[Federal Register Volume 60, Number 3 (Thursday, January 5, 1995)]
[Notices]
[Pages 1808-1815]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-191]



-----------------------------------------------------------------------


SECURITIES AND EXCHANGE COMMISSION

Self-Regulatory Organizations; Notice of Proposed Rule Change by 
National Association of Securities Dealers, Inc. Relating To Numbering 
and Terminology of Rules and Correction of Cross References

[Release No. 34-35150; File No. SR-NASD-94-64]
December 23, 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 December 
13, 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.\1\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.

    \1\The NASD originally submitted the proposed rule change on 
November 28, 1994. On December 13, 1994, the NASD filed Amendment 
No. 1 to its filing requesting that certain language be deleted and 
substituted with the word ``unchanged.'' This notice reflects the 
amendment.
---------------------------------------------------------------------------

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

    The NASD is herewith filing a proposed rule change to Articles I, 
III, IV, V, VII, VIII, IX, XII and XVII of the By-Laws; and Articles I, 
II, III, IV and V of the Rules of Fair Practice. Below is the text of 
the proposed rule change. Proposed new language is in italics; proposed 
deletions are in brackets.

By-Laws

Article I

Definitions
    When used in these By-Laws, and any rules of the Corporation, 
unless the context otherwise requires, the term:
    (a) Unchanged.
    (b) Unchanged.
    [(r)] (c) ``Board'' means the Board of Governors of the 
Corporation.
    [(c)] (d) ``branch office'' means an office defined as a branch 
office in Rule.\2\

    \2\Rule numbers will be inserted upon completion of the Manual 
revision project.
---------------------------------------------------------------------------

    [(d)] (e) ``broker'' means any individual, corporation, 
partnership, association, joint stock company, business trust, 
unincorporated organization or other legal entity engaged in the 
business of effecting transactions in securities for the account of 
others, but does not include a bank;
    [(e)] (f) ``Commission'' means the Securities and Exchange 
Commission;
    [(f)] (g) ``Corporation'' means the National Association of 
Securities Dealers, Inc.;
    [(g)] (h) ``dealer'' means any individual, corporation, 
partnership, association, joint stock company, business trust, 
unincorporated organization or other legal entity engaged in the 
business of buying and selling securities for his own account, through 
a broker or otherwise, but does not include a bank, or any person 
insofar as he buys or sells securities for his own account, either 
individually or in some fiduciary capacity, but not as part of a 
regular business;
    [(p)] (i) means ``government securities broker'' shall have the 
same meaning as in Section 3(a)(43) of the Act except that it shall not 
include financial institutions as defined in Section 3(a)(46) of the 
Act.
    [(q)] (j) means ``government securities dealer'' shall have the 
same meaning as in Section 3(a)(44) of the Act except that it shall not 
include financial institutions as defined in Section 3(a)(46) of the 
Act.
    [(s)] (k) ``Governor'' means a member of the Board.
    [(h)] (l) ``investment banking or securities business'' means the 
business, carried on by a broker, dealer, or municipal securities 
dealer (other than a bank or department or division of a bank), or 
government securities broker or dealer of underwriting or distributing 
issues of securities, or of purchasing securities and offering the same 
for sale as a dealer, or of purchasing and selling securities upon the 
order and for the account of others;
    [(i)] (m) ``member'' means any broker or dealer admitted to 
membership in the Corporation;
    [(j)] (n) ``municipal securities'' means securities which are 
direct obligations of, or obligations guaranteed as to principal or 
interest by, a State or any political subdivision thereof, or any 
agency or instrumentality of a State or any political subdivision 
thereof, or any municipal corporate instrumentality of one or more 
States, or any security which is an industrial development 
[[Page 1809]] bond as defined by Section 3(a)(29) of the Act;
    [(k)] (o) ``municipal securities broker'' means a broker, except a 
bank or department or division of a bank, engaged in the business of 
effecting transactions in municipal securities for the account of 
others;
    [(l)] (p) ``municipal securities dealer'' means any person, except 
a bank or department or division of a bank, engaged in the business of 
buying and selling municipal securities for his own account, through a 
broker or otherwise, but does not include any person insofar as he buys 
or sells securities for his own account either individually or in some 
fiduciary capacity but not as a part of a regular business;
    [(m)] (q) ``person associated with a member'' or ``associated 
person of a member'' means every sole proprietor, partner, officer, 
director, or branch manager of any member, or any natural person 
occupying a similar status or performing similar functions, or any 
natural person engaged in the investment banking or securities business 
who is directly or indirectly controlling or controlled by such member, 
whether or not any such person is registered or exempt from 
registration with the Corporation pursuant to these By-Laws;
    [(n)] (r) ``registered broker, dealer, municipal securities broker 
or dealer, or government securities broker or dealer'' means any 
broker, dealer, municipal securities broker or dealer, or government 
securities broker or dealer which is registered with the Commission 
under the Act;
    [(o)] (s) ``rules of the Corporation'' means all rules of the 
Corporation including the Certificate of Incorporation, By-Laws, Rules 
of Fair Practice, Government Securities Rules, Code of Procedure, 
Uniform Practice Code, any other rules, and any interpretation 
thereunder.
* * * * *

