[Federal Register Volume 61, Number 201 (Wednesday, October 16, 1996)]
[Notices]
[Pages 53984-53987]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-26396]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37797; File No. SR-NASD-96-32]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by National 
Association of Securities Dealers, Inc. Relating to Availability of 
Disciplinary Complaints and Disciplinary Decisions Upon Request

October 9, 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 October 
2, 1996, NASD Regulation, Inc. (``NASDR'') 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 NASDR.\1\ The

[[Page 53985]]

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.
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    \1\ The NASD initially submitted the filing on August 6, 1996. 
On September 19, 1996, the NASD filed Amendment No. 1 with the 
Commission. See letter from Alden S. Adkins, Vice President and 
General Counsel, NASD, Inc., to Katherine A. England, Assistant 
Director, Division of Market Regulation, SEC (September 19, 1996). 
On October 2, 1996, NASDR filed Amendment No. 2 with the Commission. 
See letter from Suzanne E. Rothwell, Associate General Counsel, NASD 
Regulation, Inc., to Katherine A. England, Assistant Director, 
Division of Market Regulation, SEC (October 2, 1996).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDR is proposing to amend the Interpretation on the Release of 
Disciplinary Information, IM-8310-2 of the Procedural Rules of the 
National Association of Securities Dealers, Inc. (``NASD'' or 
``Association''), to permit the Association to provide a copy of any 
disciplinary complaint or disciplinary decision upon request and to 
require that such copy be accompanied by a disclosure statement in 
certain circumstances. Below is the text of the proposed rule change. 
Proposed new language is italicized; proposed deletions are in 
brackets.

IM-8310-2. Release of Disciplinary Information

    (a) The Association shall, in response to a written inquiry or 
telephonic inquiry via a toll-free telephone listing, release certain 
information as contained in its files regarding the employment and 
disciplinary history of members and their associated persons, including 
information regarding past and present employment history with 
Association members; all final disciplinary actions taken by federal or 
state or foreign securities agencies or self-regulatory organizations 
that relate to securities or commodities transactions; all pending 
disciplinary actions that have been taken by federal or state 
securities agencies or self-regulatory organizations that relate to 
securities and commodities transactions and [have been] are required to 
be reported on Form BD or U-4 and all foreign government or self-
regulatory organization disciplinary actions that are securities or 
commodities related and are required to be reported on Form BD or U-4; 
and all criminal indictments, informations or convictions that are 
required to be reported on Form BD or Form U-4. The Association will 
also release information concerning civil judgments and arbitration 
decisions in securities and commodities disputes involving public 
customers.
    (b) The Association shall, in response to a request, release to the 
requesting party a copy of any identified disciplinary complaint or 
disciplinary decision issued by the Association or any subsidiary or 
Committee thereof; provided, however, that each copy of:
    (1) a disciplinary complaint shall be accompanied by a statement 
that the issuance of a disciplinary complaint represents the initiation 
of a formal proceeding by the Association in which findings as to the 
allegations in the complaint have not been made and does not represent 
a decision as to any of the allegations contained in the complaint;
    (2) a disciplinary decision that is released prior to the 
expiration of the time period provided under the Code of Procedure for 
appeal or call for review within the Association or while such an 
appeal or call for review is pending, shall be accompanied by a 
statement that the findings and sanctions imposed in the decision may 
be increased, decreased, modified, or reversed by the Association;
    (3) a final decision of the Association that is released prior to 
the time period provided under the Securities Exchange Act of 1934 for 
appeal to the Commission or while such an appeal is pending, shall be 
accompanied by a statement that the findings and sanctions of the 
Association are subject to review and modification by the Commission; 
and
    (4) a final decision of the Association that is released after the 
decision is appealed to the Commission shall be accompanied by a 
statement as to whether the effectiveness of the sanctions has been 
stayed pending the outcome of proceedings before the Commission.
    Current paragraphs (b) through (k) are redesignated (c) through 
(l).

