[Federal Register Volume 63, Number 171 (Thursday, September 3, 1998)]
[Notices]
[Pages 47064-47077]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23771]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40378; File No. SR-NASD-98-57]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1Thereto by the National Association of
Securities Dealers, Inc. Relating to Amendments to NASD Membership and
Registration, Investigation and Sanctions, Conduct and Code of
Procedure Rules
August 27, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 7, 1998, the National Association of Securities Dealers, Inc.
(``NASD'' or the ``Association''), through its regulatory subsidiary,
NASD Regulation, Inc. (``NASD Regulation'') filed with the Securities
and Exchange Commission (``SEC'' or ``Commission'') the proposed rule
change as described in Items I, II, and III below, which Items have
been prepared by NASD Regulation. The filing was amended on August 17,
1998,\3\ and further amended on August 26, 1998.\4\ The Commission is
publishing this notice to solicit comments on the proposed rule change,
as amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Letter from Joan C. Conley, Secretary, NASD Regulation to
Katherine A. England, Assistant Director, Division of Market
Regulation, Commission, dated August 17, 1998.
\4\ E-mail from Eric Moss, Attorney, NASD Regulation to Mandy
Cohen, Attorney, Division of Market Regulation, Commission, dated
August 26, 1998.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
NASD Regulation is proposing to amend the Rules of the Association
to permit the Department of Enforcement to amend complaints, without
Hearing Officer approval, prior to the filing of responsive pleadings;
to clarify and consolidate default provisions and shorten the call
period for default decisions to 25 days; to require the Office of the
General Counsel to issue decisions in settled cases; to change the
trigger date for which the timing of motions to introduce new evidence
is keyed; to permit Advertising Department staff to impose advertising
pre-use filing requirements on members; to consolidate procedures for
cancellation or suspension for failure to provide requested
information; to simplify and expedite certain non-summary procedures in
the Rule 9500 Series; and for other purposes.\5\
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\5\ The filing proposes amendment to Rules 0120, 2210, 2220,
2320, 8210, the Rule 8220 Series, IM-8310-2, 9212, 9215, 9241, 9269,
9270, 9312, 9346, 9360, the Rule 9500 Series, and 9610,
specifically.
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The text of the proposed rule change follows. Proposed new language
is in italics; proposed deletions are in brackets.
* * * * *
0100. GENERAL PROVISIONS
0120. Definitions
* * * * *
(m) ``National Adjudicatory Council [Business Conduct Committee]''
The term ``National Adjudicatory Council [Business Conduct
Committee]'' means the committee of [the Board of Directors of] NASD
Regulation which may be authorized and directed to act for the Board of
Directors of NASD Regulation in a manner consistent with the By-Laws of
NASD Regulation, the Rules of the Association, and the Delegation Plan
with respect to (1) an appeal or review of a disciplinary proceeding;
(2) a statutory disqualification decision; (3) a review of a membership
proceeding; (4) a review of an offer of settlement, a letter of
acceptance, waiver, and consent, and a minor rule violation plan
letter; (5) the exercise of exemptive authority; and (6) such other
proceedings or actions authorized by the Rules of the Association.
* * * * *
2000. BUSINESS CONDUCT
* * * * *
2200. COMMUNICATIONS WITH CUSTOMERS AND THE PUBLIC
2210. Communications With The Public
* * * * *
(c) Filing Requirements and Review Procedures
* * * * *
(4)(A) Notwithstanding the foregoing provisions, [any District
Business Conduct Committee of the Association] the Department, upon
review of a member's advertising and/or sales literature, and after
determining that the member has departed and there is a reasonable
likelihood that the member will again depart from the standards of this
Rule, may require that such member file all advertising and/or sales
literature, or the portion of such member's material which is related
to any specific types of classes of securities or services, with the
Department [and/or the District Committee], at least ten days prior to
use. The member must provide with each filing the actual or anticipated
date of first use.
(B) The [Committee] Department shall notify the member in writing
of the types of material to be filed and the length of time such
requirement is to be in effect. The requirement shall not exceed one
year, however, and shall not take effect until 30 days after the member
receives the written notice, during which time the member may request a
hearing [before the District Business Conduct Committee] under Rule
9514, and any such hearing shall be held in reasonable conformity with
the hearing and appeal procedures of the [Code of Procedure as
contained in the] Rule [9000] 9510 Series.
* * * * *
2220. Options Communications with the Public
* * * * *
(c) Association Approval Requirements and Review Procedures
(1) In addition to the approval required by paragraph (b) of this
Rule, every advertisement and all educational material of a member or
member organization pertaining to options shall
[[Page 47065]]
be submitted to the Advertising/Investment Companies Regulation
Department of the Association (``Department'') at least ten days prior
to use (or such shorter period as the Association may allow in
particular instances) for approval and, if changed or expressly
disapproved by the Association, shall be withheld from circulation
until any changes specified by the Association have been made or, in
the event of disapproval, until the advertisement or educational
material has been resubmitted for, and has received, Association
approval.
(2)(A) Notwithstanding the foregoing provision, [any District
Business Conduct Committee of the Association] the Department, upon
review of a member's options advertisements, educational material and/
or sales literature, and after determining that the member will again
depart from the standards of this Rule, may require that such member
file all options advertisements, educational material and/or sales
literature, or the portions of such member's material that is related
to any specific types or classes of securities or services, with the
[Association and/or the District Committee] Department, at least ten
days prior to use.
(B) The [Committee] Department shall notify the member in writing
of the types of material to be filed and the length of time such
requirement is to be in effect. The requirement shall not exceed one
year, however, and shall not take effect until 30 days after the member
receives the written notice, during which time the member may request a
hearing [before the District Business Conduct Committee] under Rule
9514, and any such hearing shall be in conformity with the hearing and
appeal procedures of the [Code of Procedure, as set forth in the] Rule
[9000] 9510 Series.
* * * * *
2320. Best Execution and Interpositioning
(a) In any transaction for or with a customer, a member and persons
associated with a member shall use reasonable diligence to ascertain
the best inter-dealer market for the subject security and buy or sell
in such market so that the resultant price to the customer is as
favorable as possible under prevailing market conditions. Among the
factors that [which] will be considered [by the Business Conduct
Committees] in determining whether a member has used [applying the
standard of] ``reasonable diligence'' [in this area] are:
* * * * *
(g)(1) In any transaction for or with a customer pertaining to the
execution of an order in a non-Nasdaq security (as defined in the Rule
6700 Series), a member or person associated with a member, shall
contact and obtain quotations from three dealers (or all dealers if
three or less) to determine the best inter-dealer market for the
subject security.
(2) Pursuant to the Rule 9600 Series. [T]the staff, for good cause
shown [upon written request,] after taking into consideration all
relevant factors, may exempt any transaction or classes of
transactions, either unconditionally or on specified terms, from any or
all of the provisions of this paragraph if it determines that such
exemption is consistent with the purpose of this Rule, the protection
of investors, and the public interest. [Any decision whether to grant
such an exemption may be appealed to the National Business Conduct
Committee.]
* * * * *
8210. Provision of Information and Testimony and Inspection and
Copying of Books
(a) Authority of Adjudicator and Association Staff
For the purpose of an investigation, complaint, examination, or
proceeding authorized by the NASD By-Laws or the Rules of the
Association, an Adjudicator or Association staff shall have the right
to:
(1) require a member, person associated with a member, or person
subject to the Association's jurisdiction to provide information
orally, in writing, or electronically (if the requested information is,
or is required to be, maintained in electronic form) and to testify at
a location specified by Association staff, under oath or affirmation
administered by a court reporter or a notary public if requested, with
respect to any matter involved in the investigation, complaint,
examination, or proceeding; and
(2) No change.
