[Federal Register Volume 59, Number 143 (Wednesday, July 27, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-18252]
[[Page Unknown]]
[Federal Register: July 27, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34420; File No. SR-NASD-94-14]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Order Approving Proposed Rule Change Relating to
Application for Membership in the National Association of Securities
Dealers, Inc.
July 20, 1994.
On May 4, 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 Sections 1(b) and 1(c) to Article III of the NASD By-Laws and
Schedule C to the By-Laws to clarify the process by which an applicant
applies for membership in the NASD.
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\1\The NASD amended the proposed rule change three times
subsequent to its original filing on March 11, 1994. The first
amendment changed the requirement that an applicant for membership
in the NASD submit a copy of its ``current submission to the
Securities and Exchange Commission pursuant to Rule 15b1-2(c) under
the Securities Exchange Act of 1934'' to require that the applicant
submit ``Form BD filed with the Central Registration Depository.''
This amendment is technical in nature in that it corrects a
deficiency that arose out of the 1992 amendments to the broker-
dealer registration process which deleted Rule 15b1-2(c) and
requires that Form BD be submitted to the NASD. See Securities
Exchange Act Release No. 31660 (Dec. 28, 1992), 58 FR 11 (Jan. 4,
1993) (adoption of rule amendments to broker-dealer registration and
reporting requirements).
The second amendment reflected the results of the NASD
membership vote concerning the NASD's proposed rule change. The
change was submitted to a vote of the NASD membership in NASD Notice
to Members 94-22 (Apr. 1994), and was approved by the membership, as
required by Article XVII, Section 1 of the NASD By-Laws, by a vote
of 1,879 in favor, 161 opposed, and 6 not voting out of 2,046
ballots received.
Finally, the third amendment provided minor wording changes to
Schedule C of the Schedules to the By-Laws, Part I, Section 2(f) and
further clarified the NASD's basis for proposing certain other
changes; this amendment was technical in nature and did not have any
substantive impact.
\2\15 U.S.C. Sec. 78s(b)(1) (1988).
\3\17 CFR 240.19b-4 (1994).
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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. 34156 (June 3, 1994), 59
FR 29839 (June 9, 1994).
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I. Description of the Rule Change
The NASD seeks to amend its By-Laws and Rules with respect to the
procedural aspects of the membership application process. The NASD has
identified instances where its By-Laws and rules are inconsistent and
where its actual practices are inconsistent with its rules. This rule
change corrects these aberrations and further clarifies the membership
application process.
A. Amendments Concerning the Role of the District Committee in the
Membership Application Process
The NASD By-Laws currently provide that any application for
membership shall be referred to the District Committee of the NASD
district in which the applicant has its principal place of business.
The By-Laws further provide that the appropriate District Committee
shall determine whether the applicant satisfies the NASD's admission
requirements.\5\ In contrast, the NASD's rules, Schedule C to the By-
Laws, provide that the District Office staff initially determine an
applicant's eligibility for membership. The rules do, however, further
set forth procedures for review by the District Committee, upon request
by the applicant, of the District Office's determination.\6\
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\5\NASD Manual, By-Laws, Art. III, Secs. 1(b) & (c), (CCH)
1311.
\6\Id., Schedules to the By-Laws, Schedule C, Part I, Secs. (1)
& (2), (CCH) 1783.
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According to the NASD, the actual practice is for the appropriate
District Committee to determine an applicant's eligibility for
membership. The NASD has determined to amend its By-Laws and Schedule C
to allow each District Committee to designate a Subcommittee to act,
under limited circumstances, on behalf of the District Committee. The
proposed rule change, therefore, amends the NASD By-Laws and Schedule C
to provide that all initial applications for membership be reviewed by
either the District Committee or a Subcommittee of the District
Committee, with a right of appeal to the full District Committee.\7\
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\7\The NASD has also amended the By-Laws by deleting the
explicit requirement that determinations of the District Committee
(and now Subcommittees designated by the District Committee) be made
by a majority of its members. The NASD indicated that it removed
this requirement because it believes that the requirement that a
determination be made by a vote presumes that the vote will be a
majority of the members of the District Committee or Subcommittee
designated by the District Committee. File No. SR-NASD-94-14,
Amendment No. 3.