Article III

Membership
Transfer and Termination of Membership
    Sec. 7. (a) Except as provided hereinafter, no member of the 
Corporation may transfer its membership or any right arising therefrom 
and the membership of a corporation, partnership or any other business 
organization which is a member of the Corporation shall terminate upon 
its liquidation, dissolution or winding up, and the membership of a 
sole proprietor which is a member shall terminate at death, provided 
that all obligations of the membership under the By-Laws and Rules [of 
Fair Practice] of the Corporation have been fulfilled.
* * * * *
District Committees' Right to Classify Branches
    Sec. 10. A District Committee may classify any branch of a member 
not meeting the definition of Article [I(c)] I(d) of the By-Laws as a 
``branch office'' if such Committee is satisfied that the definition of 
Article [I(c)] I(d) of the By-Laws is substantially met and that the 
business of said branch in the district is of sufficient importance to 
justify such a classification.

Article IV

Registered Representatives and Associated Persons
Retention of Jurisdiction
    Sec. 4. A person whose association with a member has been 
terminated and is no longer associated with any member of the 
Corporation or a person whose registration has been revoked shall 
continue to be subject to the filing of a complaint under the Code of 
Procedure based upon conduct which commenced prior to the termination 
or revocation or upon such person's failure, while subject to the 
Corporation's jurisdiction as provided herein, to provide information 
requested by the Corporation pursuant to [Article IV, Section 5 of the 
NASD Rules of Fair Practice] Rule ______, but any such complaint shall 
be filed within:
    (a) two (2) years after the effective date of termination of 
registration pursuant to Section 3 above, provided, however, that any 
amendment to a notice of termination filed pursuant to Section [2(b)] 
3(b) that is filed within two years of the original notice which 
discloses that such person may have engaged in conduct actionable under 
any applicable statute, rule or regulation shall operate to recommence 
the running of the two-year period under this paragraph.
    (b) Two (2) years after the effective date of revocation of 
registration pursuant to [Article V, Section 2 of the Association's 
Rules of Fair Practice] Rule ______; or,
    (c) in the case of an unregistered person, within two (2) years 
after the date upon which such person ceased to be associated with the 
member.
* * * * *

Article V

Affiliates
Agreement of Affiliate
    Sec. 3. No applicant may become an affiliate of the Corporation 
unless it agrees:
    (a) Unchanged.
    (b) Unchanged.
    (c) That, after affiliation, it will at all times keep its charter, 
by-laws, [rules of fair practice and code of procedure] and other rules 
so integrated with the corresponding Charter, By-Laws, [Rules of Fair 
Practice and Code of Procedure] and other rules of the Corporation as 
not to conflict in any way therewith; and
    (d) Unchanged.
Conditions of Affiliation
    Sec. 4. No applicant may become an affiliate of the Corporation 
unless it appears to the Board of Governors.
    (a) Unchanged.
    (b) That the charter, by-laws, [rules of fair practice and code of 
procedure] and other rules of the applicant are so integrated with the 
Corresponding Charter, By-Laws, [Rules of Fair Practice and Code of 
Procedure] and other rules of the Corporation as not to conflict in any 
way therewith.
* * * * *

