[Federal Register Volume 59, Number 210 (Tuesday, November 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-27042]


[[Page Unknown]]

[Federal Register: November 1, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34897; File No. SR-NASD-94-57]

 

Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by National Association of 
Securities Dealers, Inc. Relating to Fees for Member Firms Employing 
Statutorily Disqualified Individuals

October 26, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on October 
14, 1994, the National Association of Securities Dealers, Inc. 
(``NASD'' or ``Association'') 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 the NASD. The NASD has designated this proposal as one establishing 
or changing of fee under section 19(b)(3)(A)(ii) of the Act, which 
renders the rule effective upon the Commission's receipt of this 
filing. However, the NASD does not plan to assess the fee until January 
1, 1995. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Term of Substance of 
the Proposed Rule Change

    The NASD is proposing to amend Schedule A, Section 12 to the By-
Laws to require that the initial application fee for any individual who 
is subject to a statutory disqualification (``SD'') be assessed at 
$1,500.00, and at an additional $2,500.00 if the Association determines 
that the applications should be subject to the full hearing process. 
The NASD also is proposing to redesignate the existing paragraph in 
Section 12 as subsection (a) and add a new subsection (b) to require 
that all Tier 1 SDs be assessed an annual fee of $1,500.00, and all 
Tier 2 SDs be assessed an annual fee of $1,000.00. Proposed new 
language is in italics; proposed deletions are in brackets.
Schedules to the By-Laws
Schedule A
* * * * *
Sec. 12. Application and Annual Fees for Member Firms with Statutorily 
Disqualified Individuals

    (a) Any member firm seeking to employ or continuing to employ as an 
associated person any individual who is subject to a disqualification 
from association with a member as set forth in Article II, Section 4 of 
the Association's By-Laws shall, upon the filing of an application 
pursuant to Article II, Section 3, paragraph (d) of the Association's 
By-Laws, pay to the Association a fee of [$1,000.00] $1,500.00. Any 
member firm whose application filed pursuant to Article II, Section 3, 
paragraph (d) of the Association's By-Laws results in a full hearing 
for eligibility in the Association pursuant to Article VII, Section 2 
of the NASD's Code of Procedure, shall pay to the Association an 
additional fee of $2,500.00.
    (b) Any member firm continuing to employ as an associated person 
any individual subject to disqualification from association with a 
member as set forth in Article II, Section 4 of the Association's By-
Laws shall pay annually to the Association a fee of $1,500.00 when such 
person or individual is classified as a Tier 1 statutorily disqualified 
individual, and a fee of $1,000.00 when such person or individual is 
classified as a Tier 2 statutorily disqualified individual.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the NASD included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The NASD has prepared summaries, set forth in Sections 
(A), (B), and (C) below, of the most significant aspects of such 
statements.

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    Rule 19h-1 under the Exchange Act\1\ requires a member to supervise 
any SD employed by that member if the SD is statutorily disqualified 
because of serious securities laws violations but has been granted new 
employment in the securities industry following a membership 
continuance proceeding. Pursuant to Article VI of the By-Laws of the 
Association, NASD members must file an application for relief from 
disqualification pursuant to Article II, Section 3, paragraph (d) of 
the Association's By-Laws and must pay an application fee pursuant to 
Section 12, Schedule A of the By-Laws if they seek to employ or 
continue to employ as an associated person any SD. The current fee 
imposed under Section 12 is $1,000.00. Some applications require the 
full National Business Conduct Committee (``NBCC'') hearing process 
pursuant to Article VII, Section 2 of the NASD's Code of Procedure.
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    \1\17 CFR 240. 19h-1 (1993).
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    The NASD classifies SDs that are admitted or re-admitted to 
registered status with a member firm as Tier 1, Tier 2 or Tier 3 based 
upon regulatory priority. Tier 1 consists of: (i) SDs statutorily 
disqualified pursuant to the statutory disqualification provisions in 
effect before the Securities Acts Amendments of 1990 (generally 
securities-law and/or commodities-law violations); and (ii) those 
persons designated pursuant to the Securities Acts Amendments of 1990 
whose offenses are such that an annual review of their activities is 
warranted. Tier 1 SDs usually are subject to strict supervision by the 
member and possible limitations upon their activities.
    Tier 2 generally consists of SDs statutorily disqualified pursuant 
to the Securities Acts Amendments of 1990 whose offenses typically are 
not related to securities-law or commodities-law violations and do not 
warrant the level of supervision required of Tier 1 individuals.
    Tier 3 consists of those SDs who are permitted to enter or re-enter 
the securities industry without any limitations imposed upon their 
activities or any special supervisory requirements placed upon the 
firms that employ these SDs.
    Earlier this year, the NASD conducted an analysis of the work 
effort and costs associated with the processing and review of SD 
applications. The NASD determined that, on average, it incurs costs of 
approximately $1,600.00 per application if an application does not go 
to the full hearing process and costs of approximately $3,900.00 per 
application if an application requires the full hearing process. 
Accordingly, the NASD is proposing to amend Section 12 to Schedule A of 
the By-Laws to require that the initial SD application fee be assessed 
at $1,500.00 and that an additional $2,500.00 be assessed when the 
Association determines that the application should be subject to the 
full hearing process.
    The NASD's analysis also covered the additional oversight and 
examination costs that the NASD incurs with respect to SDs that member 
firms continue to employ. The NASD has determined that Tier 1 SDs, who 
are subject to an annual examination, incur average annual oversight 
costs of approximately $1,525.00 per person. The NASD has further 
determined that Tier 2 SDs, who are subject to at least one examination 
of their main or branch office within the first 24 months of 
employment, incur average annual oversight costs of approximately 
$1,000.00. Accordingly, the NASD is proposing to amend Section 12 to 
Schedule A of the By-Laws to reclassify the existing paragraph in 
Section 12 as subsection (a), and to add a new subsection (b) to 
require that all Tier 1 SDs be assessed an annual fee of $1,500.00, and 
all Tier 2 SDs be assessed an annual fee of $1,000.00. Tier 3 SDs will 
not be charged a fee because no additional burden is imposed upon the 
NASD with respect to their continuing employment.
    The NASD believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(5) of the Act,\2\ which require that 
the rules of the Association provide for the equitable allocation of 
reasonable dues, fees and other charges among members in that the 
proposed rule change equitably allocates among member firms the costs 
incurred by the NASD for its oversight of the initial and continuing 
employment of SDs.
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    \2\15 U.S.C. 78o-3.

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(B) Self-Regulatory Organization's Statement on Burden on Competition

    The NASD does not believe that the proposed rule change 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

    The foregoing rule change has become effective upon filing pursuant 
to Section 19(b)(3)(A)(ii) of the Act and Section (e) of Rule 19b-4 
promulgated thereunder in that it constitutes a due, fee or other 
charge. However, the NASD has determined not to implement the rule 
change until January 1, 1995.
    At any time within 60 days of the filing of a rule change pursuant 
to Section 19(b)(3)(A) of the Act, the Commission may summarily 
abrogate the rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
NASD. All submissions should refer to the file number in the caption 
above and should be submitted by November 22, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Jonathan G. Katz,
Secretary.
[FR Doc. 94-27042 Filed 10-31-94; 8:45 am]
BILLING CODE 8010-01-M