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NASDR 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 III below. NASDR 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) In 1988, the NASD established a Public Disclosure Program 
(``Program'') that, among other things, makes certain types of federal 
and state disciplinary information on NASD members and associated 
persons available to the public through the Central Registration 
Depository (``CRD'') maintained by the NASD.\2\ This Program provides 
investors, customers and the press with access to a number of 
categories of information on an NASD member or any of the member's 
associated persons, which are provided to inquiring persons in synopsis 
form. Subsequent to the establishment of the Program, the Securities 
Enforcement Remedies and Penny Stock Reform Act of 1990 \3\ mandated 
that the NASD implement a toll-free telephone number to provide 
employment history and disciplinary information about members and 
associated persons to inquiring persons. The NASD complied with this 
mandate in April 1992 and, since that time, has made periodic 
improvements to the Program to expand the scope of information 
available upon request. One of these improvements included the release 
of information through the Program of information on pending NASD 
disciplinary proceedings, which includes providing a synopsis of NASD 
disciplinary complaints \4\ and disciplinary decisions on appeal to the 
National Business Conduct Committee (``NBCC'').
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    \2\ See Notice to members 93-37 (June 1993).
    \3\ Public Law 101-429, 104 Stat. 931 (1990).
    \4\ This rule change addresses only ``disciplinary complaints,'' 
not ``customer complaints.''
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    Those individuals, including the press, who are aware of the 
availability of information through CRD may obtain a description in 
synopsis form of any disciplinary complaint or disciplinary decision 
issued by the Association with respect to any member or associated 
person of a member by requesting the synopsis from CRD through the 
NASD's toll-free telephone number or by making a written inquiry. Such 
persons sometimes, as part of their inquiry, request a complete copy of 
the disciplinary complaint or decision from the Association. Under the 
Interpretation on the Release of Disciplinary Information (``Rule''), 
IM-8130-2,\5\ NASD Regulation provides notification to the membership 
and the press of significant disciplinary decisions when time for 
appeal and call for review has expired, but the Rule does not 
specifically authorize the Association to provide copies of any 
disciplinary complaint or disciplinary

[[Page 53986]]

decision, in its entirety, upon request. As a matter of practice, the 
staff has not provided copies of disciplinary complaints in response to 
requests. In contrast, the Association has, however, maintained a 
policy since 1994 of providing complete copies of disciplinary 
decisions upon request, pursuant to an interpretation of paragraph (a) 
of the Rule, which permits the Association to release information upon 
request regarding ``* * * all pending disciplinary actions * * * .'' 
Such decisions that are issued by a District Business Conduct Committee 
or the Market Surveillance Committee prior to the expiration of the 
time during which the decision can be appealed or called for review 
within the Association are accompanied by a statement that the findings 
and sanctions could be increased, decreased, or modified by the 
Association if the matter is appealed to the NBCC or called for review.
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    \5\ The Interpretation was previously cited as ``Resolution of 
the Board of Governors--Notice to Membership and Press of 
Suspensions, Expulsions, Revocations, and Monetary Sanctions and 
Release of Certain Information Regarding Disciplinary History of 
Members and Their Associated Persons'' and appeared after paragraph 
2301 of the NASD Manual, following Article V, Section 1 of the Rules 
of Fair Practice.
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    NASDR is proposing to amend the Rule to adopt new paragraph (b) to 
clarify that the Association shall provide, on request, copies of any 
NASD disciplinary complaint and disciplinary decision. In making a 
request for a disciplinary complaint, the proposed rule change requires 
that the requesting party ``identify'' the disciplinary complaint or 
decision that is being requested. This language is intended to prevent 
requests for ``all complaints'' or ``all decisions'' of the 
Association.\6\ The language requiring that the party ``identify'' the 
complaint or decision request will be satisfied where the requesting 
party identifies a particular broker/dealer or a particular associated 
person that is a respondent in an NASD disciplinary action (although 
the date of any action may not be known) or identifies the issue or 
rule that is the subject of a complaint (where the identity of the 
member is not known). Although a request may identify a time period 
when the requested complaint or decision was issued, it would be 
permissible for the requesting party to obtain a copy of all complaints 
and decisions related to an identified broker/dealer or associated 
person without reference to a time period.
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    \6\ The NASD believes that omnibus requests by commercial 
organizations for copies of all complaints and decisions for a 
particular year, for example, would impose a considerable burden on 
NASDR, impeding the organization's ability to respond to the 
individual requests of the investing public.
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    In addition, the proposed rule change would require that copies of 
disciplinary complaints and decisions be accompanied by certain 
disclosures, in certain circumstances, that are set forth in 
subparagraphs (b)(1)-(4) in order to advise the recipient of the status 
of the disciplinary action. In particular, NASDR is concerned that 
recipients of a copy of a disciplinary complaint understand that the 
issuance of a complaint does not represent a decision as to any of the 
allegations contained in the complaint. The proposed rule change, 
therefore, would require that any copy of a disciplinary complaint be 
accompanied by a statement that the issuance of a complaint represents 
the initiation of a formal proceeding by the Association in which 
findings as to the allegations in the complaint have not been made and 
that this issuance does not represent a decision as to any of the 
allegations contained in the complaint. Moreover, disciplinary 
decisions are issued at the initial hearing level and at a number of 
appellate review levels of the organization. It is important, 
therefore, that a recipient of a disciplinary decision be advised when 
a decision is not considered final by the Association because the time 
for the respondent to appeal the matter or the time for a reviewing 
body of the Association to call the matter for review has not expired, 
or the review of a matter is pending. The proposed rule change 
provides, therefore, that any copy of a disciplinary decision issued 
pursuant to the Code of Procedure prior to the expiration of the time 
for appeal to or call for review within the Association (i.e., by, as 
applicable, the NBCC, Board of Directors of NASD Regulation, or Board 
of Governors of the Association) or released while such an appeal or 
review is pending, would be required to be accompanied by a statement 
that the findings and sanctions imposed in the decision may be 
increased, decreased, modified, or reversed by the Association if the 
matter is appealed or called for review. This language is consistent 
with the disclosures that currently are being provided with respect to 
decisions issued by a District Business Conduct Committee or Market 
Surveillance Committee prior to the expiration of the time for appeal 
or call for review, or while an appeal is pending.
    Similarly, any copy of a final decision of the Association released 
prior to the expiration of the time period for the filing of an appeal 
to the SEC or while such an appeal is pending would be required to be 
accompanied by a statement that the findings and sanctions of the 
Association are subject to review by the Commission if the decision is 
appealed. Finally, any copy of a final decision of the Association 
released after the decision is appealed to the Commission would be 
required to be accompanied by a statement that the effectiveness of the 
decision has or has not been stayed pending the outcome of proceedings 
before the Commission. This language is drawn from current paragraph 
(g) of the Rule.
    NASDR is also proposing to amend paragraph (a) of the Rule. 
Currently, the provision appears to prevent information from being 
provided through the Program if it has not been reported on Form BD or 
U-4, even though Form BD or U-4 would require the reporting of such 
information. This was not the intent of the current rule language. 
NASDR is, therefore, proposing to amend the provision to clarify that 
information provided through the Program is that information that is 
required to be reported on Form BD or U-4, regardless of whether the 
information is actually provided to the NASD on these forms.
    (b) NASDR believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) \7\ of the Act in that the proposed 
rule change to permit the Association to provide copies of NASD 
disciplinary complaints and disciplinary decisions to persons upon 
request will protect investors and the public interest by providing 
more complete information to such persons than currently can be 
obtained from the synopsis of disciplinary complaints and decisions 
that is provided by the Program.
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    \7\ 15 U.S.C. 78o-3.
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    NASDR 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. 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

