[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