Article VII

Board of Governors
Powers and Authority of Board of Governors
    Sec. 1. (a) Unchanged.
    (1) Unchanged.
    (2) adopt such Rules [of Fair Practice] and changes or additions 
thereto as it deems necessary or appropriate, provided, however, that 
the Board may at its option submit to the membership any such adoption, 
change or addition to the Rules [of Fair Practice];
    [(3) (a) adopt such rules as the Board of Governors deems 
appropriate to implement the provisions of the Act as amended and the 
rules and regulations promulgated thereunder, and (b) make such 
regulations, issue such orders, resolutions, interpretations, including 
interpretations of the rules adopted pursuant to this Section, and 
directions, and make such decisions as it deems necessary or 
appropriate.]
    [(4) )3) make such regulations, issue such orders, resolutions, 
interpretations, including interpretations of the Rules [of Fair 
Practice], and directions, and make such decisions as it deems 
necessary or appropriate;
    [(5)](4) prescribe a code of arbitration procedure providing for 
the required or voluntary arbitration of controversies 
[[Page 1810]] between members and between members and customers or 
others as it shall deem necessary or appropriate;
    [(6)](5) establish rules and procedures to be followed by members 
in connection with the distribution of securities issued by members and 
affiliates thereof;
    [(7)](6) require all over-the-counter transactions in securities 
between members, other than transactions in exempted securities, to be 
cleared and settled through the facilities of a clearing agency 
registered with the Commission pursuant to the Act, which clears and 
settles such over-the-counter transactions in securities;
    [(8)](7) organize and operate automated systems to provide 
qualified subscribers with securities information and automated 
services. The systems may be organized and operated by a division or 
subsidiary company of the Corporation or by one or more independent 
firms under contract with the Corporation as the Board of Governors may 
deem necessary or appropriate. The Board of Governors may adopt rules 
for such automated systems, establish reasonable qualifications and 
classifications for members and other subscribers, provide 
qualification standards for securities included in such systems, 
require members to report promptly information in connection with 
securities included in such systems, and establish charges to be 
collected from subscribers and others;
    [(9)](8) require the prompt reporting by members of such original 
and supplementary trade data as the Board deems appropriate. Such 
reporting requirements may be administered by the Corporation, a 
division or subsidiary thereof, or a clearing agency registered under 
the Act; and
    [(10)](9) engage in any activities or conduct necessary or 
appropriate to carry out the Corporation's purposes under its 
Certificate of Incorporation and the federal securities laws.
    (b) Unchanged.
* * * * *
Authority to Take Action Under Emergency or Extraordinary Market 
Conditions
    Sec. 3. (a) The Board of Governors, or between meetings of the 
Board, a Committee consisting of the Chairman of the Board (or in his 
absence, a Vice Chairman of the board), the President of the 
Corporation, and a member of the Executive Committee, in the event of 
an emergency or extraordinary market conditions, shall have the 
authority to take any action regarding [(i)](1) the trading in or 
operation of the over-the-counter securities market, the operation of 
any automated system owned or operated by the Corporation or any 
subsidiary thereof, and the participation in any such system of any or 
all persons or the trading therein of any or all securities and 
[(ii)](2) the operation of any or all member firms' offices or systems, 
if, in the opinion of the Board of the Committee hereby constituted, 
such action is necessary or appropriate for the protection of investors 
or the public interest or for the orderly operation of the marketplace 
or the system.
    (b) Unchanged.
    (c) Unchanged.
Composition of Board
    Sec. 4. (a) The management and administration of the affairs of the 
Corporation shall be vested in a Board of Governors composed of from 
twenty-five to twenty-nine Governors as determined from time to time by 
the Board. The Board shall consist of: [(i)](1) at least thirteen but 
not more than fifteen Governors to be elected by the members of the 
various districts in accordance with the provisions of subsection (b) 
hereof; [(ii)](2) at least eleven but not more than thirteen Governors 
to be elected by the Board in accordance with the provisions of 
subsection (c) hereof; [(iii)](3) the President of the Corporation to 
be selected by the Board in accordance with the provisions of Article 
X, Section 2 of the By-Laws. The Board, in exercising its power to 
determine its size and composition under this subsection (a), shall be 
required to select its members in a manner such that when all 
vacancies, if any, are filled, the number of Governors elected by the 
members of the various districts in accordance with subsection (b) 
hereof shall exceed the number of Governors (including the President) 
not so elected.
    (b) Unchanged.
    (c) The Board shall elect [(i)](1) at least three Governors 
representative of investors, none of whom are associated with a member 
or any broker or dealer; [(ii)](2) at least three Governors 
representative of issuers, at least one of whom is not associated with 
a member or any broker or dealer; [(iii)](3) at least three Governors 
chosen from members; [(iv)](4) at least one Governor representative of 
the principal underwriters of investment company shares or affiliated 
members; and [(v)](5) at least one Governor representative of insurance 
companies or insurance company affiliated members.
* * * * *
Election of Board Members
    Sec. 7. The Governors elected under subsection (b) of Section 4 of 
this Article shall be chosen as follows:
Procedure for Nominations by Nominating Committees
    (a) Unchanged.
Nomination of Additional Candidates
    (b) Unchanged.
Contested Elections
    (c) If any additional candidate or candidates are nominated, as 
provided in subsection (b) of this Section, the District Committee 
shall forthwith cause the names of the regular candidate and of all 
other duly nominated candidates for each office to be placed upon a 
ballot, which shall be sent to all members of the Corporation eligible 
to vote in the district. Each member of the Corporation having its 
principal place of business in the district shall be entitled to one 
vote, and each member having one or more registered branch offices in 
the district shall be entitled to vote as provided in Section [8] 9 of 
Article III. The District Committee shall fix a date before which 
ballots must be returned to be counted. All ballots shall be opened and 
counted by such officer or employee of the Corporation as the Chairman 
of the District Committee may designate and in the presence of a 
representative of each of the candidates if such representation is 
requested in writing by any candidate named on the ballot. The 
candidate for each office to be filled receiving the largest number of 
votes cast shall be declared elected to membership on the Board of 
Governors, and certification thereof shall be made forthwith to the 
Board of Governors. In the event of a tie, there shall be a run-off 
election. In all elections held under this subsection voting shall be 
made by secret ballot, the procedure for which shall be prescribed by 
the Board of Governors.
Tansitional Procedures
    (d) Unchanged.
Filling of Vacancies on Board
    Sec. 8. All vacancies in the Board other than those caused by the 
expiration of a Governor's term of office, shall be filled as follows:
    (a) Unchanged.
    (b) Unchanged.
    (c) If the unexpired term is that of a Governor elected by the 
Board such vacancy shall be filled in accordance with the provisions of 
subsections [(c)(i)](c)(1) through [(c)(v)] (c)(5) of 
[[Page 1811]] Section 4 of this Article as the case may be.
* * * * *

