[Federal Register Volume 61, Number 23 (Friday, February 2, 1996)]
[Pages 3955-3956]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-2221]



[Release No. 34-36783; File No. SR-NASD-95-53]

Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Approving Proposed Rule Change Requiring Members 
That Participate in the Transfer of Limited Partnership Securities to 
Use Standard Transfer Forms

January 29, 1996.

I. Introduction

    On December 15, 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 Section 1 and adds new Section 73 and Exhibit A to the 
NASD's Uniform Practice Code (``Code'').

    \1\ The proposed rule change was initially submitted on November 
8, 1995, but was subsequently amended on December 11, 1995, and 
again on December 15, 1995, in order to clarify that the proposed 
rule change does not apply to limited partnership securities that 
are traded on The Nasdaq Stock Market or a registered national 
securities exchange.
    \2\ 15 U.S.C. Sec. 78s(b)(1).
    \3\ 17 CFR 240.19b-4.

    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 Commission release. This order approves the proposed 
rule change.

    \4\ Securities Exchange Act Release No. 36611 (December 20, 
    \5\ 60 FR 67146 (December 28, 1995).

II. Description

    The NASD intends to standardize the format for gathering transfer 
information by registered representatives and eliminate delays and 
inefficiencies in the transfer and settlement process by requiring the 
use of standardized transfer forms.6 Under new Section 73 of the 
Code, each member that participates in the transfer of limited 
partnership securities, as defined in Article III, Section 34 of the 
NASD's Rules of Fair Practice, will be required to use the forms. This 
new section will not apply to limited partnership securities which are 
traded on The Nasdaq Stock Market or a registered national securities 
exchange. Although only NASD members would be required to use the 
standardized forms under the proposed amendments, the NASD has worked 
closely with various transfer agents, and the Investment Program 
Association, a trade organization for the partnership industry, to 
build a general consensus favoring the use and recognition of the forms 
throughout the industry.7

    \6\ The NASD has requested an effective date for the proposed 
rule of 60 days after the date on which SEC approval of the proposed 
rule is announced in a NASD Notice to Members, which announcement 
shall be made no later than 45 days after the date of Commission 
    \7\ The NASD's Direct Participation Program Committee and the 
special Ad Hoc Committee on Uniform Settlement and Transfer 
Procedures for Direct Participation Program Securities have gathered 
and assessed information in order to develop forms with universal 
applicability. In addition, both the NASD staff and the members of 
the NASD's Direct Participation Program Committee are planning to 
explore other initiatives designed to develop a broad, accessible 
framework through which the transfer and distribution process for 
limited partnership securities will become more efficient and 
consistent. See Securities Exchange Act Release No. 36611 (December 
20, 1995) at 9-10.

    The standard transfer forms will be set forth in Exhibit A to new 
Section 73. The four forms are as follows: (1) the ``Transferor's 
(Seller's) Application For Transfer;'' (2) the ``Transferee's (Buyer's) 
Application for Transfer;'' (3) the ``Registration Confirmation Form;'' 
and (4) the ``Distribution Allocation Agreement.'' The Transferor and 
Transferee forms are each two pages in length and contain important 
information, including customer identification, partnership 
identification, tax identification, quantity transferred, broker-dealer 
and registered representative identification, and signature execution.
    The Registration Confirmation Form acts to confirm to the buyer/
transferee that the transfer has been completed. This form contains 
information including the partnership's NASD symbol, CUSIP number, tax 
identification number, total number of units transferred, and the 
effective/admission date.
    The Distribution Allocation Agreement is designed to be completed 
at the time the transfer documents are completed and sent to the 
general partner of the limited partnership security to be transferred. 
The agreement contains certain affirmations on which the transferor and 
transferee agree, and is intended to act as a contract between the 
buyer and seller setting forth their agreement regarding all unpaid 
distributions. The agreement specifies when the unitholder of record is 
entitled to cash distributions and capital distributions, as well as 
the party 

[[Page 3956]]
responsible of correcting a distribution made to the wrong party.

III. Discussion

    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 Section 15A(b)(6) 
of the Act.\8\ Section 15A(b)(6) requires, in part, that the rules of a 
national securities association be designed to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities.

    \8\ 15 U.S.C. Sec. 78o-3(b)(6).

    Historically, limited partnership securities were not structured to 
be transferred freely in secondary market transactions, unless the 
issuer listed the securities on an exchange or qualified them for 
inclusion in Nasdaq. Over-the-counter markets now exist, however, for 
many limited partnership securities, and trading volumes reportedly 
have increased. As a result, quick and accurate processing of the 
transfer of limited partnership securities has become even more 
    Generally, before the transfer of a limited partnership interest 
may take place, it must be approved by the general partner(s). The 
elements for a valid transfer are dictated by the terms of partnership 
agreements under various state limited partnership statutes. As a 
result, when transferring limited partnership interests, NASD members 
are currently confronted with transfer requirements unique to each 
partnership which may vary widely on the type and amount of 
documentation necessary for the valid transfer of a limited partnership 
interest. This, in turn, results in non-standardized transfers of 
limited partnerships that, in some instances, may take many weeks or 
even months to become finalized.
    In addition, partnership terms for record dates and distribution or 
dividend payment dates are equally varied. Transfer delays and non-
standardized payment provisions have caused or contributed to delays or 
mistakes in the allocation of cash distributions between buyers and 
sellers. For example, a seller of a limited partnership interest, as 
the recordholder of the securities until a change is made on the 
records of the partnership, often receives distributions that rightly 
should have accrued to the buyer. Particularly problematic are special 
distributions other than cash distributions (e.g., proceeds from 
capital transactions, capital distributions, sale or refinancing 
proceeds, liquidating distributions) which, under many partnership 
agreements, are paid to the owner of record of the partnership unit in 
the prior quarter. Thus, under current transfer standards and 
practices, buyers and sellers of limited partnership securities in the 
secondary market are unable to protect their rights to such 
    The use and recognition of standardized forms will bring greater 
consistency and certainty in transactions involving limited partnership 
securities. Such forms should act to significantly reduce the time and 
effort required by member firms to process the transfer of limited 
partnership securities. In addition, the use of the Distribution 
Allocation Agreement will provide certainty to the buyer/transferee and 
seller/transferor regarding the method for handling various 
distributions of the limited partnership.
    To be effective, however, the forms approved today must meet the 
legitimate needs of issuers and transfer agents. The Commission 
encourages the NASD to monitor the currency of the forms on a periodic 
    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change SR-NASD-95-53 be, and hereby is, 

    For the Commission, by the Division of Market Regulation, 
pursuant to delegate authority.\9\

    \9\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-2221 Filed 2-1-96; 8:45 am]