[[Page 53987]]

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 [insert date 21 days from the date of 
publication].

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    NASDR has requested that the Commission find good cause pursuant to 
Section 19(b)(2) of the Act, for approving the proposed rule change 
prior to the 30th day after publication in the Federal Register. The 
Commission has reviewed the NASDR's proposed rule change and believes, 
for reasons set forth below, that the proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to the NASD. Specifically, the Commission believes the 
proposal is consistent with Section 15A(b)(6) of the Act, which 
provides in pertinent part that the rules of the 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 and not to permit unfair 
discrimination among customers, issuers, brokers or dealers.
    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act, for approving the proposed rule change prior to the 30th day 
after publication in the Federal Register.\8\ Paragraph (a) of IM-8310-
2 permits the Association to release information on ``all pending 
disciplinary actions that have been taken by federal or state 
securities agencies or self-regulatory organizations that relate to 
securities and commodities transactions * * *'' in response to a 
request. NASDR believes that this provision permits the Association, 
upon request, to release copies of its disciplinary complaints and 
decisions, as well as, providing, on request, a synopsis of such 
complaints and decisions based on the information in the CRD. The 
proposed rule change would codify this interpretation of Paragraph (a) 
of the Rule. The Commission believes that the proposed rule change 
would benefit the investing public by providing more complete 
disclosure of information related to disciplinary complaints and 
disciplinary decisions. Supplying this additional information would 
benefit the subject of the complaint as well; instead of disseminating 
a synopsis, lacking detail, a full account of the circumstances would 
be made available.
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    \8\ See, supra, note 1.
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    Based on the foregoing, the Commission deems it appropriate to 
approve the proposed rule change on an accelerated basis, pursuant to 
Section 19 of the Act and the rules and regulations thereunder.\9\
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    \9\ 15 U.S.C. 78o-3.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change SR-NASD-96-32 be, and hereby is, 
approved.

    \10\ 15 U.S.C. 78s(b)(2).
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    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. 96-26396 Filed 10-15-96; 8:45 am]
BILLING CODE 8010-01-M