* * * * *
8220. Suspension or Cancellation for Failure to Provide Requested
Information
8221. Notice
(a) Notice to Member
If a member fails to provide any information, report, material,
data, or testimony requested pursuant to the NASD By-Laws or the Rules
of the Association, or fails to keep its membership application or
supporting documents current, the [National Adjudicatory Council]
Department of Enforcement may provide written notice to such member
specifying the nature of the failure and stating that the failure to
take such action within 20 days after service of the notice constitutes
grounds for suspension or cancellation [from] of membership.
(b) Notice to Person Associated with Member
If a person associated with a member fails to provide any
information, report, material, data, or testimony requested pursuant to
the NASD By-Laws or the Rules of the Association, the the [National
Adjudicatory Council] Department of Enforcement may provide written
notice to such person specifying the nature of the failure and stating
that the failure to take such action within 20 days after service of
the notice constitutes grounds for suspending the association of the
person with the member.
(c) Service of Notice
The [National Adjudicatory Council] Department of Enforcement shall
serve the member or person associated with a member with such notice
via personal service or overnight commercial courier.
8222. Hearing
(a) Request for Hearing
Within five days after the date of service of a notice issued under
Rule 8221, a member or person associated with a member served with a
notice under Rule 8221(c) may file with the [National Adjudicatory
Council] NASD Regulation Office of General Counsel a written request
for an expedited hearing before a subcommittee of the National
Adjudicatory Council. The request shall state with specificity why the
member or associated person believes that there are insufficient
grounds for suspension or cancellation or any other reason for setting
aside the notice issued [by the National Adjudicatory Council]under
Rule 8221.
(b) Hearing Procedures
(1) Appointment of Subcommittee
If a hearing is requested, the National Adjudicatory Council or the
Review Subcommittee described in Rule 9120 shall appoint a subcommittee
to conduct the hearing and decide whether the member or person
associated with a member shall be suspended or canceled. The
subcommittee shall be composed of a current member of the National
Adjudicatory Council and one or more
[[Page 47066]]
current or former members of the National Adjudicatory Council, NASD
Regulation Board [and],or [the] NASD Board.
(2) Time of Hearing
The hearing shall be held within [20] 30 days after the date of
service of the notice issued under Rule 8221. Not later than seven days
before the hearing, the subcommittee shall serve the member or person
associated with a member with written notice of the date and time of
the hearing via overnight commercial courier or facsimile and notify
the [appropriate department or office of NASD Regulation] Department of
Enforcement of the date and time of the hearing. [The appropriate
department or office of NASD Regulation (hereinafter ``appropriate
department or office'' in the Rule 8220 Series) shall be the department
or office that issued the request for the information, report,
material, data, or testimony that the member or associated person
failed to provide, or in the case of a member that failed to keep its
membership application or supporting documents current, the Department
of Member Regulation.]
(3) Transmission of Documents
Not later than seven days before the hearing, the [subcommittee]
Department of Enforcement shall serve the member or person associated
with a member via overnight commercial courier with all documents that
were considered in connection with the [National Adjudicatory
Council's] decision to issue a notice under Rule 8221, 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.
The Department of Enforcement shall provide a copy of the documents
transmitted to the member or person associated with a member to the
subcommittee.
(4) Counsel
The member or person associated with a member and the [appropriate
department or office] Department of Enforcment may be represented by
counsel at a hearing conducted under this Rule.
(5) Evidence
Formal rules of evidence shall not apply to a hearing under this
Rule. Not later than four days before the hearing, the member or person
associated with a member and the [appropriate department or office]
Department of Enforcement shall exchange copies of proposed hearing
exhibits and witness lists and provide copies of the same to the
subcommittee.
(6) Witnesses
No change.
(7) Additional Information
AT any time during its consideration, the subcommittee may direct
the member or person associated with a member or the [appropriate
department or office] Department of Enforcement to submit additional
information. Any additional information submitted shall be provided
promptly to all parties at least one business day before the
subcommittee renders its decision.
(8) Transcript
No change.
(9) Record
The record shall consist of all documents that were considered in
connection with the [National Adjudicatory Council's] decision to issue
a notice under Rule 8221, the notice issued under Rule 8221, the
request for hearing filed under Rule 8222, the transcript of the
hearing, and each document or other item of evidence presented to or
considered by the subcommittee. The Office of the General Counsel of
NASD Regulations shall be the custodian of the record.
(10) Failure To Appear at Hearing
If a member or person associated with a member fails to appear at a
hearing for which it has notice, the subcommittee may dismiss the
request for a hearing as abandoned, and the notice [of the National
Adjudicatory Council] issued under Rule 8221 shall become the final
action of the Association. Upon a showing of good cause, the
subcommittee may withdraw a dismissal entered pursuant to this
subparagraph.
8223. Decision
(a) Subcommittee
(1) Proposed Written Decision
The subcommittee may suspend or cancel the membership of a member
or suspend the association of a person with a member for failure to
take the action required by the notice issued under Rule 8221. The
subcommittee shall prepare a proposed written decision, and if the
subcommittee determines that a suspension should be imposed, the
proposed written decision shall state the grounds for the suspension or
cancellation and the conditions for terminating the suspension. The
subcommittee shall provide its proposed written decision to the NASD
Board of Governors.
(2) Issuance of Decision After Expiration of Call for Review Period
If no Governor calls the [suspension] proceeding for review within
the time prescribed in paragraph (b)(1), the subcommittee's proposed
written decision shall become final, and the subcommittee shall serve
the final written decision on the member or associated person via
oversnight commercial courier or facsimile.
(b) NASD Board of Governors
(1) Call for Review by Governor
A Governor may call the suspension or cancellation proceeding for
review if the call for review is made not later than ten days after the
Governor receives the subcommittee's proposed written decision. By a
unanimous vote of the NASD Board of Governors, the NASD Board of
Governors may shorten the call for review period to less than ten days.
By an affirmative vote of the majority of the NASD Board of Governors
then in office, the NASD Board of Governors may, during the ten day
period, vote to extend the period to more than ten days.
(2) Review and Decision
If a Governor calls the suspension or cancellation proceeding for
review within the time prescribed in subparagraph (1), [the NASD Board
of Governors] a review panel shall meet and conduct a review not later
than [its next meeting] 14 days after the call for review. The review
panel shall be composed of the NASD Board Executive Committee, except
that the Governor who calls the proceeding for review shall serve on
the review panel in lieu of a member of the Executive Committee who has
the same classification (Industry, Non-Industry, or Public) as such
Governor. The [NASD Board of Governors] review panel may affirm,
modify, or reverse the decision of the subcommittee. Not later than
seven days after the [NASD Board of Governors] review panel meeting,
the [NASD Board of Governors] review panel shall serve a final written
decision on the member or person associated with a member via overnight
comemrcial courier or facsimile. The decision shall state the
disposition of the suspension or cancellation proceeding, and if a
suspension is imposed, state the grounds for the suspension and the
conditions for terminating the suspension.
[[Page 47067]]
(c) Effective Date
No change.
8224. Notice to Membership
The Association shall provide notice of a suspension or
cancellation under the Rule 8220 Series and the grounds therefor in the
next membership supplement.
8225. Termination of Suspension
(a) Filing of Request
A suspended member or person associated with a member may file a
written request for termination of the suspension on the ground of full
compliance with the notice issued under Rule 8221 or, if applicable,
the conditions of a decision under Rule 8223, with the head of the
[appropriate department or office] Department of Enforcement.
