[Federal Register Volume 60, Number 221 (Thursday, November 16, 1995)]
[Notices]
[Pages 57608-57611]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28315]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36466; File No. SR-NASD-95-45]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by National 
Association of Securities Dealers, Inc. Relating to an Amendment to 
Article II, Section 4 of the NASD By-Laws Relating to the Eligibility 
Provisions for Members and Associated Persons

November 8, 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 October 
31, 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 proposed rule change was originally submitted on October 
3, 1995, but was subsequently amended on October 31, 1995. This 
notice incorporates the amendment of October 31, 1995. The amendment 
is available for inspection and copying in the Commission's Public 
Reference Room.
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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 amend Article II, Section 4 of the NASD 
By-Laws to conform these provisions to changes adopted by Congress. 
Below is the text of the proposed rule change. Proposed new language is 
italicized and deleted language is bracketed:

Article II, Section 4

Definition of Disqualification

    Sec. 4. A person is subject to a ``disqualification'' with respect 
to membership, or association with a member, if such person:

[Commission and Self-Regulatory Organization Disciplinary Sanctions]

    (a) has been and is expelled or suspended from membership or 
participation in, or barred or suspended from being associated with a 
member of, any self-regulatory organization, foreign equivalent of a 
self-regulatory organization, foreign or international securities 
exchange, contract market designated pursuant to Section 5 of the 
Commodity Exchange Act, or a foreign equivalent of a contract market 
designated pursuant to [or futures association, registered under 
Section 17 of such Act, or] any substantially equivalent foreign 
statute or regulation, or futures association registered under Section 
17 of the Commodity Exchange Act or a foreign equivalent of futures 
association designated pursuant to any substantially equivalent foreign 
statute or regulation, or has been and is denied trading privileges on 
any such contract market or foreign equivalent;
    [(b) is subject to an order of the Commission or other appropriate 
regulatory agency denying, suspending for a period not exceeding twelve 
months, or revoking his registration as a broker, dealer, municipal 
securities dealer (including a bank or department or division of a 
bank), or government securities broker or dealer or barring or 
suspending him from being associated with a broker, dealer, or 
municipal securities dealer (including a bank or department or division 
of a bank), or is subject to an order of the Commodity Futures Trading 
Commission denying, suspending, or revoking his registration under the 
Commodity Exchange Act;]
    (b) is subject to--
    (1) an order of the Commission, other appropriate regulatory 
agency, or foreign financial regulatory authority:
    (i) denying, suspending for a period not exceeding 12 months, or 
revoking his registration as a broker, dealer, municipal securities 
dealer, government 

