[Federal Register Volume 62, Number 89 (Thursday, May 8, 1997)]
[Notices]
[Pages 25226-25354]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-11600]
[[Page 25225]]
_______________________________________________________________________
Part II
Securities and Exchange Commission
_______________________________________________________________________
Self-Regulatory Organizations; Notice of Filing of a Proposed Rule
Change by the National Association of Securities Dealers, Inc.; Notice
Federal Register / Vol. 62, No. 89 / Thursday, May 8, 1997 /
Notices
[[Page 25226]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38545; File No. SR-NASD-97-28]
Self-Regulatory Organizations; Notice of Filing of a Proposed
Rule Change by the National Association of Securities Dealers, Inc.
(``NASD'') to Proposed Changes in the By-Laws of the NASD, NASD
Regulation, Inc., The Nasdaq Stock Market, Inc., the Plan of Allocation
and Delegation of Functions by the NASD to Subsidiaries, Membership
Application Procedures, Disciplinary Proceedings, Other Proceedings,
and Other Conforming Changes
April 24, 1997.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),1 notice is hereby given that on April 18,
1997,2 the National Association of Securities Dealers, Inc.
(``NASD'') 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 self-
regulatory organization. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ On April 23, 1997, the Association filed a technical
amendment to the proposed rule change. See letter from Alden S.
Adkins, General Counsel, NASD Regulation, Inc. to Katherine A.
England, Assistant Director, Division of Market Regulation,
Commission (``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The NASD is filing a proposed rule change to: (1) The By-Laws of
the NASD; (2) the By-Laws of NASD Regulation, Inc. (``NASD
Regulation''); (3) the By-Laws of The Nasdaq Stock Market, Inc.
(``Nasdaq''); (4) the Plan of Allocation and Delegation of Functions By
NASD to Subsidiaries (``Delegation Plan''); (5) Rule 0120; (6) Rule IM-
2210-4; (7) the Rule 1010 Series; (8) the Rule 8000 Series; and (9) the
Rule 9000 Series.3
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\3\ Because the proposed rule change includes a number of
amendments to the corporate documents of the NASD, NASD Regulation
and Nasdaq, as well as numerous proposed rules, the three
corporations collectively will be referred to as the ``Association''
for the purpose of this rule filing.
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Attached as Exhibit 1 is the text of the proposed rule change. In
(1) the By-Laws of the NASD; (2) the By-Laws of NASD Regulation; (3)
the By-Laws of Nasdaq; (4) the Delegation Plan; (5) Rule 0120; (6) Rule
IM-2210-4; and (7) the Rule 8000 Series, proposed new language is
italicized; proposed deletions are in brackets. In the Rule 1010 Series
and the Rule 9000 Series, the extensive nature of the proposed changes
reduces the usefulness of a line-by-line analysis comparing the
proposed new language with the proposed deleted language. If the
proposed Rule 1010 Series and the proposed Rule 9000 Series are
adopted, the Association proposes to rescind in full the current Rule
1010 Series and the current Rule 9000 Series, except the Rule 9700
Series and the Rule 9800 Series. The current Rule 9700 Series will
remain in effect for a short period while Nasdaq seeks approval by the
Commission to amend such rules, including their renumbering as Rule
4000 Series provisions.4
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\4\ The proposed Rule 9500 Series will supersede the Rule 9600
Series. As part of the deletion of the current Rule 9600 Series, the
current Rule 9630 Series (Expedited Remedial Proceedings) will be
deleted. At a later date, however, the Association will propose a
different approach for an expedited remedial proceeding.
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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. The self-regulatory organization
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
1. Purpose
a. Introduction
The Association is proposing a comprehensive rule change to address
three primary issues--how an entity or person becomes a member of the
Association (``membership proceedings''); how the Association may
discipline a member or a person associated with a member for
misconduct; and, how NASD and NASD Regulation nominations and elections
for certain board and committee positions are conducted. The proposed
changes in the Association's membership proceedings are set forth in
the proposed Rule 1010 Series. The proposed changes to the
Association's array of proceedings to discipline a member or a person
associated with a member are set forth in the proposed Rule 9000
Series. The proposed changes to the election procedures are set forth
in the proposed NASD By-Laws, Article VII, and proposed NASD Regulation
By-Laws, Articles VI and VIII.
Both the proposed Rule 1010 Series and the proposed Rule 9000
Series will effect many changes to the procedures now used. The
proposed Rule 1010 Series provides that NASD Regulation staff, rather
than a District Committee,5 will make an initial decision on
an application for membership. An Applicant may appeal a staff decision
to the National Business Conduct Committee.6 The National
Business Conduct Committee decision is subject to discretionary review
by both the NASD Regulation Board and the NASD Board.7 The
proposed rule change also sets forth a more detailed and comprehensive
list of the documents and information that must be submitted with a
membership application and sets forth more detailed, comprehensive, and
objective standards to be used to determine whether an applicant should
be admitted to membership. The proposed rule change also provides more
procedural rights to applicants to ensure that applications are
processed expeditiously, including limitations on the time within which
the Association must issue membership decisions.
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\5\ Terms that are defined in the proposed rule filing are
capitalized in this discussion (e.g., the term ``District
Committee'' means a district committee elected pursuant to Article
VIII of the NASD Regulation By-Laws). (Proposed NASD Regulation By-
Laws, Art. I(j).)
\6\ The term ``National Business Conduct Committee'' means the
committee of the Board of Directors of NASD Regulation that may be
authorized and directed to act for the Board of Directors of NASD
Regulation in a manner consistent with the By-Laws of NASD
Regulation, the Rules of the Association, and the Delegation Plan
with respect to (1) An appeal or review of a disciplinary
proceeding; (2) a statutory disqualification decision; (3) a review
of a membership proceeding; (4) a review of an offer of settlement,
a letter of acceptance, waiver, and consent, and a minor rule
violation plan letter; (5) the exercise of exemptive authority; and
(6) such other proceedings or actions authorized by the Rules of the
Association. (Proposed NASD Regulation By-Laws, Article IV, Section
4.14(h) and Proposed Rule 0120(m).)
\7\ The term ``NASD Board'' means the Board of Governors of the
NASD. (Proposed Rule 9120(r).) The term ``NASD Regulation Board''
means the Board of Directors of NASD Regulation. (Proposed Rule
9120(s).)
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In the proposed Rule 9000 Series, definitions and certain rules of
general applicability are set forth in the proposed Rule 9100 Series.
Ordinary disciplinary proceedings are addressed in the proposed Rule
9200 Series, and appeals of these decisions are addressed in the
proposed Rule 9300 Series.
[[Page 25227]]
In the proposed Rule 9100 Series, a number of procedural
enhancements have been added to such Rules. These enhancements include
requirements for notice and service, a detailed rule prohibiting ex
parte communications generally, a rule requiring that adjudicatory and
prosecutorial-like functions remain separated, and a rule allowing the
removal of counsel for misconduct during a proceeding.
In the proposed Rule 9200 Series, there are significant changes
proposed in the way a disciplinary proceeding is investigated, a
complaint is brought, and a decision is made. A disciplinary proceeding
will be investigated by the staff of NASD Regulation, the complaint
will be brought by the Department of Enforcement 8 rather
than a District Committee or the Market Regulation
Committee,9 and the matter will be heard and decided by a
Hearing Panel,10 the chair of which is a Hearing Officer, a
professional independent staff member of the Association.11
The other two persons, defined as Panelists, who will constitute the
Hearing Panel (or, in certain cases, an Extended Hearing Panel), are
current members of a District Committee, or current or former members
of the securities industry who have served on a disciplinary hearing
panel, the National Business Conduct Committee, or one of the corporate
boards.12 In some cases, one of the two Panelists may be a
current or former member of the Market Regulation
Committee.13 There are significant changes in the rights of
Respondents to obtain evidence and for all Parties to resolve issues in
pre-hearing conferences and by motion in order to streamline the
hearing.14
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\8\ The Commission notes that the NASD Regulation Board and the
NASD Board will each have the authority to direct the Department of
Enforcement to issue a complaint. (Proposed Rule 9211(b).)
\9\ The term ``Market Regulation Committee'' means the committee
of NASD Regulation designated to consider the federal securities
laws and the rules and regulations adopted thereunder and various
Rules of the Association and policies relating to:
(1) the quotations of securities;
(2) the execution of transactions;
(3) the reporting of transactions; and
(4) trading practices, including rules prohibiting manipulation
and insider trading, and those Rules designated as Trading Rules
(Rule 3300 Series), the Nasdaq Stock Market Rules (Rule 4000
Series), other Nasdaq and NASD Market Rules (Rule 5000 Series), NASD
Systems and Programs Rules (Rule 6000 Series), and Charges for
Services and Equipment Rules (Rule 7000 Series). (Proposed Rule
9120(q).)
The Market Regulation Committee was formerly the Market
Surveillance Committee of the NASD. As part of the reorganization,
the committee was renamed the Market Regulation Committee. Pursuant
to a resolution of the NASD Regulation Board dated May 8, 1996, NASD
Regulation acknowledged responsibility for the Market Regulation
Committee as a committee of NASD Regulation.
\10\ A ``Hearing Panel'' is a decisional body issuing the
``trial-level'' decision in a disciplinary proceeding. It is
composed of a Hearing Officer (as defined below) and two persons
from the securities industry. They are referred to as ``Panelists''
(as defined below). (Proposed Rules 9120(o), 9231 and 9232.)
In some cases, an ``Extended Hearing Panel,'' rather than a
``Hearing Panel,'' will be the decisional body that issues the
``trial-level'' decision. (Proposed Rules 9120(i) and 9231(c).)
\11\ The term ``Hearing Officer'' means an employee of NASD
Regulation who is an attorney and who is appointed by the Chief
Hearing Officer to act in an adjudicative role and fulfill various
adjudicative responsibilities and duties described in the Rule 9200
Series regarding disciplinary proceedings brought against members
and associated person. (Proposed Rule 9120(n).) The term ``Chief
Hearing Officer'' means the Hearing Officer designated by the
President of NASD Regulation to manage the Office of Hearing
Officers, or his or her delegate. (Proposed Rule 9120(b).)
\12\ In pertinent part, the term ``Panelist'' means a member of
a Hearing Panel or an Extended Hearing Panel who is not a Hearing
Officer. (Proposed Rule 9120(t).) A Panelist who serves on a Hearing
Panel shall be associated with a member of the Association and shall
be: ``(A) a current member of a District Committee; (B) a person who
previously served on a disciplinary hearing panel; (C) a former
member of the National Business Conduct Committee; (D) a person who
previously served on a disciplinary subcommittee of the National
Business Conduct Committee, including a Subcommittee, an Extended
Proceeding Committee, or their predecessor subcommittees; or, (E) a
person who previously was a Director, a member of the Nasdaq Board
of Directors, or a Governor, but does not sit currently on any of
the boards.'' (Proposed Rule 9231(b)(1) (A)-(E).) The group of
persons eligible to serve as Panelists on an Extended Hearing Panel
is substantially the same group, but also includes certain persons
retired from the securities industry. (Proposed Rule 9231(c)(1) (A)
through (E).)
