[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Notices]
[Pages 30269-30272]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15181]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37291; File No. SR-NASD-96-21]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by National Association of Securities Dealers, Inc. Relating to 
Mandatory Electronic Filing of Forms U-4, U-5 and BD

June 7, 1996.
    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 June 7, 
1996, the National Association of Securities Dealers, Inc. (``NASD'' or 
``Association'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'')

[[Page 30270]]

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.

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NASD is herewith filing a proposed rule change to the NASD By-
Laws and Membership and Registration Rules. Below is the text of the 
proposed rule change. Proposed new language is italicized; proposed 
deletions are in brackets.

By-Laws

Ineligibility of Certain Persons for Membership or Association

Article II Sec. 3(a)
    No registered broker, dealer, municipal securities broker or 
dealer, or government securities broker or dealer shall be admitted to 
membership, and no member shall be continued in membership, if such 
broker, dealer, municipal securities broker or dealer, or government 
securities broker or dealer, or member * * * or if such member fails to 
comply with the requirement that all forms filed pursuant to these By-
Laws be filed via electronic process or such other process the 
Corporation may prescribe.

Application for Membership

Article III Sec. 1(a)
    Application for membership in the Corporation, properly signed by 
the applicant, shall be made to the Corporation via electronic process 
or such other process the Corporation may prescribe, on the form to be 
prescribed by the corporation, and shall contain: * * *
Article III Sec.1 (d)
    Each member shall ensure that its membership application with the 
Corporation is kept current at all times by supplementary amendments 
via electronic process or such other process the Corporation may 
prescribe to the original application. Such amendments to the 
application shall be filed with the Corporation not later than thirty 
(30) calendar days after learning of the facts or circumstances giving 
rise to the amendment.

Executive Representative

Article III Sec. 3
    Each member shall appoint and certify to the Secretary of the 
Corporation one ``executive representative'' who shall represent, vote 
and act for the member in all the affairs of the Corporation, except 
that other executives of a member may also hold office in the 
Corporation, serve on the Board of Governors or committees of the 
Corporation, or otherwise take part in the affairs of the Corporation. 
A member may change its executive representative upon giving [written] 
notice thereof via electronic process or such other process the 
Corporation may prescribe to the Secretary, or may, when necessary, 
appoint, by [written] notice via electronic process to the Secretary, a 
substitute for its executive representative. An executive 
representative of a member or a substitute shall be a member of senior 
management and registered principal of the member.

Resignation of Members

Article III Sec. 5
    Membership in the Association may be voluntarily terminated only by 
formal resignation. Resignations of members must be filed via 
electronic process or such other process the Corporation may prescribe 
[in writing] and addressed to the Corporation which shall immediately 
notify the appropriate District Committee. Any member may resign from 
the Corporation at any time. Such resignation shall not take effect 
until thirty (30) calendar days after the receipt thereof by the 
Corporation and until all indebtedness due the Corporation from such 
member shall have been paid in full and so long as any complaint or 
action is pending against the member under the Code of Procedure. The 
Corporation, however, may in its discretion declare a resignation 
effective at any time.

Registration of Branch Offices

Article III Sec.8(b)
    Each member of the Corporation shall promptly advise the 
Corporation via electronic process or such other process the 
Corporation may prescribe of the opening, [or] closing, relocation, 
change in designated supervisor or change in designated activities of 
any branch office of such member not later than thirty (30) calendar 
days after the effective date of such change.

Application for Registration

Article IV Sec.2(a)
    Application by any person for registration with the Corporation, 
properly signed by the applicant, shall be made to the Corporation via 
electronic process or such other process the Corporation may prescribe, 
on the form to be prescribed by the Corporation [Board of Governors] 
and shall contain: * * *.
Article IV Sec.2(c)
    Every application for registration filed with the Corporation shall 
be kept current at all times by supplementary amendments via electronic 
process or such other process the Corporation may prescribe to the 
original application. Such amendments to the application shall be filed 
with the Corporation not later than thirty (30) calendar days within 
learning of the facts or circumstances giving rise to the amendment. If 
such amendment involves a statutory disqualification as defined in 
Section 3(a)(39) and Section 15(b)(4) of the Act, such amendment shall 
be filed not later than ten (10) calendar days after such 
disqualification occurs.

