[Federal Register Volume 61, Number 235 (Thursday, December 5, 1996)]
[Notices]
[Pages 64549-64550]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-30941]
[[Page 64549]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37994; File No. SR-NASD-96-38]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by National Association of Securities Dealers, Inc., Relating to
Release of Additional Information Regarding Disciplinary History of
Members and Their Associated Persons Via Toll-Free Telephone Listing
November 27, 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 November
25, 1996 \1\ 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. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ The NASDR filed Amendment No. 1 to supersede the filing
submitted on October 17, 1996. See letter from Joan C. Conley,
Corporate Secretary, NASDR, to Katherine A. England, Esq., Assistant
Director, Division of Market Regulation, SEC, dated November 25,
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 include additional information required to be
reported on the revised Forms BD and U-4. Below is the text of the
proposed rule change. Proposed new language is in italics.
IM-8310-2. Release of Disciplinary Information
(a) The Association shall, in response to a written inquiry,
electronic 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 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
required to be reported on Form BD or Form U-4 concerning civil
judgments and arbitration decisions in securities and commodities
disputes involving public customers, pending and settled customer
complaints, arbitrations and civil litigation, current
investigations involving criminal or regulatory matters,
terminations of employment after allegations involving violations of
investment related statutes or rules, theft or wrongful taking of
property, bankruptcies less than ten (1) years old, outstanding
judgements or liens, any bonding company denial, pay out or
revocation, and any suspension or revocation to act as an attorney,
accountant or federal contractor.
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 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 IV below. The 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
This proposed rule change will permit the NASD to release
additional information contained in the Central Registration Depository
(``CRD'') System regarding the disciplinary history of its members and
their associated persons in response to a written, electronic inquiry
or telephonic inquiry via its existing toll-free telephone listing
which is included in the ``Public Disclosure Program'' (``Program'').
The NASD presently has in place its toll-free telephone listing, which
was approved by the Commission in April 1992 and which was amended in
July 1993.\2\ Under the Program as amended, the NASD reports the past
and present employment history of associated persons with NASD members,
pending and final disciplinary actions taken by foreign, federal or
state securities agencies or self-regulatory organizations which relate
to securities or commodities transactions, criminal indictments,
informations or convictions required to be reported on Form BD or Form
U-4, and civil judgment and arbitration decisions in securities and
commodities disputes involving public customers. In addition to the
existing toll-free service, the NASD plans to provide a Public
Disclosure Form on its World Wide Web site. Investors using the form
will be able to request the same information accessible from the toll-
free number. The NASD also plans to add the capability of responding
via e-mail to such requests.
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\2\ See Securities Exchange Act Rel. No. 30629 (April 23, 1992),
57 FR 18535 (April 30, 1992); and Securities Exchange Act Rel. No.
32568 (July 1, 1993), 58 FR 36723 (July 8, 1993).
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The proposed rule change will allow the NASD to release all
information on any question on page 3 (Question 22) of the revised Form
U-4 and Question 11 of the revised Form BD. The SEC approved the
revised Forms U-4 and BD in July 1996.\3\ The revised Forms U-4 and BD
will be used when the new CRD system becomes operational in the spring
of 1997. The additional information to be disclosed includes:
\3\ See Securities Exchange Act Rel. No. 37407 (July 5, 1996),
61 FR 36595 (July 11, 1996); and Securities Exchange Act Rel. No.
37431 (July 12, 1996), 61 FR 37357 (July 18, 1996). See also
Securities Exchange Act Rel. No. 37632 (September 4, 1996), 61 FR
47412 (September 9, 1996).
1. All pending arbitrations and civil proceedings that relate to
securities or commodities transactions;
2. Pending written customer complaints alleging sales practice
violations and compensatory damages of $5,000 or more;
3. Settlements of $10,000 or more of arbitrations, civil suits
and customer complaints involving securities or commodities
transactions;
4. Current investigations involving criminal or regulatory
matters;
5. Terminations of employment after allegations involving
violations of investment-related statutes or rules, fraud, theft or
failure to supervise investment-related activities;
6. Bankruptcies less than 10 years old and outstanding liens or
judgments;
7. Bonding company denials, payouts or revocations; and
8. Any suspension or revocation to act as an attorney,
accountant or federal contractor.
The revised Form U-4 will require the reporting of all written
customer complaints that 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 but will generally include any allegations
concerning a violation of applicable Commission, self-regulatory
organization or state securities rules. Under the revised Forms U-4 and
U-5, written complaints that do not evolve into arbitration, civil
litigation or a
[[Page 64550]]
settlement over the jurisdictional amount, would be deleted from the
CRD system two years from the date of the report to the complaint to
the CRD system. Dismissed or withdrawn arbitration or civil proceedings
would also be deleted. All arbitration and civil litigation proceedings
involving securities transaction matters and all settlements of $10,000
or more would be reported.
Because there are differences in the information required to be
disclosed in the existing and revised Form U-4 and because the revised
Form U-4 will not be utilized until the new CRD system is operational
in 1997, the proposed changes to the Program will be implemented in two
phases. In the first phase, starting with implementation of the
proposed disclosure changes in calendar 1996 until the new CRD system
is operational, the NASD will review each member's and associated
person's existing CRD record against the revised Question 22 on page 3
of Form U-4 and disclose any information that is available to the NASD
at that time. The revised Form U-4 will require the reporting of
certain written customer complaints that are not required to be
reported on the existing Form U-4. Since these ``new'' complaints are
not presently required to be reported, these complaints will not be
available for disclosure until the revised Form U-4 is in use. In phase
two, beginning with the operation of the new CRD system (expected to be
in spring 1997), the NASD will disclose all information required to be
disclosed in revised Question 22 on page 3.
The NASD believes the proposed rule change is consistent with
Sections 15A(b)(6) \4\ and 15A(i) \5\ of the Act. The NASD believes the
proposed rule change will further the goals of these sections of the
Act because the increased disclosure will enhance the general public's
access to information that will help investors determine whether or not
to conduct or continue to conduct business with an NASD member or any
of the member's associated persons. The NASD also recognizes the growth
in information technology and its customers' increased use thereof;
thus, the proposed rule change attempts to accommodate investors by
making access to information as convenient as possible.
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\4\ Section 15A(b)(6) requires that the Association amend its
rules to prevent fraudulent and manipulative acts and practices, to
remove impediments to and perfect the mechanism of a free and open
market, and in general, to protect investors and the public
interest.
\5\ Section 15A(i) requires the Association to: (1) Establish
and maintain a toll-free telephone listing to receive inquiries
regarding disciplinary actions involving its members and their
associated persons, and (2) promptly respond to such inquiries in
writing.
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(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 December 26, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\6\
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\6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-30941 Filed 12-4-96; 8:45 am]
BILLING CODE 8010-01-M