However, if the complaint alleges at least one cause of action
involving a violation of a statute or a rule over which the Market
Regulation Committee has jurisdiction, the Chief Hearing Officer may
select as a Panelist a current member of the Market Regulation
Committee or a former member of the Market Regulation Committee who
previously served on a disciplinary hearing panel. (Proposed Rule
9231(b)(2).) See also Proposed Rule 9231(c)(2), providing for a
Market Regulation Committee Panelists to serve on an Extended
Hearing Panel, which is substantially similar to proposed Rule
9231(b)(2).
\13\ See supra note 9.
\14\ Although a number of procedural enhancements are proposed
to the Rule 9000 Series, the NASD explicitly recognizes that a Party
may appear pro se. The Chief Hearing Officer and all other Hearing
Officers are trained to apply the Rule 9000 Series flexibly to
permit a Party to appear pro se without suffering a disadvantage due
to a failure to follow all aspects of a procedural rule.
Nevertheless, all Parties are expected to comply with all of the
Rules. Those who do not, and request flexible treatment from a
Hearing Officer, must establish that the requesting Party made a
good faith effort to comply with the rule or rules in question.
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Although that portion of the Rule 9300 Series concerning appeals
and reviews has undergone significant changes, the appellate or review
proceeding retains many of its former characteristics. Changes include
the right of the Department of Enforcement of NASD Regulation to appeal
a case and the right of a Party to cross-appeal.
Several other types of proceedings, which in general are more
expedited than the ordinary disciplinary proceedings described above,
are set forth in the proposed Rule 9400 Series and the proposed Rule
9500 Series.15 These proceedings currently are described in
the Rule 9500 Series and the Rule 9600 Series.
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\15\ The proposed Rule 9400 Series and the Rule 9500 Series
proceedings, for which the Association seeks temporary approval,
are: (1) Proceedings for regulating the activities of a member
experiencing financial or operational difficulties; (2) proceedings
for approving or disapproving a change in business operations that
will result in a change in exemptive status under SEC Rule 15c3-3;
(3) proceedings for summary suspension of a member or persons
associated with a member; (4) proceedings for the non-summary
suspension, cancellation, or bar of a member or a person; and (5)
proceedings for obtaining relief from the eligibility requirements
of the NASD By-Laws and the Rules of the Association.
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In addition, in order to present the Commission a unified body of
rules, the Association is proposing changes to various corporate
documents and Rules of the Association to conform them to the proposed
Rule 1010 Series and proposed Rule 9000 Series. Thus, proposed rule
changes are also submitted for the By-Laws of the NASD, NASD
Regulation, and Nasdaq; the Delegation Plan; Rule 0120; Rule 0121;
proposed Rule IM-2210-4; and the Rule 8000 Series.
The following is a comprehensive list of the parts of the proposed
rule change:
1. Proposed changes to the By-Laws of the NASD, NASD Regulation,
and Nasdaq;
2. Proposed changes to the Delegation Plan;
3. Proposed changes to Rule 0120 and Rule 0121;
4. Proposed Rule IM-2210-4;
5. Proposed changes to the Rule 1010 Series;
6. Proposed changes to the Rule 8000 Series; and
7. Proposed changes to the Rule 9000 Series.
(i) Background for Proposed Changes to Membership Application
Procedures and Rules Providing Procedures for Disciplinary Proceedings
and Other Proceedings
The Association's request for the proposed changes to disciplinary
proceedings instituted against members and their associated persons and
other proceedings in the Rule 9000 Series follows a series of events
that compelled the Association to undertake a review of the entire Rule
9000 Series. At the same time, the Association was requested to
[[Page 25228]]
reexamine its membership application procedures.
On September 15, 1995, the NASD Board of Governors received a
report from The NASD Select Committee (``Select Committee''), which the
NASD had commissioned in 1994. The Report of The NASD Select Committee
on Structure and Governance To The NASD Board of Governors, dated
September 15, 1995 (``Select Committee Report''), was the culmination
of nine months of exhaustive review of the operations of the NASD, and
contained several recommendations regarding NASD's enforcement program
and its disciplinary proceedings.16
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\16\ The Select Committee recommended, among other things, that
NASD allocate additional personnel and resources to enforcement,
establish an Office of Hearing Officers, and hire professional
Hearing Officers to serve as the chair of certain but not all
Hearing Panels in disciplinary proceedings. The Select Committee
also recommended that the NASD adopt a rule to prohibit ex parte
contacts between the disciplinary Hearing Panels and Parties or
their attorneys, expand the documentary discovery rights of
respondents in NASD disciplinary proceedings to furnish respondents,
at a reasonable time in advance of the initial hearing, with all
non-privileged materials in the NASD's possession (including
exculpatory evidence) directly relevant to the dispute, and provide,
by rule, for a motions practice, and the power of a disciplinary
Hearing Panel to sanction Parties or their counsel for frivolous
practice or contumacious conduct. The Select Committee also
recommended that the workload of the National Business Conduct
Committee be reduced so that the National Business Conduct Committee
could focus upon national enforcement policy issues and ensure
uniformity in NASD membership application procedures. Select
Committee Report, pp. C-25 through 26, V-1 through V-46, R-20
through R-25.
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The NASD Board approved the implementation of many of the
recommendations of the Select Committee, as proposed or in augmented
form. As is relevant to this rule filing, the NASD Board made the
following determinations: 17
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\17\ ``Select Committee on Structure and Governance--Staff
Implementation Plan,'' discussed November, 1995 (``Implementation
Plan''). Other recommendations, such as one relating to the
augmentation of the Association's resources to improve the
disciplinary process, have been separately addressed.
1. The Association would amend its disciplinary procedures to
appoint a Hearing Officer to preside over every contested
disciplinary proceeding. (In contrast, the Select Committee had
recommended that such persons be appointed for some cases.)
2. The Hearing Officer would exercise a key role during a
disciplinary hearing. These responsibilities would include
administering pre-hearing matters, including most motions, resolving
procedural and evidentiary matters in a pre-hearing context,
overseeing the settlement and discovery process prior to the
commencement of a hearing, and guarding against ex parte
communications in all matters. During a hearing, a Hearing Officer
would chair the Hearing Panel, vote on all matters, rule on
procedural and other legal matters, advise industry Panelists on
relevant legal principles, and ensure the maintenance of an
appropriate record. Following the hearing, the Hearing Officer would
conduct legal research, review briefs, provide legal guidance to the
volunteer Panelists, analyze the transcript and exhibits, and draft
a decision.
3. The Office of Hearing Officers would be separate from the
other departments and staff of NASD Regulation, accountable only to
the President of NASD Regulation. In addition, the Office of Hearing
Officers would be operated separately from the appellate and
oversight staffs of NASD Regulation and NASD. In the start-up phase,
all Hearing Officers would be in one location to ensure uniform
training, on-site management, and their separation from
``prosecutorial staff'' located in various Association offices
nationwide.
4. The NASD would adopt rules providing for the separation of
functions so that persons working as ``prosecutorial staff'' in the
Association would not participate in meetings with an Adjudicator
regarding a proposed decision (without the other Party present) and
eliminating the ``prosecutorial staff's'' current role as writer of
the disciplinary decision. In addition, the Association would adopt
a more formal, detailed rule prohibiting ex parte communications
generally in disciplinary proceedings.
5. The Association's ``prosecutorial staff'' would have the
right to appeal a case.
6. By rule, the Association would make available to respondents
in a disciplinary proceeding non-privileged documents in the staff's
possession that are directly relevant to the dispute and those that
contain exculpatory evidence, and would be required to do so a
``reasonable'' time before a hearing, i.e., more than five days
before a hearing. Also, by rule, the Association would provide for a
motions practice in a disciplinary proceeding and for sanctions for
misconduct during the course of a disciplinary proceeding.
7. The Association would eliminate the burden on the National
Business Conduct Committee by reducing the National Business Conduct
Committee's review of uncontested settlement offers, acceptance,
waiver, and consent letters and, for the purpose of determining
whether to call a disciplinary proceeding for review subsequently,
every disciplinary proceeding.
All of the above Board decisions have been addressed in this rule
filing.
In addition, on August 8, 1996, the NASD and the Commission entered
into a settlement (``SEC Settlement'').18 Pursuant to the
SEC Settlement, the NASD agreed to fourteen undertakings
(``Undertakings''). Under the general terms of some of the
Undertakings, the NASD became committed to review comprehensively and
amend the Rule 9000 Series and the Rule 1010 Series. This rule filing
primarily addresses Undertakings 3 through 5 and, to a lesser extent,
Undertakings 1 and 6.19 In the discussion following, the
Association references those proposed rules that specifically
incorporate the above proposed improvements and address the particular
requirements of the Undertakings.
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\18\ Securities Exchange Act Rel. No. 37538 (August 8, 1996), 62
S.E.C. Docket 1346, Order Instituting Public Proceedings Pursuant to
Section 19(h)(1) of the Securities Exchange Act of 1934, Making
Findings and Imposing Remedial Sanctions, In the Matter of National
Association of Securities Dealers, Inc., Administrative Proceeding
File No. 3-9056.
\19\ Id. Undertakings 1, 3, 4, 5, and 6 of the SEC Settlement
require the Association:
1. To implement and maintain at least fifty percent independent
public and non-industry membership in its Board of Governors, the
Board(s) of Governors or Directors of all of its subsidiaries and
affiliates that exercise or have delegated self-regulatory
functions, and the following committees: the National Nominating
Committee, the Trading/Quality of Markets Committee, the Arbitration
Committee, the Market Surveillance Committee, the National Business
Conduct Committee, the Management Compensation Committee, and all
successors thereto.
3. To institute the participation of professional Hearing
Officers (who shall be attorneys with appropriate experience and
training) to preside over disciplinary proceedings.
4. To provide for the autonomy and independence of the
regulatory staff of the NASD and its subsidiaries such that the
staff, subject only to the supervision of the Board of Governors of
the NASD and the Boards of Directors of NASDR and Nasdaq, and any
successor thereto, (a) has sole discretion as to what matters to
investigate and prosecute, (b) has sole discretion to handle
regulatory matters such as approval of applications for membership
and the conditions and limitations that may be placed thereon, (c)
prepares rule proposals, rule interpretations and other policy
matters with any consultations with interested NASD constituencies
made in fair and evenhanded manner, and (d) is generally insulated
from the commercial interests of its members and the Nasdaq market.