Notification by Member to Corporation and Associated Person of 
Termination; Amendments to Notification

Article IV Sec.3(a)
    Following the termination of the association with a member of a 
person who is registered with it, such member shall [promptly, but] not 
[in no event] later than thirty (30) calendar days after such 
termination, give [written] notice of the termination of such 
association to the Corporation [Association] via electronic process or 
such other process the Corporation may prescribe on a form designated 
by the Corporation [Board of Governors], and concurrently shall provide 
to the person whose association has been terminated a copy of said 
notice as filed with the Corporation [Association]. A member which does 
not submit such notification [in writing], and provide a copy to the 
person whose association has been terminated, within the time period 
prescribed shall be assessed a late filing fee as specified by the 
Corporation [Board of Governors]. Termination of registration of such 
person associated with a member shall not take effect so long as any 
complaint or action under the Code of Procedure is pending against a 
member and to which complaint or action such person associated with

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a member is also a respondent, or so long as any complaint or action is 
pending against such person individually under the Code of Procedure. 
The Corporation, however, may in its discretion declare the termination 
effective at any time.
Article IV Sec.3(b)
    The member shall notify the Corporation [Association] via 
electronic process or such other process the Corporation may prescribe 
[in writing] by means of an amendment to the notice filed pursuant to 
paragraph (a) above in the event that the member learns of facts or 
circumstances causing any information set forth in said notice to 
become inaccurate or incomplete. Such amendment shall be filed with the 
Corporation [Association] and a copy provided to the person whose 
association with the member has been terminated not later than thirty 
(30) calendar days after the member learns of facts or circumstances 
giving rise to the amendment.

Membership and Registration Rules

Electronic Filing Rules

Registration--Electronic Filing

    This Part has been prepared pursuant to the provisions of Article 
II Section 2, Article III Section 1, and Article IV Sections 2 and 3 of 
the NASD By-Laws and contains the requirements of filing the 
appropriate forms for members and persons associated with members.

(1) Filing Requirement:
    All forms required to be filed by these By-Laws shall be filed 
through an electronic process or such other process the Corporation may 
prescribe to the Central Registration Depository.
(2) Supervisory Requirements:
    (a) In order to comply with the supervisory procedures requirement 
in Rule 3010 of the Conduct Rules, each member must identify a 
Registered Principal(s) or corporate officer(s) who has a position of 
authority over registration functions, to be responsible for 
supervising the electronic filing of appropriate forms pursuant to this 
Part.
    (b) The Registered Principal(s) or corporate officer(s) who has or 
have the responsibility to review and approve the forms filed pursuant 
to this Part will be required to acknowledge, electronically, that he 
is filing this information on behalf of the firm and the member firm's 
associated persons.
(3) Form U-4 Filing Requirements:
    (a) Initial and transfer electronic application filings will be 
based on a signed Form U-4 provided to the firm by the applicant. As 
part of the member firm's recordkeeping requirements, it must retain 
the applicant's signed Form U-4 and make it available upon regulatory 
request.
    (b) Amendments to the disclosure information in Item 22 can be 
filed electronically without obtaining the associated person's 
signature on Form U-4. The member will be required to provide the 
associated person with a copy of the amended disclosure information 
that was filed. In providing this material to the associated person, 
the firm must obtain the written acknowledgement that the information 
has been received and reviewed. The member must maintain this 
acknowledgement in its books and records and must make it available 
upon regulatory request.
(4) Form U-5 Filing Requirements:
    (a) Initial filings and amendments of Form U-5 will be done 
electronically. As part of the member firm's recordkeeping 
requirements, it must make them available upon regulatory request.
(5) A Member may employ a third party to file the required forms 
electronically on its behalf, if the member and the third party have 
executed NASD's Broker-Dealer Agent--Filing Addendum To CRD Subscribe 
Agreement.

