decision
(1) Decision of the National Business Conduct Committee
After considering all matters presented in the request for relief,
the Statutory Disqualification Committee's recommended decision, the
public interest, and the protection of investors, the National Business
Conduct Committee may grant or deny the request for relief, and, if
relief is
[[Page 38173]]
granted, impose conditions on the member and its current or prospective
associated person. Alternatively, the National Business Conduct
Committee may remand the eligibility proceeding. The National Business
Conduct Committee shall prepare a proposed written decision pursuant to
subparagraph (2).
(2) Contents of Decision
The decision shall include:
(A) A description of the origin of the eligibility proceeding and
the nature of the disqualification;
(B) A description of the prospective business or employment
requested to be engaged in; and
(C) A statement in support of the disposition of the request for
relief, which, if granted, includes any of the applicable elements
under SEC Rule 19h-1(e) and a description of any conditions that are
imposed on the member and current or prospective associated person.
(3) Issuance of Decision After Expiration of Call for Review Period
The National Business Conduct Committee shall provide its proposed
written decision to the NASD Regulation Board, and, if the eligibility
proceeding is not called for review by the NASD Regulation Board, to
the NASD Board. The NASD Regulation Board may call the eligibility
proceeding for review pursuant to Rule [9534] 9524. The NASD Board may
call the eligibility proceeding for review pursuant to Rule [9535]
9525. If neither the NASD Regulation Board nor the NASD Board calls the
eligibility proceeding for review, the proposed written decision of the
National Business Conduct Committee shall become final, and the
National Business Conduct Committee shall serve its written decision on
the member, the current or prospective associated person, and
Department of Member Regulation pursuant to Rules 9132 and 9134. The
decision shall be effective upon service. The decision shall constitute
final action of the Association, unless the National Business Conduct
Committee remands the eligibility proceeding.
[9534] 9524. Discretionary Review by the NASD Regulation Board
(a) Call for Review by Director
A Director may call an eligibility proceeding for review by the
NASD Regulation Board[,] if the call for review is made within the
period prescribed in paragraph (b).
(b) Seven Day Period; Waiver
After receiving the proposed written decision of the National
Business Conduct Committee pursuant to Rule [9533] 9523, a Director
shall have not less than seven days to determine if the eligibility
proceeding should be called for review. A Director shall call an
eligibility proceeding for review by notifying the General Counsel of
NASD Regulation. By a unanimous vote of the NASD Regulation Board, the
NASD Regulation Board may shorten the period to less than seven days.
By an affirmative vote of the majority of the NASD Regulation Board
then in office, the NASD Regulation Board may, during the seven day
period, vote to extend the period to more than seven days.
(c) Review at Next Meeting
If a Director calls the eligibility proceeding for review within
the period prescribed by paragraph (b), the NASD Regulation Board shall
review the eligibility proceeding not later than the next meeting of
the NASD Regulation Board. The NASD Regulation Board may order the
filing of briefs in connection with its review proceedings pursuant to
this Rule.
(d) Decision of NASD Regulation Board, Including Remand
After review, the NASD Regulation Board may affirm, modify, or
reverse the proposed written decision of the National Business Conduct
Committee. Alternatively, the NASD Regulation Board may remand the
eligibility proceeding with instructions. The NASD Regulation Board
shall prepare a proposed written decision that includes all of the
elements described in Rule [9533(b)(2)] 9523(b)(2).
(e) Issuance of Decision After Expiration of Call for Review Period
The NASD Regulation Board shall provide its proposed written
decision to the NASD Board. The NASD Board may call the eligibility
proceeding for review pursuant to Rule [9535] 9525. If the NASD Board
does not call the eligibility proceeding for review, the proposed
written decision of the NASD Regulation Board shall become final, and
the NASD Regulation Board shall serve its written decision on the
member, the current or prospective associated person, and Department of
Member Regulation pursuant to Rules 9132 and 9134. The decision shall
be effective upon service. The decision shall constitute the final
action of the Association, unless the NASD Regulation Board remands the
eligibility proceeding.