Among other things, the District Business Conduct Committees and the
Market Surveillance Committee shall not have any involvement in
deciding whether or not to institute disciplinary proceedings, nor
shall the District Committees, or any subcommittee thereof, have any
involvement in the review or approval of applications for membership
in the NASD. Subject to the foregoing, the regulatory staff of the
NASDR engaged in the disciplinary process may, solely on their own
initiative, inform themselves on matters of market or other
securities industry expertise by consulting with representatives of
member firms or committees of the NASD or its subsidiaries.
5. To promulgate and apply on a consistent basis uniform
standards for regulatory and other access issues, such as admission
to the NASD as a member firm, and conditions to becoming a market
maker; and institute safeguards to ensure fair and evenhanded access
to all services and facilities of the NASD.
6. To ensure the existence of a substantial, independent
internal audit staff which reviews all aspects of the NASD
(including the regulatory function, the disciplinary process and the
Nasdaq stock market and its systems) and reports directly to an
audit committee of the NASD Board of Governors which includes a
majority of public and non-industry Governors and is chaired by a
public Governor.
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(ii) Other Sources
In addition to incorporating the requirements of the Undertakings,
the
[[Page 25229]]
recommendations of the Select Committee, and the NASD Board
determination in drafting the revisions to the proposed Rule 1010
Series, the proposed Rule 8000 Series, and the proposed Rule 9000
Series, the Association has looked to other sources for the proposed
revisions. First, the Association reviewed and incorporated, where
possible, provisions in the SEC Rules of Practice recently adopted by
the Commission for Commission-initiated enforcement and disciplinary
proceedings, and proceedings to review the disciplinary proceedings of
self regulatory organizations.20 Second, the Administrative
Procedure Act (``APA''), 5 U.S.C. Sec. 551 et seq., also served as a
source.21 Third, the Federal Rules of Civil Procedure
(``F.R.C.P.'') served as an important reference. Fourth, the
Association looked to the model administrative rules of the
Administrative Conference of the United States (Dec.
1993).22
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\20\ SEC Rules of Practice, codified at 60 FR 32738 (June 23,
1995), 17 CFR 201.100 et seq.
\21\ 5 U.S.C. 551 et seq.
\22\ Model Adjudication Rules, Administrative Conference of the
United States (Dec. 1993) (``MAR'').
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(iii) Rescission of Most Current Rules
1. Rescission of Current Rules. The Association is proposing that
if the proposed Rule 1010 Series (Proposed Rules 1010 through 1019) and
the proposed Rule 9000 Series (Proposed Rules 9000 through 9536) are
adopted, the current Rule 1010 Series and the current Rule 9000 Series
(except the Rule 9700 through the Rule 9800 Series) be rescinded in
full.
2. Exception for Nasdaq-Related Rules. In a separate rule filing,
Nasdaq will propose to incorporate proceedings relating to Nasdaq in
the Rule 4000 Series. In the interim, however, the Association is
requesting that the current Rule 9700 Series remain in place. When
Nasdaq submits the rule filing amending the current Rule 9700 Series,
Nasdaq will request that the current Rule 9700 Series be rescinded.
(iv) Transition Provision
1. Disciplinary Procedures And Related Proposed Rule Changes. The
Association proposes that the proposed rules relating to disciplinary
proceedings (those governed by the proposed Rule 9100 Series, the
proposed Rule 9200 Series, and the proposed Rule 9300 Series) generally
become effective 30 days after the date of the Federal Register
publication approving the new procedures, subject to the following
schedule of transition.23
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\23\ As noted above, proposed changes to Rule 0120, Rule 0121,
and the Rule 8000 Series, and proposed Rule IM-2210-4 would also be
governed by this schedule of effectiveness and transition.
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The Association proposes that the transition for disciplinary
proceedings follow the implementation adopted by the Commission when
the Commission adopted the revised Rules of Practice.24
First, the Association proposes that the current Code of Procedure will
apply to a disciplinary proceeding for which the complaint is served
prior to the date of the Federal Register publication approving the
proposed Rule 9000 Series. Thus, such a disciplinary proceeding will be
completed pursuant to the current Code of Procedure. Second, the
Association proposes to make the new disciplinary procedures set forth
in the proposed Rule 9100 Series through the proposed Rule 9300 Series
apply to a disciplinary proceeding for which the complaint is served on
or after the date of the Federal Register publication approving the
proposed Code of Procedure but before the effective date, but only if,
within 30 days of the effective date, each Respondent in the proceeding
submits a request in writing to the Chief Hearing Officer that the
proceedings be conducted under the proposed Code of Procedure, as
adopted. If each Respondent fails to make such a request, the
disciplinary proceeding will proceed under the current Code of
Procedure, as discussed above.
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\24\ See SEC Rules of Practice, supra note.
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The rationale for this proposal is as follows:
a. Retroactive Application of the Revised Code Would Create
Significant Management and Logistical Problems. As of March 31, 1997,
there were approximately 400 formal disciplinary proceedings pending at
various stages in the disciplinary process. The Association believes
that retroactive application of the revised Code and the assignment of
Hearing Officers to these cases immediately would create a significant
management and logistical problem for the Office of Hearing
Officers.25
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\25\ Assuming that 50 percent of the 412 pending cases were to
settle, involved defaults, or otherwise could be disposed of without
the need for formal hearings, 206 active cases would be required to
be assigned to six Hearing Officers who have been hired to date, a
docket of 34 cases per Hearing Officer. Based on historical data and
discussions with staff in district offices, the Association
anticipates approximately 200 fully litigated cases per calendar
year. These cases, of course, would need to be considered in
addition to the pending cases.
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Irrespective of their procedural posture, given the volume of cases
that would be pending as of the effective date of the proposed Rule
9000 Series, the Association believes that assigning these cases to the
Hearing Officers would cause serious case management problems. The
Association further believes that assigning the pre-existing cases,
along with the cases filed in due course after the Rule 9000 Series'
effective date, would hinder the ability of the Hearing Officers to
properly dispatch their responsibilities and duties within the time
limits set in the Rule 9000 Series. For example, various deadlines in
the proposed Rule 9000 Series likely could not be met if the Hearing
Officer program were required to assume a backlog of more than 400
cases.
b. Retroactive Application Causes Problems in Proceedings. The
revised Rule 9000 Series represents a substantial change from the
existing rules governing disciplinary proceedings, and the scope of the
proposed changes militates against retroactive application of the Rule
9000 Series. For example, the proposed Rule 9000 Series contemplates
certain pre-hearing procedures and motions that are not present in the
existing rules. Also, in many of the previously-filed proceedings, the
proposed Rule 9000 Series' time limitations for document disclosure and
pre-hearing motions or procedures already will have passed. The
difficulty is further exacerbated if procedural rulings that are not
consistent with the new Rule 9000 Series already have been made.
Further, if Hearing Officers were not required to apply either the
new or old rules to the cases filed prior the effective date of the new
Rule 9000 Series, the Hearing Officers would be required to develop and
apply rules on an ad hoc basis to address the specific issues raised in
each individual case. Finally, the Association believes that fairness
dictates that Respondents be given notice in advance of the filing of a
complaint of all procedural rules that will govern the authorization
and issuance of the complaint and the adjudicative process.
2. Membership Application Procedures. Unlike disciplinary
procedures, where NASD Regulation staff determines when and if to
initiate a proceeding, applicants for membership decide when and if to
file an application for membership, request a modification of an
existing membership agreement, or request approval of a change in
ownership, control, or operations. For this reason, the Association
believes that the transitional issues with respect to member admission
proceedings are less
[[Page 25230]]
complex and, therefore, it proposes that the new procedures apply to
applications filed, modifications requested, or requests for approval
of ownership or other changes initiated 30 days after the date of the
Federal Register publication approving the new procedures. The 30 day
period is intended to give applicants and staff the opportunity to make
any final adjustments to the new procedures.
b. Proposed Changes to NASD, NASD Regulation, and NASDAQ By-Laws
The Association proposes to revise the By-Laws of the NASD, NASD
Regulation, and Nasdaq to conform them to the Implementation Plan, the
Undertakings, the Delegation Plan and the proposed changes to the Rules
of the Association. Changes to punctuation and other minor, non-
substantive changes are not described. The Association proposes to
revise the NASD By-Laws in the following ways:
(i) Proposed Changes to NASD By-Laws 26
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\26\ All changes proposed to the NASD By-Laws are changes to the
NASD By-Laws temporarily approved by the Commission on November 15,
1996. See Securities Exchange Act Rel. No. 37956 (November 15,
1996), 61 FR 59265 (November 21, 1996).
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Article I. Definitions
The Association proposes several amendments to Article I, which
sets forth definitions for the NASD By-Laws. First, amendments to
several existing definitions and new defined terms are proposed, but
only to reflect drafting conventions adopted as a result of the
reorganization of the NASD into three legal entities or other drafting
conventions. Those definitions are: ``Board''; ``branch office'';
``day''; ``dealer''; ``Delegation Plan''; ``member''; ``municipal
securities dealer''; ``NASD''; ``NASD Regulation''; ``NASD Regulation
Board''; ``Nasdaq''; ``Nasdaq Board''; and ``person associated with a
member'' or ``associated person of a member.'' (Proposed NASD By-Laws
Article I (c), (d), (g), (h), (i), (q), (t), (u), (v), (w), (x), (y),
and (cc).)
Second, the Association proposes to add the following definitions:
``district''; ``Industry Director''; ``Industry Governor'' or
``Industry committee member''; ``National Nominating Committee'';
``Non-Industry Director''; ``Non-Industry Governor'' or ``Non-Industry
committee member''; ``Public Director''; ``Public Governor'' or
``Public committee member.'' (Proposed NASD By-Laws Article I (j), (n),
(o), (z), (aa), (bb), (dd) and (ee).) All of these terms, except
``district,'' are currently defined or described in the Delegation
Plan.27 The Association proposes to add these definitions to
the NASD By-Laws (and where applicable, to the NASD Regulation and
Nasdaq By-Laws) because the Association proposes to move the related,
substantive provisions of the Delegation Plan to the By-Laws of the
appropriate corporate entity.
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\27\ See Delegation Plan, I.A. and I.C.
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Third, the Association proposes to delete the definition ``rules of
the Corporation'' (current Article I(v)) to avoid confusion with the
more commonly used, but differently defined term, ``Rules of the
Association.'' The term ``rules of the Corporation'' currently is used
to refer collectively to the NASD Certificate of Incorporation, the
NASD By-Laws, and the Rules of the Association. Given the restructuring
of the NASD into three legal entities, such a collective term for all
of the corporate documents of the Association would not be useful.
