[Federal Register Volume 60, Number 194 (Friday, October 6, 1995)]
[Notices]
[Pages 52443-52444]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-24913]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36321; File No. SR-NASD-95-36]


Self-Regulatory Organizations; Order Granting Accelerated 
Approval to Proposed Rule Change by National Association of Securities 
Dealers, Inc., Relating to Schedule B to the NASD By-Laws

September 29, 1995.
    On August 22, 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 
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 Schedule B to the NASD By-Laws \3\ to delete informational text 
on the number of members of the NASD Board of Governors (``Board'') 
elected from each district.

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ NASD Manual, Schedules to the By-Laws, Schedule B (CCH) 
para. 1772.
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    Notice of the proposed rule change, together with the substance of 
the proposal, was provided by issuance of a Commission release 
(Securities Exchange Act Release No. 36153, August 25, 1995) and by 
publication in the Federal Register (60 FR 45506, August 31, 1995). No 
comment letters were received. This order grants accelerated approval 
to the proposed rule change.
    Article VII, Section 4(b) of the By-Laws requires that each 
district shall elect one Board member, authorizes the Board to 
determine which districts, if any, shall elect more than one Governor, 
and--in general--authorizes the Board to make appropriate changes in 
the number or boundaries of the districts or the number of Governors 
elected by each district to provide fair representation of members and 
districts. Pursuant to Article VII, Section 4(b), a total of 15 current 
members have been elected by the districts.
    Schedule B currently provides that two members shall be elected 
from two of the districts and three members shall be elected from one 
of the districts. The NASD has stated that inclusion of the text 
regarding district representation on the Board in Schedule B to the 
NASD By-Laws was intended to be informational only. The NASD also has 
stated that it believes that the informational language in Schedule B 
to the NASD By-Laws specifying the number of Governors from each 
district unnecessarily limits the ability of the Board to act under 
Section 4(b) to make changes in the composition of the Board.
    The NASD's proposal also may assist the NASD in adopting certain 
recommendations recently made by the NASD Select Committee on Structure 
and Governance (``Select Committee''). The Select Committee recently 
issued a report (``Committee Report'') recommending changes in the 
NASD's existing governance structure.\4\ The Committee Report 
recommended, among other things, that the NASD increase public 
representation on its governing bodies, reform its disciplinary 
procedures and act to regulate broker-dealers and their personnel 
separately from regulation of the over-the-counter market, including 
The Nasdaq Stock Market (``Nasdaq'').\5\ The NASD Board has agreed in 
principle to increase its public representation as recommended in the 
Committee Report.

    \4\ NASD, Report of The NASD Select Committee on Structure and 
Governance to the NASD Board of Directors (September 19, 1995).
    \5\ See id. at C-21-22.
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    Therefore, the NASD proposed to amend Schedule B to the NASD By-
Laws to delete provisions that specify the number of members of the 
Board currently approved to be elected from each district in order to 
ensure that the Board has flexibility to act with respect to the 
composition of the Board of Governors.
    The Commission finds that the proposed rule change is consistent 
with the provisions of Section 15A(b)(4) of the Act.\6\ Section 
15A(b)(4) requires that 

[[Page 52444]]
NASD rules provide for the fair representation of its members in the 
selection of its directors and administration of its affairs, as well 
as for the inclusion of Board members who represent issuers and 
investors. The proposed rule change satisfies both the basic 
requirements of Section 15A(b)(4) and the provision's overall objective 
in seeking to ensure effective public representation on the governing 
boards of the NASD.\7\ The proposed rule change also diminishes the 
ability of one segment of the NASD membership to dominate the NASD 
Board, thereby enhancing the ability of the NASD Board to act in the 
best interests of the public and the NASD membership as a whole.\8\ The 
Commission, therefore, concludes that the proposed amendments to 
Schedule B are consistent with Section 15A(b)(4) of the Act.

    \6\ 15 U.S.C. 78o-3.
    \7\ The Commission has previously addressed issues of 
proportional representation on the boards of directors of national 
securities exchanges. Section 6(b)(3) of the Act imposes the same 
requirements on national securities exchanges as Section 15A(b)(4) 
imposes on the NASD. The Commission disapproved a proposal by the 
Chicago Board Options Exchange (``CBOE'') (Securities Exchange Act 
Release No. 22058 (May 21, 1985), 50 FR 23090) which would have 
increased the minimum number of On-Floor Directors. The Commission 
noted that domination by the floor membership of the CBOE Board and 
a resulting decrease in the proportion of retail firm and public 
governors on the Board would have seriously weakened the ability of 
the Board to carry out the purposes of the Act and enforce 
compliance with Exchange and Commission rules, as required by 
Section 6(b)(1). In addition, the Commission stated that the 
numerical domination by one faction of the CBOE membership, in 
contravention of Section 6(b)(3) of the Act, might make it difficult 
for the Board to act in the best interests of the public or the CBOE 
as a whole and could impede efforts by the Board to vigorously 
enforce Commission or Exchange rules not favored by the floor 
membership. The Commission also viewed the proposal as being 
inconsistent with Section 6(b)(5) which requires the rules of an 
exchange to be designed to protect investors and their public 
interest.
    \8\ Cf. id.
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    The NASD has requested that the Commission approve the proposed 
rule change on or before September 30, 1995, which is prior to the 30th 
day following publication of notice of the filing of such Amendments in 
the Federal Register, in order that the new rule may be effective with 
respect to the NASD's election procedures which commence on October 1, 
1995 with respect to Board membership in 1996.
    Pursuant to section 19(b)(2) of the Act,\9\ the Commission finds 
good cause for approving the proposed rule change, as amended, prior to 
the 30th day after publication in the Federal Register. The proposed 
rule change will permit the NASD to reduce the proportionate 
representation of industry-affiliated Governors on the NASD Board, 
thereby increasing the proportionate representation of public Governors 
on the NASD Board. The Commission also believes it is important to 
enhance the representation of other NASD constituencies on the NASD 
Board. Because the Commission believes that the proposed rule change 
will enhance the opportunities of various NASD constituencies to play a 
meaningful role in NASD affairs, the Commission believes that the rule 
filing should be approved without delay.

    \9\ 15 U.S.C. 78s(b)(2).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that SR-NASD-95-36 be, and hereby is, approved effective immediately.

    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. 95-24913 Filed 10-5-95; 8:45 am]
BILLING CODE 8010-01-M