(b) Response by Department of Enforcement
The head of the [appropriate department or office] Department of
Enforcement shall respond to the request in writing within five days
after receipt of the request.
(1) Request Granted
If the head of the [appropriate department or office] Department of
Enforcement grants the request, he or she shall serve the member or
person associated with a member with written notice of the termination
of the suspension via overnight commercial courier or facsimile.
(2) Request Denied
If the head of the department or office denies the request, the
suspended member or person associated with a member may file a written
request for relief with the [National Adjudicatory Council] NASD
Regulation Office of General Counsel. If the member or person
associated with a member files the written request for relief within 30
days after service of the decision under Rule 8223, [The National
Adjudicatory Council] the review panel constituted under rule 8223
shall respond to the request for relief in writing within ten days
after receipt of the request. If the member or person associated with a
member files the written request for relief more than 30 days after
service of the decision under Rule 8223, the National Adjudicatory
Council shall respond to the request for relief in writing within ten
days after receipt of the request. The review panel's or National
Adjudicatory Council's response shall be served on the member or person
associated with a member via overnight commercial courier or facsimile.
* * * * *
8300. SANCTIONS
* * * * *
IM-8310-2. Release of Disciplinary Information
* * * * *
(d)(1) The Association shall release to the public information with
respect to any disciplinary decision issued pursuant to the Rule 9000
Series imposing a suspension, cancellation or expulsion of a member; or
suspension or revocation of the registration of a person associated
with a member; or suspension or barring of a member or person
asssociated with a member from association with all members; or
imposition of monetary sanctions of $10,000 or more upon a member or
person associated with a member, or containing an allegation of a
violation of a Designated Rule; and may also release such information
with respect to any disciplinary decision or group of decisions that
involve a significant policy or enforcement determination where the
release of information is deemed by the President of NASD Regulation,
Inc. to be in the public interest. The Association also may release to
the public information with respect to any disciplinary decision issued
pursuant to the Rule 8220 Series imposing a suspension or cancellation
of the member or a suspension of the association of a person with a
member, unless the National Adjudicatory Council determines otherwise.
The National Adjudicatory Council may, in its discretion, determine to
waive the requirement to release information with respect to a
disciplinary decision under those extraordinary circumstances where the
release of such information would violate fundamental notions of
fairness or work an injustice.
* * * * *
9000. CODE OF PROCEDURE
* * * * *
9200. DISCIPLINARY PROCEEDINGS
9212. Complaint Issuance--Requirements, Service, Amendment,
Withdrawal, and Docketing
(a) Form, Content, Notice, Docketing, and Service
No change.
(b) Amendments to Complaint
The Department of Enforcement may file and serve an amended
complaint that includes new matters of fact or law at any time before
the Respondent answers the complaint. After the Respondent answers,
u[U]pon motion by the Department of Enforcement, the Hearing Officer
may permite the Department of Enforcement to amend the complaint to
include new matters of fact or law, [at any time] after considering
whether the Department of Enforcement has shown good cause for the
amendment [shown by the Department of Enforcement] and whether any
Respondent will suffer any unfair prejudice if the amendment is allowed
[to any Respondent, permit the Department of Enforcement to amend a
complaint to include new matters of fact or law].
* * * * *
9215. Answer to Complaint
* * * * *
(f) Failure to Answer, Default
If a Respondent does not file an answer or make any other filing or
request related to the complaint with the Office of Hearing Officers
within the time required, the Department of Enforcement shall send a
second notice to such Respondent requiring an answer within 14 days
after service of the second notice. The second notice shall state that
failure of the Respondent to reply within the period specified shall
allow the Hearing Officer, in the exercise of his or her discretion,
pursuant to Rule 9269 to: (1) treat as admitted by the Respondent the
allegations in the complaint; and (2) issue [enter] a default decision
against the Respondent [pursuant to Rule 9269]. If the Respondent fails
to file an [no] answer [is filed] with the Office of Hearing Officers
within the time required, the Hearing Officer may issue [allegations of
the complaint may be considered admitted by such Respondent and] a
default decisions against the Respondent pursuant to Rule 9269 [may be
issued by the Hearing Officer. A Respondent may, for good cause shown,
move the National Adjudicatory Council to set aside a default].
* * * * *
9241. Pre-hearing Conference
(a) through (e)
No change.
(f) Failure to Appear: Default
The Hearing Officer may issue a default decision, pursuant to Rule
9269, against a [A] Party that [who] fails to appear, in person or
through counsel or a representative, at a pre-hearing conference of
which the Party [he or she] has [been duly] due notice
[[Page 47068]]
[notified, may be deemed in default pursuant to Rule 9269. A Party may,
for good cause shown, file a motion to set aside the default].
* * * * *
9269. Default Decision [Failure to Appear at Hearing; Defaults]
(a) Issuance of Default Decision [Failure to Appear May Result in
Default Decision]
(1) The Hearing Officer may issue a default decision against a
Respondent that fails to answer the complaint within the time afforded
under Rule 9215, or a Party that fails to appear at a pre-hearing
conference held pursuant to Rule 9241 of which the Party has due
notice, or a [A] Party that [who] fails to appear at [a] any hearing
that a Party is required to attend under the Rule 9200 Series of which
the Party [he or she has been] has due notice [been duly notified may
be deemed to be in default].
(2) If the defaulting Party is the Respondent, [As a consequence of
the default], the Hearing Officer may deem the allegations against [a
non-appearing] that Respondent [may be deemed] admitted [and a default
decision entered by the Hearing Officer]. If the [non-appearing Party]
defaulting Party is the Department of Enforcement, the Hearing Officer
may issue a default decision ordering that the complaint be dismissed
with prejudice.
(3) [In addition, t]The Hearing Officer may order a Party that
fails to appear at the pre-hearing conference or the hearing to [the
non-appearing Party] pay the costs incurred by other Parties in
connection with their appearance [at the hearing].
(b) Contents of Decision [Request to Set Aside Default
A party may, for good cause shown, file a motion to set aside a
default, dismissal, and the imposition of costs.] The contents of a
default shall conform to the requirements of Rule 9268(b).
(c) Review of Default Decision
Party may, for good cause shown, file a motion to set aside a
default, dismissal, and the imposition of costs. Upon a showing of good
cause, either the Review Subcommittee or the National Adjudicatory
Council may enter such an order.
(d) Final Disciplinary Action of the Association: Effectiveness of
Sanctions
If a default decision is not appealed pursuant to Rule 9311 or
called for review pursuant to Rule 9312 within 25 days after the date
the Office of Hearing Officers serves it on the Parties, the default
decision shall become the final disciplinary action of the Association
for purposes of SEC Rule 19d-1(c)(1). Unless otherwise provided in the
default decision, the sanctions shall become effective 30 days after
the default decision becomes the final disciplinary action of the
Association, except that a bar or expulsion shall become effective
immediately upon the default decision becoming the final disciplinary
action of the Association.
* * * * *
9270. Settlement Procedure
* * * * *
(e) Uncontested Offers of Settlement
(1) through (2)
No change.
(3) If the offer of settlement and order of acceptance are accepted
by the National Adjudicatory Council, the Review Subcommittee, or the
General Counsel, they shall become final and [the National Adjudicatory
Council, the Review Subcommittee or] the General Counsel shall
[communicate the acceptance to the Hearing Officer who shall
thereafter] issue the order and notify the Office of Hearing Officers.
