[Federal Register Volume 61, Number 88 (Monday, May 6, 1996)]
[Notices]
[Pages 20299-20301]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11228]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37150; File No. SR-NASD-96-14]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to the Requirement That Members Provide Information to Other Regulators 
for Regulatory Purposes

April 29, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on April 4, 1996, the 
National Association of Securities Dealers, Inc. (``NASD'' or 
``Association'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change,\2\ as described in Items I, 
II, and III below, which Items have been prepared by NASD. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ On April 19, 1996, the NASD filed Amendment No. 1 to the 
proposed rule change. Letter from Suzanne E. Rothwell, Associate 
General Counsel, NASD, to Mark P. Barracca, Special Counsel, 
Division of Market Regulation, SEC, dated April 19, 1996.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NASD is filing a proposed rule change to amend NASD Rules 8210 
and 8220.\3\ The NASD is proposing to amend Rule 8210 to require 
members to provide information to domestic and foreign self-regulatory 
organizations, associations, securities or contract markets or 
regulators with which the Association has entered into information 
sharing agreements for regulatory purposes and to the NASD's Market 
Surveillance Committee. Pursuant to Amendment No. 1, the NASD is 
amending Rule 8220 to authorize any Market Surveillance Committee to 
require any member to submit a report in writing with regard to any 
matter connected with such member's business or business practices, and 
to inspect the books, records and accounts of any member. Below is the 
text of the proposed rule change. Proposed new language is italicized.
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    \3\ Pursuant to a new rule numbering system for the NASD Manual 
anticipated to be effective no later than May 1, 1996, Sec. 5 of 
Art. IV and the Resolution of the Board of Governors thereto of the 
Rules of Fair Practice that are the subject of this proposed rule 
change will become Rules 8210 and 8220, respectively. Securities 
Exchange Act Release No. 36698 (Jan. 11, 1996), 61 FR 1419 (Jan. 19, 
1996) (order approving File No. SR-NASD-95-51).

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[[Page 20300]]

PROCEDURAL RULES

8000. COMPLAINTS, INVESTIGATIONS AND SANCTIONS
* * * * *
8200. INVESTIGATIONS
8210. Reports and Inspection of Books for Purpose of Investigating 
Complaints

    (a) For the purpose of any investigation, or determination as to 
filing of a complaint or any hearing of any complaint against any 
member of the Association or any person associated with a member made 
or held in accordance with the Rule 9000 Series, or made or held by 
another domestic or foreign self-regulatory organization, association, 
securities or contract market or regulator of such markets, with whom 
the Association has entered into an agreement providing for the 
exchange of information and other forms of material assistance solely 
for market surveillance, investigative, enforcement or other regulatory 
purposes, any District Business Conduct Committee, the Market 
Surveillance Committee, or the Board of Governors, or any duly 
authorized member or members of any such Committees or Board or any 
duly authorized agent or agents of any such Committee or Board shall 
have the right:
    (1) to require any member of the Association, person associated 
with a member, or person no longer associated with a member when such 
person is subject to the Association's jurisdiction to report, either 
informally or on the record, orally or in writing with regard to any 
matter involved in any such investigation or hearing, and
    (2) to investigate the books, records and accounts of any such 
member or person with relation to any matter involved in any such 
investigation or hearing.
    (b) No such member or person shall fail to make any report as 
required in this Rule, or fail to permit any inspection of books, 
records and accounts as may be validly called for under this Rule. Any 
notice requiring an oral or written report or calling for an inspection 
of books, records and accounts pursuant to this Rule shall be deemed to 
have been received by the member or person to whom it is directed by 
the mailing thereof to the last known address of such member or person 
as reflected on the Association's records.
8220. Suspension of members for Failure to Furnish Information Duly 
Requested
* * * * *
    (e) It is essential for the promotion of the Association's welfare, 
object and purposes and more particularly for the administration and 
enforcement of its Rules:
    (1) that any District Business Conduct Committee, any Market 
Surveillance Committee, or any duly authorized member or members of any 
such Committees, or any duly authorized agent or agents of any such 
Committees, or any Association examiner duly authorized by the 
President shall have the right, in order to and solely for the purpose 
of determining whether any member is complying with the Rules of the 
Association:
    (A) to require any such member to submit a report in writing with 
regard to any matter connected with such member's business or business 
practices, and
    (B) to inspect the books, records and accounts of any such member; 
and
    (2) that any such Committee or any such member or members thereof, 
or any such agent or agents thereof, or any such examiner, be and 
hereby is granted such rights.

