[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