Thus, under the proposed rule change, where a particular provision must
be consistent with a particular corporate document, that document is
specified. Similarly, the Association also proposes to delete the
definitions of ``Boards'' and ``Corporations'' and instead refer to
each corporate entity specifically where intended (current Article I
(d) and (i)).
Fourth, the Association proposes to amend the definition of the
term ``Rules of the Association'' to conform it to proposed Rule 0120,
which defines the term to include the numbered rules set forth in the
NASD Manual beginning with the Rule 0100 Series, as adopted by the NASD
Board of Governors pursuant to the NASD By-Laws.
Finally, the Association proposes to delete the cross-reference in
the introductory sentence of Article I to the ``rules of the
Corporation.'' An appropriate cross-reference from the Rules of the
Association to the NASD By-Laws is proposed in Rule 0121.
Article II. Offices
The Association proposes to add a new Article II that states the
location of the registered corporate office of the NASD. This change
makes the NASD By-Laws consistent with the NASD Regulation and Nasdaq
By-Laws, which both include such a provision.
Article III. Qualifications of Members and Associated Persons
Current Article II, Qualifications of Members and Associated
Persons, which addresses qualifications of members and associated
persons, is renumbered as proposed Article III. The Association
proposes to conform Section 3, which addresses ineligibility of certain
persons for membership or association, to the proposed Rule 9530
Series, which sets forth rules for the Association's eligibility
proceedings. Specifically, the Association proposes to amend Section
3(d) to clarify that members may use eligibility proceedings to obtain
relief from the Association's eligibility requirements, e.g., to
resolve a statutory disqualification problem. As written, Section 3(d)
could be read to suggest that a broker or dealer seeking admission to
the Association could use such proceedings to obtain relief from
eligibility requirements as a means of gaining admission to the
Association. That is not the Association's practice or the provision's
intent, and Section 3(d) is amended to remove this potential ambiguity.
The Association proposes to delete Section 3(d)(2), which addresses
the status of members or persons engaged in eligibility proceedings,
because that subject is addressed in the proposed Rule 9530 Series.
(The Association seeks temporary approval of the proposed Rule 9400-
9500 Rules Series, including the proposed Rule 9530 Series.) This
change does not result in a substantive change in the Association's
practice. Specifically, if a person is already associated with a member
at the time a statutory disqualification is discovered, the person may
remain associated with the member until final action is taken by the
Association under the proposed Rule 9500 Series. If the person is a
prospective employee, the person may not become associated with the
member until the Association takes final action under the proposed Rule
9530 Series.
The Association proposes to add a new Section 3(g) to clarify that
the Board may delegate its authority under Section 3 in a manner not
inconsistent with the Delegation Plan.
Finally, the Association proposes to amend Section 4(h) to conform
it to the Act.
Article IV. Membership
Current Article III, Membership, is renumbered as proposed Article
IV. The Association proposes to conform Section 7 to changes in the
proposed Rule 1010 Series, which sets forth procedures for membership
applications and changes in a member's operations.
Article V. Registered Representatives and Associated Persons
Current Article IV, Registered Representatives and Associated
Persons, is renumbered as proposed Article V.
[[Page 25231]]
Article VI. Dues, Assessments, and Other Charges
Current Article V, Dues, Assessments, and Other Charges, is
renumbered as proposed Article VI. The Association proposes to add a
new Section 5 that states that the NASD may delegate its authority
regarding dues, assessments, and other charges in a manner not
inconsistent with the Delegation Plan.
Article VII. Board of Governors
Current Article VI, Board of Governors, is renumbered as proposed
Article VII. The Association proposes to amend Section 1(c) to clarify
the Board's authority to delegate its powers. Specifically, the
Association proposes to amend Section 1(c) to provide that to the
fullest extent permitted by applicable law, the Restated Certificate of
Incorporation, and the By-Laws, the NASD may delegate any power of the
NASD or the Board to a committee appointed pursuant to proposed Article
IX, Section 1, the NASD Regulation Board, the Nasdaq Board, or NASD
staff in a manner not inconsistent with the Delegation Plan. The
Association proposes to add parallel provisions to the NASD Regulation
By-Laws (Proposed Article IV, Section 4.1) and the Nasdaq By-Laws
(Proposed Article IV, Section 4.1).
The Association proposes to amend Section 2. Section 2 authorizes
the Board to cancel or suspend the membership of a member or suspend
the association of a person associated with a member for failure to
provide requested information. The proposed amendment provides for
reinstatement pursuant to the Rules of the Association. (Proposed Rule
8220.) The Association also proposes to delete the provision
authorizing delegation to the Chief Executive Officer and replace it
with a delegation provision consistent with other provisions set forth
in the proposed NASD By-Laws. Specifically, the Association proposes
that the Board be permitted to delegate its authority under this
Section in a manner not inconsistent with the Delegation Plan and
otherwise in accordance with the Rules of the Association.
The Association proposes to amend Section 4, which addresses the
composition and qualifications of the Board, by adding provisions
concerning the number of governors and the ratio of Industry, Non-
Industry, and Public Governors that are currently set forth in the
Delegation Plan.28
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\28\ See Delegation Plan, I.A. and I.C.
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The Association proposes to add a new Section 6, which addresses
the disqualification of a Board member. Proposed Section 6 requires a
Governor to immediately resign or be automatically removed from office
if the Board determines that: (a) The Governor no longer satisfies the
classification (Industry, Non-Industry or Public Governor) for which
the Governor was elected; (b) failure to remove the Governor would
violate the compositional requirements of the Board set forth in
proposed Section 4; and (c) the Governor has a remaining term of office
of more than six months. Proposed Section 6 is intended to replace a
provision currently in the Delegation Plan that provides for
``automatic removal'' if a Governor no longer satisfies the
classification for which he or she was elected, without describing any
process for such removal.29 The Association proposes this
rule change to avoid any potential for the Board to take an ultra vires
action in the event that a Governor failed to notify the Board promptly
of a change in his or her classification and continued to sit on the
Board and cast votes before such removal took place.
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\29\ See Delegation Plan, I.C.5.b.
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Current Section 6, which addresses the filling of vacancies on the
Board, is renumbered as proposed Section 7. The Association proposes to
move the current provisions of the Delegation Plan that address the
filling of vacancies to this Section and to provide further that if the
remaining term of office of the governorship to be filled is more than
one year, then the replacement Governor must stand for election in the
next annual election.30
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\30\ See Delegation Plan, I.C.5.
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Current Section 7, which describes nomination and election
procedures, is expanded and renumbered as proposed Sections 9 through
14. Proposed Section 9 sets forth the powers of the National Nominating
Committee. The National Nominating Committee nominates Industry, Non-
Industry, and Public Governors for each vacant or new Governor position
on the NASD Board and Industry, Non-Industry, and Public Directors for
each vacant or new position on the NASD Regulation Board and the Nasdaq
Board.31 Proposed Section 9 also includes and clarifies the
compositional requirements for the National Nominating Committee, which
are currently set forth in the Delegation Plan.32 Finally,
Proposed Section 9 includes a new provision that requires the Secretary
of the NASD to collect from each nominee for Governor and each nominee
for Director of the NASD Regulation Board or Nasdaq Board such
information as is reasonably necessary to serve as the basis for a
determination of the nominee's classification as an Industry, Non-
Industry, or Public Governor or Director. The Association proposes that
the Secretary certify to the National Nominating Committee each
nominee's classification to ensure that the compositional requirements
of each Board are met.
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\31\ See Delegation Plan, I.C.2.b.
\32\ See Delegation Plan, I.C.2.b.(1).
---------------------------------------------------------------------------
Proposed Section 10 largely parallels current Section 7(c) and adds
provisions regarding contested elections currently located in the
Delegation Plan. In addition to clarifying the procedures for a
contested election, the Association also proposes to change the number
of members that must sign a petition to support adding a candidate to
the ballot for NASD Board elections. Currently, a person seeking to be
added to a ballot must obtain the support of two percent of the members
of the NASD. The Association proposes to increase the level to three
percent of the members, one-half of which must have their principal
place of business outside of the district where the person who wishes
to contest the election is employed. As is currently the case, a
petition may only be signed by a member's Executive Representative.
Proposed Section 10 also transfers authority to certify the additional
candidate from the National Nominating Committee to the Secretary.
Because the Secretary maintains the records of Executive
Representatives and, under the proposed rule change would be charged
with reviewing information regarding the classification (Industry, Non-
Industry, or Public) for each governorship, the Association believes
that it would be more efficient for the Secretary to exercise this
authority.
Proposed Sections 11 and 12 are new provisions that parallel new
provisions added to the NASD Regulation and Nasdaq By-Laws. Proposed
Section 11 prohibits the NASD, the Board, the National Nominating
Committee, other committees, and NASD staff from taking any official
position regarding a contested nomination or election under the
proposed NASD or NASD Regulation By-Laws. Proposed Section 11 permits
Board and committee members to communicate their views with respect to
a candidate in a contested election only if the Board or committee
member acts solely in his or individual capacity and disclaims any
intention to communicate in any official capacity. Administrative
support to the candidates in a contested NASD election is limited to
two mailings; any other administrative support in any
[[Page 25232]]
NASD or NASD Regulation contested election or nomination is prohibited.
Proposed Section 13 is largely parallel to current Section 7(a),
with conforming amendments to proposed Sections 9 through 12.
Proposed Section 14 is a new procedure that requires each Governor
to update the information submitted to the NASD Secretary under
proposed Section 9(e) regarding his or her classification as an
Industry, Non-Industry, or Public Governor at least annually and upon
request of the Secretary and to report immediately to the Secretary any
change in such classification. Parallel provisions are proposed for the
NASD Regulation and Nasdaq By-Laws. These submissions and reports will
help the Association ensure that the compositional requirements of the
Board are maintained.
The Association proposes to amend current Section 8, which address
meetings, quorums, and voting of the Board, to provide that a quorum
shall consist of a majority of the Board, including not less than 50
percent of the Non-Industry Governors. This proposed change would
ensure that Industry Governors alone could not constitute or dominate a
quorum of the Board, and thereby thwart the balanced compositional
requirements of the Board under proposed Section 4. Current Section 8
is not renumbered.
Article VIII. Officers, Agents, And Employees
Current Article VII, Officers, Agents, and Employees, is renumbered
as proposed Article VIII. The Association proposes to amend Section 1
to require that the Board elect a Secretary. Under current Section 1,
the Board is authorized, but not required, to do so. Given the number
of responsibilities assigned to the Secretary under the proposed By-
Laws and the Board's practice of always electing a person to such
position, the Association proposes to require that a Secretary be
elected.
The Association proposes to amend Section 3 to provide that agents
and employees shall be under the supervision and control of the
officers, unless the Board, by resolution, provides that an agent or
employee shall be under the supervision and control of the Board.