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

    Since 1992, the NASD has undertaken an extensive redesign effort to 
improve the Central Registration Depository (``CRD'') with the goal of 
requiring total electronic filing of registration-related forms. The 
central focus of the redesign effort is to provide efficient, reliable, 
effective, state-of-the-art systems and procedures at reasonable cost 
to support licensing and regulation of the securities industry. 
Implementation of mandatory electronic filing will eliminate delays in 
processing information in hard copy. The redesigned CRD will offer 
efficient processing of registration-related filings and user friendly 
access to information contained in those filings for all industry and 
regulatory participants. A detailed discussion of the CRD 
implementation plan appeared in the December 1995 issue of Membership 
On Your Side.
    The revisions to the By-Laws include amendments that require filers 
to submit information on Forms U-4, U-5, and BD via electronic 
means.\1\ The impact of this requirement on small member firms with 
limited access and form filing needs was considered by the Board of 
Governors. The Board addressed this concern, by providing all firms 
with the option to contract with third party vendors to handle the 
filings with the CRD. The Board also determined to give firms who have 
less than fifty registered persons the option to file electronically, 
utilize a third-party service bureau or file with the NASD's internal 
processing unit. Member firms can choose for themselves based upon 
their needs whether to access the system directly by acquiring the 
necessary hardware and software and training their registration staff 
or to access the system indirectly via a third party agent or service 
bureau. NASD Membership staff are working with the vendors and service 
bureaus to make sure they are prepared to provide this service to 
members.
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    \1\ The Commission is simultaneously publishing notice of NASD's 
proposed rule changes amending Forms U-4 and U-5. File No. SR-NASD-
96-19; Securities Exchange Act Release No. 37289 (June 7, 1996).
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    Specific By-Law provisions which currently require filers to use 
``forms'' or provide ``written notification'' are changed to require 
filing by electronic process or such other process as the NASD may 
prescribe. The provisions which refer to the filer obligations to keep 
applications ``current'' have been revised to set out more specific 
requirements including specific time frames (usually 30 days) for the 
filing of information. In addition, the NASD's membership eligibility 
criteria are amended to require firms to file via the electronic 
process. Firms who fail to comply with the electronic filing 
requirement may be subject to suspension or cancellation of membership.

[[Page 30272]]

    The NASD has established a rollout schedule which began in May 1996 
with approximately eleven member firms and one service bureau being 
involved in a pilot test. It is anticipated that the pilot firms will 
file all forms electronically in the new CRD system on approximately 
July 29, 1996.
    The NASD Board in assessing the impact of mandatory electronic 
filing on smaller members decided to divide the membership into two 
groups. This was done by analyzing the average number of filings a firm 
makes in conjunction with the number of registered persons employed at 
the firm. The analysis revealed that firm which employ 50 or more 
registered persons are responsible for an overwhelming majority of the 
filings. Therefore, the Board used this criteria as the dividing point 
for the two groups. The NASD used April 26, 1996 as the date to divide 
the members. On that date, there were 813 members who employed 50 or 
more registered persons (``Group I'') and approximately 4,600 members 
with less than 50 registered persons (``Group II'').
    The rollout schedule for all NASD members is as follows. These 
firms have been divided among the five NASD Service and Quality teams. 
Team 1 goes into production on approximately September 9, 1996, Teams 2 
and 3 on approximately October 7, 1996, and Teams 4 and 5 on 
approximately November 4, 1996.
    Firms in Group II may comply with the electronic filing requirement 
through any of three methods: (1) they may file electronically on their 
own; (2) they may utilize a third-party vendor to file on their behalf; 
or (3) for a period of one year commencing on September 9, 1996 and 
ending on September 9, 1997, for a prescribed fee, these firms may file 
paper forms with the NASD which through its own internal processing 
unit will file the forms with the new CRD system.
    The NASD is also amending its Membership and Registration Rules to 
establish electronic filing protocols. Under these protocols the member 
will:
    (1) Designate a Registered Principal(s) or corporate officer(s) to 
be responsible for supervising the electronic filing of appropriate 
filings with such responsibility to acknowledge, electronically, that 
the filing is on behalf of the firm and the member firm's associated 
persons.
    (2) Retain and provide upon regulatory request original, signed 
Form U-4s which were electronically processed as initial or transfer 
applications as part of the recordkeeping requirements.
    (3) File amendments to administration data without the signature of 
the subject individual. Such information includes the addition of state 
or SRO registration, exam scheduling and updates to residential, 
business and personal history.
    (4) File amendments to disclosure data electronically provided that 
the subject person has acknowledged that the information has been 
received and reviewed. This acknowledgement must be retained and 
provided upon regulatory request.
    (5) File initial and amended Form U-5 Notice of Terminations 
electronically. The filing firm must make the filings available upon 
regulatory request.
    The NASD believes that the proposed rule changes are consistent 
with the provisions of Section 15A(b)(6) of the Act in that mandatory 
electronic filing with the new CRD system will provide efficient 
processing of registration-related filings and will allow for easy 
access to information in these filings by all industry and regulatory 
participants.

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

    Within 35 days of the date of 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 such 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 the file number in the caption 
above and should be submitted by July 5, 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. 96-15181 Filed 6-13-96; 8:45 am]
BILLING CODE 8010-01-M