Article VIII

District Committees
* * * * *
Election of District Committee Members
    Sec. 4. Members of the District Committees shall be elected as 
follows:
Procedure for Nominations by Nominating Committees
    (a) Unchanged.
Nomination of Additional Candidates
    (b) Unchanged.
Contested Elections
    (c) If any additional candidate or candidates are nominated, as 
provided in paragraph (b) of this Section, the District Committee shall 
forthwith cause the names of the regular candidate for any contested 
office and of all other candidates for such office to be placed upon a 
ballot, which shall be sent to all members of the Corporation eligible 
to vote in the district. Each member of the Corporation having its 
principal place of business in the district shall be entitled to one 
vote, and each member having one or more registered branch offices in 
the district shall be entitled to vote as provided in Section [8] (9) 
of Article III. The District Committee shall fix the date before which 
ballots must be returned to be counted. All ballots shall be opened by 
such officer or employee of the Corporation as the Chairman of the 
District Committee may designate, and in the presence of a 
representative of each of the candidates if such representation is 
requested in writing by any candidate named in the ballot. The 
candidate for each office to be filled receiving the largest number of 
votes cast shall be declared elected to membership on the District 
Committee, and certification thereof shall be made forthwith to the 
Board of Governors. In the event of a tie, there shall be a run-off 
election. In all elections held under this Section, voting shall be by 
secret mail ballot, the procedure for which shall be prescribed by the 
Board of Governors.
* * * * *

Article IX

Nominating Committees
* * * * *
Election of Nominating Committees
    Sec. 3 Members of the Nominating Committee shall be elected as 
follows:
Procedures for Nominations by Nominating Committees
    (a) Unchanged.
Nomination of Additional Candidates
    (b) Unchanged.
Contested Elections
    (c) If additional candidates are nominated, as provided in 
paragraph (b) of this Section, the District Committee shall forthwith 
cause the names of the regular candidate and all other candidates for 
any contested office to be placed upon a ballot, which shall be sent to 
all members of the Corporation eligible to vote in the District. Each 
member of the Corporation having its principal place of business in the 
District shall be entitled to one vote, and each member having one or 
more registered branch offices in the District shall be entitled to 
vote as provided in Section [8] (9) of Article III. The District 
Committee shall fix the date before which ballots must be returned to 
be counted. All ballots shall be opened by such officer or employee of 
the Corporation as the Chairman of the District Committee may 
designate, and in the presence of a representative of each of the 
candidates, if such representation is requested in writing by any 
candidate named in the ballot. The candidate for each office to be 
filled receiving the largest number of votes cast shall be declared 
elected to membership on the Nominating Committee and certification 
thereof shall be made forthwith to the Board of Governors. In the event 
of a tie, there shall be run-off election. In all elections held under 
this Section, voting shall be by secret mail ballot, the procedure for 
which shall be prescribed by the Board of Governors.
* * * * *