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B. Amendments to Schedule C
The NASD has also submitted ministerial amendments to Schedule C
designed to clarify the NASD's procedures concerning the application
process. These include amendments to Part I of Schedule C to the By-
Laws:
Subsection (1)(a), clarifying that an applicant must provide
other relevant information and documents requested by the District
Office staff;
Subsection (1)(a)(6), clarifying that an applicant must provide
other relevant information and documents requested by the District
Office staff;
Subsection (1)(b), clarifying that the scheduling of an
applicant's pre-membership interview and the determination of which
responsible personnel shall appear on behalf of the applicant at
such interview will be determined by the District Office staff;
Subsection (2)(a) clarifying that it is the determination of the
designated Subcommittee, rather than the District Office, which will
be reviewed by the District Committee upon request of the applicant;
Subsection (2)(a) clarifying that the applicant's request for
review must be filed within 15 calendar days after notification of
the Subcommittee's determination;
Subsection (2)(b) clarifying that, in connection with review by
the District Committee, an applicant is entitled to appear before a
Hearing Subcommittee of the District Committee and that no member of
the District Committee who served as a member of the Subcommittee
originally designated to review the applicant's submission and no
member of the Hearing Subcommittee shall participate in the
determination resulting from the District Committee's review;
Subsection (2)(c) clarifying that the District Committee's
determination of the record developed before it shall be made
independent of the determination of the Subcommittee designated by
the District Committee;
Subsection (2)(d) clarifying that the District Committee's
determination shall be subject to review by the National Business
Conduct Committee (``NBCC'') upon request made by the applicant
filed within 15 calendar days after the date of notification to the
applicant by the District Committee of its determination;
Subsection (2)(e) clarifying that in connection with review by
the NBCC, the applicant has the right to appear before a
Subcommittee of the NBCC;
Subsection (2)(f) clarifying that the NBCC's determination of
the record developed before it shall be made independent of the
determination of the Subcommittee designated by the District
Committee, and shall constitute final action for the NASD for
purposes of Subsection (2)(h) to Part I of Schedule C to the By-Laws
unless called for discretionary review by the Board of Governors;
Subsection (2)(f) clarifying that a decision by the Board
pursuant to its power of discretionary review shall constitute final
action for purposes of Subsection (2)(h) to Part I of Schedule C to
the By-Laws and that such determination and its rationale shall be
communicated to the applicant in writing;
New subsection (2)(g) clarifying that review by the Board of
Governors of NBCC determinations is discretionary\8\ and may occur
solely at the request of one or more governors and not at the
request of the applicant;
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\8\This discretionary review of the Board shall be in accordance
with the resolutions of the Board governing the review of NBCC
determinations. The Board may affirm, reverse or modify an NBCC
decision. The commencement of the review shall operate as a stay of
any action by the Subcommittee designated by the District Committee
and any determination by the NBCC until a decision is reached by the
Board.
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Subsection (2)(h) (formerly subsection (2)(g)) clarifying that
an applicant may apply for review to the Commission of any
determination by the NBCC or the Board;
Subsection (2)(i) (formerly subsection (2)(h)) clarifying that
it applies to determinations of restrictions placed on the applicant
made by the NBCC or a Subcommittee designated by the District
Committee, as well as to such determinations made by the Board or a
District Committee;
Subsection (3)(a) clarifying that review and removal or
modification of restrictions placed on the applicant shall be done
by a Subcommittee designated by the District Committee;
Subsection (3)(b) clarifying that modifications of restrictions
shall be subject to review by the District Committee and the NBCC,
as well as by the Board and the Commission; and
Subsection (3)(c) clarifying that the refusal by a Subcommittee
designated by the District Committee to remove or modify
restrictions shall also be subject to review, but only upon request
of the member filed with the District Committee within ten calendar
days after the date of notification of such refusal.
II. Discussion
The Commission has determined to approve the NASD's proposal. The
Commission believes that the rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to the NASD, including the requirements of Section 15A(b)(8)
of the Act.\9\ Section 15A(b)(8) requires, in part, that the rules of
the NASD be designed to provide a fair procedure concerning the denial
of membership in the NASD and prohibiting or limiting access to
services of the NASD.
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\9\15 U.S.C. 78o-3(b)(8).
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This rule change clarifies the NASD's membership application
process by eliminating the inconsistencies between the NASD's by-Laws
and the Schedules to the By-Laws concerning the administration of this
process. In addition, this rule change clarifies the procedures set
forth in the Schedules to the By-Laws for accepting, denying or
accepting with limitations an application for membership.
III. Conclusion
In conclusion, for the reasons stated above, the Commission finds
that the rule change is designed to provide a fair procedure concerning
the denial of membership in the NASD and prohibiting or limiting access
to services of the NASD. The Commission therefore 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-94-14 be, and hereby is,
approved.
For the Commission, by the Division of Marker Regulation,
pursuant to delegated authority.\10\
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\10\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-18252 Filed 7-26-94; 8:45 am]
BILLING CODE 8010-01-M