[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