Article XII

Rules [of Fair Practice]
    Sec. 1. To promote and enforce just and equitable principles of 
trade and business, to maintain high standards of commercial honor and 
integrity among members of the Corporation, to prevent fraudulent and 
manipulative acts and practices, to provide safeguards against 
unreasonable profits or unreasonable rates commissions or other 
charges, to protect investors and the public interest, to collaborate 
with governmental and other agencies in the promotion of fair practices 
and the elimination of fraud, and in general to carry out the purposes 
of the Corporation and of the Act, the Board of Governors is hereby 
authorized to adopt such Rules [of Fair Practice] for the members and 
persons associated with members, and such amendments thereto as it may, 
from time to time, deem necessary or appropriate. If any such Rules [of 
Fair Practice] or amendments thereto are approved by the Commission as 
provided in the Act, they shall become effective [Rules of Fair 
Practice] Rules of the Corporation as of such date as the Board of 
Governors may prescribe. The Board of Governors is hereby authorized, 
subject to the provisions of the By-Laws and the Act, to administer, 
enforce, suspend, or cancel any Rules [of Fair Practice] adopted 
hereunder.
* * * * *

Article XVII

Procedure for Adopting Amendments to By-Laws
    Sec. 1. Any member of the Board of Governors by resolution, any 
District Committee by resolution, or any twenty-five members of the 
Corporation by petition signed by such members, may propose amendments 
to these By-Laws. Every proposed amendment shall be presented in 
writing to the Board of Governors and a record shall be kept thereof. 
The Board of Governors may adopt any proposed amendment to these By-
Laws by affirmative vote of a majority of the members of the Board of 
Governors then in office. The Board of Governors, upon adoption of any 
such amendment to these By-Laws, except as to spelling or numbering 
corrections or as otherwise provided in these By-Laws, shall forthwith 
cause a copy to be sent to and voted upon by each member of the 
Corporation. If such amendment to these By-Laws is approved by a 
majority of the members voting within thirty (30) days after the date 
of submission to the membership, and is approved by the Commission as 
provided in the Act, it shall become effective as of such date as the 
Board of Governors may prescribe.
* * * * *
Rules [of Fair Practice]

Article I

Adoption and Application
Adopting of Rules
    Sec. 1. The following provisions are adopted pursuant to Article 
VII of the By-Laws of the Corporation and the provisions of Article III 
hereof are adopted as the Rules [of Fair Practice] of the Corporation, 
pursuant to Section 1 of [the] Article VII. [[Page 1812]] 
Effective Date
    Sec. 2. The Rules shall become effective as provided in Section 1 
of Article [VII] XII of the By-Laws.
* * * * *
Applicability
    Sec. 5. (a) These Rules [of Fair Practice] shall apply to all 
members and persons associated with a member, other than those members 
registered with the Securities and Exchange Commission solely under the 
provisions of Section 15C of the Act and persons associated with such 
members. Persons associated with a member shall have the same duties 
and obligations as a member under these Rules [of Fair Practice].
    (b) Unchanged.
    (c) A member or person associated with a member who has been 
suspended from membership or from registration shall be considered as a 
non-member during the period of suspension for purposes of applying the 
provisions of these Rules [of Fair Practice of the Corporation] which 
govern dealings between members and non-members. However, such member 
or person associated with a member shall have all of the obligations 
imposed by the [By-Laws, Rules of Fair practice and other regulations] 
rules of the Corporation.

Article II

Definitions
Definitions in Rules
    Sec. 1. When used in these Rules, unless the context otherwise 
requires--
    (a)-(c) Unchanged.
``Rules''
    (d) The term ``Rules'' means [the] Rules [of Fair Practice] as 
adopted and approved pursuant to Article VII of the By-Laws, or as the 
same may be hereafter amended or supplemented, as provided in the By-
Laws.
``Code of Procedure''
    (e) The term ``Code of Procedure'' means the [Code of Procedure for 
Handling Trade Practice Complaints prescribed by the Board of Governors 
pursuant to Article VII of the By-Laws] procedural rules contained in 
the Rule    series.
    (f) through (m) Unchanged.
* * * * *

Article III

Rules [of Fair Practice]
* * * * *
The Corporate Financing Rule
Underwriting Terms and Arrangements
    Sec. 44.
    (a)-(c) Unchanged.
    [(d) Power of the Board of Governors
    The Board of Governors shall have the power to alter, amend, 
supplement or modify the provisions of Subsection (b) of this Section 
from time to time without recourse to the membership for approval as 
would otherwise be required by Article III of the By-Laws.]
* * * * *

