03-23225. Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Order Granting Approval of Proposed Rule Change and Amendment Nos. 1 and 2 Thereto by the National Association of Securities Dealers, Inc. Regarding the ...

September 4, 2003.

On April 16, 2003, the National Association of Securities Dealers, Inc. (“NASD”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) ^[1] and Rule 19b-4 thereunder,^[2] a proposed rule change to: (i) amend NASD Rules 3130, 3131 and the Rule 9410 Series to expand NASD's authority to take expedited action against all member firms with capital deficiencies and to permit NASD to suspend a member that operates for any period of time with inadequate net capital, and (ii) delete subparagraph (g) of NASD Rule 9160 because NASD's Department of Member Regulation staff does not participate as an adjudicator in an NASD Rule 9410 decision. On June 17, 2003, NASD submitted Amendment No. 1 to the proposed rule change.^[3] On July 9, 2003, NASD submitted Amendment No. 2 to the proposed rule change.^[4] The proposed rule change, as amended by Amendment No. 1 and Amendment No. 2, was published for comment in the Federal Register on July 31, 2003.^[5] The Commission received no comments on the proposal. This order approves the proposed rule change, as amended.

The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association.^[6] Specifically, the Commission believes that the proposed rule change is consistent with the provisions of section 15A(b)(6) of the Act,^[7] which requires, among other things, that NASD's rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest.

The Commission believes that the proposed amendments adequately address those circumstances where limiting an NASD member's business operations would be futile. Specifically, the Commission believes that because the proposal permits NASD to suspend any member that operates for any period of time with inadequate net capital, as required by Rule 15c3-1 under the Act, and § 402.2 of the rules of the Treasury Department, the proposed rule change should protect investors, market participants, and the general public from the risks posed by members operating securities businesses without appropriate levels of capital.

The Commission believes that the proposal to apply NASD Rules 3130 and 3131 to all members regardless of their minimum capital requirements should protect investors and the public interest. The Commission believes that any firm that operates with inadequate capital poses a risk to other firms and investors. Accordingly, the Commission believes that the NASD should have the authority to take action against any member that is not in capital compliance.

It is therefore ordered, pursuant to Section 19(b)(2) of the Act, ^[8] that the proposed rule change (SR-NASD-2003-74), as amended, be, and it hereby is, approved.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[9]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  See letter from Shirley H. Weiss, Associate General Counsel, Office of General Counsel, Regulatory Policy and Oversight, NASD, to Katherine A. England, Assistant Director, Division of Market Regulation (“Division”), Commission, dated June 17, 2003 (“Amendment No. 1”).

4.  See letter from Shirley H. Weiss, Associate General Counsel, Office of General Counsel, Regulatory Policy and Oversight, NASD, to Katherine A. England, Assistant Director, Division, Commission, dated July 8, 2003 (“Amendment No. 2”).

5.  See Securities Exchange Act Release No. 48227 (July 25, 2003), 68 FR 44980.

6.  In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

7.  15 U.S.C. 78 o-3(b)(6).

8.  15 U.S.C. 78(b)(2).

9.  17 CFR 200.30-3(a)(12).