[Federal Register Volume 61, Number 139 (Thursday, July 18, 1996)]
[Notices]
[Pages 37518-37521]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18170]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37425; File No. SR-NASD-96-29]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Temporary Accelerated Approval of Proposed Rule Change by
National Association of Securities Dealers, Inc. Relating to the
Allocation and Delegation of Authority and Responsibilities by the
National Association of Securities Dealers, Inc., to NASD Regulation,
Inc., and The Nasdaq Stock Market, Inc.
July 11, 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 July 2,
1996,\1\ 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.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons. For the reasons discussed
below, the Commission is granting accelerated approval of the proposed
rule change for a period of 120 days.
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\1\ On July 8, 1996, the NASD filed Amendment No. 1 to the
proposed rule change. Amendment No. 1 amended the language of
proposed new Subsections II.C.4. and III.C.3 of the Delegation Plan
to clarify that it is proposed that the NASD Board of Governors have
authority to determine to both call for review or not call for
review a matter of the subsidiary Board during the 15-day period
provided for consideration by the NASD Board.
On July 10, 1996, the NASD filed Amendment No. 2 to the proposed
rule change. Amendment No. 2 requests temporary approval of the
proposed rule change for a period of 120 days. See Letter from T.
Grant Callery, Senior Vice President and General Counsel, NASD to
Katherine A. England, Assistant Director, Division of Market
Regulation, Commission (dated July 10, 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 its rules to: (1) Add new Rule 0130
to the NASD's rules delegating to the subsidiaries of the NASD, NASD
Regulation, Inc. (``NASDR'') and The Nasdaq Stock Market, Inc.
(``Nasdaq''), the authority to act on behalf of the Association as set
forth in a Plan of allocation and Delegation adopted by the NASD Board
of Governors and approved by the Commission pursuant to its authority
under the Act; and (2) adopt a Plan of Allocation and Delegation of
Functions by NASD to Subsidiaries (``Plan'') setting forth the purpose,
function, governance, procedures and responsibilities of the NASD,
NASDR and Nasdaq, following the reorganization of the NASD.
The proposed rule change submitted herein, with exceptions, was
previously filed with the Commission in SR-NASD-96-16 and was
simultaneously published for comment and approved by the Commission on
a temporary basis for a period of 90 days.\2\ Release 34-37107
contained the full text of the proposed rule change, with the exception
of three amendments thereto. Set forth below are excerpts from the
Plan, marked to show the three amendments. Additions to the Plan are in
italics; deletions are in brackets.\3\
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\2\ Securities Exchange Act Release No. 37107 (April 11, 1996),
61 FR 16948 (April 18, 1996) (Release 34-37107).
\3\ The Commission is separately approving SR-NASD-96-20,
amending the NASD By-Laws consistent with the Plan, for a period of
120 days. See Securities Exchange Act Release No. 37424 (July 11,
1996).
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Plan of Allocation and Delegation of Functions by NASD to Subsidiaries
I. NASD, Inc.
* * * * *
C. Board of Governors
1. Composition: The NASD Board of Governors (``NASD Board'') shall
be composed of at least Nine (9) and no more than thirteen (13)
Governors, a majority of whom shall be Non-industry (including at least
Two (2) Public Governors). The Chief Executive Officer (``CEO'') of
NASD shall be a Governor. In the event that the NASD Board shall
consist of Eleven (11) or more governors, at least Three (3) shall be
Public Governors.