(f) Contested Offers of Settlement
* * * * *
(3) If the offer of settlement and order of acceptance are accepted
by the National Adjudicatory Council or the Review Subcommittee, the
General Counsel [National Adjudicatory Council or the Review
Subcommittee shall communicate the acceptance to the Hearing Officer
who] shall [thereafter] issue the order and notify the Office of
Hearing Officers.
* * * * *
9312. Review Proceeding by National Adjudicatory Council
(a) Call for Review
(1) Rule 9268 Decision
No change.
(2) Rule 9269 Decision
A default decision issued pursuant to Rule 9269 shall be subject to
a call for review by the General Counsel, on his or her own motion
within 25 [45] days after the date of service of the decision. If
called for review, such decision shall be reviewed by the National
Adjudicatory Council.
* * * * *
9346. Evidence in National Adjudicatory Council Proceedings
(a) Scope of Review
No change.
(b) Leave to Introduce Additional Evidence
A Party may apply to the Subcommittee or, if applicable, the
Extended Proceeding Committee, or the National Adjudicatory Council for
leave to introduce additional evidence by motion filed not later than
30 days after the Office of Hearing Officers transmits to the National
Adjudicatory Council and serves upon all Parties the index to the
record, pursuant to Rule 9321 [service of such Party's notice of appeal
or cross-appeal or not later than 35 days after service upon the Party
by the National Adjudicatory Council of a notice of review]. The motion
shall describe each item of proposed new evidence, demonstrate that
there was good cause for failing to introduce it below, demonstrate why
the evidence is material to the proceeding, and be filed and served.
The Party may attach the documentary evidence as an exhibit to the
motion. By motion filed in accordance with Rule 9146, a Party may
request an extension of the period during which a Party may file a
motion for leave to introduce additional evidence. A Party shall
demonstrate that there was good cause for failing to file the motion
for leave to introduce additional evidence during the period
prescribed.
* * * * *
9360. Effectiveness of Sanctions
Unless otherwise provided in the decision issued under Rule 9349 or
Rule 9351, a[A] sanction (other than a bar or an expulsion) specified
in a decision constituting final disciplinary action of the Association
for purposes of SEC Rule 19d-1(c)(1) shall become effective [on a date
established by the Chief Hearing Officer, which shall not be earlier
than] 30 days after the date of service of the decision constituting
final disciplinary action. A bar or an expulsion shall become effective
upon service of the decision constituting final disciplinary action of
the Association for purposes of SEC Rule 19d-1(c)(1), unless otherwise
specified therein. The Association shall take reasonable steps to
obtain personal service of a Respondent when the sanction is a bar or
an expulsion.
* * * * *
[[Page 47069]]
9500. [SUSPENSION, CANCELLATION, BAR, DENIAL OF ACCESS, AND
ELIGIBILITY,] OTHER [PROCEDURES] PROCEEDINGS
9510. [Procedures for] Summary and Non-Summary Proceedings
[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 III, 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 an arbitration award
or a settlement agreement related to an arbitration or mediation under
Article VI, Section 3 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 VII,
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.]
The Rule 9510 Series sets forth procedures for: (1) summary
proceedings authorized by Section 15A(h)(3) of the Act; and (2) non-
summary proceedings to impose (A) a suspension or cancellation for
failure to comply with an arbitration award or a settlement agreement
related to an arbitration or mediation pursuant to Article VI, Section
3 of the NASD By-Laws; (B) a suspension or cancellation of a member, or
a limitation or prohibition on 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 member or
person does not meet the qualification requirements or other
prerequisites for such access or such member or person cannot be
permitted to continue to have such access with safety to investors,
creditors, members, or the Association; or (C) an advertising pre-use
filing requirement.
(b) Computation of Time
For purposes of the [9510] Rule 9510 Series, time shall be computed
as set forth in Rule 9138, except that intermediate Saturdays, Sundays,
and holidays shall be included in the computation.
9512. Initiation of Summary [Proceedings for Summary Suspension,
Limitation, or Prohibition] Proceeding
No change.
9513. Initiation of Non-Summary Proceeding[s] [for Non-Summary
Suspension, Cancellation, Bar, Limitation, or Prohibition]
(a) Notice
Association staff [shall] may 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, or] Rule 9511(a)(2)[(D)] (A) or
(B), 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 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] pursuant to Rule
9511(a)(2)(A), the effective date shall be at least 15 days after
service of the notice on the member or associated person. For any
action pursuant to Rule 9511(a)(2)(B), the effective date shall be at
least seven days after service of the notice on the member or person,
except that the effective date for a notice of a 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] shall be upon receipt of the notice.
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 2210, 2220, 9512(a), or 9513(a) may file a
written request for a
[[Page 47070]]
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] setting aside the notice. 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, or, with respect to
notice of a pre-use filing requirement under Rule 2210(c)(4) and Rule
2220(c)(2), within 30 days of such notice. 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 2210, 2220, 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
No change.
(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 2210, 2220, 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 2210, 2220,
9512(a), or 9513(a), the President of NASD Regulation shall designate
an appropriate NASD Regulation department or office as a Party. For
proceedings initiated under Rule 9513(a) concerning failure to comply
with an arbitration award or a settlement agreement related to an NASD
arbitration or mediation, the Chief Hearing Officer shall appoint a
Hearing Panel composed of a Hearing Officer. For any other proceedings
initiated under Rule 2210, 2220, 9512(a), or 9513(a) by the President
of NASD Regulation or NASD Regulation staff, the NASD Regulation Board
shall appoint a Hearing Panel composed of two or more members; one
member shall be a Director of NASD Regulation, and the remaining member
or members shall be current or former Directors of NASD Regulation or
Governors. The President of NASD Regulation may not serve on a Hearing
Panel.
(2) No change.
(c) Stays
(1) Summary Proceeding [Suspension, Limitation, or Prohibition]
No change.
(2) Non-Summary [Cancellation, Suspension, Bar, Limitation, or
Prohibition] Proceeding
Unless the NASD Board orders otherwise, a request for a hearing
shall stay the notice issued under Rule 2210, 2220, or 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] Proceeding
No change.
(2) Non-Summary [Suspension, Cancellation, Bar, Limitation or
Prohibition] Proceeding
If a member, associated person, or other person who is subject to a
notice issued under Rule 2210, 2220, or 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
2210, 2220, 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) No change.
(f) Hearing Panel Consideration
(1)-(3) No change.
(4) Record
The record shall consist of: (1) the notice issued under rule 2210,
2220, 9512, or 9513; (2) all documents transmitted by the Association
under Rule 9514(e)(1); (3) the request for hearing; (4) any other
submission 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 2210, 2220, 9512, or 9513, the
Office of the General Counsel of NASD Regulation shall be the custodian
of the record, except that the Office of Hearing Officers shall be the
custodian of record for proceedings initiated under Rule 9513(a)
concerning failure to comply with an arbitration award or a settlement
agreement related to an NASD arbitration or mediation. 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
No change.
(g) Decision of the Hearing Panel
(1) Summary [Suspension, Limitation, or Prohibition] Proceeding
No change.
(2) Non-Summary [Suspension, Cancellation, Bar, Limitation, or
Prohibition] Proceeding
Based on its review of the record, the Hearing Panel shall decide
whether a cancellation, suspension, bar, limitation, [or] prohibition,
or pre-use filing requirement 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 2210, 2220, 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;
[[Page 47071]]
(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 or pre-use filing
requirement is to be imposed or continue to be imposed, [the] its
effective date, time, and terms [of the suspension, cancellation, bar,
limitation, or prohibition].