[[Page 57609]]
securities broker, or government securities dealer or limiting his 
activities as a foreign person performing a function substantially 
equivalent to any of the above; or
    (ii) barring or suspending for a period not exceeding 12 months his 
being associated with a broker, dealer, municipal securities dealer, 
government securities broker, government securities dealer, or foreign 
person performing a function substantially equivalent to any of the 
above;
    (2) an order of the Commodity Futures Trading Commission denying, 
suspending, or revoking his registration under the Commodity Exchange 
Act (7 U.S.C. 1 et seq.); or
    (3) an order by a foreign financial regulatory authority denying, 
suspending, or revoking the person's authority to engage in 
transactions in contracts of sale of a commodity for future delivery or 
other instruments traded on or subject to the rules of a contract 
market, board of trade, or foreign equivalent thereof;
    (c) by his conduct while associated with a broker, dealer, 
municipal securities dealer [(including a bank or department or 
division of a bank)], [or] government securities broker, or government 
securities dealer, or while associated with an entity or person 
required to be registered under the Commodity Exchange Act, has been 
found to be a cause of any effective suspension, expulsion or order of 
the character described in subsections (a) or (b) of this Section;
    (d) by his conduct while associated with any broker, dealer, 
municipal securities dealer, government securities broker, government 
securities dealer, or any other entity engaged in transactions in 
securities, or while associated with an entity engaged in transactions 
in contracts of sale of a commodity for future delivery or other 
instruments traded on or subject to the rules of a contract market, 
board of trade, or foreign equivalent thereof, has been found to be a 
cause of any effective suspension, expulsion, or order by a foreign or 
international securities exchange or foreign financial regulatory 
authority empowered by a foreign government to administer or enforce 
its laws relating to financial transactions as described in subsection 
(a) or (b) of this Section;
    [(d)](e) has associated with him any person who is known, or in the 
exercise of reasonable care should be known, to him to be a person 
described in subsections (a), (b), [or] (c), or (d) of this Section;
[Misstatements]
    [(e)](f) has willfully made or caused to be made in any application 
for membership in a self-regulatory organization, or to become 
associated with a member of a self-regulatory organization, or in any 
report required to be filed with a self-regulatory organization, or in 
any proceeding before a self-regulatory organization, any statement 
which was at the time, and in light of the circumstances under which it 
was made, false or misleading with respect to any material fact, or has 
omitted to state in any such application, report, or proceeding any 
material fact which is required to be stated therein;
[Convictions]
    [(f)](g)(1) has been convicted within ten years preceding the 
filing of any application for membership in the Corporation, or to 
become associated with a member of the Corporation, or at any time 
thereafter, of any felony or misdemeanor or of a substantially 
equivalent crime by a foreign court of competent jurisdiction which:
    (i)[(1)] involves the purchase or sale of any security, the taking 
of a false oath, the making of a false report, bribery, perjury, 
burglary, any substantially equivalent activity however denominated by 
the laws of the relevant foreign government, or conspiracy to commit 
any such offense;
    (ii)[(2)] arises out of the conduct of the business of a broker, 
dealer, municipal securities dealer, [or] government securities broker 
[or] government securities dealer, investment adviser, bank, insurance 
company, fiduciary, transfer agent, foreign person performing a 
function substantially equivalent to any of the above, or any entity or 
person required to be registered under the Commodity Exchange Act or 
any substantially equivalent foreign statute or regulation;
    (iii)[(3)] involves the larceny, theft, robbery, extortion, 
forgery, counterfeiting, fraudulent concealment, embezzlement, 
fraudulent conversion, or misappropriation of funds, or securities; or 
substantially equivalent activity however denominated by the laws of 
the relevant foreign government; or
    (iv)[(4)] involves the violation of Sections 152, 1341, 1342 or 
1343 or Chapters 25 or 47 of Title 18, United States Code [;], or a 
violation of a substantially equivalent foreign statute;
    (g)(2) has been convicted within ten years preceding the filing of 
any application for membership in the Corporation, or to become 
associated with a member of the Corporation, or at any time thereafter 
of any other felony;
[Injunctions]
    [(g)](h) is permanently or temporarily enjoined by order, judgment, 
or decree of any court of competent jurisdiction from acting as an 
investment adviser, underwriter, broker, dealer, [or] municipal 
securities dealer, government securities broker, [or] government 
securities dealer, transfer agent, foreign person performing a function 
substantially equivalent to any of the above, or entity or person 
required to be registered under the Commodity Exchange Act, or any 
substantially equivalent foreign statute or regulation, [municipal 
securities dealer (including a bank or department or division of a 
bank)], or [government securities broker or dealer or] as an affiliated 
person or employee of any investment company, bank, insurance company, 
foreign entity substantially equivalent to any of the above, or from 
engaging in or continuing any conduct or practice in connection with 
any such activity, or in connection with the purchase or sale of any 
security;
    (i) has been found by a foreign financial regulatory authority to 
have--
    (1) made or caused to be made in any application for registration 
or report required to be filed with a foreign financial regulatory 
authority, or in any proceeding before a foreign financial regulatory 
authority with respect to registration, any statement that was at the 
time and in the light of the circumstances under which it was made 
false or misleading with respect to any material fact, or has omitted 
to state in any application or report to the foreign financial 
regulatory authority any material fact that is required to be stated 
therein;
    (2) violated any foreign statute or regulation regarding 
transactions in securities, or contracts of sale of a commodity for 
future delivery, traded on or subject to the rules of a contract market 
or any board of trade; or
    (3) aided, abetted, counseled, commanded, induced, or procured the 
violation by any person of any provision of any statutory provisions 
enacted by a foreign government, or rules or regulations thereunder, 
empowering a foreign financial regulatory authority regarding 
transactions in securities, or contracts of sale of a commodity for 
future delivery, traded on or subject to the rules of a contract market 
or any board of trade, or has been found, by a foreign financial 
regulatory authority, to have failed reasonably to supervise, with a 
view to preventing violations of such statutory provisions, rules, and 
regulations, another person who 

[[Page 57610]]
commits such a violation, if such other person is subject to his 
supervision.

