[Federal Register Volume 60, Number 168 (Wednesday, August 30, 1995)]
[Notices]
[Pages 45202-45204]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21500]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36151; File No. SR-NASD-95-15]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by National Association of Securities Dealers, Inc. Relating to
a Statement of Policy To Establish Internal NASD Procedures Delegating
to the NASD Staff and the Fixed Income Committee Authority To Review
Requests by Members for Exemptions From Rule G-37(b) of the Municipal
Securities Rulemaking Board
August 24, 1995.
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 August
23, 1995,\1\ 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 Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
\1\ The NASD initially submitted the proposed rule change on
April 15, 1995. Amendment No. 1 deleted all portions of the proposed
rule change addressing the ability of NASD members to apply to the
Commission for review of any denial by the NASD of a member's
request for exemption from Municipal Securities Board Rule G-37.
Amendment No. 2 revised the proposed rule change to clarify the
types of violations of Rule G-37 for which a member could request
exemptions.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The NASD is proposing to adopt a statement of policy to establish
internal NASD procedures delegating to the NASD staff and the Fixed
Income Committee the authority to review requests by members for
exemptions from Rule G-37 of the Municipal Securities Rulemaking Board
(``MSRB''). MSRB Rule G-37 \2\ prohibits members from engaging in
municipal securities business if certain political contributions have
been made to municipal issuers.\3\ Below is the text of
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the proposed text change. New language is italicized.
\2\ MSRB Manual, General Rules, Rule G-37 (CCH) para.3681.
\3\ The proposed statement of policy would establish internal
NASD procedures and would not amend the NASD Code of Procedure or
other NASD rules.
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Procedure of the Board of Governors for the Granting of Exemptions From
MSRB Rule G-37
1. The Board of Governors (``Board'') delegates authority to John
E. Pinto, Executive Vice President, Regulation Business Line, to
authorize a member of the staff to review requests of NASD members for
exemptions pursuant to MSRB Rule G-37(i).
2. The staff authorized to review exemption requests shall issue a
written decision to the member which shall set forth the decision and
that the member may request a review of the staff decision by the Fixed
Income Committee of the NASD within 15 calendar days of the date of the
decision.
3. The Board delegates authority to the Fixed Income Committee, or
a subcommittee thereof, to review the appeal of a member from a
decision of the staff with respect to the member's request for an
exemption form MSRB Rule G-37.
4. The review conducted by the staff of the Regulation Business
Line and the Fixed Income Committee, or a subcommittee thereof, of a
member's request for exemption will be on the written record, including
any submissions made by the member in support of its request for
exemption.
5. The decision of the Fixed Income Committee, or a subcommittee
thereof, may be reviewed by the Board solely upon the request of one or
more Governors. Such review, which may be undertaken solely at the
discretion of the Board, shall be in accordance with resolutions of the
Board governing the review of the Fixed Income Committee decisions. In
reviewing any decision of the Fixed Income Committee, the Board may
affirm, modify or reverse the decisions of the Fixed Income Committee
or remand the matter to the Fixed Income Committee with appropriate
instructions.
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
The Commission approved MSRB Rule G-37 on April 7, 1994.\4\ MSRB
Rule G-37(b) prohibits any broker, dealer, or municipal securities
dealer from engaging in municipal securities business with any issuer
within two years after any contribution to an official of that issuer
made by that broker, dealer, or municipal securities dealer, any
municipal finance professional associated with that broker, dealer, or
municipal securities dealer, or any political action committee
controlled by that broker, dealer, or municipal securities dealer. The
two year prohibition, however, is not triggered by contributions, by a
municipal finance professional to issuer officials for whom that
municipal finance professional was entitled to vote if such
contribution in total, did not exceed $250 per official per election.
Subsequently, on June 3, 1994, the Commission granted accelerated
approval to an amendment to MSRB Rule G-37 \5\ to provide a procedure
for a broker, dealer, or municipal securities dealer to seek exemptive
relief from MSRB Rule G-37(b) if that broker, dealer, or municipal
securities dealer discovers that a prohibited political contribution
was made. Pursuant to Release 34-34160, subsection (i) to MSRB Rule G-
37 permits the NASD to exempt, conditionally or unconditionally, an
NASD member who is prohibited from engaging in municipal securities
business with an issuer pursuant to subsection (b) of MSRB Rule G-37
from that prohibition. MSRB Rule G-37(i)(i) provides that the NASD
shall consider among other factors, whether such exemption is
consistent with the public interest, the protection of investors and
the purposes of this rule. MSRB Rule G-37(i)(ii) sets forth further
criteria for the granting of the exemption by requiring that the MSRB
member have in place procedures designed to ensure compliance with the
rule,\6\ had no actual knowledge of the contributions, has taken
appropriate steps to obtain return of the contribution(s), and has
taken other remedial measures as may be appropriate.
