[Federal Register Volume 61, Number 23 (Friday, February 2, 1996)]
[Notices]
[Pages 3955-3956]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-2221]
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SECURITIES AND EXCHANGE COMMISSION
[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.
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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,
1995).
\5\ 60 FR 67146 (December 28, 1995).
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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
approval.
\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.
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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).
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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
critical.
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
distributions.
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
basis.
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,
approved.
For the Commission, by the Division of Market Regulation,
pursuant to delegate authority.\9\
\9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-2221 Filed 2-1-96; 8:45 am]
BILLING CODE 8010-01-M