Generally, agents and employees are under the supervision and control
of the officers, but the Board may wish in certain circumstances to
retain control over an employee or agent, e.g., as in Section 4, when
the Board determines that it wishes to retain counsel.
The Association proposes to move current Section 5, which provides
for compensation of Board and committee members, to its own Article,
proposed Article X, Compensation of Board and Committee Members.
The Association proposes to add new Sections 5, 6, and 7 to this
Article to conform it to proposed Article 7 of the NASD Regulation By-
Laws and proposed Article 6 of the Nasdaq By-Laws. Proposed Section 5
permits the Board to delegate the duties and powers of any officer to
any other officer. Proposed Section 6 provides for the resignation and
removal of officers. Proposed Section 7 permits the NASD to secure the
fidelity of its officers, agents, and employees by bond or otherwise.
Article IX. Committees
Current Article VIII, Committees, which addresses the formation and
powers of committees, is renumbered as proposed Article IX. The
Association proposes to amend Section 1 to cross-reference proposed
Article VII, Section 1(c), which limits the Board's authority to
delegate its powers and authority.
The Association proposes to add a new Section 2, which is designed
to help the Association maintain the compositional requirements of
certain committees. Undertakings 1 and 6 under the SEC Settlement
require certain committees 33 to have a particular balance
of Industry, Non-Industry, and Public committee members. For committees
consisting solely of one or more Governors or one or more Directors,
the compositional requirements are set forth in the By-Laws of the
appropriate corporation; for committees that have members other than
Governors or Directors, the compositional requirements are set forth in
the Delegation Plan.34 To help ensure that compositional
requirements are maintained for committees appointed by the NASD Board,
proposed Section 2 authorizes the Secretary to collect from each
prospective member of a committee that must be balanced such
information as is reasonably necessary to serve as the basis for a
determination of the prospective committee member's classification as
an Industry, Non-Industry, or Public committee member. The Secretary
must certify to the Board each prospective committee member's
classification. Each committee member must update the information
submitted at least annually and upon request of the Secretary of the
NASD, and shall report immediately to the Secretary any change in such
classification. Parallel provisions are set forth in proposed Article
4, Section 4.14(i) of the NASD Regulation By-Laws and proposed Article
4, Section 4.14(g) of the Nasdaq By-Laws.
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\33\ Undertaking 1 sets forth compositional requirements for
``the National Nominating Committee, the Trading/Quality of Markets
Committee, the Arbitration Committee, the Market Surveillance
Committee, the National Business Conduct Committee, the Management
Compensation Committee, and all successors thereto.'' Undertaking 6
sets forth compositional requirements for an audit committee. The
current names of such committees are the National Nominating
Committee, the Quality of Markets Committee, the National
Arbitration and Mediation Committee, the Market Regulation
Committee, the National Business Conduct Committee, the Management
Compensation Committee, and the Audit Committee. See supra note 19.
\34\ See Delegation Plan, I.C.2.b.(1), I.D.2., and I.E.2. The
sole exception is the Management Compensation Committee, a committee
of the NASD Board. The Management Compensation Committee's
compositional requirements are set forth in the Delegation Plan.
---------------------------------------------------------------------------
Current Section 2, which addresses removal of a committee member,
is renumbered as proposed Section 3 and amended to clarify that a
committee member can only be removed by majority vote of the whole
Board.
The Association proposes to add new sections to authorize the
appointment of an Executive Committee and to require, in keeping with
Undertaking 6, the appointment of an Audit Committee. Proposed Section
4 authorizes the NASD Board to appoint an Executive Committee. Proposed
Section 4 requires the Chief Executive Officer of the NASD to be a
member of the Executive Committee and requires that the remaining
members reflect the balance of Industry and Non-Industry Governors on
the Board. Proposed Section 5 contains the provisions relating to the
Audit Committee currently found in the Delegation Plan.35
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\35\ See Delegation Plan, I.D.
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Finally, the resolution concerning interpretations and explanations
is deleted because the NASD Board intends to rescind it. The resolution
no longer conforms to Association practice and is contrary to
Undertaking 4.
Article X. Compensation of Board and Committee Members
As noted previously, current Article VII, Section 5, which
addresses compensation of Board and committee members, is renumbered as
proposed Article X, Compensation of Board and Committee Members.
Article XI. Rules
Current Article IX, Rules, which authorizes the NASD to adopt
rules, is renumbered as proposed Article XI. No substantive change is
proposed.
[[Page 25233]]
Article XII. Disciplinary Proceedings
Current Article X, Disciplinary Proceedings, which authorizes
disciplinary proceedings, is renumbered as proposed Article XII. No
substantive change is proposed.
Article XIII. Powers of Board to Impose Sanctions
Current Article XI, Powers of Board to Prescribe Sanctions, which
authorizes the Board to impose sanctions, is renumbered as proposed
Article XIII. The Association proposes to amend Section 1(e) and add a
new Section (2) to clarify that any delegation under the proposed
Article must be in conformity with the Delegation Plan.
Article XIV. Uniform Practice Code
Current Article XII, Uniform Practice Code, which authorizes the
Board to adopt a Uniform Practice Code, is renumbered as proposed
Article XIV. The Association proposes to amend Section 2 to provide
that the Board may delegate its authority with respect to administering
the Code to the NASD Regulation Board and Nasdaq Board in accordance
with the Delegation Plan.
Article XV. Limitation of Powers
Current Article XIII, Limitation of Powers, which sets forth
limitations on the Board's powers, is renumbered as proposed Article
XV. The Association proposes to rescind the resolution that follows
current Article XIII, Section 2, which provides for the use of the
NASD's name by members, and move the provisions of the resolution to
proposed IM-2210-4.
The Association proposes to amend Section 4, which addresses
conflicts of interest. The Association proposes to amend Section 4 by
redesignating it as Section 4(a) and therein prohibiting any Governor
or committee member from directly or indirectly participating in any
adjudication of the interests of any party if the Governor or committee
member has a conflict of interest or bias, or if circumstances
otherwise exist where his or her fairness might reasonably be
questioned. Proposed Section 4(a) further requires the Governor or
committee member to recuse himself or herself or be disqualified in
accordance with the Rules of the Association (e.g., Rule 9160). Current
Section 4 simply references the Rules of the Association; current Rule
9131 provides for disqualification of the Governor or committee member
if a matter substantially affects his or her interests or the interests
of any person in whom he or she is directly or indirectly interested.
For a more detailed discussion of the conflict standard, see Part h,
Section (xiii) of this rule filing.
In addition, the Association proposes to add a new Section 4(b) to
address conflicts of interests in non-adjudicatory matters in a manner
consistent with the By-Laws for the NASD Regulation Board and the
Nasdaq Board. Proposed Section 4(b) provides that no contract or
transaction between the NASD and a Governor or officer, or between the
NASD and any other entity in which a Governor or officers is a director
or officer, or has a financial interest, shall be void or voidable
solely for this reason if: (i) The material facts pertaining to the
Governor's or officer's relationship or interest and the contract or
transaction are disclosed or are known to the Board or the committee,
and the Board or committee in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested
Governors; or (ii) the material facts are disclosed or become known to
the Board or committee after the contract or transaction is entered
into, and the Board or committee in good faith ratifies the contract or
transaction by the affirmative vote of a majority of the disinterested
Governors. Only disinterested Governors may be counted in determining
the presence of a quorum at the portion of a meeting of the Board or of
a committee that authorizes the contract or transaction.
Finally, Section 6, which limited the Association rulemaking
authority over government securities activities, is deleted to conform
the By-Laws to changes previously made to the Association's authority
over the government securities activities of its members.
Article XVI. Procedure for Adopting Amendments to By-Laws
Current Article XIV, Procedure for Adopting Amendments to By-Laws,
is renumbered as proposed Article XVI.
In proposed Article XVI, the Association proposes to provide more
persons with the ability to propose an amendment to the NASD By-Laws.
Currently, a Governor, a district committee, or 25 members may propose
amendments to the By-Laws. Proposed Article XVI permits a committee
appointed by the Board, the NASD Regulation Board of Directors, or the
Nasdaq Board of Directors, by resolution, to propose amendments to the
NASD By-Laws. In addition, proposed Article XVI permits the Chief
Executive Officer of the NASD, the President of NASD Regulation, and
the President of Nasdaq to propose amendments. The Association proposes
to permit the NASD Regulation and Nasdaq Boards to propose changes
because much of their authority under the Delegation Plan derives from
the NASD By-Laws. The Association proposes to authorize the most senior
officer of each corporate entity to propose changes to further the
purpose of Undertaking 4, which requires the Association to provide the
staff with autonomy and independence in preparing rule proposals, many
of which are authorized or affected by the NASD By-Laws. Finally, the
Association proposes to delete authority for the district committees to
propose changes to the NASD By-Laws because the Association believes
that under the new corporate structure, proposals by the district
committees should be presented to the NASD Regulation Board, which in
turn should determine what proposals are presented to the NASD Board.
The Association files any change to the By-Laws or Certificates of
Incorporation of the NASD, NASD Regulation, or Nasdaq that constitute a
proposed rule change under the Act with the Commission.
Article XVII. Corporate Seal
Current Article XV, Corporate Seal, is renumbered as proposed
Article XVII. There are no substantive changes to proposed Article
XVII.
Article XVIII. Checks
Current Article XVI, Checks, is renumbered as proposed Article
XVIII. There are no substantive changes to proposed Article XVIII.
Article XIX. Annual Financial Statement
Current Article XVII, Annual Financial Statement, is renumbered as
proposed Article XIX. There are no substantive changes to proposed
Article XIX.
(ii) Proposed Changes to NASD Regulation By-Laws
NASD Regulation proposes to amend the By-Laws of NASD Regulation as
follows:
Description of Proposed Rule Change
NASD Regulation adopted its current By-Laws on July 19, 1996. These
By-Laws were drafted to comply with the requirements of Delaware law
and have not previously been filed with the Commission. The Association
proposes to amend the NASD Regulation By-Laws in the manner described
previously in the introduction to Section II. In addition, the
Association proposes to explicitly recognize the NASD as the sole
stockholder of NASD Regulation capital stock and add detailed
[[Page 25234]]
procedures for regional nominations and district elections. Significant
changes to the NASD Regulation By-Laws are described below. Minor, non-
substantive changes and changes to reflect drafting conventions are not
described.
Article I. Definitions
First, a new Article I, entitled ``Definitions,'' is proposed.
Current Article I is renumbered as proposed Article II.
The Association proposes that the By-Laws for each corporate entity
have a free-standing set of definitions. Therefore, the Association
proposes to add definitions for the following terms, which conform to
the definitions in proposed Article I of the NASD By-Laws: ``Delegation
Plan''; ``Executive Representative''; ``Industry Director'' or
``Industry committee member''; ``NASD Regulation''; ``National
Nominating Committee''; ``Non-Industry Director'' or ``Non-Industry
committee member''; and ``Public Director'' or ``Public committee
member.'' (Proposed Section 1.1 (h), (o), (q), (u), (v), (w), and (x).)