2. Election Procedures
a. Commencing with the selection of Governors to take office on
April of 1997, Governors (except the CEO of NASD) shall be elected by a
majority vote of those members of the NASD casting ballots on a slate
of nominees presented to the NASD membership by the National Nominating
Committee for election by secret ballot.
b. National Nominating Committee
(1) The National Nominating Committee shall be composed of at least
Six (6) and not more than Nine (9) members, equally balanced between
Industry and Non-industry Committee Members (including at least Two (2)
Public Committee Members). In the event that the Nominating Committee
shall consist of Seven (7) or more members at least Three (3) shall be
Public Committee Members. If at any time there shall be an odd number
of members of the National Nominating Committee, Non-industry Committee
Members shall be in the majority. No officer or employee of the
Association shall serve as a member of the National Nominating
Committee in any voting or non-voting capacity. Two members of the
National Nominating Committee shall be selected by each of the
Subsidiaries and the NASD. No more than three of the Committee Members
and no more than two of the Industry Committee Members shall be current
members of the NASD Board or of the Board of Directors of one of the
Subsidiaries (collectively the ``Association Boards''). Any member of
the National Nominating Committee who is a current member of any
Association Board shall be in his/her final year of service on any
Association Board.
(2) Members of the National Nominating Committee shall be appointed
annually by the NASD Board and may be removed for cause by a majority
vote of the NASD Board.
(3) The National Nominating Committee shall propose to the NASD
Board one or more nominees for each vacant or new Governor position,
and for each Director position on the Boards of Directors of the
Subsidiaries.
3. Contested Elections.
a. A candidate for the NASD Board who has not been nominated
pursuant to Section 2.b(3) above may be [included on the ballot]
nominated by petition, for the term of office specified by the Board
for the vacant governorship, if the candidate presents duly executed
petitions to the National Nominating Committee demonstrating that such
candidate has the support of Two (2) percent of the members of the
NASD.
b. A candidate for the NASD Board [shall] may be [certified by the
National Nominating Committee and] included on the ballot only if the
Committee certifies that the candidate's petitions
[[Page 37519]]
are duly executed by the requisite number of members of the NASD and
that the candidate meets the qualifications for the position to be
filled, as defined in section I.A. above.
* * * * *
II. NASD Regulation, Inc. (``NASDR'')
* * * * *
C. NASDR Board Procedures
1. Disciplinary Actions--Any initial disciplinary decision of the
Association, including dismissals, may be appealed to the NBCC within
15 calendar days, or called for review by the NBCC within 45 calendar
days, as set forth in the Code of Procedure. A decision of the NBCC may
be called for review by any member of the NASDR Board not later than
its meeting next following the NBCC's decision. A decision of the NBCC
or the NASDR Board may be called for review by any member of the NASD
Board not later than its meeting next following the decision of the
NBCC or NASDR Board but which is 15 calendar days or more following the
decisions of the NBCC or NASD Board. Any disciplinary decision not
appealed or called for review shall become the final action of the
Association upon the expiration of the time allowed for appeal or call
for review. A respondent has the right to appeal a final action of the
Association taken by the NBCC, NASDR, or NASD to the SEC.
2. Statutory Disqualification Decisions--any decision of the NBCC
with respect to statutory disqualification may be called for review by
any member of the NASDR Board not later than its meeting next following
the NBCC's decision. A decision of the NBCC or the NASDR Board may be
called for review by any member of the NASD Board not later than its
meeting next following the decision of the NBCC or NASDR Board but
which is 15 calendar days or more following the decision of the NBCC or
the NASDR Board. Any decision that is not called for review shall
become the final action of the Association upon expiration of the time
allowed for appeal or call for review. A respondent has the right to
appeal a final action of the Association taken by the NBCC, NASDR or
NASD to the SEC.
3. Rule Filings--Any rule change adopted by the NASDR Board that
imposes fees or other charges on persons or entities other than NASD
members or that the NASDR Board refers to the NASD Board because in the
view of the NASDR Board it raises significant policy issues shall be
reviewed and ratified by the NASD Board before becoming the final
action of the Association. If the NASDR Board does not refer a rule
change to the NASD Board for review, the NASDR Board action will become
the final action of the Association unless called for review by any
member of the NASD Board not later than its meeting next following the
NASDR Board's action but which is 15 calendar days or more following
the action of the NASDR Board. During the process of developing rule
proposals, NASDR staff shall consult with and seek the advice of Nasdaq
staff before presenting any rule proposal to the NASDR Board.
