[Federal Register Volume 60, Number 133 (Wednesday, July 12, 1995)]
[Notices]
[Pages 35977-35978]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16998]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35934; File No. SR-NASD-95-19]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by National Association of Securities Dealers, Inc., Relating to 
Limited Partnership Rollup Transactions

July 3, 1995.
    On May 4, 1995, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association'') filed with the Securities and 
Exchange Commission (``SEC'' or ``Commission'') the proposed rule 
change pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934 (``Act''),\1\ and Rule 19b-4 thereunder.\2\ The proposed rule 
change amends the NASD's rule regulating rollups (``Rollup Rule'') by 
adding new paragraph 7 to Subsection (b)(2)(B)(vii)d of Article III, 
Section 34 of the Rules of Fair Practice and new paragraph (vii) to 
Subsection (14)(D) to Part I of Schedule D to the By-Laws to exclude 
investment companies and business development companies from the 
definition of ``limited partnership rollup transaction.''

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    Notice of the proposed rule change, together with the substance of 
the proposal, was given by Commission release (Securities Exchange Act 
Release No. 35761, May 24, 1995) and by publication in the Federal 
Register (60 FR 28639, June 1, 1995). One comment letter was received. 
The Commission is approving the proposed rule change.

I. Background

    Federal legislation regulating limited partnership rollups 
(``Rollup Reform Act'') was signed into law on December 17, 1993, and 
contained a mandate for the NASD to adopt its own rollup rule. On 
August 15, 1994,\3\ the SEC approved the Rollup Rule which amended 
Article III, Section 34 of the NASD Rules of Fair Practice to prohibit 
NASD members and associated persons from participating in a ``limited 
partnership rollup transaction'' unless the transaction includes 
specified provisions to protect the rights of limited partners. The 
Rollup Rule further amended Part III of Schedule D to the By-Laws to 
prohibit the authorization for quotation on the Nasdaq National Market 
of any security resulting from a ``limited partnership rollup 
transaction'' unless the transaction is conducted in accordance with 
certain specified procedures designed to protect the rights of limited 
partners. The NASD Rollup Rule was designed to conform to the federal 
rollup legislation.

    \3\ Securities Exchange Act Release No. 34533 (August 15, 1994); 
59 FR 43147 (August 22, 1994.)
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    Subsequent to approving the NASD's Rollup Rule, the SEC adopted 
Rule 3b-11 to exclude from the definition of ``limited partnership 
rollup transaction,'' among other things, transactions involving 
entities registered under the Investment Company Act of 1940 (``1940 
Act'') or any Business Development Company as defined in Section 
2(a)(48) of the 1940 Act.\4\ The SEC requested that the NASD amend the 
Rollup Rule to conform the NASD's definition of ``limited partnership 
rollup transaction'' to the definition adopted by the SEC.

    \4\ Securities Act Release No. 7113; Securities Exchange Act 
Release No. 35036 (December 2, 1994); 59 FR 63676 (December 8, 
1994).
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II. The Terms of Substance of the Proposed Rule Change

    The proposed rule change adds new paragraph 7 to Subsection 
(b)(2)(B)(vii)d of Article III, Section 34 of the Rules of Fair 
Practice and new paragraph (vii) to Subsection (14)(D) to Part I of 
Schedule D to the By-Laws to exclude investment companies and business 
development companies from the definition of ``limited partnership 
rollup transaction.'' The specific text of the rule change would apply 
to ``a transaction involving only entities registered under the 
Investment Company Act of 1940 or any Business Development Company as 
defined in Section 2(a)(48) of that Act.''

[[Page 35978]]


III. Comment Letters

    As mentioned above, the Commission received one comment letter.\5\ 
The ICI strongly supported and urged the Commission to adopt the 
proposed rule change. The ICI believed that an explicit exclusion of 
registered investment companies from the definition of ``limited 
partnership rollup transaction'' under NASD rules is entirely 
appropriate because investment companies are already subject to 
extensive regulation and have not been perceived as entities connected 
with the types of abusive limited partnership rollup transactions for 
which the investor protection provisions of the rollup rules were 
sought.

    \5\ Letter from Frances M. Stadler, Esq., Associate Counsel, 
Investment Company Institute (``ICI''), to Jonathan Katz, Secretary, 
Securities and Exchange Commission, dated June 22, 1995.
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IV. Discussion

    The Commission believes that the proposed rule change is consistent 
with the provisions of Section 15A(b)(6) of the Act,\6\ which require 
that the rules of the association be designed to prevent fraudulent and 
manipulative acts and promote just and equitable principles of trade in 
that the proposed rule change provides for regulatory consistency of 
the NASD's definition with the SEC's definition of ``limited 
partnership rollup transaction'' and appropriately excludes investment 
companies and business development companies from unnecessary, and 
potentially burdensome, additional regulation. Investment Companies and 
Business Development Companies are already subject to extensive 
regulation under the 1940 Act and the concerns associated with abusive 
limited partnership rollup transactions (e.g., significant conflicts of 
interest, adverse changes and differing effects for partnership 
investors) for which the investor protection provisions of the rollup 
rules were sought have not been apparent in these areas.

    \6\ 15 U.S.C. 78o-3.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change SR-NASD-95-19 be, and hereby is, 
approved.

    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. 95-16998 Filed 7-11-95; 8:45 am]
BILLING CODE 8010-01-M