The Association proposes to include the following definitions only
in the NASD Regulation By-Laws: ``District Committee''; ``District
Director''; ``District Nominating Committee''; ``district office'';
``Independent Agent''; and ``Regional Nominating Committee.'' These
terms relate to the election procedures set forth in proposed Article
VI and VIII, and therefore are not used in the proposed NASD and Nasdaq
By-Laws.
In addition, the Association proposes to add the following
definitions for clarity and to conform to the drafting conventions
adopted generally, but which do not result in any substantive change:
``Board''; ``day''; ``Delaware law''; ``Director''; ``NASD''; ``NASD
member''; and ``Rules of the Association'' or ``Rules.'' (Proposed
Section 1.1 (b), (e), (g), (i), (r), (t), and (z).)
Article II. Offices
Current Article I, Offices, is renumbered as proposed Article II.
Sections 1.1 and 1.2 are renumbered as Sections 2.1 and 2.2. There are
no substantive changes in proposed Article II.
Article III. Meetings of Stockholders
Current Article II, Meetings of Stockholders, is renumbered as
proposed Article III. Current Article II sets forth general provisions
for meetings of stockholders consistent with Delaware law. In proposed
Article III, in recognition of the fact that NASD Regulation has only
one stockholder, the NASD, the Association proposes to delete all of
the general provisions regarding meetings of stockholders and retain
only the provision on which NASD Regulation generally relies, namely
obtaining the stockholder's written consent for any action that is
required or permitted to be taken at a stockholder meeting. Thus,
Sections 2.1 through 2.6 are deleted, and Section 2.7 is renumbered as
3.1.
Article IV. Board of Directors
Current Article III, Board of Directors, is renumbered as proposed
Article IV. Sections 3.1 through 3.7 are renumbered as Section 4.1
through 4.7. Proposed Section 4.1 sets forth the general powers of the
Board. The Association proposes to conform the Board's authority to
delegate its powers to the delegation authority set forth in proposed
Article VII, Section 1(c) of the NASD By-Laws, i.e., to the fullest
extent permitted by applicable law, the Restated Certificate of
Incorporation, and the By-Laws, the Board may delegate any of its
powers to a committee appointed under proposed Section 4.14 or to NASD
Regulation staff in a manner not inconsistent with the Delegation Plan.
The Association proposes to amend Sections 4.2 and 4.3, Number of
Directors and Qualifications, to set forth the compositional
requirements and discussions of the classifications of Directors
(Industry, Non-Industry, and Public Directors) of the Board currently
found in the Delegation Plan. Proposed Section 4.3(b) is a new
provision requiring the Board to elect a Chair and Vice Chair from
among its members. Proposed Section 4.3(c) is a new provision requiring
Directors to provide the Secretary of the NASD with updated information
regarding the Director's classification at least annually and upon
request and to report any change in the classification to the NASD
Secretary immediately. This provision is parallel to proposed Article
VII, Section 14 of the NASD By-Laws.
Proposed Section 4.4(a), which provides for the election of
Directors, is amended to reflect the NASD's role as sole stockholder.
Proposed Section 4.4(b) describes briefly the roles of the National
Nominating Committee and the Regional Nominating Committee in the
election of NASD Regulation Directors. As described in proposed Article
VII, Section 9 of the NASD By-Laws, the National Nominating Committee
is appointed by the NASD Board to nominate Governors for the NASD Board
and Directors for the NASD Regulation and Nasdaq Boards. NASD
Regulation also has a distinctive nominating process for those Industry
Directors who represent a particular region. The regional nominating
process culminates in the presentation of a candidate to the National
Nominating Committee, which, as the final decision maker for all
nominations, may accept or reject such candidate. The NASD Board, in
turn, may elect or reject the candidates nominated by the National
Nominating Committee. The regional nominating process is described in
proposed Article VI of the NASD Regulation By-Laws.
Proposed Section 4.5 includes new provisions specifying how the
terms of office of Director shall expire so that, in general, one-third
of the Board is elected each year.
Proposed Section 4.7 clarifies that a Director may be removed from
office only by a majority vote of the NASD Board.
Proposed Section 4.8, Disqualification, and Proposed Section 4.9,
Filling of Vacancies, are new. Current Sections 3.8 through 3.11
(Quorum and Voting, Regulation, Meetings, Notice of Meetings,
respectively) are renumbered as proposed Sections 4.10 through 4.13.
Current Section 3.12, Conflicts of Interest, is renumbered as proposed
Section 4.15. Current Section 3.13, Committees of the Board of
Directors, is renumbered as proposed Section 4.14 and retitled
``Committees.'' Current Section 3.12, Action Without Meeting, is
renumbered as proposed Section 4.16.
Proposed Sections 4.8, 4.9, 4.10, and 4.15, which set forth
provisions for disqualification, filling of vacancies, quorums and
conflicts of interest, are designed to parallel proposed Article VII,
Sections 6 through 8, and proposed Article XV, Section 4 of the NASD
By-Laws.36
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\36\ One difference is noteworthy in the conflicts of interest
provision. The proposed By-Laws for NASD Regulation and Nasdaq
provide that a transaction also is not void or voidable if the
material facts pertaining to the Director's or officer's
relationship or interest and the contract or transaction are
disclosed or are known to the stockholder, i.e., the NASD, and the
contract or transaction is approved in good faith by vote of the
stockholder. (Proposed NASD Regulation and Nasdaq By-Laws Article
IV, Section 4.15.)
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There are no substantive changes in proposed Section 4.11,
Regulation; proposed Section 4.12, Meetings; or proposed Section 4.16,
Action Without Meeting.
In proposed Section 4.13, the Association proposes to increase the
amount of time required for mail notice of a meeting from two to seven
days, to clarify that any of the permissible forms of notice described
may be used for any meeting of the Board, and to add a
[[Page 25235]]
subsection that provides that any meeting of the Board is a legal
meeting without any prior notice if all Directors are present.
Proposed Section 4.14 (current Section 3.13 as renumbered) sets
forth new provisions regarding committees. Proposed Section 4.14(a)
authorizes the Board to appoint committees. Proposed Section 4.14(b)
describes how the Board may delegate to such committees. With respect
to functions and responsibilities set forth in the Delegation Plan, the
Board may delegate its authority to any duly appointed committee. Any
action by such committee is subject to review, ratification, or
rejection by the Board. In addition, such delegations must be in
conformance with applicable law, the Restated Certificate of
Incorporation, these By-Laws, and the Delegation Plan. These
limitations previously were set forth in the Delegation Plan. Proposed
Section 4.14(b) further clarifies that, with respect to other matters,
the Board may delegate its powers and authority to act on behalf of the
Board in managing the business and affairs of NASD Regulation only to
committees consisting solely of one or more Directors, and that any
such delegation must be not inconsistent with the Delegation Plan.
Proposed Section 4.14(f), like proposed Article IX of the NASD By-
Laws, authorizes the NASD Regulation Board to appoint specific
committees, including an Executive Committee, a Finance Committee, and
a National Business Conduct Committee, and specifies their
compositional requirements. Some of the provisions regarding the
National Business Conduct Committee currently are set forth in the
Delegation Plan.37
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\37\ See Delegation Plan II.D.
---------------------------------------------------------------------------
Proposed Section 4.15, like proposed Article XV, Section 4 of the
NASD By-Laws, sets standards of conduct for Directors with regard to
conflicts of interest. Proposed Section 4.15(b) addresses conflicts of
interests in non-adjudicatory matters in a manner consistent with the
By-Laws for the NASD Board and the Nasdaq Board. Proposed Section 4.15
provides that no contract or transaction between NASD Regulation and a
Director or officer, or between NASD Regulation and any other entity in
which a Director or officer is a director or officer, or has a
financial interest, shall be void or voidable solely for this reason
if: (i) The material facts pertaining to the Director's or officer's
relationship or interest and the contract or transaction are disclosed
or are known to the Board or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the affirmative
vote of a majority of the disinterested Directors; (ii) the material
facts are disclosed or become known to the Board or committee after the
contract or transaction is entered into, and the Board or committee in
good faith ratifies the contract or transaction by the affirmative vote
of a majority of the disinterested Directors; or (iii) the material
facts pertaining to the Director's or officer's relationship or
interest and the contract or transaction are disclosed or are known to
the stockholder entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the
stockholder. Only disinterested Directors may be counted in determining
the presence of a quorum at the portion of a meeting of the Board or of
a committee that authorizes the contract or transaction.
Article V. Compensation
Proposed Article V, Compensation, is a new Article that parallels
proposed Article X of the NASD By-Laws.
Article VI. Regional Nominating Committees
The Association proposes to add a new Article VI, Regional
Nominating Committees, to the NASD Regulation By-Laws. The procedures
for regional nominations are currently set forth in the Delegation Plan
38 and in NASD Regulation Board resolutions. Proposed
Article VI combines and expands on those procedures.
---------------------------------------------------------------------------
\38\ See Delegation Plan II.B.
---------------------------------------------------------------------------
As noted previously, Industry Directors who serve on the NASD
Regulation Board represent a region designated by the Board. These
Directors are initially nominated by a Regional Nominating Committee.
Each Regional Nominating Committee presents a nominee to the National
Nominating Committee to represent such region on the Board of
Directors. The Regional Nominating Committee acts essentially in an
advisory capacity because only the National Nominating Committee may
formally nominate to the NASD Board a candidate for Director of the
NASD Regulation Board. The NASD Board, in turn, may elect or reject the
candidates nominated by the National Nominating Committee.
Proposed Article VI sets forth the following procedures for the
regional nominating process. As previously noted, the Board designates
each region. Each region has a Regional Nominating Committee. The
Regional Nominating Committee is composed of two members from each
District Committee in the region, who are selected by their District
Nominating Committee. (See discussion of proposed NASD Regulation By-
Laws Article VIII for a description of how District Committee and
District Nominating Committee members are elected.) When the term of
office of an Industry Director representing a region is due to expire,
the Secretary of NASD Regulation notifies the appropriate Regional
Nominating Committee, which initiates the regional nominating process.
The Regional Nominating Committee receives from the Secretary of
NASD Regulation a description of the firms eligible to vote in the
Districts. Firms eligible to vote are those that either are
headquartered in the region or have a branch office in the region. In
making nominations, the Regional Nominating Committee seeks to ensure
appropriate and fair representation of the classes and types of firms
eligible to vote in the region.