4. Notwithstanding the requirements set forth in paragraphs 1
through 3 of this Section, the NASD Board may determine it is advisable
to call or not call for review any disciplinary action, statutory
disqualification decision, or rule change within the 15 calendar day
period following the decision of the NBCC or the NASDR Board, as
applicable.
* * * * *
III. Delegation to Nasdaq
* * * * *
C. Nasdaq Board Procedures
1. Listing/Delisting Decisions--Any initial decision of Nasdaq
staff concerning the listing or delisting of securities on The Nasdaq
Stock Market may be appealed to the Nasdaq Listing and Hearing Review
Committee (``Listing Committee'') within 15 calendar days, or called
for review by any member of the Listing Committee within 45 days, as
set forth in the Code of Procedure. A decision of the Listing Committee
may be called for review by any member of the Nasdaq Board not later
than its meeting next following the Listing Committee's decision. A
decision of the Nasdaq Board may be called for review by any member of
the NASD Board not later than its meeting next following the Nasdaq
Board's decision but which is 15 calendar days or more following the
decision of the Listing Committee or the Nasdaq Board. Any decision not
appealed or called for review shall become the final action of the
Association upon expiration of the time allowed for appeal or call for
review. An issuer has the right to appeal a final action of the
Association taken by the Listing Committee, Nasdaq Board or NASD to the
SEC.
2. Rule Filings--Any rule change adopted by the Nasdaq Board that
imposes fees or other charges on persons or entities other than NASD
members or issuers or that the Nasdaq Board determines to refer to the
NASD Board because in the view of the Nasdaq Board it raises
significant policy issues shall be reviewed and ratified by the NASD
Board before becoming the final action of the Association. If the
Nasdaq Board does not refer a rule change to the NASD Board for review,
the Nasdaq Board action will become the final action of the Association
unless called for review by any member of the NASD Board not later than
its meeting next following the Nasdaq Board's action but which is 15
calendar days or more following the action of the Nasdaq Board. During
the process of developing rule proposals, Nasdaq staff shall consult
with and seek the advice of NASDR staff before presenting any rule
proposal to the Nasdaq Board.
3. Notwithstanding the requirements set forth in paragraphs 1 and 2
of this Section, the NASD Board may determine it is advisable to call
or not call for review any listing/delisting decision or rule change
within the 15 calendar day period following the decision of the Listing
Committee or the Nasdaq Board, as applicable.
* * * * *
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.
(a) Purpose of the Proposed Rule Change
Description of Plan
The Plan is organized in three principal parts, one for each of the
three major entities that will constitute the reorganized NASD: the
parent corporation, National Association of Securities Dealers, Inc.;
the regulatory subsidiary, NASD Regulation, Inc.; and the stock market
operating subsidiary, The Nasdaq Stock Market, Inc.\4\ The
[[Page 37520]]
Plan, the contents of which are self-explanatory, describes the
purposes, functions, governance, procedures and responsibilities of
each entity.
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\4\ The Plan does not discuss other wholly owned subsidiary
corporations of the NASD, such as, the Securities Dealers Risk
Purchasing Group, Inc. and Securities Dealers Insurance Co., Ltd.
These and any other wholly owned subsidiaries of the NASD not
described in the Plan do not perform any of the Association's
regulatory functions or the operating functions related to the
operation of The Nasdaq Stock Market. In addition the Plan does not
address the NASD's ownership role in corporations such as the
National Securities Clearing Corporation or the Depository Trust
Company.
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The first part of the Plan describes the parent corporation,
National Association of Securities Dealers, Inc. The Plan sets forth
the purpose and function of the NASD; the composition of the Board of
Governors, including provisions relating to the qualifications for
Governors, election procedures, creation of a National Nominating
Committee,\5\ term of office, vacancies and removal from office; the
function, composition and reporting structure of the Audit Committee
and the Office of International Review; the function and composition of
the Management Composition Committee; and the Commission's access to
and status of officers, directors, employees, books, records and
premises of the subsidiaries.
