[Federal Register Volume 59, Number 64 (Monday, April 4, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7977]


[[Page Unknown]]

[Federal Register: April 4, 1994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-33830; File No. SR-NASD-93-76]

 

Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Approving Proposed Rule Change to Article II, 
Sections 10 and 11 of the Code of Procedure Relating to the Procedures 
of the National Business Conduct Committee

March 29, 1994.
    On February 14, 1994, the National Association of Securities 
Dealers, Inc. (``NASD'' or ``Association'') filed with the Securities 
and Exchange Commission (``SEC'' or ``Commission'') a proposed rule 
change\1\ pursuant to section 19(b)(1) of the Securities Exchange Act 
of 1934 (``Act'')\2\ and rule 19b-4 thereunder.\3\ The rule change 
amends Article II, sections 10 and 11 of the Code of Procedure 
(``Code'') to allow the National Business Conduct Committee (``NBCC'') 
to designate a Subcommittee to approve or reject Acceptance, Waiver, 
and Consents (``AWCs''), Minor Rule Violations Letters, and Offers of 
Settlement.
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    \1\The NASD originally filed the proposed rule change on 
December 16, 1993. On February 14, 1994, the NASD filed Amendment 
No. 1 changing the text of the proposed rule change.
    \2\15 U.S.C. 78s(b)(1) (1988).
    \3\17 CFR 240.19b-4 (1993).
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    Notice of the proposed rule change together with its terms of 
substance was provided by issuance of a Commission release and by 
publication in the Federal Register.\4\ No comments were received in 
response to the Commission release. This order approves the proposed 
rule change.
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    \4\Securities Exchange Act Release No. 33627 (Feb. 15, 1994), 59 
FR 9008 (Feb. 24, 1994).
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I. Introduction

    The NBCC is composed of participating members of the first year 
class of the NASD Board of Governors (``Board'') plus an elected Chair 
and Vice-Chair from the Board's second year class. The NASD's Code 
applies to proceedings relating to disciplinary actions, eligibility 
requirements, limiting or denying access to services, and to any other 
proceeding the NASD deems appropriate.\5\ Articles II through IV set 
forth the procedures concerning disciplinary actions. Sections 10 and 
11 of Articles II are entitled ``Acceptance, Waiver and Consent, Minor 
Rule Violations, and Summary Complaint Procedures'' and ``Settlement 
Procedure'' respectively.
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    \5\NASD Manual, Code of Procedure, Art. I, Sec. 1(a), (CCH) 
3001.
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    The members of the NBCC are sent a weekly package for review on 
proposed AWCs, Minor Rule Violations Letters, and Offers of Settlement. 
The NBCC also reviews, on a weekly basis, all disciplinary decisions of 
the District Business Conduct Committees and the Market Surveillance 
Committee. All matters are first reviewed by the Chair and Vice-Chair 
of the NBCC and then reviewed by the other members of the NBCC along 
with the recommendations of the Chair and Vice-Chair.

II. Description of the Rule Change

    The NASD has determined that the weekly package to the NBCC 
requires a substantial commitment of time of NBCC members and that the 
review by all NBCC members of all the foregoing matters is unnecessary 
and unduly burdensome. In order to reduce the amount of materials which 
must be read by NBCC members, the NASD is proposing to allow the NBCC 
to designate a Subcommittee composed of members of the NBCC to review 
AWCs, Minor Rule Violations Letters, and Offers of Settlement in all 
instances other than matters that are outside the NASD Sanction 
Guidelines\6\ or where the designated Subcommittee, in its discretion, 
otherwise believes full NBCC review is appropriate.
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    \6\The NASD Sanction Guidelines were published in May 1993 and 
sent to all NASD members. See NASD Regulatory & Compliance ALERT, 
Volume 7, No. 2 (June 1993).
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    The NASD is also proposing to amend Article II, section 11(e) of 
the Code to allow acceptances and rejections of Offers of Settlement to 
be made by a Subcommittee designated by the NBCC as an alternative to 
full NBCC review. The NASD is also proposing to delete the phrase ``by 
a majority vote'' from Article II, section 11(e) of the Code. The NASD 
considers the phrase ``by a majority vote'' to be confusing since a 
majority vote is always required by an NASD review body acting pursuant 
to the Code.
    Section 10 sets forth the circumstances under which a District 
Business Conduct Committee, Market Surveillance Committee or an 
Extended Hearing Committee (collectively referred to as the 
``Committee'') may impose disciplinary penalties prior to issuance of a 
complaint.\7\
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    \7\Id. at Art. II, Sec. 10, (CCH) 3030.
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    The procedures under subsection 10(a) provide that an NASD member 
may submit to the Committee a letter accepting a finding of a 
violation, waiving all rights of appeal, and consenting to the 
imposition of sanctions. If the committee finds the letter acceptable, 
it submits it to the NBCC. As currently drafted, this subsection 
provides that the terms of the letter shall become final and constitute 
the complaint, answer, and decision in the matter ``[i]f the letter is 
accepted by the NBCC.''
    The rule change provides that the NBCC can designate a Subcommittee 
to perform the function of reviewing and either accepting or rejecting 
the terms of the letter. Although not expressly provided for in the 
NASD's proposal, the NASD has represented that it intends that, 
initially, the Subcommittee designated by the NBCC will consist of the 
NBCC Committee Chair and Vice-Chair, but that the NBCC may modify the 
composition of the Subcommittee in the future.
    Similarly, the NASD's rule change provides that the NBCC can 
establish a Subcommittee for the purposes of reviewing and either 
accepting or rejecting letters submitted by members concerning minor 
rule violations or settlements of complaints.

III. Discussion

    The Commission finds that the rule change is consistent with the 
requirements of sections 15A(b) (2), (7) and (8) of the Act and the 
rules and regulations thereunder applicable to the NASD and, therefore, 
has determined to approve it. Section 15A(b)(2) requires the NASD to be 
organized and have the capacity to enforce compliance by its members of 
the requirements under the Act, rules and regulations promulgated 
pursuant to the Act, and the rules of the NASD. Sections 15A(b) (7) and 
(8) require that the NASD's rules provide for appropriate disciplining 
and for fair disciplinary procedures.
    The rule change enhances the NASD's disciplinary procedures with 
respect to AWCs, Minor Rule Violations Letters, and Offers of 
Settlement. The rule change will facilitate the review of these matters 
by providing the NBCC with more efficient procedures. No longer will 
each NBCC be required to review every letter submitted to the NBCC. 
Thus, the NBCC will be able to expedite review of these letters.\8\
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    \8\The Commission further notes that submission of a letter and 
a rejection of the terms of that letter do not diminish the due 
process rights of the member provided under the Code. Indeed, if the 
letter is rejected, the NASD is prohibited from considering the 
contents of the letter in subsequent action. NASD Manual, Code of 
Procedure, Art. II, Secs. 10(a), 10(b)(3) and 11(i), (CCH) 3030 
and 3031.
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IV. Conclusion

    In conclusion, for the reasons stated above, the Commission finds 
that the proposed rule change is consistent with the requirements of 
the Act.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change, SR-NASD-93-76 be, and hereby is, 
approved.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-7977 Filed 4-1-94; 8:45 am]
BILLING CODE 8010-01-M