Currently, corporate resolutions authorize the Regional Nominating
Committee to nominate one candidate for the consideration of the NASD
membership in the region. The Association proposes to authorize the
Regional Nominating Committee to nominate more than one candidate so
that the NASD membership in the region may vote on a nominee to present
to the National Nominating Committee. (This process would work in the
same manner as a contested nomination, which is described below.)
Once the Regional Nominating Committee selects a nominee (or
nominees), it sends notice of its nomination to the Executive
Representative of each NASD member eligible to vote. The Executive
Representative is the officer or employee of the member who casts votes
for the member in all nominations and elections. If any person not
nominated wishes to contest a nomination, he or she sends notice of
intent to contest to the Regional Nominating Committee or the Secretary
of NASD Regulation within a specified period. Such person then must
submit within a specified period a written petition signed by at least
ten percent of the members eligible to vote in the region supporting
such person's candidacy. If support of ten percent of the membership is
not obtained within the requisite time, and if the Nominating Committee
has nominated only one candidate, then the nominee of the Regional
Nominating Committee is presented to the National Nominating Committee.
[[Page 25236]]
If the Nominating Committee nominates more than one candidate, or
if a person who is not nominated obtains the necessary support, then
contested nomination procedures apply. Under these procedures, the
Association pays for two mailings of nomination literature for each
candidate, and the members of all NASD, Nasdaq, and NASD Regulation
Boards and committees, and NASD, Nasdaq, and NASD Regulation staff, are
prohibited from expressing views on the nomination. However, members of
the Boards and committees may express views if they make it clear they
are acting in their individual capacities and disclaim any intention to
communicate in an official capacity. A ballot is sent to Executive
Representatives of the firms eligible to vote, and specified
procedures, including the use of an independent agent to qualify
returned ballots and count votes, are then followed to determine the
outcome of the nomination. If the National Nominating Committee or the
NASD Board rejects a nominee of a Regional Nominating Committee, the
Regional Nominating Committee goes through the regional election
procedures again and submits another nominee to the National Nominating
Committee.
Article VII. Officers, Agents and Employees
Former Article IV, Officers, Agents and Employees, is set forth as
proposed Article VII. Former Sections 4.1, 4.3, 4.4, and 4.5 were
renumbered, respectively, as 7.1, 7.4, 7.5, and 7.6. Changes to these
sections were made only as necessary to conform to the proposed
definitions in proposed Article I and other drafting conventions. The
Association proposes to add a new Section 7.2, Absence of the
President, to provide a standard operational mechanism in the event of
the President's inability to act, absence, or a vacancy in the
position, in conformity with proposed Article 8, Section 2 of the NASD
By-Laws. In proposed Section 7.3, the Association proposes a conforming
change to clarify supervision and control of agents and employees.
(Proposed NASD By-Laws Article VIII, Section 3, and Proposed Nasdaq By-
Laws Article VI, Section 6.3.)
Article VIII. District Committees and District Nominating
Committees
Proposed Article VIII, District Committees and District Nominating
Committees, is a new Article. Proposed Article VIII authorizes the
Board to designate districts and sets forth procedures for the members
within each district to elect a District Committee and a District
Nominating Committee. The language of proposed Article VIII is drawn
from former Article VIII of the NASD By-Laws, which authorized the NASD
Board to form such committees. Proposed Article VIII is drafted to
conform to the Undertakings. Specifically, under Proposed Article VIII,
Section 8.2, the role of the District Committee members is limited to
serving as panelists in disciplinary proceedings in accordance with the
Rule 9200 Series, recommending policy and rule changes to the NASD
Regulation Board, and selecting members of the Regional Nominating
Committees in a manner consistent with the proposed NASD Regulation By-
Laws. (Proposed NASD Regulation By-Laws Article VI.)
Election procedures for District Committees and District Nominating
Committees currently are set forth in corporate resolutions. The
Association proposes to add these procedures, with further
clarifications and detail, to the By-Laws in proposed Article VIII. The
procedures conform to the nomination procedures in proposed Article VI.
Proposed Article VIII sets forth the following procedures for
district elections. In May of each year, each District Nominating
Committee solicits candidates to fill the vacancies anticipated to
occur on its District Committees as well as candidates to serve on the
following year's District Nominating Committee. (District Nominating
Committee members serve a one-year term, while District Committee
members serve a three-year term.) The District Nominating Committee
receives from the Secretary of NASD Regulation a description of the
firms eligible to vote in the district. Firms eligible to vote are
those that either are headquartered in the district or have a branch
office in the district. In making nominations, the District Nominating
Committee seeks to ensure appropriate and fair representation of the
classes and types of firms eligible to vote in the district.
Current corporate resolutions authorize the District Nominating
Committee to nominate one candidate for each vacancy. The Association
proposes to authorize the District Nominating Committee to nominate
more than one candidate per vacancy. (This process would trigger
contested election procedures, which work like the contested nomination
procedures described above.)
Once the District Nominating Committee selects its nominees, it
sends notice of its slate to the District Committee and the Executive
Representative of each firm eligible to vote. If any person not
nominated wishes to contest an election, he or she sends notice of
intent to contest to the District Director or the Secretary of NASD
Regulation within a specified period. Such person then must submit
within a specified period a written petition evidencing support for
such contest by at least ten percent of the members eligible to vote in
the district. If the person does not obtain ten percent support for a
contest within the requisite period, or if the District Nominating
Committee has not nominated more candidates than there are vacancies,
then nominees of the District Nominating Committee are deemed elected,
and the election process is finished.
If the District Nominating Committee nominates more candidates than
there are vacancies, or if a person obtains the necessary support for a
contest, then contested election procedures apply. These procedures
conform to the procedures for contested regional nominations. See
discussion of Proposed NASD Regulation By-Laws, Article VI. The
candidates for District Committee membership receiving the largest
number of votes cast in the district for that office are declared
elected such that the number of candidates declared elected equals the
number of vacancies on the District Committee. The candidates for
District Nominating Committee membership receiving the largest number
of votes cast in the district for that office are declared elected such
that the number of candidates declared elected equals the number of
vacancies on the District Nominating Committee.
Article IX. Indemnification
Current Article V, Indemnification, is renumbered as proposed
Article IX. Sections 5.1 through 5.5 are combined, amended, and
renumbered as proposed Section 9.1, and current Section 5.6 is
renumbered as proposed Section 9.2. The Association proposes to make
the indemnification policies for all three corporate entities
identical. Therefore, proposed Sections 9.1 and 9.2 conform to proposed
Article VII, Sections 7.1 and 7.2 of Nasdaq By-Laws and the provisions
for indemnification in the NASD's Restated Certificate of
Incorporation.
NASD Regulation By-Laws provide for the indemnification of and
advancement of expenses to persons named or threatened to be named as a
party to any civil, administrative, or investigative proceeding because
such person is or was a Director, officer, employee, or agent of the
corporation. The By-Laws also provide that: (1) The right of
indemnification is not exclusive
[[Page 25237]]
of any other right the person may have; (2) the amount of
indemnification is reduced by the amount the indemnified person
collects from another source; and (3) NASD Regulation has the power to
purchase and maintain indemnification insurance.
The Association proposes to modify NASD Regulation's By-Laws to
make indemnification and advancement of expenses to agents
discretionary with the Board rather than mandatory, in order to permit
the Board to determine whether indemnification is appropriate under the
particular circumstances. Indemnification of non-officer employees
remains the presumption. However, the Association proposes to authorize
the Board to refuse to advance expenses to an employee if: (1) The
employee (i) acted in bad faith, or (ii) did not act in a manner that
the employee believed to be in or not opposed to the best interests of
NASD Regulation; (2) with respect to a criminal matter, the employee
believed or had reasonable cause to believe that his or her conduct was
unlawful; or (3) the employee breached his or her duty to NASD
Regulation. Finally, the Association proposes to add a provision
requiring NASD Regulation, in response to a written claim for
indemnification or advancement, to make such payment within 60 days of
the claim.
While it is a common corporate practice to provide for
discretionary indemnification of employees (as well as agents), NASD
Regulation believes that it is essential that employees have confidence
that they will be indemnified in the event they are named in any
proceeding resulting from actions taken in good faith. At the same
time, NASD Regulation believes it is essential that the Board have the
opportunity to evaluate and deny advancement of expenses if it
determines the action was not taken in good faith or if the person had
reason to believe the action was illegal or breached a duty to the
corporation.
Article X. Capital Stock
Current Article VI, Capital Stock, is renumbered as proposed
Article X. The Association proposes to add a new Section 10.1,
recognizing the NASD's status as sole stockholder. Current Sections 6.1
through 6.7 are renumbered as proposed Section 10.2 through 10.8. The
Association proposes certain changes only to conform the proposed
Article to the drafting conventions and stylistic changes incorporated
generally in the NASD By-Laws, the NASD Regulation By-Laws, and the
Nasdaq By-Laws. There are no substantive changes to proposed Article X.
In proposed Section 10.8, the Association proposes to delete detailed
provisions of Delaware law for the fixing of record dates, which are
more useful to corporations with more than one stockholder, and instead
provide that a record date may be fixed in accordance with Delaware
law.
Article XI. Miscellaneous Provisions
Current Article VII, Miscellaneous Provisions, is renumbered as
proposed Article XI. There are no substantive changes in proposed
Article XI. Current Sections 7.1, 7.2, 7.3, 7.4, and 7.5 are proposed
to be renumbered, respectively, as Sections 11.1, 11.2, 11.3., 11.4,
and 11.5.
Article XII. Amendments; Emergency By-Laws
Current Article VIII, Amendments; Emergency By-Laws, is renumbered
as proposed Article XII. There are no substantive changes in Article
XII. Current Sections 8.1, 8.2, and 8.3 are proposed to be renumbered,
respectively, as Sections 12.1,12.2, and 12.3.
(iii) Proposed Changes to Nasdaq By-Laws
Nasdaq adopted its current By-Laws on October 27, 1993. These By-
Laws were drafted to comply with the requirements of Delaware law and
to include more detailed provisions describing the powers of the Board
and the corporation's officers, employees, and agents. Nasdaq's By-Laws
have not previously been filed with the Commission. The Association
proposes to amend the Nasdaq By-Laws to conform them to the proposed
NASD and NASD Regulation By-Laws, where appropriate, and to certain
other changes proposed for the Rules of the Association. Significant
changes to Nasdaq's By-Laws are described below. Minor, non-substantive
changes and changes to reflect drafting conventions are not described.