\4\ Securities Exchange Act Release No. 33868 (April 7, 1994),
59 FR 17621 (April 13, 1994).
\5\ Securities Exchange Act Release No. 34160 (June 3, 1994), 59
FR 30376 (June 13, 1994) (``Release 34-34160)''.
\6\ The MSRB clarified its view regarding effective compliance
procedures for Rule G-37 in a letter dated March 14, 1995 from
Christopher A. Taylor, Executive Director, MSRB, to John E. Pinto
Jr., Executive Vice President--Regulation, NASD. That letter states
that the MSRB believes that Rule G-37 requires a dealer to have
information regarding each contribution made by the dealer, dealer-
controlled political action committees and municipal finance
professionals so that it can determine where and with whom it may or
may not engage in municipal securities business. In addition, the
dealer must have information on executive officer contributions and
political party payments and consultant hiring practices for
disclosure purposes. Moreover, the dealer must ensure that those
persons and entities subject to MSRB Rule G-37 are not causing the
dealer to violate MSRB Rule G-37. Furthermore, the dealer must
ensure that other people and entities hired to assist in municipal
securities activities (e.g., consultants) are not being directed to
make contributions, or otherwise being used as conduits, in
violation of MSRB Rule G-37.
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Release 34-34160 states that the MSRB believes that exemptions from
MSRB Rule G-37 should be granted only if a disgruntled employee
contributes to an issuer official for the purpose of injuring the
member or if an employee makes a number of small contributions during
an election cycle (e.g., four years) which, when consolidated, amount
to slightly over the $250 de minimis exemption (such as contributions
totalling $255). It also states that the MSRB would expect that the
exemption not be routinely requested by dealers and that exemptions
would be granted by the NASD only in limited circumstances.\7\
\7\ Release 34-34160 also states that the MSRB will seek
information from the NASD regarding the granting of any exemptions
in order to monitor the implementation of this provision, and to
determine if any changes are necessary.
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In order to implement a procedure for reviewing requests for NASD
member exemptions anticipated under MSRB Rule G-37, the NASD proposes
to adopt a statement of policy that would establish an NASD internal
procedure to grant exemptions from MSRB Rule G-37. The proposed
statement of policy would be an internal procedure and would not amend
the NASD Code of Procedure or other NASD rules.
The NASD proposes that the initial determination on whether to
grant a member's request for exemption from MSRB Rule G-37 be made by
the staff of the Regulation Business Line, as assigned by the Executive
Vice President of Regulation, which will issue a written decision. If
the staff determines to deny the member's request for exemption, the
written decision must include a statement advising the member that it
has 15 days in which to appeal the initial staff determination to the
Fixed Income Committee of the NASD.
The NASD proposes that the Fixed Income Committee, or a
subcommittee thereof, be delegated authority by the
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Board to review the appeal of a member regarding a NASD staff denial of
an exemption from MSRB Rule G-37.
The decision of the Fixed Income Committee, or a subcommittee
thereof, may be reviewed by the Board solely upon the request of one or
more Governors. Such a review would be undertaken solely at the
discretion of the Board and will be in accordance with resolutions of
the Board. In reviewing any decision of the Fixed Income Committee, the
Board may affirm, modify or reverse a decision of the Fixed Income
Committee or remand the matter to the Fixed Income Committee with
appropriate instructions.
The NASD believes that the Fixed Income Committee is the
appropriate reviewing body as the members of the Fixed Income Committee
would have the requisite knowledge regarding the municipal business
necessary to weigh the member's argument that the requested exemption
would comply with the provisions and intent of MSRB Rule G-37. In
addition, the use of the Fixed Income Committee would ensure uniformity
throughout the country on the granting of such exemptions which the
MSRB intended to be granted very infrequently. The appeal of such
matters to a national committee also has the advantage of all
determinations being made in one forum, thereby avoiding disparate
applications of the exemptive provision that might occur if the NASD's
District Business Conduct Committees were assigned this responsibility.
The NASD believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(2) of the Act in that it establishes a
procedure to enforce compliance with MSRB Rule G-37 whereby the NASD
staff and the Fixed Income Committee may review member requests for
exemption from MSRB Rule G-37 and may grant exemptions only within the
limited circumstances anticipated by the MSRB and MSRB Rule G-37 as
approved by the Commission. Moreover, the NASD believes the proposed
rule change is consistent for the reasons discussed above with the
provisions of Section 19(g)(1)(B) of the Act, which requires that the
NASD, absent reasonable justification or excuse, enforce compliance
with MSRB rules.
(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
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 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 submissions 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 File Number SR-NASD-95-15 and
should be submitted by September 20, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-21500 Filed 8-29-95; 8:45 am]
BILLING CODE 8010-01-M