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\5\ The National Nominating Committee shall be composed of at
least six and not more than nine members equally balanced between
Industry and Non-Industry Committee Members (including at least two
Public Committee Members). Two members of the National Nominating
Committee shall be selected by each of the Subsidiaries and the
NASD, of which it is anticipated that at least three will be Non-
Industry Members.
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The second part of the Plan describes the regulatory subsidiary,
NASD Regulation, Inc. The Plan sets forth the delegation of authority
to NASDR by the NASD; the purpose, function and authority of NASDR; the
composition of and qualifications for members of the Board of Directors
from 1997 forward, including provisions relating to election
procedures; the function and composition the National Business Conduct
Committee; the Board's procedures for reviewing disciplinary actions,
statutory disqualification decisions and proposed rule change
recommendations; and the Board's procedures for initiating actions.
The third part of the Plan describes the stock market operating
subsidiary, The Nasdaq Stock Market, Inc. The Plan sets forth the
delegation of authority to Nasdaq; the purpose and function of Nasdaq;
the composition of and qualifications for members of the Board of
Directors, including, provisions relating to election procedures and
the authority of the Board; the Board's procedures for reviewing
listing/delisting decisions, and rule change recommendations; the
Board's procedures for initiating actions; the functions and
composition of the Quality of Markets Committee; and functions of the
Stockwatch Department.
Description of Amendments to Plan
The NASD is filing as part of this rule change three amendments to
the Plan previously approved by the Commission in SR-NASD-96-16. The
NASD is proposing to amend Article I.C.3 of the Plan that is titled
Contested Elections in order to make clear that: (1) the term for which
a candidate nominated by petition would be elected cannot subsequently
be set by the Board of Governors of the NASD for a term shorter than
that for which the Nominating Committee's candidate was proposed; and
(2) the Nominating Committee certifies only that a nominee has
satisfied the criteria for nomination by position in the category to be
filled (i.e., Public, Non-industry, Industry).
In addition, the NASD is proposing to add a new subparagraph to
Sections II.C. and III.C of the Plan. Those sections currently specify
that disciplinary, statutory disqualification, listing/delisting, and
rule filing actions by the subsidiaries may be called for review by the
NASD Board at the meeting next following the subsidiary's board
meeting, so long as the NASD Board meeting is at least 15 calendar days
after the subsidiary's Board meeting. With the exception of rule
filings, an action by one of the subsidiaries that is not called for
review will only become a final action of the NASD after the expiration
of the 15-day period. Rule filings that are referred by a subsidiary to
the NASD Board are permitted to be reviewed immediately. If, however,
the rule filing is not so referred, the Board's determination to review
or not review on its own motion must wait for the expiration of the 15-
day period. While this mandatory time period ensures that the NASD
Board will have sufficient opportunity to determine whether or not to
call for review, there are situations where the NASD believes it to be
in the public interest to expedite its determination whether or not to
call for review a disciplinary, statutory disqualification or rule
filing action by a subsidiary board and, if a matter is called for
review, to take appropriate action. Examples of situations that might
require such an expedited treatment include: proceedings to revoke the
registration of a member or person associated with a member when the
associated person has become subject to a statutory disqualification or
the member or the person has failed to pay an arbitration award;
disciplinary proceedings imposing sanctions of expulsion of a member or
bar of an associated person; and rulemaking that results from a market
emergency or otherwise requires submission to the Commission on an
expeditious basis in the public interest.
(b) Statutory Basis for the Proposed Rule Change
The NASD believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(2) of the Act \6\ in that the terms of
the Plan will provide for the organization of the Association in a
manner that will permit the Association, through its operating
subsidiaries, to carry out the purposes of the Act, to comply with the
Act, and to enforce compliance by Association members and persons
associated with members with the Act, the rules and regulations
thereunder, the rules of the Association and the federal securities
laws.