(4) Issuance of Decision After Expiration of Call for Review Period
No change.
9515. Discretionary Review by the NASD Board
No change.
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 the 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.
* * * * *
9520. Eligibility Proceedings
9521. Purpose
No change.
9522. Initiation of Eligibility Proceeding[s]
(a) [Notice of Disqualification or Ineligibility] Initiation by
Association
(1) Issuance of Notice of Disqualification or Ineligibility
If 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, 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 pursuant to paragraph (c) with the National Adjudicatory
Council within ten days after service of the notice. If the member
fails to file the written application for relief within the 10-day
period, the membership of the member shall be canceled, unless the
Department of Member Regulation grants an extension for good cause
shown.
(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 a member may apply for relief on behalf of itself and
such person by filing a written application for relief pursuant to
paragraph (c) with the National Adjudicatory Council within ten days
after service of the notice. If the member fails to file the written
application for relief within the 10-day period, the registration of
the associated person shall be revoked, unless the Department of Member
Regulation grants an extension for good cause shown.
(4) Service
No change.
(b) [Application by] Obligation of Member to Initiate Proceeding
A member shall file a written application for relief from the
eligibility requirements of the Association pursuant to paragraph (c)
with the National Adjudicatory Council if the member determines prior
to receiving a notice under paragraph (a) that:
(1) [determines that it] the member is subject to a statutory
disqualification or otherwise is no longer eligible for membership;
(2) [determines that] a person associated with [it] such member is
subject to a statutory disqualification or otherwise is no longer
eligible for association with the member; or
(3) the member wishes to sponsor the association of a person who is
subject to a statutory disqualification or otherwise is ineligible for
association with a member.
* * * * *
9525. Expedited Review
(a) Direction by Executive Committee
Notwithstanding Rules 9523 and 9524, the NASD Board Executive
Committee, upon request of the Statutory Disqualification Committee,
may direct an expedited review of a recommended written decision of the
Statutory Disqualification Committee if the NASD Board Executive
Committee determines that expedited review is necessary for the
protection of investors.
(b) Call for Review Period
If a recommended decision is subject to expedited review, a
Governor may call the eligibility proceeding for review within seven
days after receipt of the recommended written decision.
(c) No Call for Review
If no Governor calls the proceeding for review within the time
prescribed, the decision shall become final, and the Statutory
Disqualification Committee shall serve the 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 and shall constitute final action of the
Association.
(d) Call for Review
If a Governor calls the eligibility proceeding for review within
the prescribed time, a review panel shall meet and conduct a review not
later than 14 days after the call for review. The review panel shall be
composed of the NASD Board Executive Committee, except that the
Governor who calls the proceeding for review shall serve on the review
panel in lieu of a member of the Executive Committee who has the same
classification (Industry, Non-Industry, or Public) as such Governor.
The review panel may affirm, modify, or reverse the recommended written
decision of the Statutory Disqualification Committee or remand the
eligibility proceeding with instructions. The review panel shall
prepare, issue, and serve its decision pursuant to Rule 9524(d) and
(e).
9526. Application to Commission for Review
No change.
* * * * *
[[Page 47072]]
9530. Suspension or Cancellation for Failure to Pay Dues, Fees and
Other Charges
9531. Notice
(a) Notice
Association staff may issue a written notice suspending or
canceling the membership of a member or the registration of a person
who has failed to pay a fee, due, assessment, other charge, or submit a
required or information related to such payment.
(b) Service of Notice
Association staff shall serve the notice by facsimile or overnight
commercial courier and shall file a copy of the notice with the Office
of Hearing Officers.
(c) Effective Date of Notice
A notice issued and served under this Rule shall become effective
15 days after the date of service of the notice.
9532. Hearing
(a) Request for Hearing
Withing five days after the date of service of a notice issued
under Rule 9531, the member or person served with such notice may file
with the Office of Hearing Officers a written request for a hearing.
The request shall state with specificity why the member or persons
believes that the notice should be set aside. The request for the
hearing shall stay the effective date of the notice.
(b) Hearing Procedures
(1) Appointment of Hearing Officer
If a hearing is requested, the Chief Hearing Officer shall appoint
a Hearing Officer to conduct the hearing and decide whether the member
or the person's registration should be suspended or canceled.
(2) Parties
The Parties shall be the member or person to whom the notice was
issued and the NASD Treasurer.
(3) Time of Hearing
The hearing shall be held within 45 days after the date of service
of the notice under Rule 9531. Not later than seven days before the
hearing, the Hearing Officer shall serve the Parties with written
notice of the date and time of the hearing.
(4) Transmission of Documents
Not later than seven days before the hearing, the NASD Treasurer
shall serve the member or person associated with a member via overnight
commercial courier with all documents that were considered in
connection with the decision to issue a notice under Rule 9531 and
provide copies of the same to the Hearing Officer.
(5) Counsel
The Parties may be represented by counsel at a hearing conducted
under this Rule.
(6) Evidence
Formal rules of evidence shall not apply to a hearing under this
Rule. Not later than four days before the hearing, the Parties shall
exchange copies of proposed hearing exhibits and witness lists and
provide copies of the same to the Hearing Officer.
(7) 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 or a notary public.
(8) Additional Information
At any time during its consideration, the Hearing Officer may
direct the Parties to submit additional information. Any additional
information submitted shall be provided promptly to all Parties at
least one business day before the Hearing Officer renders his or her
decision.
(9) Transcript
The hearing shall be recorded and a transcript prepared by a court
reporter. A Party 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 Officer within a reasonable time
determined by the Hearing Officer. Upon notice to the participants in
the hearing, the Hearing Officer may order corrections to the
transcript as requested or sua sponte.
(10) Record
The record shall consist of all documents that were considered in
connection with the decision to issue a notice under Rule 9531, the
notice issued under Rule 9531, the request for hearing filed under Rule
9532, the transcript of the hearing, and each document or other item of
evidence presented to or considered by the Hearing Officer. The Office
of Hearing Officers shall be the custodian of the record.
(11) Failure to Appear at Hearing
If a member or person fails to appear at a hearing for which he has
notice, the Hearing Officer may dismiss the request for a hearing as
abandoned, and the notice issued under Rule 9531 shall become final.
Upon a showing of good cause, the Hearing Office may withdraw a
dismissal entered pursuant to this subparagraph.
9533. Decision
The Hearing Officer may suspend or cancel the membership of a
member or the registration of a person for failure to pay a due, fee,
assessment, other charge, or for failure to submit a required report or
information related to such payment. The Hearing Officer shall prepare
a proposed written decision, and if the Hearing Officer determines that
a suspension or cancellation should be imposed, the proposed written
decision shall state the grounds for the suspension or cancellation,
and in the case of a suspension, the conditions for terminating the
suspension. The written decision served under this Rule shall become
effective upon service and shall constitute final action of the
Association.
9534. Notice of Membership
The Association shall provide notice of a suspension or
cancellation under this Rule Series and the grounds therefor in the
next membership supplement.
9535. Termination of Suspension
A suspended member or person may file a written request for
termination of the suspension on the ground of full compliance with the
notice issued under Rule 9531 or, if applicable, the conditions of a
decision under Rule 9533, with the Office of Hearing Officers. The
Office of Hearing Officers shall respond to the request in writing
within five days after receipt of the request. The Office of Hearing
Officers shall send the written response via overnight commercial
courier or facsimile.
9536. Copies of Notices and Decisions to Member
A copy of a notice or decision under the Rule 9530 Series that is
served on a person associated with a member shall be served on such
member.
