[Federal Register Volume 60, Number 180 (Monday, September 18, 1995)]
[Notices]
[Pages 48182-48183]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23017]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36211; File No. SR-NASD-95-16]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change by National Association of Securities Dealers, Inc. Relating to
a Customer Complaint Reporting Rule
September 8, 1995.
On July 6, 1995, the National Association of Securities Dealers,
Inc. (``NASD'' or ``Association'') filed with the Securities and
Exchange Commission (``SEC'' or ``Commission'') a proposed rule change
\1\ pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \2\ and Rule 19b-4 thereunder.\3\ The rule change amends the
NASD Rules of Fair Practice to require NASD members to report to the
NASD the occurrence of certain specified events and quarterly summary
statistics concerning customer complaints.
\1\ The proposed rule change was initially submitted on May 1,
1995, but was amended twice prior to publication in the Federal
Register; once on May 25, 1995, and again on July 6, 1995.
\2\ 15 U.S.C. 78s(b)(1)
\3\ 17 CFR 240.19b-4.
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Notice of the proposed rule change, together with its terms of
substance, was provided by issuance of a Commission release \4\ and by
publication in the Federal Register.\5\ No comments were received in
response to the notice. This order approves the proposed rule change.
\4\ Securities Exchange Act Release No. 35956 (July 11, 1995).
\5\ 60 FR 36838 (July 18, 1995).
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On May 19, 1994, the Commission's Large Firm Project Report was
published, detailing the findings of a review it undertook, in
conjunction with the New York Stock Exchange (``NYSE'') and the NASD,
regarding the hiring, retention and supervisory practices of nine of
the largest broker-dealers in the United States. This review was
commenced because of increased concerns on the part of the Commission
and others over the frequency and severity of sales practice abuses.
In the Report, Commission staff stressed the need for self-
regulatory organizations (``SROs'') to develop better means of
identifying sales practice problems at an earlier stage. Commission
staff noted, in connection with its review, that the NYSE Rule 351
database was extremely useful and was a significant help to the staff
in conducting its review. In general, NYSE Rule 351 is a broad
reporting rule that requires members to report to the NYSE certain
specified information that may reflect a violation of, among other
things, the federal securities laws or the rules of the NYSE. In
addition, NYSE Rule 351 requires members to report, on a periodic
basis, statistical information regarding customer complaints. In the
Report, Commission staff recommended that the NASD adopt a rule based
on NYSE Rule 351 and require its members to report customer complaint
information on a quarterly basis as an additional tool to aid in the
identification of problem brokers.
In its rule filing, the NASD expressed concern that critical
material information identified in the proposed rule, such as reports
on statutory disqualifications, internal disciplinary actions, and
quarterly statistical data regarding customer complaints received by a
member is not currently required by Form U-4 or other forms to be
reported to the NASD. The NASD believes, therefore, that the
affirmative obligation of members to provide the NASD with notice of
certain events concerning member firms or their associated persons will
significantly enhance the NASD's ability to quickly identify and take
appropriate action against problem representatives.
The proposed rule change is similar to NYSE Rule 351. The Rule will
require a member to file a report with the NASD when any of 10
different specified events occur. These events range from situations
where a court, government agency, or SRO has determined that there has
been a violation of the securities laws, to circumstances where a firm
has received a written customer complaint alleging theft or
misappropriation of funds or securities, or forgery. The rule also will
require a person associated with a member to promptly report the
existence of any of the ten events to the member. Moreover, the rule
will require a member to report to the NASD statistical and summary
information regarding written customer complaints received by the
member or relating to the firm or any of its associated persons. The
reporting requirements of the proposed rule will not apply to members
that are subject to similar reporting requirements of another SRO. For
example, NASD members that are also members of the NYSE will not be
subject to the NASD's rule.
The Commission has determined to approve the NASD's proposal. The
Commission finds that the rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to the NASD, including the requirements of Sections 15A(b)
(6) and (7) of the Act.\6\ Section 15A(b)(6) requires, in part, that
the rules of a national securities association be designed to prevent
fraudulent and manipulative acts and practices; to promote just and
equitable principles of trade; and to protect investors and the public
interest. Section 15A(b)(7) requires that the rules of a national
securities association provide that its members and persons associated
with its members shall be appropriately disciplined for violation of
any provision of the Act, the rules or regulations thereunder, or the
rules of the association. The Commission believes that the proposed
rule will provide important regulatory information that will assist in
the detection and investigation of sales practice violations. This, in
turn, should assist the NASD in carrying out its disciplinary
responsibilities as well as assist it in protecting investors and the
public from fraudulent and manipulative acts and practices. As noted
above, the Commission itself found such information extremely useful in
its review of sales practice abuses.
\6\ 15 U.S.C. 78o-3(b) (6) & (7).
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It is Therefore Ordered, pursuant to Section 19(b)(2) of the
Act,\7\ that the proposed rule change SR-NASD-95-16 be, and hereby is,
approved.
\7\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
\8\ 17 CFR 200.30-3(a)(12).
[[Page 48183]]
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-23017 Filed 9-15-95; 8:45 am]
BILLING CODE 8010-01-M