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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
Written comments were neither solicited nor received. However, in
connection with the publication for member vote of proposed amendments
to the By-Laws to implement the Plan in Notice to Members 95-101
(December 11, 1995), attached as Exhibit 2 to proposed rule change SR-
NASD-96-02, the NASD received three comments which were attached as
Exhibit 4 to that proposed rule change. The NASD's statement on the
comments received with respect to Notice to Members 95-101 is set forth
in SR-NASD-96-02 and was published by the Commission in Securities
Exchange Act Release No. 37106 (April 11, 1996), 61 FR 16944 (April 18,
1996). SR-NASD-96-02 proposed certain of the By-Law amendments issued
for member vote in Notice to Members 95-101 (December 11, 1995) in
order to permit the reorganization of its Board of Governors consistent
with the Plan submitted in SR-NASD-96-16.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The NASD has requested that the Commission find good cause pursuant
to Section 19(b)(2) for approving the
[[Page 37521]]
proposed rule change prior to the 30th day after publication in the
Federal Register.
IV. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to the NASD and, in particular, the requirements
of Section 15A of the Act and the rules and regulations thereunder. The
Commission believes that the proposed rule change will allow the NASD
to carry out the purposes of the Act to comply with, and enforce
compliance by its members and associated persons, with the provisions
of the Act, the rules and regulations thereunder, and the rules of the
NASD. Furthermore, the amendments are designed (with amendments to the
NASD By-Laws simultaneously approved in SR-NASD-96-20, as set forth
below) to assure a fair representation of the NASD's members, in the
selection of its directors and administration of its affairs as well as
comply with the public and non-industry participant requirements of the
Act. It is envisioned that these rules and any subsequent changes that
may be implemented from time-to-time will enable the NASD to better
comply with the requirements of Section 15A(b)(2) in particular and the
Act in general.
The Commission finds good cause for approving the proposed rule
change prior to the 30th day after the date of publication of notice of
filing thereof in that accelerated approval will enhance the NASD's
ability to carry out its regulatory obligations under the Act. The
Commission believes that the proposed rule change is intended to
accomplish certain allocations and delegations of authority necessary
to reorganize the NASD, and establish as separate subsidiaries the
NASDR and Nasdaq in accordance with the September 1995 recommendations
of The Select Committee on Structure and Governance in order to enable
the NASD to meet its regulatory and business obligations. The Plan,
which is part of this proposed rule change, sets forth the purpose,
functions, governance, procedures, and responsibilities of the NASD,
the NASDR and Nasdaq following the reorganization of the NASD. The
NASD's Board of Governors, which has been reorganized to be consistent
with the proposed rule change, has held meetings to carry out the
business of the Association. The subsidiaries also have held meetings
of the Board of Directors of NASDR and Nasdaq in order to carry out the
business of the subsidiaries during the 90 day period during which the
Plan has been effective.
The proposed rule change, with the exception of the three
amendments submitted herein, was previously filed with the Commission
in SR-NASD-96-16 and was simultaneously published for comment and
approved by the Commission on a temporary basis for a period of 90 days
in Release 34-37107. The 90-day approval period expires on July 10,
1996. No comment letters concerning SR-NASD-96-16 were received by the
Commission. The reorganization of the NASD Board of Governors is also
reflected in proposed rule changes to the NASD By-Laws submitted in
rule filing SR-NASD-96-20 and published for comment by the Commission
in Securities Exchange Act Release No. 37282 (June 6, 1996), 61 FR
29777 (June 12, 1996). The Commission is granting temporary accelerated
approval to that proposed rule change.\7\
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\7\ See Securities Exchange Act Release No. 37424 (July 11,
1996).
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Accordingly, the Commission believes that accelerating the approval
of the proposed rule change will benefit members and the public
interest by fully implementing the reorganization of the NASD and its
subsidiaries.
V. 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 August 8, 1996.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change SR-NASD-96-29 be, and hereby is, approved
for a period of 120 days.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-18170 Filed 7-17-96; 8:45 am]
BILLING CODE 8010-01-M