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 purpose of the proposed rule change is to amend Article II, 
Section 4 of the NASD By-Laws so that it will generally conform the 
NASD's eligibility criteria to changes adopted by Congress in 1990 to 
the statutory disqualification provisions found in Sections 3(a)(39) 
and 15(b)(4) of the Act. The NASD's eligibility criteria found in 
Article II, Section 4 of the By-Laws generally have followed the 
aforementioned statutory disqualification provisions in the Act. In 
November 1990, Congress amended the statutory disqualification 
provisions of the Act to include all felony convictions for ten years 
from the date of the conviction and to include various foreign 
regulatory actions.
    The NASD believes that the proposed rule change is consistent with 
the provisions of Sections 15A(b)(6) and 15A(g)(2) of the Act in that 
the proposed changes to the By-Laws will promote uniformity and 
consistency with existing provisions of the Act.

(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. 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, N.W., Washington, D.C. 20549. 
Copies of the submission, 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-95-45 and 
should be submitted by December 7, 1995.

IV. Commission's Findings and Order Granting Accelerated Approval

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to the NASD and, in particular, with the 
requirements of Sections 15(b)(7), 15A(b)(6), 15A(b)(7), 15A(g)(2), 
15A(g)(3)(A) and 15A(g)(3)(B) of the Exchange Act.\2\ Section 15(b)(7) 
states that a registered broker or dealer may not effect any 
transaction in, or induce the purchase or sale of, any security unless 
such broker or dealer meets standards of operational capability, and 
such broker or dealer and all persons associated with such broker or 
dealer meet certain standards of training, experience, competence, and 
other qualifications as the Commission finds necessary or appropriate 
in the public interest or for the protection of investors. Section 
15A(b)(6) requires, in relevant part, that the rules of a registered 
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 registered securities 
association provide that its members and persons associated with its 
members be appropriately disciplined for violation of any provision of 
the Act, the rules or regulations thereunder, the rules of the 
Municipal Securities Rulemaking Board, or the rules of the association, 
by expulsion, suspension, limitation of activities, functions, and 
operations, fine, censure, being suspended or barred from association 
with a member, or any other fitting sanction. Section 15A(g)(2) 
provides for a registered securities association to deny membership to 
any registered broker or dealer, and bar from becoming associated with 
a member any person, who is subject to a statutory disqualification. 
Section 15A(g)(3)(A) permits a registered securities association to 
deny membership to, or condition the membership of a registered broker 
or dealer if such broker or dealer does not meet standards of financial 
responsibility or operational capability, or if such broker or dealer 
or any natural person associated with such broker or dealer does not 
meet standards of training, experience, and competence as are 
prescribed by the rules of the association, or has engaged, and there 
is a reasonable likelihood he will again engage, in acts or practices 
inconsistent with just and equitable principles of trade. Section 
15A(g)(3)(B) permits a registered securities association to bar a 
natural person from becoming associated with a member or condition the 
association of such person with a member if the person does not meet 
such standards of training, experience, and competence as are 
prescribed by the rules of the association, or has engaged, and there 
is a reasonable likelihood he will again engage, in acts or practices 
inconsistent with just a equitable principles of trade.

    \2\ 15 U.S.C. 78o(b)(7), 78o-3(b)(6), 78o-3(b)(7), 78o-3(g)(2), 
78o-3(g)(3)(A), 78o-3(g)(3)(B),
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    The Commission believes that the amendment to Article II, Section 4 
of the NASD By-Laws will help the NASD in its efforts to protect 
investors and the public interest. The NASD's attempt to more closely 
conform Article II, Section 4 to the definition of statutory 
disqualification in the Act will enhance the NASD's authority with 
respect to persons subject to statutory disqualification. The amendment 
will allow the NASD to use this authority over such persons to better 
protect the integrity of its members and persons associated with its 
members.
    The Commission finds good cause for approving the proposed rule 
change prior to the 30th day after the date of publication of notice of 
filing thereof in the Federal Register. The Commission believes that 
accelerated approval of the NASD's proposal is appropriate given the 
fact that the amendment is modeled after the definition of statutory 
disqualification in the Act, and the importance of a self-regulatory 
organization's ability to exercise its authority over persons subject 
to statutory disqualification.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that 

[[Page 57611]]
proposed rule change SR-NASD-95-45 be, and hereby is, approved.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\3\

    \3\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-28315 Filed 11-15-95; 8:45 am]
BILLING CODE 8010-01-M