9537. Other Action Not Foreclosed
Action by the Association under the Rule 9530 Series shall not
foreclose action by the Association under any other Rule.
* * * * *
[[Page 47073]]
9600. Procedures for Exemptions
9610. Application
(a) Where to File
A Member seeking an exemption from Rule 1021, 1022, 1070, 2210,
2320, 2340, 2520, 2710, 2720, 2810, 2850, 2851, 2860, Interpretive
Material 2860-1, 3010, 3210, 3350, 8211, 8212, 8213, 11870, or 11900,
Interpretive Material 2110-1, or Municipal Securities Rulemaking Board
Rule G-37 shall file a written application with the appropriate
department or staff of the Association and provide a copy of the
application to the Office of General Counsel of NASD Regulation.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NASD Regulation 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. NASD Regulation 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 proposed amendments to the Rules of the Association are being
made to permit the Department of Enforcement to amend complaints
without Hearing Officer approval, prior to the filing of responsive
pleadings; to clarify and consolidate default provisions and shorten
the call period for default decisions to 25 days; to require the Office
of the General Counsel to issue decisions in settled cases; to change
the trigger date for which the timing of motions to introduce new
evidence is keyed; to permit Advertising Department staff to impose
advertising pre-use filing requirements on members; to consolidate
procedures for cancellation or suspension for failure to provide
requested information; to simplify and expedite certain non-summary
procedures in Rule 9500 series; and for other purposes. A specified
discussion of the purpose of the proposed amendments follows.
Rule 0120: The purpose of the proposed change is to amend
definition (m) of Rule 0120 to reflect that the National Adjudicatory
Council (``NAC'') has replaced the National Business Conduct Committee
as the committee of NASD Regulation that acts on behalf of the NASD
Regulation Board of Directors with respect to disciplinary and related
matters.
The NAC replaced the National Business Conduct Committee pursuant
to a corporate reorganization. The revisions to the corporate structure
were approved on November 14, 1997.\6\ Related changes to the rules
describing the NAC's functions in disciplinary proceedings and related
matters were approved on December 19, 1997.\7\
---------------------------------------------------------------------------
\6\ Securities Exchange Act Release No. 39326 (November 14,
1997), 62 FR 62385 (November 21, 1997) (File No. SR-NASD-97-71)
\7\ Securities Exchange Act Release No. 39470 (December 19,
1997), 62 FR 67927 (December 30, 1997) (File No. SR-NASD-97-81).
---------------------------------------------------------------------------
Rules 2210 and 2220: Rules 2210(c)(4) and 2220(c) authorize the
NASD to require members to file advertisements, sales literature, and
education material with the Association before using it in certain
instances. The Rules currently provide that the District Business
Conduct Committees may impose pre-use filing requirements and may
conduct a hearing if a member opposes a pre-use filing requirement.
These provisions are inconsistent with the SEC's Order Instituting
Public Proceedings Pursuant to Section 19(h)(1) of the Securities
Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions
(``SEC Order'').\8\ Therefore, NASD Regulation has not utilized these
procedures since August 1996. Consistent with the SEC Order, the
proposed rule change would vest authority to impose a pre-use filing
requirement solely with NASD Regulation staff, specifically the
Advertising/Investment Companies Regulation Department. Any hearing
requested regarding such requirement would be conducted by a Hearing
Panel or other adjudicator, as set forth in the non-summary proceedings
of the Rule 9510 Series, rather than by a District Business Conduct
Committee.
---------------------------------------------------------------------------
\8\ Securities Exchange Act Release No. 37538 (August 8, 1996),
SEC's Order Instituting Public Proceedings Pursuant to Section
19(h)(1) of the Securities Exchange Act of 1934, Making Findings and
Imposing Remedial Sanctions, In the Matter of National Association
of Securities Dealers, Inc., Administrative Proceeding File No. 3-
9056.
---------------------------------------------------------------------------
Rule 2320 and 9610: The proposed amendments to Rule 2320 clarify
that a request for exemptive relief under Rule 2320 is subject to the
same procedural rules, the Rule 9600 Series, to which all other
requests for exemptive relief are subject. A conforming change is
proposed to Rule 9610.
Rule 8210: Rule 8210 would be amended to clarify that Association
staff may specify the location at which a member, associated person, or
other person subject to the Association's jurisdiction must testify for
the purpose of an investigation, complaint, examination, or proceeding.
A few members and persons have questioned the Association's authority
to specify such a location; the proposed rule change clarifies the
Association's authority to do so.
Rule 8220 Series: Currently, the Rule 8220 Series and the Rule 9510
Series both set forth procedures for suspending or canceling a member
or associated person for failure to provide requested information to
the Association. The proposed rule change consolidates the provisions
of the Rule 8220 Series and the Rule 9510 Series into the Rule 8220
Series.
Currently, the Rule 8220 Series authorizes the NAC to initiate a
suspension proceeding for failure to provide requested information, and
the Rule 9510 Series authorizes Association staff to initiate a
cancellation proceeding for failure to provide requested information.
Under the proposed rule change, the Department of Enforcement of NASD
Regulation, acting under Board-delegated authority, would be able to
initiate a suspension or cancellation proceeding if a member or
associated person failed to provide requested information; the
Department of Enforcement also would act as a Party in the subsequent
proceedings. This authority is consistent with the Department's
authority in regular disciplinary proceedings, as set forth in the Rule
9200 Series.\9\
---------------------------------------------------------------------------
\9\ See Article VII, Section 2 of the NASD By-Laws and the
Delegation Plan.
---------------------------------------------------------------------------
Several hearing procedures would be amended under the proposed rule
change. First, the member or associated person who received a notice
initiating a cancellation or suspension would file a request for a
hearing directly with the NASD Regulation Office of General Counsel,
rather than the NAC. The Office of General Counsel is responsible for
arranging such hearings.
Second, the proposed rule change would expand the pool of persons
who could serve on the subcommittee conducting the hearing to include
current and former members of the NAC, the NASD Regulation Board, the
NASD Board. At lease one subcommittee member would have to be a current
member of the NAC.
Third, the proposed rule change would expand the period in which a
hearing must be held from 20 to 30
[[Page 47074]]
days. NASD Regulations has determined that 20 days is not a sufficient
period both to find panelists who are available and coordinate the
schedules of all panelists, Parties, and their attorneys. Lengthening
this time period does not prejudice the member or person because once a
hearing is requested, a suspension or cancellation cannot take effect
until after the proceeding is completed.
Fourth, Rule 8222(b)(3) would be amended to include a provision of
current Rule 9514(e), which allows the Association to withhold certain
documents enumerated in Rule 9251 that are privileged or constitute
attorney work product or are otherwise related to an examination,
inspection, or investigation. Finally, the proposed rule change would
add a new requirement that if the subcommittee conducting the hearing
required that additional information be filed, then such information
would have to be distributed promptly to all parties and in all cases
not less than one business day before the subcommittee rendered its
decision.
Proposed Rule 8223(b) revises the call for review process by
placing the authority to conduct a review with a review panel, rather
than the full NASD Board. The ability of any Governor to call the
proceeding for review remains intact. Under the proposed rule change, a
review panel would conduct the review, rather than the full Board. The
review panel would be composed of the members of the NASD Board
Executive Committee, except that the Governor who called the proceeding
for review would serve on the review panel in lieu of an Executive
Committee member who has the same classification (Industry, Non-
Industry, or Public) as that Governor. The procedures for selecting the
Executive Committee member to be excused would be designed in such a
way that the same Governor of a particular classification is not
excused from every review panel. NASD Regulation proposes this change
because it will allow the suspension or cancellation proceeding to be
concluded more quickly. The NASD Board Executive Committee is a smaller
body designed to meet on an as-needed basis and can convene more easily
than the Board. The review panel in most cases could conveniently
arrange its review around Executive Committee meetings because most of
the participants would be the same. Under the current rule, a review
generally would be deferred to the next Board meeting, which might be
as much as two months later.\10\
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\10\ The NASD Board generally meets every two months.