[9535] 9525. Discretionary Review by the NASD Board
(a) Call for Review by Governor
A Governor may call an eligibility proceeding for review by the
NASD Board if the call for review is made within the period prescribed
in paragraph (b).
(b) Seven Day Period; Waiver
(1) Eligibility Proceeding Called for Review by NASD Regulation Board
If the NASD Regulation Board reviewed the eligibility proceeding
under Rule [9534] 9524, a Governor shall make his or her call for
review not later than the next meeting of the NASD Board that is at
least seven days after the date on which the NASD Board receives the
proposed written decision of the NASD Regulation Board.
(2) Eligibility Proceeding Not Called for Review by NASD Regulation
Board
If no Director of the NASD Regulation Board called the eligibility
proceeding for review under Rule [9534] 9524, a Governor shall make his
or her call for review no later than the next meeting of the NASD Board
that is at least seven days after the date on which the NASD Board
receives the proposed written decision of the National Business Conduct
Committee.
(3) Waiver
By a unanimous vote of the NASD Board, the NASD Board may shorten
the period in subparagraph (1) or (2) to less than seven days. By an
affirmative vote of the majority of the NASD Board then in office, the
NASD Board may, during the seven day period in subparagraph (1) or (2),
vote to extend the period in subparagraph (1) to (2) to more than seven
days.
(c) Review at Next Meeting
If a Governor calls [a] an eligibility proceeding for review within
the period prescribed in paragraph (b), the NASD Board shall review the
eligibility proceeding not later than the next meeting of the NASD
Board. The NASD Board may order the filing of briefs in connection with
its review proceedings pursuant to this Rule.
(d) Decision of NASD Board, Including Remand
After review, the NASD Board may affirm, modify, or reverse: (1)
The proposed written decision of the NASD Regulation Board, or (2) if
the NASD Regulation Board did not call an eligibility proceeding for
review under Rule [9534] 9524, the proposed written decision of the
National Business
[[Page 38174]]
Conduct Committee. Alternatively, the NASD Board may remand the
eligibility proceeding with instructions. The NASD Board shall prepare
a written decision that includes all of the elements described in Rule
[9533(b)(2)] 9523(b)(2).
(e) Issuance of Decision
The NASD Board shall issue and serve its written decision on the
member, the current or prospective associated person, and Department of
Member Regulation pursuant to Rules 9132 and 9134. The decision shall
be effective upon service. The decision shall constitute the final
action of the Association, unless the NASD Board remands the
proceeding.
[9536] 9526. Aplication to Commission for Review
[Any person aggrieved by final] The right to have any action taken
pursuant to [the] this Rule [9530] Series [may apply for review]
reviewed by the Commission [under] is governed by Section 19 of the
Act. The filing of an application for review shall not stay the
effectiveness of final action by the Association, unless the Commission
otherwise orders.
9600. Procedures for Exemptions
9610. Application
(a) File With General Counsel
A member seeking an exemption from Rule 1021, 1022, 1070, 2210,
2340, 2520, 2710, 2720, 2810, 2850, 2851, 2860. Interpretive Material
2860-1, 3210, 3350, 11870, or 11900, Interpretive Material 2110-1, or
Municipal Securities Rulemaking Board Rule G-37 shall file a written
application with the Office of General Counsel of NASD Regulation.
(b) Content
An application filed pursuant to this Rule shall contain the
member's name and address, the name of a person associated with the
member who will serve as the primary contact for the application, the
Rule from which the member is seeking an exemption, and a detailed
statement of the grounds for granting the exemption. If the member does
not want the application or the decision on the application to be
publicly available in whole or in part, the member also shall include
in its application a detailed statement, including supporting facts,
showing good cause for treating the application or decision as
confidential in whole or in part.
(c) Applicant
A member that files an application under this Rule is referred to
as ``Applicant'' hereinafter in the Rule 9600 Series.
9620. Decision
After considering an application, NASD Regulation staff shall issue
a written decision setting forth its findings and conclusions. The
decision shall be served on the Applicant pursuant to Rules 9132 and
9134. After the decision is served on the Applicant, the application
and decision shall be publicly available unless NASD Regulation staff
determines that the Applicant has shown good cause for treating the
application or decision as confidential in whole or in part.
