[Federal Register Volume 62, Number 157 (Thursday, August 14, 1997)]
[Notices]
[Pages 43571-43573]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-21446]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38909; File No. SR-NASD-96-29; Amendment No. 5]
Notice of Filing and Order Granting Temporary Accelerated
Approval
August 7, 1997.
Self-Regulatory Organizations; Notice of Filing and Order
Granting Temporary Accelerated Approval of Proposed Rule Change by
National Association of Securities Dealers, Inc. Relating to the
Allocation and Delegation of Authority and Responsibilities by the
National Association of Securities Dealers, Inc., to NASD
Regulation, Inc., and The Nasdaq Stock Market, Inc.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on August
5, 1997, the National Association of Securities Dealers, Inc.
(``NASD'') filed with the Securities and Exchange Commission
(``Commission'') Amendment No. 5 to the proposed rule change as
described in Items I, II and III below, which Items have been prepared
by the NASD.\1\ The Commission is publishing this notice to solicit
comments on the proposed rule change as further amended by Amendment
No. 5 from interested persons and is simultaneously granting
accelerated approval to the proposed rule change for a period of six
months.
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\1\ The Commission previously published notice of the proposed
rule change and granted accelerated approval thereto for periods of
120 days, six months and six months (Securities Exchange Act Release
No. 37425 (July 11, 1996), 61 FR 37518 (July 18, 1996) (``Release
No. 34-37425''), Securities Exchange Act Release No. 37957 (November
15, 1996), 61 FR 59267 (November 21, 1997) (``Release No. 34-
37957'') and Securities Exchange Act Release No. 38645 (May 15,
1997), 62 FR 28086 (May 22, 1997) (``Release No. 34-38645''),
respectively.
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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 Plan of Allocation and
Delegation of Functions by NASD to Subsidiaries (``Delegation Plan'')
setting forth the purpose, function, governance, procedures and
responsibilities of the NASD, NASD Regulation, Inc. (``NASD
Regulation'') and The Nasdaq Stock Market, Inc. (``Nasdaq''), following
the reorganization of the NASD.
The initial version of the Delegation Plan (with the implementing
provisions contained in Rule 0130) was originally filed with the
Commission in SR-NASD-96-16. It was published for comment and approved
by the Commission on a temporary basis for a period of 90 days.\2\ On
July 11, 1996, the Commission issued another release publishing for
comment three changes to the Delegation Plan and further approving the
Delegation Plan as amended for a period of 120 days.\3\ On November 15,
1996 and May 15, 1997, the Commission extended temporary approval of
the instant proposed rule change for two additional six month
periods.\4\
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\2\ Securities Exchange Act Release No. 37107 (April 11, 1996),
61 FR 16948 (April 18, 1996) (``Release No. 34-37107'').
\3\ Release No. 34-37425. Release Nos. 34-37107 and 34-37425
published the complete text of the rule change.
\4\ Release Nos. 34-37957 and 34-38645, respectively.
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On April 18, 1997, the NASD filed SR-NASD-97-28, seeking approval
of, among other matters, certain proposed amendments to the Delegation
Plan.\5\ The proposed amendments to the Delegation Plan contained
therein were withdrawn by Amendment No. 3 thereto.\6\
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\5\ Securities Exchange Act Release No. 38545 (April 24, 1997),
62 FR 25226 (May 8, 1997) (``Release No. 34-38545''), the Notice of
Filing of a Proposed Rule Change by the National Association of
Securities Dealers, Inc. to Proposed Changes in the By-Laws of the
NASD, NASD Regulation, Inc., The Nasdaq Stock Market, Inc., the Plan
of Allocation and Delegation of Functions by the NASD to
Subsidiaries, Membership Application Procedures, Disciplinary
Proceedings, Other Proceedings, and Other Conforming Changes
(``Release No. 34-38545''). The comment period for Release No. 34-
38545 expired on June 6, 1997. SR-NASD-97-28 is being approved
simultaneously with the instant filing, see Securities Exchange Act
Release No. 38908 (``Release No. 34-38908'').
\6\ See Letter from Alden S. Adkins, Vice President and General
Counsel, NASD Regulation, to Katherine A. England, Assistant
Director, Division of Market Regulation, Commission (dated July 11,
1997).