Article IV

Complaints
Availability to Customers of [Certificate, By-Laws, Rules and Code of 
Procedure] Rules of the Corporation
    Sec. 1. Every member of the Corporation shall keep in each branch 
office maintained by him, in the form to be supplied by the Board of 
Governors, a copy of the [Certificate of Incorporation, By-Laws, Rules 
of Fair Practice, and Code of Procedure] rules of the Corporation, and 
of all additions and amendments from time to time made thereto, and of 
all published interpretive rulings made by the Board of Governors, all 
of which shall be available for the examination of any customer who 
makes requests therefor.
Complaints by Public Against Members for Violations of Rules
    Sec. 2. Any person feeling aggrieved by any act, practice or 
omission of any member or any person associated with a member of the 
Corporation, which such person believes to be in violation of any of 
the Rules [of Fair Practice] of the Corporation, may, on the form to be 
supplied by the Board of Governors, file a complaint against such 
member or such persons associated with a member in regard thereto with 
any District Business Conduct Committee of the Corporation, and any 
such complaint shall be handled in accordance with the Code of 
Procedure of the Corporation as set forth in the Rule    series.
Complaints by District Business Conduct Committees
    Sec. 3. Any District Business Conduct Committee which, on 
information and belief, is of the opinion that any act, practice, or 
omission of any member of the Corporation or any person associated with 
a member is in violation of any of the Rules [of Fair Practice] of the 
Corporation, may, on the form to be supplied by the Board of Governors, 
file a complaint against such member or such person associated with a 
member in regard thereto with itself or with any other District 
Business Conduct Committee of the Corporation, as the necessities of 
the complaint may require, and any such complaint shall be handled in 
accordance with the Code of Procedure as set forth in the Rule series 
and in the same manner as if it had been filed by an individual or 
member.
Complaints by the Board of Governors
    Sec. 4. The Board of Governors shall have authority when on the 
basis of information and belief it is of the opinion that any act, 
practice or omission of any member of the Corporation or of any person 
associated with a member is in violation of any [rule of fair practice] 
Rule of the Corporation to file a complaint against such member or such 
person associated with a member in respect thereto or to instruct any 
District Business Conduct Committee to do so, and any such complaint 
shall be handled in accordance with the Code of Procedure as set forth 
in the Rule series.
Reports and Inspection of Books for Purpose of Investigating Complaints
    Sec. 5. For the purpose of any investigation, or determination as 
to filing of a complaint or any hearing of any complaint against any 
member of the Corporation or any person associated with a member made 
or held in accordance with the Code of Procedure as set forth in the 
Rule series, any Local Business Conduct Committee, any District 
Business Conduct Committee, or the Board of Governors, or any duly 
authorized member or members of any such Committees or Boards or any 
duly authorized agent or agents of any such Committee or Board shall 
have the right (1) to require any member of the Corporation, person 
associated with a member, or person no longer associated with a member 
when such person is subject to the Corporation's jurisdiction to 
report, either informally or on the record, orally or in writing with 
regard to any matter involved in any such investigation or hearing, and 
(2) to investigate the books, records and accounts of any such member 
or person with relation to any matter involved in any such 
investigation or hearing. No such member or person shall fail to make 
any report as required in this Section, or fail to permit any 
inspection of books, records and accounts as may be validly called for 
under this Section. Any notice requiring an oral or written report or 
calling for an inspection of books, records and accounts pursuant to 
this Section shall be deemed to have been received by the member or 
person to whom it is directed by the mailing thereof to the last known 
address of [[Page 1813]] such member or person as reflected on the 
Corporation's records.
* * * * *

Article V

Sanctions for Violation of the Rules
    Sec. 1. Any District Business Conduct Committee, Market 
Surveillance Committee, the National Business Conduct Committee, any 
other committee exercising powers assigned by the Board, or the Board 
in the administration and enforcement of these Rules, and after 
compliance with the Code of Procedure as set forth in the Rule series, 
may (1) censure any member or person associated with a member, and/or 
(2) impose a fine upon any member or person associated with a member, 
and/or (3) suspend the membership of any member or suspend the 
registration of a person associated with a member, if any, for a 
definite period, and/or for a period contingent on the performance of a 
particular act, and/or (4) expel any member or revoke the registration 
of any person associated with a member, if any, and/or (5) suspend or 
bar a member or person associated with a member from association with 
all members, and/or (6) impost any other fitting sanction deemed 
appropriate under the circumstances, for each or any violation of any 
of these Rules by a member or person associated with a member or for 
any neglect or refusal to comply with any orders, directions or 
decisions issued by any such committee or by the Board in the 
enforcement of these Rules, including any interpretative ruling made by 
the Board, as any such committee or the Board, in its discretion, may 
deem to be just; provided, however, that no such sanction imposed by 
any such committee shall take effect until the period for appeal 
therefrom or review thereof by the National Business Conduct Committee 
or the Board, as applicable, has expired and any such appeal or review 
has been completed in accordance with the Code or Procedure as set 
forth in the Rule series; and provided, further, that all parties to 
any proceeding resulting in a sanction shall be deemed to have assented 
to or to have acquiesced in the imposition of such sanction unless any 
party aggrieved thereby shall have made application for review thereof 
pursuant to the Code of Procedure as set forth in the Rule series, 
within fifteen (15) days after the date of the decision rendered in 
such proceeding.

