[Federal Register Volume 61, Number 243 (Tuesday, December 17, 1996)]
[Notices]
[Pages 66339-66340]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31890]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38042; File No. SR-NASD-96-42]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the National Association of Securities Dealers, Inc.
December 11, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ Notice is hereby given that on November 15, 1996, the
National Association of Securities Dealers Regulation, Inc. (``NASD
Regulation'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comment on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NASD Regulation proposes to amend Rule 11580 of the Conduct Rules
of the National Association of Securities Dealers, Inc. (``NASD'' or
``Association''), the grant authority to NASD Regulation staff to
provide exemptions to the provisions of NASD Rule 11580. The text of
the proposed rule change is set forth below [next text is italicized;
deleted text is bracketed]:
Uniform Practice Code
11500. Delivery of Securities With Restrictions
* * * * *
11580. Transfer of Limited Partnership Securities
(a) Each member who participates in the transfer of limited
partnership securities, as defined in Rule 2810, shall use standard
transfer forms in the same form as set forth in IM-11580. This rule
shall not apply to limited partnership securities which are traded on
the Nasdaq Stock Market or a registered national securities exchange.
(b) The Corporate Financing Department may, pursuant to a written
request for good cause shown, grant an exemption from the requirements
of subparagraph (a) to permit a member to modify the standard transfer
forms for the transfer of limited partnership securities where
necessary to meet other legal or regulatory requirements or to
otherwise facilitate the transfer of the securities.
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 self-regulatory organization
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. NASD Regulation has prepared
summaries, set forth in Section 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
1. Purpose
Background
On January 29, 1996, the Commission approved an amendment to the
NASD's Uniform Practice Code requiring members to use standardized
transfer, registration confirmation, and distribution allocation forms
(``Forms'') when transferring limited partnership securities.\2\ Prior
to the amendment, NASD members were confronted with limited partnership
transfer requirements that varied widely as to the type of information
and documents necessary for a valid transfer of a partnership interest.
In addition, non-standardized distribution payment provisions required
by partnerships caused or contributed to delays or mistakes in the
allocation of cash distributions between buyers and sellers of
partnership securities, often leading to disputes over distributions
that were settled by broker-dealers at their own expense or through
arbitration or litigation. The Forms were developed in order to provide
a uniform way for members to assist in the transfer of limited
partnership interest and the allocation of partnership distributions.
Use of the Forms became mandatory for NASD members on May 15, 1996.
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\2\ Securities Exchange Act Release No. 36783 (Jan. 29, 1996),
61 FR 3955 (approving File No. SR-NASD-95-53).
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After the amendment became effective, transfer agents, member
firms, and securities attorneys raised a number of questions concerning
the applicability of the Forms to certain types of transfers. For
example, it was suggested that the distribution allocation form be
modified to provide additional options for specific treatment of
capital transactions, capital distributions, sale or refinancing
proceeds, special distributions, liquidating distributions, and
distributions with respect to terminating transactions.
In another case, an NASD member stated that in order to satisfy
certain legal and operating requirements of partnerships sold by it,
modifications to both the transfer and distribution allocation forms
were necessary to satisfy certain conditions of purchase imposed by its
limited partnership secondary transaction department.
In addition, while the Forms were intended to be used for all
purchases, sales, exchanges, and transfers of limited partnership
interests, many member firms have developed standard one page documents
for transfers that are ``not for consideration,'' such as transfers
related to a change of trustee or custodian or transfers resulting from
death, divorce, or gift. These previously developed documents fulfill
the same purpose as the new Standardized Transfer Forms, i.e.,
permitting a fast and efficient transfer of the security.
Finally, other miscellaneous issues have been raised in connection
with the use of the Forms, including a request to meet a requirement
that each investor demonstrate U.S. citizenship.
Description of Proposed Amendment
NASD Regulation believes it will continue to receive requests for
permission to modify the Forms in order to meet differing requirements.
NASD Regulations is, therefore, proposing to add new paragraph (b) to
NASD Rule 11580 to grant authority to NASD
[[Page 66340]]
Regulation's Corporate Financing Department, pursuant to a written
request for good cause shown, to allow an exemption from the
requirements of paragraph (a) to NASD Rule 11580 to permit a member to
modify the standard transfer forms for the transfer of limited
partnership securities where necessary to meet other legal or
regulatory requirements or to otherwise facilitate the transfer of the
securities. Thus, the proposed rule change would grant NASD Regulation
staff the authority to issue exemptions from the requirement to use the
Forms. Such exemptions would allow members to modify the Forms in
certain situations where, for example, other regulatory or legal
requirements may present a conflict or would impede the transfer
process.
NASD Regulation recognizes that it may not be possible to bring
specific uniformity to every transfer due to the uniqueness and variety
of partnership products, but also believes that the proposed rule
change will not have an adverse impact on the standardized nature of
the Forms. Moreover, the proposed rule change will allow the staff to
provide the flexibility sometimes necessary to facilitate a more
efficient transfer of partnership interests in particular cases where a
rigid ``form over substance'' requirement might hinder the transfer
process.
2. Statutory Basis
NASD Regulation believes the proposed rule change is consistent
with the provisions of Section 15A(b)(6)\3\ of the Act, which require
that the Association adopt and amend its rules to promote just and
equitable principles of trade, and generally provide for the protection
of investors and the pubic interest, in that the proposed rule change
maintains the standardization of the process and means by which limited
partnership securities are transferred in the secondary markets, while
providing the needed flexibility to allow members to comply with
modified requirements of the transfer forms as needed, thus eliminating
specific delays and inefficiencies in the transfer process in
particular circumstances.
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\3\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
NASD Regulation believes the proposed rule change will impose no
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
NASD Regulation has neither solicited nor received written
comments.
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 at the
Commission's Public Reference Room. Also, copies of such filing will be
available for inspection and copying at the principal office of the
NASD. All submissions should refer to File No. SR-NASD-96-42 and should
be submitted by January 7, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\4\
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\4\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-31890 Filed 12-16-96; 8:45 am]
BILLING CODE 8010-01-M