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The NASD hereby files this Amendment No. 5 to the instant rule
filing, pursuant to Section 19(b)(1) of the Act and Rule 19b-4
thereunder, to continue temporary approval of the Delegation Plan,
revised to conform to the Rules of the Association, as amended by
Release No. 34-38908. Approval until November 15, 1997, the remaining
effective period of Amendment No. 4 to the instant rule filing, is
requested. During this interval, there will be no further amendments to
the Delegation Plan, absent Commission approval of a corresponding Rule
19b-4 filing.
II. Self-Regulatory Organization's Statement of the Purpose of and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the NASD included statements
concerning the purpose of and basis for the proposed rule change and
discussed any
[[Page 43572]]
comments it received on the proposed rule change. The text of these
statements may be examined at the places specified in Item V below. The
NASD has prepared summaries, set forth in Sections A, B, and C below,
of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose.
The purpose of this Amendment No. 5 is to ensure continued
effectiveness of the Delegation Plan while the Commission considers
whether to grant permanent approval to the instant NASD rule filing.
Description of Delegation Plan: The Delegation Plan is organized in
three principal parts, one for each of the three major entities that
will constitute the reorganized self-regulatory organization: the
parent corporation, NASD; the regulatory subsidiary, NASD Regulation;
and the stock market operating subsidiary, Nasdaq.\7\ The Delegation
Plan, the contents of which are self-explanatory, describes the
purposes, functions, governance, procedures and responsibilities of
each of these entities.
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\7\ The NASD, NASD Regulation and Nasdaq are collectively
referred to herein as the ``Association.'' The Delegation Plan does
not discuss other wholly owned subsidiary corporations of the NASD,
such as the Securities Dealers Risk Purchasing Group, Inc. and the
Securities Dealers Insurance Co., Ltd. These and any other wholly
owned subsidiaries of the NASD not described in the Delegation Plan
do not perform any of the Association's regulatory functions or the
operating functions related to the operation of Nasdaq. In addition,
the Delegation Plan does not address the NASD's ownership role in
corporations such as the National Securities Clearing Corporation or
the Depository Trust Company.
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The first part of the Delegation Plan describes the parent
corporation, the NASD. The Delegation Plan sets forth the purpose and
function of the NASD; the composition of the Board of Governors,
including provisions relating to the qualifications for Governors,
election procedures, creation of a National Nominating Committee,\8\
term of office, vacancies and removal from office,; the function,
composition and reporting structure of the Audit Committee and the
Office of Internal Review; the function and composition of the
Management Compensation Committee; and the Commission's access to and
status of officers, directors, employees, books, records and premises
of the subsidiaries.
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\8\ The National Nominating Committee is composed of at least
six and not more than nine members equally balanced between Industry
and Non-Industry Committee Members. It is anticipated that there
will be at least three Non-Industry Members, including at least two
Public Committee Members.
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The second part of the Delegation Plan describes the regulatory
subsidiary, NASD Regulation. The Delegation Plan sets forth the
delegation of authority to NASD Regulation by the NASD; the purpose,
function and authority of NASD Regulation; the composition of, and
qualifications for members of, the Board of Directors, including
provisions relating to election procedures; the function and
composition of the National Business Conduct Committee; the Board's
procedures for reviewing disciplinary actions, statutory
disqualification decisions and proposed rule change recommendations;
and the Board's procedures for initiating actions.
The third part of the Delegation Plan describes the stock market
operating subsidiary, Nasdaq. The Delegation Plan sets forth the
delegation of authority to Nasdaq; the purpose and function of Nasdaq;
the composition of and qualifications for members of the Board of
Directors, including provisions relating to election procedures and the
authority of the Board; the Board's procedures for reviewing listing/
delisting decisions, and rule change recommendations; the Board's
procedures for initiating actions; the functions and composition of the
Quality of Markets Committee; and functions of the Stockwatch
Department.
The Rules of the Association, as amended by Release No. 34-38908,
include modifications of the time periods for certain procedures
described in the Delegation Plan. The amendments to the Delegation Plan
proposed by this Amendment No. 5 conform to these modifications and
further amplify the delegation of functions and authority to NASD
Regulation.
2. Statutory Basis for the Proposed Rule Change
The NASD believes that the proposed rule change as further amended
by Amendment No. 5 is consistent with the provisions of Section
15A(b)(2) of the Act \9\ in that the terms of the Delegation Plan will
provide for the organization of the Association in a manner that will
permit the NASD, through its operating subsidiaries, to carry out the
purposes of the Act, to comply with the Act, and to enforce compliance
by Association members and persons associated with members with the
Act, the rules and regulations thereunder, the rules of the Association
and the federal securities laws.