9630. Appeal
(a) Notice
An Applicant may file a written notice of appeal within 15 calendar
days after service of a decision issued under Rule 9620. The notice of
appeal shall contain a brief statement of the findings and conclusions
as to which exception is taken. The National Business Conduct Committee
may order oral argument. If the Applicant does not want the National
Business Conduct Committee's decision on the appeal to be publicly
available in whole or in part, the Applicant also shall include in its
notice of appeal a detailed statement, including supporting facts,
showing good cause for treating the decision as confidential in whole
or in part. The notice of appeal shall be signed by the Applicant.
(b) Expedited Review
Where the failure to promptly review a decision to deny a request
for exemption would unduly or unfairly harm the applicant, the National
Business Conduct Committee shall provide expedited review.
(c) Withdrawal of Appeal
An Applicant may withdraw its notice of appeal at any time by
filing a written notice of withdrawal of appeal with the National
Business Conduct Committee.
(d) Appointment of Subcommittee
Following the filing of a notice of appeal, the National Business
Conduct Committee shall designate a Subcommittee to hear an oral
argument, if ordered, consider any new evidence that the Applicant can
show good cause for not including in its application, and recommend to
the National Business Conduct Committee a disposition of all matters on
appeal.
(e) Decision
After considering all matters on appeal and the Subcommittee's
recommendation, the National Business Conduct Committee shall affirm,
modify, or reverse the decision issued under Rule 9620. The National
Business Conduct Committee shall issue a written decision setting forth
its findings and conclusions and serve the decision on the Applicant.
The decision shall be served pursuant to Rules 9132 and 9134. The
decision shall be effective upon service and shall constitute final
action of the Association.
* * * * *
Conforming Rule Changes
Rule 1021. Registration Requirements
(e)(2) Pursuant to the Rule 9600 Series, the [President of the]
Association[, upon written request,] may waive the provisions of
subparagraph (1)[, above,] in situations [which] that indicate
conclusively that only one person associated with an applicant for
membership should be required to register as a principal.
1022. Categories of Principal Registration
(b)(4) Pursuant to the Rule 9600 Series, the Association may exempt
a member[,] or an applicant for membership in the Association[, may
upon written request, be exempted by the President of the Association,
or his delegate,] from the requirement to have a Limited Principal--
Financial and Operations if:
(A) It has been expressly exempted by the Commission from SEC Rule
15c3-1(b)(1)(iii);
(B) It is subject to the provisions of SEC Rule 15c3-1(a)(2) or to
Section 402.2(c) of the rules of the Treasury Department.
1070. Qualification Examinations and Waiver of Requirements
(e) Pursuant to the Rule 9600 Series, the [President of the]
Association may, in exceptional cases and where good cause is shown,
waive the applicable Qualification Examination [upon written request by
the member,] and accept other standards as evidence of an applicant's
qualifications for registration. Advanced age, physical infirmity or
experience in fields ancillary to the investment banking or securities
business will not individually of themselves constitute sufficient
grounds to waive a Qualification Examination.
[[Page 38175]]
2210. Communications With the Public
(c) Filing Requirements and Review Procedures
(8) Exemptions. Pursuant to the Rule 9600 Series, the Association
may exempt a member or person associated with a member from the pre-
filing requirements of this paragraph for good cause shown.
2340. Customer Account Statements
(d) Pursuant to the Rule 9600 Series, the Association[, acting
through its Operations Committee] may[, pursuant to a written request
for good cause shown,] exempt any member from the provisions of this
Rule for good cause shown.
2520. Margin Accounts
(c)(5)(C) Joint Accounts in Which the Carrying Organization or a
Partner or Stockholder Therein Has an Interest
In the case of a joint account carried by a member in which such
member, or any partner, or stockholder (other than a holder of freely
transferable stock only) of such member participates with others, each
participant other than the carrying member shall maintain an equity
with respect to such interest pursuant to the margin provisions of this
paragraph as if such interest were in a separate account.