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

    (a) The amendments are part of a multi-phase program in which the 
NASD is reorganizing the NASD Manual to make it more usable by members 
and other users of the Manual. It is contemplated that this will be a 
non-substantive reordering of the existing rules, interpretations, and 
other provisions of the Manual to establish a more logical progression 
of rules within the Manual. The program envisions that all rules in the 
NASD Manual, including not only the current Rules of Fair Practice but 
also such specialized rules as the Government Securities Rules, Nasdaq 
Rules, Code of Arbitration Procedure, etc., will be numbered 
consecutively throughout the Manual and considered together as 
``Rules.'' This project will require certain changes in numbering and 
terminology in the By-Laws and Rules of the NASD. In addition, a common 
numbering and naming scheme for subdivisions within a Rule will be 
used. Discussion of specific changes is set forth below.

By-Laws

    The sections of Article I have been rearranged, so that the 
definitions are now in alphabetical order for easier use. In Section 
(d), space has been left for the proposed new number for Article III, 
Section 27, to be inserted. That number will not be printed in the 
Manual until the Rules have been entirely renumbered. The number is 
subject to later change by Board and staff action, if necessary, as 
provided in the proposed rule change to Article XVII of the By-Laws, 
below. The term ``rules of the Corporation'' in proposed Section(s) 
currently includes all rules that may now be referred to as Rules of 
Fair Practice, Government Securities Rules, the Code of Procedure, and 
the Uniform Practice Code. In the Manual revision project, all rules of 
the Corporation other than the Certificate of Incorporation and By-Laws 
will be referred to as ``Rules,'' with a capital ``R.'' For purposes of 
proposed Section(s), however, the existing names for these types of 
rules have been retained to make clear exactly what types of rules are 
included. To make the provision more broadly applicable as well, the 
language ``any other rules'' has been added. This would include, for 
example, the text of any Schedules that are converted to rules in the 
Manual revision project.
    In Article III, Section 7, the term ``Rules of Fair Practice'' is 
proposed to be replaced with the general term ``Rules,'' as described 
above. In Section 10, the reference to Article I(c) has been changed to 
reflect the new letter for the definition of ``branch office,'' which 
was placed in alphabetical order and relettered as I(d).
    In Article IV, Section 4, references to specific Rules of Fair 
Practice will be changed to the proposed new rule numbers that will be 
used in the Manual revision project. These new numbers will not be 
printed in the By-Laws until the entire Manual revision is completed. 
In accordance with authorization provided in Article XVII of the By-
Laws, which is proposed to be amended in this filing, the staff will be 
able to adjust the final cross-references to various Rule numbers as 
the Manual revision proceeds. In Section 4(a), an existing, erroneous 
reference to Section 2(b) has been corrected. That change will be made 
in the Manual when this rule filing is approved.
    In Article V, Sections 3 and 4, references to Rules of Fair 
Practice and the Code of Procedure have been changed to the more 
general term ``other rules'' as part of the Manual revision project.
    In Article VII, Section 1, references to the ``Rules of Fair 
Practice'' have been changed to ``Rules'' to conform to the new 
terminology used in the Manual revision. In light of this change, 
former subsection (a)(3), which referred to the Rules of Fair Practice, 
would duplicate subsections (a)(2) and (4), which give the Board 
general authority to adopt rules and issue orders relating to the 
rules. The reference to implementing the provisions of the Act in 
Section 1(a)(3) is duplicative of Article XII, Sec. 1, which provides 
that the Board is authorized to adopt Rules ``to carry out the purposes 
of the Corporation and of the Act.'' Therefore, it is proposed to 
delete subsection (a)(3) as part of the Manual revision project. The 
remaining subsections have been renumbered accordingly. In Sections 3 
and 4, in [[Page 1814]] order to make the numbering scheme of the By-
Laws internally consistent, using the method employed throughout the 
rules in the proposed Manual revision wherein subdivisions follow the 
format of (a)(1)(A)(i), the subsection numbers in lower-case Roman 
numerals have been replaced with Arabic numerals. In Section 7(b), the 
reference to ``subsections (1) through (5) of Section 3(b)'' is 
incorrect, as there are no longer such subsections. These provisions 
were replaced by Section 4(b) in 1990, but the cross reference was 
inadvertently left unchanged at that time. In Section 7(c), the 
reference to Section 8 of Article III should have been changed to 
Section 9 when those sections were renumbered in 1992. The proposed 
changes to Section 8 are related to the renumbering of subsections in 
Section 4 to conform to the standard numbering scheme.
    The proposed changes to Article VIII, Section 4, and Article IX, 
Section 3, correct the same erroneous cross reference described 
previously under Article VII, Section 7(c). The changes are not related 
to the Manual revision project and will be implemented upon Commission 
approval.
    The change to Article XII, Section 1, reflects the new terminology 
of ``Rules'' rather than ``Rules of Fair Practice'' that will be used 
in the Manual the revision.
    The proposed amendment to Article XVII, Section 1, would provide 
latitude for the Board to approve minor changes to spelling or 
numbering in the By-Laws in order to correct errors or to conform to 
the renumbering of Rules referred to in the By-Laws, without the 
necessity of a membership vote. Such changes would continue to be 
called to the attention of members through the regular CH Report 
Letters updating the looseleaf Manuals.
* * * * *