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

1. Purpose
    Currently, Rule 8210 of the NASD's Procedural Rules provides that 
the NASD may require members and associated persons to provide 
information, and may investigate a member's books and records, in 
connection with investigations or proceedings conducted by the NASD. 
The NASD periodically receives requests from other regulatory 
organizations with whom the NASD has entered into agreements to share 
regulatory information, including self-regulatory organizations 
(``SROs'') who participate in the Intermarket Surveillance Group 
(``ISG''), \4\ for information from NASD members in connection with 
investigations being conducted by these regulators. Rule 8210, however, 
does not expressly permit the NASD to require members to provide 
information in connection with investigations being conducted by other 
regulatory organizations, or to bring disciplinary action against a 
member that refuses to cooperate.
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    \4\ The ISG is an organization of securities industry self-
regulatory organizations (``ISG/SROs'') formed in 1983 to coordinate 
and develop intermarket surveillance programs designed to identify 
and combat fraudulent and manipulative acts and practices. In order 
to promote its purposes, members agree to exchange such information 
as is necessary for ISG members to perform their self-regulatory and 
market surveillance functions. The NASD has been a member of the ISG 
since its formation.
    The ISG's self-regulatory organization members (ISG/SROs) 
include all of the registered securities exchanges and associations: 
American Stock Exchange (AMEX), Boston Stock Exchange (BSE), Chicago 
Board Options Exchange (CBOE), Chicago Stock Exchange (CHX), 
Cincinnati Stock Exchange (CSE), National Association of Securities 
Dealers, Inc. (NASD), New York Stock Exchange (NYSE), Pacific Stock 
Exchange (PSE), and Philadelphia Stock Exchange (PHLX). In addition, 
other domestic contract markets and foreign SROs have been granted 
``affiliate'' membership in the ISG: Alberta Stock Exchange (ASE), 
Amsterdam Stock Exchange (AMSE), Australian Stock Exchange (ASX), 
Chicago Board of Trade (CBOT), Chicago Mercantile Exchange (CME), 
London International Financial Futures and Options Exchange (LIFFE), 
London Stock Exchange (LSE), Montreal Exchange (ME), New York 
Futures Exchange (NYFE), Securities and Futures Authority (SFA), 
Toronto Stock Exchange (TSE), and the Vancouver Stock Exchange 
(VSE). ISG/SROs and ISG affiliates are referred to herein as 
``participants.''
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    While the NASD believes that Rule 8210 provides adequate authority 
to require members and associated persons to provide information to 
other regulatory organizations, it is believed that clarifying this 
provision to expressly provide for such information sharing would be 
desirable. Most of the other ISG participants have amended or are 
amending their rules to clarify their investigatory and information 
sharing authority. \5\ The proposed rule change

[[Page 20301]]

would permit the NASD to require members and associated persons to 
provide information to any other domestic or foreign SROs, 
associations, securities or contract markets or regulators of such 
markets with whom the Association has entered into agreements providing 
for the exchange of regulatory information. By amending Rule 8210, the 
NASD also will have explicit authority to discipline members and 
associated persons who fail to provide information to other domestic or 
foreign SROs, associations, securities or contract markets or 
regulators of such markets with whom the NASD has information sharing 
agreements.
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    \5\ The CBOE recently amended Rule 15.9(b) to require its 
members and associated persons, at the request of the CBOE, to 
furnish testimony, documentary evidence or other information in 
connection with any inquiry by a domestic or foreign self-regulatory 
organization, association, contract market, or regulator of such 
market with whom the CBOE has entered into an agreement providing 
for the exchange of information and other forms of mutual assistance 
for market surveillance, investigative, enforcement and regulatory 
purposes. Securities Exchange Act Release No. 35403 (Feb. 22, 1995), 
60 FR 10884 (Feb. 28, 1995) (order approving File No. SR-CBOE-94-
39). The PSE recently amended Rule 10.2(d) to require PSE members, 
member organizations, persons associated with a member or member 
organization, and other persons or entities over whom the PSE has 
jurisdiction pursuant to Rule 10.1(b) to testify before another SRO 
and to furnish information in connection with a regulatory inquiry, 
investigation, examination, or disciplinary proceeding resulting 
from an agreement entered into by the PSE pursuant to Rule 14.1. 
Securities Exchange Act Release No. 35646 (Apr. 25, 1995), 60 FR 
21227 (May 1, 1995) (order approving File No. SR-PSE-95-02). 
Currently, NYSE Rule 476(a)(11) permits the NYSE to bring 
disciplinary action against a member, member organization, allied 
member, approved person, registered or non-registered employee for 
failing to comply with an NYSE request to submit books and records 
to the NYSE or any other SRO and for failure to furnish information 
to or to appear or testify before the NYSE or other SRO. The NYSE 
has proposed an amendment to Rules 27, 476(a)(11), and 477 to 
require persons under Exchange jurisdiction to comply with 
information requests from commodities markets and associations and 
foreign self-regulatory organizations and associations. Securities 
Exchange Act Release No. 36831 (Feb. 12, 1996), 61 FR 6279 (Feb. 16, 
1996) (notice of File No. SR-NYSE-95-43). Currently, Art. V, Sec. 
4(a) of the AMEX Rules facilitates examinations being conducted by 
another exchange.
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    Finally, the NASD is proposing to insert the phrase ``the Market 
Surveillance Committee'' in that part of Subparagraph (a) of Rule 8210 
that references the District Business Conduct Committee and the Board 
of Governors, and the phrase ``any Market Surveillance Committee,'' 
after the phrase ``any District Business Conduct Committee'' in 
Subparagraph (e)(1) of Rule 8220. The change conforms Rules 8210 and 
8220 with references to the Market Surveillance Committee in the 
definitions and relevant titles of the Code of Procedure.
2. Statutory Basis
    The NASD believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the Act,\6\ which require, among 
other things, that the rules of the Association be designed to foster 
cooperation and coordination with persons engaged in regulating 
securities transactions. The proposed rule change is consistent with 
these objectives in that it clarifies that the Association has the 
authority to require members to provide information to other domestic 
or foreign self-regulatory organizations, associations, securities or 
contract markets or regulators of such markets for regulatory purposes 
and to discipline those members who fail or refuse to provide such 
information.
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    \6\ 15 U.S.C. 78o-3.
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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

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the publication of this notice in the Federal 
Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. 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 No. SR-NASD-96-14 and should 
be submitted by May 27, 1996.

    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. 96-11228 Filed 5-3-96; 8:45 am]
BILLING CODE 8010-01-M