Pursuant to the Rule 9600 Series, [T]the Association [will consider
requests for exemption from the] may grant an exemption from the
provisions of [this] paragraph (c)(5)(C)[, provided] if the account is:
(i) [The account is] confined exclusively to transactions and
positions in exempted securities;
(ii) [The account is] maintained as a Market Functions Account
conforming to the conditions of Section 220.12(e) (Odd-lot dealers) of
Regulation T of the Board of Governors of the Federal Reserve System;
or
(iii) [The account is] maintained as a Market Functions Account
conforming to the conditions of Section 220.12(c) (Underwritings and
Distributions) of Regulation T of the Board of Governors of the Federal
Reserve System and each other participant margins his share of such
account on such basis as the Association may prescribe.
2710. Corporate Financing Rule--Underwriting Terms and Arrangements
(d) Exemptions. Pursuant to the Rule 9600 Series, the Association
may exempt a member or person associated with a member from the
provisions of this Rule for good cause shown.
2720. Distribution of Securities of Members and Affiliates--Conflicts
of Interest
(p) Requests for Exemption from Rule 2720
Pursuant to the Rule 9600 Series, [T]the Association [Corporate
Financing Committee of the Board of Governors, upon written request,]
may in exceptional and unusual circumstances, taking into consideration
all relevant factors, exempt a member unconditionally or on specified
terms from any or all of the provisions of this Rule which it deems
appropriate. [Unless waived by the party requesting an exemption, a
hearing shall be held upon a request before the Corporate Financing
Committee, or a Subcommittee thereof designated for that purpose.]
2810. Direct Participation Programs
(c) Exemptions. Pursuant to the Rule 9600 Series, the Association
may exempt a member or person associated with a member from the
provisions of this Rule for good cause shown.
2850. Position Limits
(a) Except with the prior written approval of the Association
pursuant to the Rule 9600 Series for good cause shown in each instance,
no member shall effect for any account in which such member has an
interest, or for the account of any partner, officer, director or
employee thereof, or for the account of any customer, a purchase or
sale transaction in an index warrant listed on Nasdaq or on a national
securities exchange if the member has reason to believe that as a
result of such transaction the member, or partner, officer, director or
employee thereof, or customer would, acting alone or in concert with
others, directly or indirectly, hold or control an aggregate position
in an index warrant position on the same side of the market, combining
such index warrant position with positions in index warrants overlying
the same index on the same side of the market, in excess of the
position limits established by the Association, in the case of Nasdaq-
listed index warrants, or on the exchange on which the warrant is
listed.
2851. Exercise Limits
(a) Except with the prior written approval of the Association
pursuant to the Rule 9600 Series for good cause shown, in each
instance, no member or person associated with a member shall exercise,
for any account in which such member or person associated with a member
has an interest, or for the account of any partner, officer, director
or employee thereof, or for the account of any customer, a long
position in any index warrant if as a result thereof such member or
partner, officer, director or employee thereof or customer, acting
alone or in concert with others, directly or indirectly;
(1) Has or will have exercised within any five (5) consecutive
business days a number of index warrants overlying the same index in
excess for the limits for index warrant positions contained in Rule
2850; or
(2) Has or will have exceeded the applicable exercise limit fixed
from time to time by an exchange for an index warrant not dealt in on
Nasdaq.
(b) The Association, pursuant to the Rule 9600 Series for good
cause shown, may institute other limitations concerning the exercise of
index warrants from time to time [by action of the Association].
Reasonable notice shall be given of each new limitation fixed by the
Association. These exercise limitations are separate and distinct from
any other exercise limitations imposed by the issuers of index
warrants.
