[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Notices]
[Pages 30272-30274]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15183]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37289; File No. SR-NASD-96-19]


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

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 May 16, 
1996, 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.\1\ The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ On June 5, 1996, the NASD filed Amendment No. 1 to the 
proposed rule change to clarify that rather than submitting entirely 
new forms for the Commission's approval, the filing seeks to amend 
currently existing Forms U-4 and U-5. Amendment No. 1 was submitted 
along with a redlined version of the signature page (page 4) for 
Form U-4 to highlight the revisions to that part of the Form. Letter 
from Craig 1. Landauer, Associate General Counsel, NASD to Mark P. 
Barracca, Special Counsel, SEC, dated June 5, 1996.
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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 the Uniform Application for 
Securities

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Industry Registration or Transfer, Form U-4, and the Uniform 
Termination Notice for Securities Industry Registration, Form U-5.\2\
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    \2\ Copies of the revised Forms U-4 and U-5 were attached as 
Exhibit 2 to the NASD's rule proposal and are available for 
inspection and copying in the Commission's Public Reference Room and 
are available from the NASD.
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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 NASD is proposing to amend the Uniform Application for 
Securities Industry Registration or Transfer, Form U-4 and the Uniform 
Termination Notice for Securities Industry Registration, Form U-5.
    Since November 1993, in support of efforts to redesign the Central 
Registration Depository (CRD), a task force comprising the North 
American Securities Administrators Association (NASAA), industry 
representatives, the SEC, NASD and other SROs has worked to revise the 
uniform registration forms (Form U-4 and Form U-5). The NASD has 
undertaken an extensive redesign effort to improve the CRD which will 
require electronic filing of registration-related forms.\3\ Currently 
scheduled for pilot phase during the second quarter of 1996, 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.
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    \3\ The Commission is simultaneously publishing notice of NASD's 
proposed rule changes to its By-Laws and Membership and Registration 
Rules that will require member firms to submit information on Forms 
U-4, U-5, and BD via electronic means and to establish electronic 
filing protocols. File No. SR-NASD-96-21; Securities Exchange Act 
Release No. 37291 (June 7, 1996).
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    The revised forms define how the information will be collected and 
stored in the revised CRD. Implementation of the amended forms will 
coincide with implementation of the redesigned CRD. The forms revision 
effort has dealt with bringing better clarify and fairness into the 
reporting of disclosable information. The most significant changes 
relate to the disclosure questions on Forms U-4 and U-5. The revisions 
will provide for more detailed reporting to support new functionality 
created by CRD's redesign. The forms have been revised to include:
     Expansion of Page 1 of Form U-4 and the parallel items on 
Form U-5 to handle the registration of non-members and to accommodate 
multiple types of registration or notices of termination for Investment 
Adviser Representative and Agent of Issuer registrations. (In the long 
term, the new CRD will ultimately contain licensing data bases for non-
members.)
     Addition of a statement on Page 4 of Form U-4 that will be 
executed by the applicant and retained by the member firm, that 
authorizes the member firm to make electronic filings on behalf of the 
applicant.
     An option for the applicant and member firm to request on 
the Form U-4 processing under a Relicensing Program. This program is 
intended to replace the existing Temporary Agent Transfer (TAT) 
Program. The new program will result in expedited handling for eligible 
persons including most individuals who previously have reported an 
affirmative answer to disclosure questions on their Forms U-4, but who 
have no new disclosure upon transfer. Even if there is new disclosure, 
the applicant may have an opportunity to gain a Temporary Registration 
while that disclosure is reviewed.
     An opportunity for an individual to provide a summary of 
the circumstances relating to an internal review disclosure submitted 
by the individual's former employer on the Form U-5. Individuals 
already have the opportunity to provide responses to other Form U-5 
disclosures on their next U-4 filing upon transfer to a new employer.
     Item 22, the disclosure question on the Form U-4 and the 
parallel disclosure items on the Form U-5 have been made consistent 
with each other to the extent possible.
     The questions relating to disclosure have been categorized 
to provide a uniform format to collect, display and sort disclosure 
detail.
     Each category of disclosure has its own custom Disclosure 
Reporting Page (DRP) soliciting detail unique to that category.
     Each custom DRP solicits detail to provide the information 
that regulators have indicated they need in order to make informed 
registration decisions. The revised DRPs require more detail than the 
current DRPs, which will reduce the number of requests for additional 
disclosures that prolong the review and registration process.
    The forms also contain a new customer complaint question. The 
question was developed after much discussion between representatives 
from the NASD, NASAA and the securities industry. The NASD believes the 
new question will greatly simplify and clarify what types of complaints 
have to be reported on the Forms U-4 and U-5. The question will require 
the reporting of all written customer complaints which allege sales 
practice rule violations and compensatory damages of $5,000 or more. 
The definition of sales practice violations will be included in the 
explanation of terms section of the forms. The NASD intends to issue a 
Notice to Members which will include a list of examples of sales 
practice violations under this section and the instructional software 
in the new CRD system will have this list as well. The NASD will 
periodically revise this list as warranted. Written complaints, which 
do not evolve into arbitration, civil litigation or a settlement over 
the jurisdictional amount, would be deleted from the CRD system two 
years from the date of the complaint. All arbitration and civil 
litigation proceedings involving securities transaction matters will be 
reported regardless of the dollar amount of compensatory damages. All 
settlements of $10,000 or more will be reported as well.
    The NASD began a test pilot phase of the new CRD system on 
approximately May 20, 1996 with eleven firms and one service bureau who 
agreed to participate. The pilot participants will go into actual 
production on the new system on approximately July 29, 1996 using the 
revised Forms U-4 and U-5. The NASD intends to phase-in the use of the 
amended Forms with the remaining NASD members commencing on 
approximately September 9, 1996 and concluding on approximately 
November 7, 1996.\4\
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    \4\ Registered representatives will not be required to refile 
Form U-4 with the NASD as a result of the changes to the form. 
Registered representatives, however, will continue to be subject to 
the requirement to update their forms when any information becomes 
inaccurate or incomplete. When updating a particular item, all 
information relating to that item must be completed, including DRP 
pages, if applicable.
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    The NASD believes that the amended Forms U-4 and U-5 are consistent 
with the provisions of Section 15A(b)(6) of the Act in that the NASD is 
required to adopt appropriate qualification and registration 
requirements for persons associated with NASD members or

[[Page 30274]]

applicants for NASD membership. Article IV, Section 2 of the NASD By-
Laws authorizes the Board to prescribe the form used by any person who 
wishes to make application for registration with the NASD. The NASD 
believes the amended forms will make the filing of disclosable 
information easier and more efficient and will provide more complete 
information for use by securities regulators.

(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 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 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. 96-15183 Filed 6-13-96; 8:45 am]
BILLING CODE 8010-01-M