Rules of Fair Practice

    The amendments to Article I, Sections 1 and 5 reflect the change in 
terminology from ``Rules of Fair Practice'' to ``Rules'' as described 
above. These introductory provisions to the Rules of Fair Practice will 
be placed at the beginning of the entire set of Rules in the Manual 
revision. The Rules will then include not only the former Rules of Fair 
Practice, but also all other rules and codes of the NASD, by whatever 
name they may now be known. At that time, the Rules will no longer be 
divided into Articles, and the reference to ``Article III'' will be 
deleted. Also in Section 1, a superfluous word ``the'' has been 
deleted. In Section 2, a reference to the process for setting the 
effective date of Rules is proposed to be changed to clarify that the 
relevant provision is in Article XII, not VII, of the By-Laws. In 
Section 5, paragraph (c), the term ``rules'' (of the Corporation) has 
been substituted for the longer list of provisions imposing obligations 
upon members, because, as defined in Article I, Section (o) of the By-
Laws (to be relettered as Section (s) in this filing), the term ``rules 
for the Corporation'' includes all such provisions. In addition, a 
hyphen has been inserted in the word ``nonmember'' to conform to usage 
elsewhere in the Rules.
    InArticle II, Section 1(d), the reference to ``Rules of Fair 
Practice'' has been shortened to ``Rules'' in connection with the 
Manual revision, as described previously. In Section 1(e), the 
reference to the Code of Procedure has been amended to refer to the new 
portion of the Rules in which the Code will be found, and to correct an 
obsolete reference to the former name of the Code. The Board's 
authority to promulgate any type of rule is already stated in Section 
1(d) above, and need not be repeated in Section 1(e). The proposed rule 
change would insert the new term ``Rules'' throughout the NASD Manual 
wherever the term ``Rules of Fair Practice'' is currently used. The new 
terminology and references to new Rule numbers will not be added to the 
Manual until the Rules are renumbered in connection with the Manual 
revision project.
    In Article III, the title ``Rules of Fair Practice'' is proposed to 
be shortened to ``Rules,'' as described above. In Section 44, the 
provision allowing the Board to amend the Filing Requirements paragraph 
of the Corporate Financing Rule is no longer necessary in light of the 
recent amendments to Article VII and XII of the By-Laws, which allow 
the Board to amend any Rules of the NASD. It is, therefore, proposed to 
be deleted at this time. The previous amendments were contained in SR-
NASD-93-48, which was approved by the Commission on March 8, 1994.
    In Article IV, Section 1, references to the Certificate of 
Incorporation, By-Laws, Rules of Fair Practice and Code of Procedure 
have been changed to ``rules of the Corporation,'' as that term is 
defined in Article I, Section (o) of the By-Laws (to be relettered as 
Section(s) in this filing). In Sections 2, 3 and 4, the new terminology 
for Rules has been inserted. In Article IV, Sections 2, 3, 4, and 5; 
and Article V, Section 1, the term ``Code of Procedure'' has been 
retained for ease of recognition by members, but reference is also 
included to the proposed new Rule number series for the Code (to be 
inserted at a later date) so that it can easily be found in the Manual. 
The new Rule number will not be used in the Manual until the Code of 
Procedure has been renumbered.
    (b) The NASD believes that the proposed rule change is consistent 
with the provisions of Section 15A(b)(6) of the Act,\3\ in that the 
proposed rule change does not alter the substance of the NASD's By-Laws 
or Rules of Fair Practice; rather the proposed rule changes simplifies 
the terminology used for rules and corrects inadvertent errors and 
omissions. Making the NASD's Manual easier to use enhances the 
protection of investors and the public interest.

    \3\15 U.S.C. Sec. 78o-3.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Association 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

    No comments were solicited or received by the NASD.

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 it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization 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 person 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, 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 Section. 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 January 26, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\4\ [[Page 1815]] 

    \4\17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-191 Filed 1-4-95; 8:45 am]
BILLING CODE 8010-01-M