2860. Options
(b) Requirements
(3) Position Limits
(A) Stock Options--Except in highly unusual circumstances, and with
the prior written approval of the Association pursuant to the Rule 9600
Series for good cause shown in each instance, no member shall effect
for any account in which such member has an interest, or for the
account of any partner, officer, director or employee thereof, or for
the account of any customer, an opening transaction through Nasdaq, the
over-the-counter market or on any exchange in a stock option contract
of any class of stock options if the member has reason to believe that
as a result of such transaction the member or partner, officer,
director or employee thereof, or customer would, acting alone or in
concert with others, directly or indirectly, hold or control or be
obligated in respect of an aggregate position in excess of:
(i) 4,500 option contracts of the put class and the call class on
the same side of the market covering the same underlying security,
combining for purposes of this position limit long positions in put
options with short positions in call options, and short positions in
put options with long positions in call options; or
(ii) 7,500 options contracts of the put class and the call class on
the same side of the market covering the same
[[Page 38176]]
underlying security, providing that the 7,500 contract position limit
shall only be available for option contracts on securities which
underlie or qualify to underlie Nasdaq or exchange-traded options
qualifying under applicable rules for a position limit of 7,500 option
contracts; or
(iii) 10,500 option contracts of the put class and the call class
on the same side of the market covering the same underlying security
providing that the 10,500 contract position limit shall only be
available for option contracts on securities which underlie or qualify
to underlie Nasdaq or exchange-traded options qualifying under
applicable rules for a position limit of 10,500 option contracts; or
(iv) 20,000 options contracts of the put and the call class on the
same side of the market covering the same underlying security,
providing that the 20,000 contract position limit shall only be
available for option contracts on securities which underlie or qualify
to underlie Nasdaq or exchange-traded options qualifying under
applicable rules for a position limit of 20,000 option contracts; or
(v) 25,000 options contracts of the put and the call class on the
same side of the market covering the same underlying security,
providing that the 25,000 contract position limit shall only be
available for option contracts on securities which underlie or qualify
to underlie Nasdaq or exchange-traded options qualifying under
applicable rules for a position limit of 25,000 option contracts; or
(vi) Such other number of stock options contracts as may be fixed
from time to time by the Association as the position limit for one or
more classes or series of options provided that reasonable notice shall
be given of each new position limit fixed by the Association.
(vii) Equity Option Hedge Exemption.
a. The following positions, where each option contract is
``hedged'' by 100 shares of stock or securities readily convertible
into or economically equivalent to such stock, or, in the case of an
adjusted option contract, the same number of shares represented by the
adjusted contract, shall be exempted from established limits contained
in (i) through (vi) above:
1. Long call and short stock;
2. Short call and long stock;
3. Long put and long stock;
4. Short put and short stock.
b. Except as provided under the OTC Collar Exemption contained in
paragraph (b)(3)(A)(viii), in no event may the maximum allowable
position, inclusive of options contracts hedged pursuant to the equity
option position limit hedge exemption in subparagraph a. above, exceed
three times the applicable position limit established in paragraph
(b)(3)(A) (i)-(v).
c. The Equity Option Hedge Exemption is a pilot program authorized
by the Commission through December 31, 1997.
(viii) OTC Collar Aggregation Exemption
a. For purposes of this paragraph (b), the term OTC collar shall
mean a conventional equity option position comprised of short (long)
calls and long (short) puts overlying the same security that hedge a
corresponding long (short) position in that security.
b. Notwithstanding the aggregation provisions for short (long) call
positions and long (short) put positions contained in subparagraphs (i)
through (v) above, the conventional options positions involved in a
particular OTC collar transaction established pursuant to the position
limit hedge exemption in subparagraph (vii) need not be aggregated for
position limit purposes, provided the following conditions are
satisfied:
1. The conventional options can only be exercised if they are in-
the-money;
2. Neither conventional option can be sold, assigned, or
transferred by the holder without the prior written consent of the
writer;
3. The conventional options must be European-style (i.e., only
exercisable upon expiration) and expire on the same date;
4. The strike price of the short call can never be less than the
strike price of the long put; and
5. Neither side of any particular OTC collar transaction can be in-
the-money when that particular OTC collar is established.
