[Federal Register Volume 61, Number 141 (Monday, July 22, 1996)]
[Notices]
[Pages 37950-37951]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18457]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37439; File No. SR-NASD-96-21]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change by National Association of Securities Dealers, Inc. Relating to
Mandatory Electronic Filing of Forms U-4, U-5 and BD
July 15, 1996.
On June 7, 1996, the National Association of Securities Dealers,
Inc. (``NASD'' or ``Association'') filed with the Securities and
Exchange Commission (``SEC'' or ``Commission'') pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act''), 15 U.S.C.
78s(b)(1), a proposed rule change to require mandatory electronic
filing of Forms U-4, U-5, and BD. Notice of the proposed rule change,
together with the substance of the proposal, was issued by the
Commission (Securities Exchange Act Release No. 37291, June 7, 1996)
and published in the Federal Register (61 FR 30269, June 14, 1996). No
comment letters were received. The Commission is approving the proposed
rule change.
I. Background
The NASD has undertaken an extensive redesign of the Central
Registration Depository (``CRD''), the central database for securities
industry firms and personnel, with the goal of requiring electronic
filing of registration-related forms. The focus of the redesign effort
is to provide efficient, reliable, effective, state-of-the-art systems
and procedures at reasonable cost to support licensing and regulation
of the securities industry. The NASD believes the implementation of
mandatory electronic filing will eliminate the delays that may stem
from processing information in hard copy. Further, the NASD believes
that redesigned CRD will offer efficient processing of registration-
related filings and user-friendly access to information contained in
those filings for all industry and regulatory participants. A detailed
discussion of the CRD implementation plan appeared in the December 1995
issue of Membership On Your Side.
The NASD's proposal contains revisions to both the NASD By-Laws and
its Membership and Registration Rules. The revisions to the By-Laws
include amendments that require filers to submit information on Forms
U-4, U-5, and BD via electronic means.\1\ The NASD states that the
impact of this requirement on smaller member firms with limited access
and form filing needs was considered by its Board of Governors. The
Board addressed this concern, by providing all firms with the option to
contract with third party vendors to handle the filings with the CRD.
The Board also determined to give firms that have less than fifty
registered persons the option to file electronically, utilize a third-
party service bureau or file with the NASD's internal processing unit.
Member firms can choose for themselves based upon their needs whether
to access the system directly by acquiring the necessary hardware and
software and training their registration staff or to access the system
indirectly via a third party agent or service bureau. The NASD asserts
that its Membership staff is working with the vendors and service
bureaus to make sure they are prepared to provide this service to
members.
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\1\ On July 5, 1996, the Commission approved an NASD proposed
rule change amending Forms U-4 and U-5. File No. SR-NASD-96-19;
Securities Exchange Act Release No. 37407.
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Specific-By-Law provisions which currently require filers to use
``forms'' or provide ``written notification'' are changed to require
filing by electronic process or such other process as the NASD may
prescribe. The provisions which refer to the filer obligations to keep
applications ``current'' have been revised to set out more specific
requirements including specific time frames (usually 30 days) for the
filing of information. In addition, the NASD's membership eligibility
criteria are amended to require firms to file via the electronic
process. Firms that fail to comply with the electronic filing
requirement may be subject to suspension or cancellation of membership.
The NASD has established a rollout schedule which began in May 1996
with approximately eleven member firms and one service bureau being
involved in a pilot test. It is anticipated that the pilot firms will
file all forms electronically in the new CRD system on approximately
July 29, 1996.
The rollout schedule for all NASD members is as follows. The firms
have been divided among five NASD Service and Quality teams. Team 1
goes into production on approximately September 9, 1996, Teams 2 and 3
on approximately October 7, 1996, and Teams 4 and 5 on approximately
November 4, 1996.
Firms that had fewer than 50 registered representatives on April
26, 1996, (``Group II'') may comply with the electronic filing
requirement through any of three methods: (1) They may file
electronically on their own; (2) they may utilize a third-party vendor
to file on their behalf; or (3) for a period commencing on September 9,
1996 and ending on December 31, 1997, for a prescribed fee, these firms
may file paper forms with the NASD which through its own internal
processing unit will file the forms with the new CRD system.
The NASD is also amending its Membership and Registration Rules to
establish electronic filing protocols. Under these protocols the member
will:
(1) Designate a Registered Principal(s) or corporate officer(s) to
be responsible for supervising the electronic filing of appropriate
filings with such responsibility to acknowledge, electronically, that
the filing is on behalf of the firm and the member firm's associated
persons.
(2) Retain and provide upon regulatory request original, signed
Form U-4s which were electronically processed as initial or transfer
applications as part of the recordkeeping requirements.
(3) File amendments to administrative data without the signature of
the subject individual. Such information includes the addition of state
or SRO registration, exam scheduling and updates to residential,
business and personal history.
(4) File amendments to disclosure data electronically provided that
the subject person has acknowledged that the information has been
received and reviewed. This acknowledgement must be retained and
provided upon regulatory request.
(5) File initial and amended Form U-5 Notice of Terminations
electronically. The filing firm must make the filings available upon
regulatory request.
II. Discussion
The Commission believes that the proposed rule change is consistent
with the provisions of Section 15A(b)(6) of the Act,\2\ which require
the rules of the NASD be designed to prevent fraudulent
[[Page 37951]]
and manipulative activity and to foster coordination with persons
engaged in regulating the markets. Mandatory electronic filing with the
new CRD system will provide more efficient processing of registration-
related filings and will allow for easy access to information in these
filings by all industry and regulatory participants. In turn,
electronic filing of these forms will facilitate oversight of
securities industry firms and their personnel.
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\2\ 15 U.S.C. 78o-3(b)(6).
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It is therefore ordered, pursuant to section 19(b)(2) of the Act,
that the proposed rule change SR-NASD-96-21 be, and hereby is,
approved.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-18457 Filed 7-19-96; 8:45 am]
BILLING CODE 8010-01-M
