[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]]

-----------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

(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\
---------------------------------------------------------------------------

    \6\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-30941 Filed 12-4-96; 8:45 am]
BILLING CODE 8010-01-M