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\9\ 15 U.S.C. 70o-3
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B. Self-Regulatory Organization's Statement on Burden on Competition
The NASD does not believe that the proposed rule change as further
amended by Amendment No. 5 will result in any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.\10\ However,
in connection with the NASD's publication for member vote of proposed
amendments to the By-Laws to implement the Delegation Plan in Notice
95-101 (December 11, 1995) (``Notice 95-101''), attached as Exhibit 2
to proposed rule change SR-NASD-96-02, the NASD received three comments
which were attached as Exhibit 4 to that proposed rule change. The
NASD's statement on the comments received with respect to notice 95-101
is set forth in SR-NASD-96-02 and was published by the Commission in
Securities Exchange Act Release No. 37106 (April 11, 1996), 61 FR 16944
(April 18, 1996). SR-NASD-96-02 proposed certain of the By-Law
amendments issued for member vote in Notice 95-101 in order to permit
the reorganization of its Board of Governors consistent with the
Delegation Plan submitted in SR-NASD-96-16.
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\10\ The comment letters received in connection with Release No.
34-38545 did not address the Delegation Plan.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The NASD has requested that the Commission find good cause pursuant
to Section 19(b)(2) of the Act for approving the proposed rule change
as further amended by Amendment No. 5 prior to the 30th day after
publication in the Federal Register.
IV. Discussion
The Commission finds that the proposed rule change as further
amended by Amendment No. 5 is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to the NASD
and, in particular, the requirements of Section 15A of the Act and the
rules and regulations thereunder. The Commission believes that the
proposed rule change will allow the NASD to
[[Page 43573]]
carry out the purposes of the Act to comply with, and enforce
compliance by its members and associated persons with, the provisions
of the Act, the rules and regulations thereunder, the rules of the NASD
and the federal securities laws. Furthermore, the amendments are
designed (with amendments to the Rules of the Association
simultaneously approved in Release No. 34-38908, as discussed above) to
insure a fair representation of the NASD's members in the selection of
its directors and administration of its affairs as well as to comply
with the public and non-industry participation requirements of the Act.
It is envisioned that these rules and any subsequent changes that may
be implemented from time-to-time will enable the NASD to better comply
with the requirements of Section 15A(b)(2) in particular and the Act in
general.
The Commission finds good cause for approving the proposed rule
change prior to the 30th day after the date of publication of notice of
filing thereof in that accelerated approval will enhance the NASD's
ability to carry out its regulatory obligations under the Act. The
Commission believes that the proposed rule change is intended to
accomplish certain allocations and delegations of authority necessary
to reorganize the NASD, and establish as separate subsidiaries NASD
Regulation and Nasdaq in accordance with the September 1995
recommendations of The Select Committee on Structure and Governance in
order to enable the NASD to meet its regulatory and business
obligations. The Delegation Plan sets forth the purpose, functions,
governance, procedures, and responsibilities of the NASD, NASD
Regulation and Nasdaq following the reorganization of the NASD. The
NASD's Board of Governors, which has been reorganized to be consistent
with the proposed rule change, has held meetings to carry out the
business of the Association. The subsidiaries also have held meetings
of the Board of Directors of NASD Regulation and Nasdaq in order to
carry out the business of the subsidiaries during the period in which
the Delegation Plan has been effective.
The instant proposed rule change was previously published for
comment and approved by the Commission on a temporary basis for periods
of 120 days, six months, and six months.\11\ The second six month
approval period is scheduled to expire on November 15, 1997. No comment
letters concerning the instant proposed rule change were received by
the Commission.
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\11\ Release Nos. 34-37425, 34-37957, and 34-38645,
respectively.
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Accordingly, the Commission believes that accelerating the approval
of the proposed rule change as further amended by Amendment No. 5 will
benefit members and the public interest by more fully implementing the
reorganization of the NASD and its subsidiaries.\12\
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\12\ In approving this rule filing, the Commission has
considered the proposed rule filing's impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
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V. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying in the
Commission's Public Reference Room. Copies of such filing will also be
available for inspection and copying at the principal office of the
NASD. All submissions should refer to the file number in the caption
above and should be submitted by September 4, 1997.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change SR-NASD-96-29, as amended by Amendment
No. 5, be, and hereby is, approved through November 15, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 97-21446 Filed 8-13-97; 8:45 am]
BILLING CODE 8010-01-M
