[Federal Register Volume 60, Number 207 (Thursday, October 26, 1995)]
[Notices]
[Pages 54898-54899]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-26572]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36403; File No. SR-NASD-95-15]
Self-Regulatory Organizations; Order Approving 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
October 20, 1995.
On April 15, 1995,\1\ 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''),\2\ and Rule 19b-4 thereunder.\3\ The proposed rule
change adopts a statement of policy to establish internal NASD
procedures \4\ 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'').\5\
\1\ The NASD submitted two amendments to the proposed rule
change prior to publication of notice in the Federal Register, and
one amendment subsequent to publication of notice in the Federal
Register. Amendment No. 1, submitted on August 15, 1995, 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, submitted on August 23 revised the
proposed rule change to clarify the types of violations of Rule G-37
for which a member could request exemptions. Amendment No. 3,
submitted on October 20, 1995, amends the NASD Code of Procedure by
adding a footnote to the title referencing the procedures
established in the proposed rule change.
\2\ 15 U.S.C. 78s(b)(1).
\3\ 17 CFR 240.19b-4.
\4\ The internal NASD procedures established pursuant to the
statement of policy will not amend existing rules contained in the
NASD Code of Procedure or other existing NASD rules.
\5\ MSRB Manual, General Rules, Rule G-37 (CCH) para. 3681. MSRB
Rule G-37 prohibits members from engaging in municipal securities
business if certain political contributions have been made to
municipal issuers.
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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. 36151, August 24, 1995) and by
publication in the Federal Register (60 FR 45202, August 30, 1995). No
comment letters were received. This order approves the proposed rule
change.
The Commission approved MSRB Rule G-37 on April 7, 1994.\6\ 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 \7\ 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
[[Page 54899]]
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,\8\ 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.
\6\ Securities Exchange Act Release No. 33868 (April 7, 1994),
59 FR 17621 (April 13, 1994).
\7\ Securities Exchange Act Release No. 34160 (June 3, 1994), 59
FR 30376 (June 13, 1994) (``Release 34-34160'').
\8\ The MSRB clarifies 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 minimus 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.\9\
\9\ 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 rule change
adopts a statement of policy that establishes an NASD internal
procedure to grant exemptions from MSRB Rule G-37. As noted above, the
statement of policy is an internal procedure and does not amend
existing rules contained in the NASD Code of Procedure or other
existing NASD rules.
The statement of policy provides that the staff of the Regulation
Business Line, as assigned by the Executive Vice President of
Regulation initially will issue a written decision concerning whether
to grant a member's request for exemption from MSRB Rule G-37. 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 statement of policy provides that the Board will delegate
authority to the Fixed Income Committee, or a subcommittee thereof, to
review the appeal of a member regarding an NASD staff denial of an
exemption from MSRB Rule G-37.
The Board may review a decision of the Fixed Income Committee, or a
subcommittee thereof, 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 the
relevant subcommittee, or remand the matter to the Fixed Income
Committee with appropriate instructions.
The statement of policy reflects the NASD's belief that the Fixed
Income Committee is the appropriate reviewing body because the members
of the Fixed Income Committee should 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 NASD stated that it
believes that vesting authority with the Fixed Income Committee should
ensure that uniform standards are applied throughout the country to
requests for exemptions from Rule G-37, and that these standards should
effectuate the intent of the MSRB that the NASD grant such exemptions
under very limited circumstances, as noted above.
The Commission finds that the rule change is consistent with the
provisions of Section 15A(b)(2) of the Act because it establishes a
procedure to enforce compliance with MSRB Rule G-37 that is intended to
effectuate the intent of the MSRB that the NASD grant exemptions only
under the limited circumstances contemplated by the MSRB. The
Commission also finds that, for the reasons set forth above, the rule
change is consistent 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.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change SR-NASD-95-15 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).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-26572 Filed 10-25-95; 8:45 am]
BILLING CODE 8010-01-M