6. The size of the conventional options in excess of the applicable
basic position limit for the options established pursuant to
subparagraph (A) (i)-(v) above must be hedged on a one-to-one basis
with the requisite long or short stock position for the duration of the
collar, although the same long or short stock position can be used to
hedge both legs of the collar.
c. For multiple OTC collars on the same security meeting the
conditions set forth in subparagraph b. above, all of the short (long)
call options that are part of such collars must be aggregated and all
of the long (short) put options that are part of such collars must be
aggregated, but the short (long) calls need not be aggregated with the
long (short) puts.
d. Except as provided above in subparagraph b. and c., in no event
may a member fail to aggregate any conventional or standardized options
contract of the put class and the call class overlying the same equity
security on the same side of the market with conventional option
positions established in connection with an OTC collar.
e. Nothing in this subparagraph (vii) changes the applicable
position limit for a particular equity security.
IM-2860-1. Position Limits
(B) Index Options
(i) Except in highly unusual curcumstances, and with the prior
written approval of the Association Pursuant to the Rule 9600 Series
for good cause shown in each instance, no members shall effect for any
account in which such member has an interest, or for the account of any
partner, officer, director or employee thereof, or for the account of
any customer, an opening transaction in an option contract of any class
of index options displayed on Nasdaq or dealt in on an exchange if the
member has reason to believe that as a result of such transaction the
member or partner, officer, director or employee thereof, or customer,
would, acting alone or in concert with others directly or indirectly,
hold or control or be obligated in respect of an aggregate position in
excess of position limits established by the Association, in the case
of Nasdaq index options, or the exchange on which the option trades.
(4) Exercise Limits
Except in highly unusual cicumstances, and with the prior written
approval of the Association[,] pursuant to the Rule 9600 Series for
good cause shown in each instance, no member or person associated with
a member shall exercise, for any account in which such member or person
associated with a member has an interest, or for the account of any
partner, officer, director or employee thereof or for the account of
any customer, any option contract if as a result thereof such member or
partner, officer, director or employee thereof or customer, acting
along or in concert with others, director or indirectly, has or will
have exercised within any five (5) consecutive business days a number
of option contracts of a particular class of options in excess of the
limits for options positions in paragraph (b)(3). The Association may
institute other limitations concerning the exercise of option contracts
from time to time by action of the Association. Reasonable notice shall
be given of each new limitation filed by the Association.
[[Page 38177]]
3210. Securities ``Failed to Receive'' and ``Failed to Deliver''
(b) Pursuant to the Rule 9600 Series, [F]for good cause shown and
in exceptional circumstances, the Association may exempt a member or a
person associated with a member [a member may request exemption] from
the provisions of this Rule [by written request to the District
Director of the District in which his principal office is located].
3350. Short Sale Rule
(j) Pursuant to the Rule 9600 Series or on the Association's [Upon
application or on its] own motion, the Association may exempt either
unconditionally, or on specified terms and conditions, any transaction
or class of transactions from the provisions of this Rule.
11870. Customer Account Transfer Contracts
(j) Exemptions.
(1) Pursuant to the Rule 9600 Series, The Association may exempt
from the provisions of this Rule, either unconditionally or on
specified terms and conditions, (A) any member or (B) any type of
account, security or financial instrument.
11900. Clearance of Corporate Debt Securities
Each member or its agent that is a participant in a registered
clearing agency, for purposes of clearing over-the-counter securities
transactions, shall use the facilities of a registered clearing agency
for the clearance of eligible transactions between members in corporate
debt securities. Pursuant to the Rule 9600 Series, the Association may
exempt any transaction or class or transactions in corporate debt
securities from the provision of this Rule as may be necessary to
accommodate special circumstances related to the clearance of such
transactions or class of transactions.
* * * * *
[9800. Corporate Financing and Direct Participation Program
Matters]
[9810. Purpose]
[The purpose of this Rule 9800 Series is to provide a procedure for
review of determination by the Association's staff regarding compliance
with Rules of the Association relating to corporate financing and
direct participation program matters by which any member is aggrieved.]
