[Federal Register Volume 63, Number 141 (Thursday, July 23, 1998)]
[Notices]
[Pages 39619-39620]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19568]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40213; File No. SR-NASD-98-36]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Order Granting Approval to Proposed Rule Change and
Amendment 1 Thereto Relating to At-Large Industry Members of the
National Adjudicatory Council
July 15, 1998.
I. Introduction
On May 12, 1998, the National Association of Securities Dealers,
Inc., (``NASD'' or ``Association'') filed with the Securities and
Exchange Commission (``SEC'' or ``Commission'') a proposed rule change
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder \2\ to amend the By-Laws of
NASD Regulation, Inc. (``NASD Regulation'') to permit one or more
Industry members of the National Adjudicatory Council (``NAC'')\3\ to
serve as at-large Industry members of the NAC. By letter dated May 19,
1998, the Association filed Amendment 1 to the proposed rule change.\4\
The proposed rule change and Amendment 1 were published for comment in
the Federal Register on June 11, 1998.\5\ No comments were received.
This order approves the proposal.
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\1\ 15 U.S.C. 78s(b)(1) (1994).
\2\ 17 CFR 240.19b-4 (1997).
\3\ The functions of the NAC include hearing appeals and
conducting reviews of disciplinary proceedings, statutory
disqualification proceedings, and membership proceedings; reviewing
offers of settlement; reviewing exemptions granted or denied by
staff; and making recommendations to the Board on policy and rule
changes relating to securities business and sales practices and
enforcement policies, including policies with respect to fines and
other sanctions. See Article V, Section 5.1 of the NASD Regulation
By-Laws.
\4\ See Letter from T. Grant Callery, General Counsel, NASD, to
Katherine England, Assistant Director, SEC, dated May 19, 1998.
Several additional non-substantive textual changes were also
provided by telephone call on June 2, 1998. Telephone call between
Alden Adkins, General Counsel, NASD Regulation, and Mandy Cohen,
Attorney, SEC.
\5\ Securities Exchange Act Release No. 40062 (June 3, 1998), 63
FR 32033.
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II. Description of the Proposal
Currently, the NASD Regulation By-Laws authorize the NASD
Regulation Board to appoint a NAC of 12 to 14 members, and require that
the number of Non-Industry members equal or exceed the number of
Industry members.\6\ Thus, the NAC generally will consist of six or
seven Industry members, depending on the size of the Board. The By-Laws
also require that beginning in 1999 and thereafter, all Industry
members represent a geographic region.\7\ Industry members must be
nominated by a Regional Nominating Committee and may be challenged for
the nomination.\8\ The Regional Nominating Committees then nominate
their candidates to the National Nominating Committee, which makes the
final determination as to the nominees who are presented to the NASD
Regulation Board for appointment to the NAC.\9\
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\6\ Article V, Section 5.2 of the NASD Regulation By-Laws.
\7\ Id.
\8\ Article VI of the NASD Regulation By-Laws.
\9\ Article VII, Section 9 of the NASD By-Laws; Article VI,
Section 6.25 of the NASD Regulation By-Laws.
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The proposed rule change would permit the Board to designate up to
two NAC Industry members who would not be subject to the regional
nominating process; instead, these members would be designated as at-
large Industry members of the NAC. The number of at-large Industry
members could vary from year-to-year depending on the total number of
Industry seats on the NAC and the number of regions selected by the
Board. For example, if the Board determined that there should be a 12-
or 13-member NAC (which would include six Industry seats) and five
regions, then the Board could designate one at-large Industry member.
If the Board determined that there should be a 14-member NAC (which
would include seven Industry seats) and five regions, then there could
be two at-large Industry members. If the number of Industry seats and
the number of regions were equal, then there would be no at-large
Industry seats that year. Thus, given the limitation on the size of the
NAC and the number of Industry seats, the proposed rule change would
allow zero, one, or two at-large Industry members in any given year.
III. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of Section 15A(b)(6) of the Act,\10\ which
provides, among other things, that the rules of a national securities
association be designed to prevent fradulent and manipulative acts and
practices, to promote just and equitable principles of trade, and in
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general, to protect investors and the public interest.\11\ The
Commission believes that the proposed rule change will provide NASD
Regulation with greater flexibility in the nomination and appointment
of Industry members to the NAC, which serves an important role in
reviewing disciplinary, membership, and other matters for NASD
Regulation. At the same time, NASD member involvement in nominating
Industry members for the NAC will be preserved by requiring most
Industry members of the NAC to represent regions.
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\10\ 15 U.S.C. 78(b)(6).
\11\ In approving this rule, the Commission notes that it has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
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The Commission notes that the proposed rule change is consistent
with the corporate reorganization approved by the Commission in SR-
NASD-97-71\12\ in that the number of regions that may be established by
the Board is not specified in the NASD Regulation By-Laws so that the
Board may retain flexibility in determining the appropriate number of
regions. The proposed rule change also is consistent with the regional
plan approved by the Board at its meeting on May 6, 1998, which
proposes a 12-member NAC and five regions for 1999. The proposed rule
change thus will permit five Industry members of the NAC to be
nominated by the regions for consideration by the National Nominating
Committee and one at-large Industry member of the NAC who would not be
subject to the regional nominating requirements in Article VI of the
NASD Regulation By-Laws. All six Industry members, along with six Non-
Industry members, would be nominated by the National Nominating
Committee and appointed by the NASD Regulation Board.
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\12\ Securities Exchange Act Release No. 39175 (Sept. 30, 1997),
62 FR 53062 (Oct. 10, 1997).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change (SR-NASD-98-36) is approved.
\13\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-19568 Filed 7-22-98; 8:45 am]
BILLING CODE 8010-01-M