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The review panel composition also is consistent with the SEC Order
in that a respondent in the proceeding will still have the benefit of a
balanced body conducting the review. Under the NASD By-Laws, as revised
to be consistent with the SEC Order, the NASD Board Executive Committee
must reflect the percentages of Non-Industry and Public Governors on
the Board. Those percentages would be maintained on the review panel by
having the Governor initiating the call for review serve as a
substitute for an Executive Committee member of the same
classification.
The reinstatement provisions set forth in proposed Rule 8225 are
amended by providing that requests to terminate a suspension should be
filed with the Department of Enforcement. If the Department denies the
request, then a further request for relief may be filed with the review
panel that rendered the decision in the underlying proceeding, as long
as the request for relief is filed within 30 days after service of the
decision. The review panel would be most familiar with the decision and
issues during this period. If the request for relief is filed more than
30 days after service of the decision, then the NAC would act on the
request for relief. This would ensure that the review panel's
responsibilities conclude shortly after its decision is rendered and do
not continue for an indefinite period.
Reference throughout the Rule Series to service by commercial
courier are revised to require service by overnight commercial courier
to ensure that service is effected quickly.
Interpretive Material 8310-2: Interpretive Material 8310-2 provides
for the release of disciplinary information to the public. The proposed
rule change would amend this Interpretation to permit the NASD to
release information about suspensions and cancellations imposed under
the Rule 8220 Series, unless the NAC determines otherwise. For example,
the NAC may determine not to release such information if a member
subject to a suspension quickly cures the failure to provide
information and the suspension is quickly lifted.
Rule 9212: The proposed change to Rule 9212 enables the Department
of Enforcement to amend complaints, without hearing officer approval,
prior to the filing of responsive pleadings. Rule 9212 currently
requires the Department of Enforcement to move to amend any complaint,
and a Hearing Officer to grant such a motion before the complaint may
be amended. Generally such motions are routinely granted if the motion
is filed before responsive pleadings are filed. The requirement of
making such motions and obtaining Hearing Officer approval can be
eliminated without any unfairness imposed on respondents. This change
is consistent with most judicial practice.
Rules 9215, 9241, 9269 and 9312: The proposed amendments to Rules
9215, 9241, 9269 and 9312 are designed to clarify and consolidate the
NASD Code of Procedure (``Code'') default provisions, and to shorten
the call for review period for default decisions to 25 days.
The current rules relating to default decision are set forth in
Rules 9215, 9241, 9269 and 9312. Rule 9269, the one rule exclusively
devoted to defaults, concerns only defaults as a result of failing to
appear at a hearing. Defaults also and indeed more frequently occur as
a result of failing to file any answer at all. The proposed amendments
consolidate many of the default provision in Rule 9269. Accordingly,
Rule 9269 will cover defaults resulting from failure to appear at a
hearing, as well as failure to answer complaints or appear at pre-
hearing conferences or at hearings.
These amendments also make non-substantive changes that clarify the
existing rules. The changes clarify that the default decisions issued
by Hearing Officers should include the same contents as decision issued
in litigated cases. The amendments also clarify that either the Review
Subcommittee or the NAC may set aside a default judgment. Furthermore,
the changes clarify that defaults need to be appealed within 25 days
after the service of the decision, and that sanctions are effective 30
days after service of the decision (other than bars and suspensions
which are effective immediately). These time periods are already set
forth in Rules 9360 and 9311(a), respectively.
In addition, the proposed changes to Rule 9312 shorten the period
when the General Counsel may call a default decision for review. The
rules currently give the General Counsel 45 days to determine whether
to call a default decision for review, which is the same call period
for litigated decisions. Twenty-five days, however, is the period
proposed for appealing a default decision. The additional 20 days for
the call decision currently allowed in the Code is appropriate for
litigated decisions where the NAC or the Review Subcommittee may prefer
to see if a case will be appealed before making its call determination.
Appeals of default
[[Page 47075]]
decisions are infrequent, and the call decisions generally are made
within the 25 day period. Shortening the call period for default
decision thus is practicable, and will have the benefit of putting into
effect default decisions (which often involve bars and expulsions)
sooner.
Rule 9270: The purpose of amending Rule 9270 is to establish that
the issuance of decisions, in settled cases, is to be done by the
General Counsel. Rule 9270 currently requires that decisions relating
to accepted offers of settlement be issued by the Office of Hearing
Officers. Returning decisions relating to offers of settlement,
however, to the Hearing Officers offer acceptance by the NAC, the
Review Subcommittee or the General Counsel serves no useful purpose and
only introduces additional delay and the possibility of error.
Moreover, issuance by the Office of Hearing Officers makes it appear
that Hearing Officers have approved the settlements when they do not
have the authority to do so.
Rule 9346: The change proposed to Rule 9346(b) would impose the
requirement that motions to introduce new evidence in appealed or
called cases be made within 30 days of service of the index to the
record under Rule 9321. Rule 9346(b) currently requires that motions to
introduce new evidence in these cases be made within 30 days of service
of the notice of appeal (or within 35 days of service of notice of a
call for review). Because motions to introduce new evidence generally
can best be made after the parties have received copies of the official
index to the record, it is logical to key the timing of such motions to
the parties' receipt of the index.
Rule 9360: Under the proposed amendments to Rule 9360, sanctions
generally continue to become effective 30 days after the date of
service of the decision constituting final disciplinary action.
However, the date would no longer be established by the Chief Hearing
Officer. This change is proposed because of Chief Hearing Officer plays
no part in the final stages of a disciplinary proceeding appealed or
called for review. Also, the proposed amendments to Rule 9360
incorporate references to Rules 9349 and 9351 into Rule 9360. This
change is made to clarify the applicability of Rule 9360.
Rule 9500 Series, generally: The purpose of the proposed rule
change to the Rule 9500 Series is to simplify and consolidate certain
procedures. The Rule 9510 Series would be amended by deleting certain
non-summary proceedings and consolidating them with other rules or by
replacing them with simple procedures in a separate rule series. NASD
Regulation believes that such changes are necessary because most of the
non-summary proceedings involve subject matters that do not warrant an
initial adjudication by Board-level panelists as provided in the
current Rule 9510 Series; an initial adjudication by staff or NAC is
more appropriate.
Rule 9510 Series: The Rule 9510 Series would be simplified by
deleting certain non-summary proceedings and consolidating them with
other rules or by replacing the current procedures with simpler
procedures in a separate rule series. As noted above, the provisions of
the Rule 9510 Series and the Rule 8220 Series, which both relate to
failure to provide requested information, would be consolidated into
the Rule 8220 Series. Similarly, the non-summary proceedings for
statutory disqualification matters would be deleted from the Rule 9510
Series, and the Rule 9520 Series, which governs regular statutory
disqualification matters, would be amended by adding new procedures for
expediting the review of a statutory disqualification proceeding when
necessary to protect investors.\11\ Finally, non-summary proceedings
for failure to pay fees, dues, assessments, and other charges would be
deleted from the Rule 9510 Series, and new procedures providing for a
hearing by a Hearing Officer would be added as a new Rule 9530 Series.