[9820. Application by Aggrieved Member]
[Any member aggrieved by a determination rendered pursuant to any
Rule or regulation of the Association relating to underwriting terms or
arrangements may make application for review of such determination. In
exceptional or unusual circumstances, a member may request
conditionally or unconditionally an exemption from such Rules or
regulations. Applications for review will be accepted only with respect
to offerings for which a registration statement or similar document has
been filed with the appropriate federal or state regulatory agency;
provided, however, that a hearing committee may waive the requirement
for filing prior to review upon finding that such review is appropriate
under the circumstances.]
[9830. Application for Review]
[Any member making application for review pursuant to Rule 9820
(hereinafter referred to as ``applicant') shall request such review in
writing and shall specify in reasonable detail the source and nature of
the aggrievement and the relief requested. The applicant shall state
whether a hearing is requested and shall sign the written application.]
[9840. Notice of Hearing]
[Any applicant shall have a right to a hearing before a hearing
committee constituted as provided in Rule 9850. The hearing committee
may request a hearing on its own motion. A hearing shall be scheduled
as soon as practicable, at a location determined by the hearing
committee. Written notice of the hearing shall be sent to the applicant
stating the date, time, and location of the hearing.]
[9850. Hearing Committee and Procedure]
[(a) Any hearing shall be before an individual designated by the
Association, who shall be current or past members of the appropriate
standing committee of the Board of Governors, i.e. the ``hearing
committee.'' Any applicant shall be entitled to appear at, and
participate in, the hearing, to be represented by counsel, and to
submit any relevant testimony or evidence. Representatives of the
Association shall be entitled to appear at, participate in, the
hearing, to be represented by counsel, and to submit any relevant
testimony or evidence. Upon agreement of the applicant, representatives
of the Association, and the hearing committee, a hearing may be
conducted by means of telephonic or other linkage which permits all
parties to participate simultaneously in the proceeding.]
[(b) In the event that the applicant waives a hearing before the
appropriate hearing committee, the hearing committee shall review the
matter on the record before it. Any applicant and the Association shall
be entitled to submit any relevant written testimony or evidence to the
hearing committee.]
[9860. Requirement for Written Determination]
[The hearing committee shall render a determination as to all
issues which the committee finds to be relevant as soon as practicable
following conclusion of the hearing or, in cases in which a hearing is
not requested, completion of the committee's review of the record. The
hearing committee may determine whether the proposed underwriting or
other terms and arrangements in connection with or relating to the
distribution of the securities, or the terms and conditions related
thereto, taking into consideration all elements of compensation and all
of the relevant surrounding factors and circumstances, are fair and
reasonable and in compliance with applicable Rules and regulations. The
determination of the hearing committee shall be issued in writing, and
a copy shall be sent to each applicant.]
[9870. Review by Committee of Board]
[(a) Any member aggrieved by a determination of a hearing committee
shall have a right to have that determination reviewed by the
appropriate standing committee of the Board of Governors.]
[(b) Any member seeking a review of a determination of a hearing
committee shall submit a written request for such review to the
Association within fifteen (15) business days following issuance of the
hearing committee's written determination. Any such member shall submit
with the written request for review a written statement specifying the
portion of the hearing committee's determination for which review is
requested and the relief sought. Any such member may submit written
testimony or evidence for consideration by the committee.
Representatives of the Association may also submit written testimony or
evidence to the committee.]
[(c) Pursuant to a request duly made, the appropriate standing
committee of the Board of Governors will review the determination of a
hearing committee, giving consideration to all parts of the record
which the Board committee finds relevant. The Board committee shall
[[Page 38178]]
render a determination as to all issues which the committee finds to be
relevant. The determination of the Board committee shall be issued in
writing, and a copy shall be sent to each member requesting review.]
[9880. Nature of Determination]
[Any determination by a hearing committee or standing committee
rendered shall constitute the opinion of that committee as to
compliance with applicable Association Rules, interpretations or
policies and shall be advisory in nature only. Such determination shall
not be subject to review by the Board of Governors. No such
determination shall constitute a finding of a violation of any Rule,
interpretation or policy. A finding of a violation shall be made only
by a District Business Conduct Committee.]
[FR Doc. 97-18728 Filed 7-15-97; 8:45 am]
BILLING CODE 8010-01-M