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\11\ Under the current Rule 9510 Series, non-summary proceedings
may be used for: canceling the membership of a member that becomes
ineligible for continuance in membership, or that continue to be
associated with an ineligible person, or suspending or barring 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. NASD Regulation has interpreted the
Rule 9510 Series to apply to both statutory disqualification matters
and to failures to meet membership qualification requirements. e.g.,
failure to have two principals or obtain a waiver of such
requirement in accordance with Rule 1021(e). Under the proposed rule
change, all statutory disqualification matters would be governed by
the Rule 9520 Series. However the Rule 9510 Series will still be
available for non-summary proceedings initiated for failure to meet
membership qualification requirements. See, proposed Rule
9511(a)(2)(B).
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The proposed rule change would amend Rule 9511, which sets forth
the purpose of the Rule 9510 Series, to reflect these changes and to
remove redundant provisions that appear in Rules 9512 and 9513. As
revised, Rule 9511 would provide that the Rule Series governs: (1)
summary proceedings authorized by Section 15A(h)(3) of the Act; and (2)
non-summary proceedings to impose (A) a suspension or cancellation for
failure to comply with an arbitration award or a settlement agreement
related to an arbitration or mediation pursuant to Article VI, Section
3 of the NASD By-Laws; (B) a suspension or cancellation of a member, or
a limitation or prohibition on 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; or (C) an advertising pre-use filing requirement pursuant
to Rules 2210 and 2220.\12\
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\12\ In a summary proceeding, the Association may impose a
suspension, limitation, or prohibition prior to holding a hearing.
In a non-summary proceeding, a respondent is given notice and an
opportunity for a hearing prior to the Association taking any action
against a respondent. The proposed rule change simplifies the titles
of various rule provisions by referring to a ``summary proceeding''
or a ``non-summary proceeding,'' rather listing the various types of
action that the Association may take in each type of proceeding.
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Rule 9513 would be amended to provide the Association may, rather
than shall, initiate non-summary proceedings; this amendment reflects
NASD Regulation's prosecutorial discretion. Rule 9513 also would be
amended to make technical corrections to cross-references to Rule 9511.
The proposed rule change revises the hearing and decision
provisions of Rule 9514. First, proposed Rule 9514(a)(1) contains a
non-substantive, simplifying amendment that provides that a member or
person who requests a hearing must set forth the specific grounds for
setting aside the notice, rather than listing in the Rule each type of
action that the member would seek to reverse or oppose at the hearing.
Second, the Rule would be amended to provide that a member that
received a notice of an advertising pre-use filing requirement under
Rule 2210 or 2220 would have 30 days to request a hearing. Under the
current Rule, which does not address pre-use filing requirements, a
member or person has seven days to request a hearing in a non-summary
proceeding. NASD Regulation proposes to provide additional time in the
case of advertising pre-use filing requirements because members may
need additional time to consider whether to comply with or contest the
requirements. Third, the custodian of record provision under Rule
9514(f)(5) authorizes the Office of Hearing Officers to act as
custodian for non-summary proceedings for a failure to comply with an
arbitration award or settlement agreement related to an NASD
arbitration or mediation. Under
[[Page 47076]]
Rule 9514(b)(1), Hearing Officers serve as the adjudicators in such
proceedings, and as such, the Office of Hearing Officers is a more
appropriate custodian that the NASD Regulation Office of General
Counsel. Finally, cross-references to Rule 2210 and 2220 are added to
Rule 9514.
Rule 9516 would be amended to provide that a request for
reinstatement could be made after either a summary or a non-summary
proceeding under the Rule 9510 Series. Currently, reinstatement is
available only after a non-summary proceeding.
Rule 9520 Series: The Rule 9520 Series, which concerns statutory
disqualifications, is amended to clarify certain procedures and to
expedite statutory disqualification proceedings if necessary to protect
investors. Rule 9522(a) is amended to clarify that although a statutory
disqualification proceeding may be initiated by the Association, a
member has an independent obligation to initiate such a proceeding if
it wishes to continue to associate with a statutorily disqualified
person. The Rule is further amended to provide that if a member does
not respond to a statutory disqualification notice issued by the
Association by filing a request for relief within ten days, the
member's membership may be canceled and the associated person's
registration may be revoked, unless the NAC grants an extension of time
to respond for good cause shown.
NASD Regulation proposes to amended Rule 9525 to provide for an
expedited review of statutory disqualification proceedings if the
Statutory Disqualification Committee requests an expedited review and
the NASD Board Executive Committee determines that such action is
necessary for the protection of investors. In such a case, any Governor
could call the proceeding for review. If such a call were made, a
review panel would conduct the review.
As in proposed Rule 8223(b)(2), the review panel would be composed
of the NASD Board Executive Committee, except that the Governor who
called the proceeding for review would serve on the review panel in
lieu of an Executive Committee member who has the same classification
(Industry, Non-Industry, or Public) as such Governor. The procedures
for selecting the member of the Executive Committee member who will be
excused will be designated in such a way that the same Governor of a
particular classification is not excused from every review panel. NASD
Regulation proposes this change because it will allow the eligibility
proceeding to be concluded more quickly for the protection of
investors, rather than having to wait to conduct the review at the next
Board meeting.
Rule 9530 Series: The proposed Rule 9530 Series sets forth
procedures for suspending or canceling the membership of a member or
the registration of an associated person who fails to pay fees, dues,
assessments, or other charges. Procedures for such a cancellation or
suspension are currently set forth in the Rule 9510 Series. Under the
proposed rule change, the NASD Treasurer would be authorized to
initiate such proceedings by sending a notice to the member or
associated person. The hearing would be conducted by a Hearing Officer,
who would be authorized to suspend or cancel the membership of a member
or the registration of a person. The hearing procedures are modeled on
the proposed Rule 8220 Series.
The proposed rule change does not include a call for review because
the issues to be resolved in this type of proceeding are narrow and
largely administrative. NASD Regulation has determined that it would be
more efficient to have one Hearing Officer conduct the hearing and
render a final decision. Hearing Officers are well-suited to resolve
the issues presented in hearings for failure to pay fees due to their
training and experience in the NASD's disciplinary proceedings under
the Rule 9200 Series and in non-summary proceedings for failure to pay
arbitration awards under the Rule 9510 Series.
2. Statutory Basis
NASD Regulation believes that the proposed rule change is
consistent with the provisions of Section 115A(b)(6) of the Act,\13\
which requires, among other things, that the Association'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 NASD believes that the
proposed rule change is consistent with Section 15A(b)(7) of the Act
\14\ in that it furthers the statutory mandate that the 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. * * * '' The rule change is also consistent with Section
15A(b)(8) of the Act \15\ in that it furthers the statutory goals of
providing a fair procedure for disciplining members and persons
associated with members.
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\13\ 15 U.S.C. 78p-3(b)(6).
\14\ 15 U.S.C. 78p-3(b)(7).
\15\ 15 U.S.C. 78p-3(b)(8).
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B Self-Regulatory Organization's Statement on Burden on Competition
NASD Regulation does not believe that 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
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of the date of 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 its finds such longer period to
be appropriate and publishes its reasons for so findings or (ii) as to
which NASD Regulations consents, the Commission will:
(A) by order approve such 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, including whether the proposed rule
change is consistent with the Act. 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
[[Page 47077]]
number SR-NASD-98-57 and should be submitted by September 24, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-23771 Filed 9-2-98; 8:45 am]
BILLING CODE 8010-01-M