Article I. Definitions
The Association proposes to add a new Article I, Definitions. As
noted previously, the Association proposes that the By-Laws for each
corporate entity have a free-standing set of definitions. Therefore,
the Association proposes to add the following definitions, which
conform to definitions proposed for inclusion in the NASD and NASD
Regulation By-Laws: ``Act''; ``Board''; ``broker''; ``Commission'';
``day''; ``dealer''; ``Delaware law''; ``Delegation Plan'';
``Director''; ``Industry Director'' or ``Industry committee member'';
``NASD''; ``NASD Board''; ``NASD Regulation''; ``Nasdaq''; ``National
Nominating Committee''; ``Non-Industry Director'' or ``Non-Industry
committee member''; ``Public Director'' or ``Public committee member'';
and ``Rules of the Association'' or ``Rules.''
Article II. Offices
Current Article I, Offices, is renumbered as proposed Article II,
and the Sections are renumbered accordingly.
Article III. Meetings of Stockholders
Current Article II, Meetings of Stockholders, is renumbered as
proposed Article III and conformed to the changes in proposed Article
III of the NASD Regulation By-Laws.
Article IV. Board of Directors
Current Article III, Board of Directors, is renumbered as proposed
Article IV. The changes in proposed Article IV are designed to conform
it, as appropriate, to proposed Article IV of the NASD Regulation By-
Laws, with the following exceptions. First, the number, qualifications,
and election of the Directors reflects the current provisions of the
Delegation Plan. See Delegation Plan III.B and Proposed Nasdaq By-Laws
Sections 4.2 through 4.4. Second, like the NASD Regulation Board, the
Nasdaq Board is divided into three classes, except that the terms of
office of the Directors of Nasdaq Board are set to expire beginning in
1998, rather than 1997. Third, proposed Section 4.14 concerning
Committees, largely parallels the same provision in the NASD Regulation
By-Laws, except the Nasdaq By-Laws authorize only one specific
committee, an Executive Committee. (Other provisions concerning Nasdaq
committees remain in proposed Section III.D. of the Delegation Plan.)
Fourth, Proposed Section 4.15, like proposed Article XV, Section 4
of the NASD By-Laws, sets standards of conduct for Directors with
regard to conflicts of interest. Proposed Section 4.15(b) addresses
conflicts of interests in non-adjudicatory matters in a manner
consistent with the By-Laws for the NASD Board and the NASD Regulation
Board. Proposed Section 4.15 provides that no contract or transaction
between Nasdaq and a Director or officer, or between Nasdaq and any
other entity in which a Director or officer is a director or officer,
or has a financial interest, shall be void or voidable solely for this
reason if: (i) The material facts pertaining to the Director's or
officer's relationship or interest and the contract or transaction are
disclosed or are
[[Page 25238]]
known to the Board or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative vote of
a majority of the disinterested Directors; (ii) the material facts are
disclosed or become known to the Board or committee after the contract
or transaction is entered into, and the Board or committee in good
faith ratifies the contract or transaction by the affirmative vote of a
majority of the disinterested Directors; or (iii) the material facts
pertaining to the Director's or officer's relationship or interest and
the contract or transaction are disclosed or are known to the
stockholder entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the stockholder. Only
disinterested Directors may be counted in determining the presence of a
quorum at the portion of a meeting of the Board or of a committee that
authorizes the contract or transaction.
In addition, in proposed Section 4.15(a), Conflicts of Interest;
Contracts and Transactions Involving Directors, there is no cross-
reference to the Rules of the Association because the present Nasdaq
rules do not include particular disqualification standard for Nasdaq
proceedings as has been included in the proposed Rule 9160 Series for
NASD Regulation disciplinary proceedings. Finally, proposed Section
4.17, Communication of Views Regarding NASD or NASD Regulation
Elections or Nomination, holds Nasdaq and its Board, committee, and
staff to the same standards proposed for NASD and NASD Regulation with
respect to contested elections or nominations. (Proposed NASD By-Laws
Article VII, Sections 11 and 12, and Proposed NASD Regulation By-Laws
Article VI, Sections 6.14 and 6.19, and Article VIII, Sections 8.21 and
8.26.)
Article V. Compensation
Article V, Compensation, is a new Article that conforms with
proposed Article X of the NASD By-Laws and proposed Article V of the
NASD Regulation By-Laws.
Article VI. Officers, Agents and Employees
Current Article IV, Officers, Agents and Employees, is renumbered
as proposed Article VI, and the Sections are renumbered accordingly.
Only one substantive change is proposed. Proposed Section 6.3 (current
Section 4.3), Subordinate Officers, Agents, or Employees, includes a
provision that clarifies that agents and employees of Nasdaq are under
the supervision and control of the officers of Nasdaq, unless the
Nasdaq Board, by resolution, provides that an agent or employee shall
be under its supervision and control. (Proposed NASD By-Laws Article
VIII, Section 3 and Proposed NASD Regulation By-Laws Article VII,
Section 7.3.)
Article VII. Indemnification
Current Article V, Indemnification, is renumbered as proposed
Article VII, and the Sections are renumbered accordingly. Proposed
Article VII conforms to the provisions for indemnification in the
NASD's Restated Certificate of Incorporation and proposed Article IX of
the NASD Regulation By-Laws. As noted above, the Association proposes
to make the indemnification policies for all three corporate entities
identical.
Current Article V provides for the mandatory indemnification of
persons made or threatened to be made a party to any civil,
administrative, or investigative proceeding by reason of the fact that
he or she was a director or officer of the corporation. Advancement of
expenses, and the indemnification of employees and agents, is
discretionary. Current Article V also provides that (1) the right of
indemnification is not exclusive of any other right the person may
have; (2) the amount of indemnification is reduced by the amount an
indemnified person collects from another source; and (3) Nasdaq has the
power to purchase and maintain indemnification insurance.
The Association proposes to modify current Article V in the same
manner and for the same reasons set forth in the discussion of proposed
Article IX of the NASD Regulation By-Laws.
Article VIII. Capital Stock
Current Article VI, Capital Stock, is renumbered as proposed
Article VIII. The Association proposes changes to conform to those set
forth for proposed Article X of the NASD Regulation By-Laws.
Article IX. Miscellaneous Provisions
Current Article VII, Miscellaneous Provisions, is renumbered as
proposed Article IX, and the Sections are renumbered accordingly. There
are no substantive changes.
Article X. Amendments; Emergency By-Laws
Current Article VIII, Amendments; Emergency By-Laws, is renumbered
as proposed Article X, and the Sections are renumbered accordingly.
There are no substantive changes.
c. Proposed Changes to the Delegation Plan and Restated Certificates of
Incorporation
The Association proposes to amend the Delegation Plan to delete
provisions added to the By-Laws of the NASD, NASD Regulation, and
Nasdaq. Specifically, in Section I.A., the definitions of Industry,
Non-Industry, and Public Governors, Directors, and committee members
are deleted and instead cross-reference the By-Laws of the NASD, NASD
Regulation, and Nasdaq, where the Association proposes to define such
terms. (Proposed NASD By-Laws Article I; Proposed NASD Regulation By-
Laws Article I; and Proposed Nasdaq By-Laws Article I.)
Similarly, the Association proposes to delete Section I.C., I.D.,
II.B., III.B., and parts of II.D. and III.D., which address the
composition of the Boards, elections, terms of office, vacancies,
disqualification due to change in classification, and the composition
and authority of certain committees because the Association proposes to
include these provisions in the appropriate By-Laws. (Proposed NASD By-
Laws Article VII, Sections 4, 5, 6, 7, 9, and 10; Proposed NASD
Regulation By-Laws Article IV, Sections 4.2, 4.3, 4.4, 4.5, 4.8, 4.9
and 4.14; and Proposed Nasdaq By-Laws Article IV, Sections 4.2., 4.3,
4.4, 4.5, 4.8, 4.9 and 4.14.) With respect to committees, the
Association proposes to include in the appropriate By-Laws or in the
Delegation Plan the compositional requirements for specified committees
as provided in the Undertakings. Generally, if the committee consists
solely of Directors or Governors, the Association proposes to include
provisions describing the committee's powers and compositional
requirements in the appropriate corporate By-Laws. If the committee
consists of Directors or Governors as well as other members, the
Association proposes to include provisions describing the committee's
powers and compositional requirements in the Delegation Plan. Thus, the
Association proposes to add provisions regarding the powers and
composition of the Market Regulation Committee and the National
Arbitration and Mediation Committee as proposed Section II.C. of the
Delegation Plan.
The Association proposes to amend Section II.A.1.f. to specify that
NASD Regulation will establish procedures to consider requests by
members, associated person, and members of the public that NASD
Regulation initiate formal disciplinary action. This provision is
discussed below in
[[Page 25239]]
connection with the discussion of the proposed deletion of current Rule
8120.
The Association proposes to amend Section II.C., which sets forth
certain NASD Regulation Board review procedures, by deleting specific
procedures that are set forth in the proposed Rule 9000 Series.
Instead, the Rules of the Association are cross-referenced.
Finally, the Association proposes to clarify that both NASD
Regulation and Nasdaq are responsible for operating Stockwatch.
Therefore, new Sections II.A.1.t. and III.A.1.o. are added and the
Section pertaining to Stockwatch is renumbered as Section IV of the
Delegation Plan.
The Association also proposes to amend the Certificates of
Incorporation for the NASD, NASD Regulation, and Nasdaq. This is the
first time the Association has filed the Certificates of Incorporation
for NASD Regulation and Nasdaq with the Commission. The Association
proposes to revise the three Certificates to conform them to the
proposed changes to the By-Laws of the three corporations and other
proposed rule changes and to make the Certificates more consistent with
one another. No substantive changes are intended.
d. Proposed Changes to Rules 0120 and 0121
The Association proposes to add four new definitions to Rule 0120,
which provides definitions of general applicability, and amend one
definition. The four definitions that the Association proposes to add
are: ``NASD,'' ``NASD Regulation,'' ``Nasdaq,'' and ``National Business
Conduct Committee.'' NASD, NASD Regulation, and Nasdaq are the same
terms defined in the By-Laws of the NASD, NASD Regulation, and Nasdaq.
The Association proposes to define these terms in Rule 0120, to aid a
person reading the Rules of the Association and any future drafter of a
Rule. The Association proposes to add the term ``National Business
Conduct Committee'' to avoid duplicating the definition in several
proposed Rule Series and to aid the reader. The term is defined in the
current Rule 9120 and used in other series of the Rules (e.g., the Rule
1010 Series).
The Association intends to amend one currently defined term,
``Rules,'' to ```Rules'' or ``Rules of the Association','' and to
clarify the definition. The new definition clarifies that the terms
``Rules'' and ``Rules of the Association'' are synonymous and that the
definition includes any Rule set forth as a numbered Rule in the NASD
Manual.
Finally, paragraph (j) is relettered as proposed paragraph (n),
paragraph (k) is relettered as proposed paragraph (o), paragraph (l) is
relettered as proposed paragraph (p), and paragraph (m) is relettered
as proposed paragraph (q).
The Association proposes to amend current Rule 0121 to clarify that
the definitions in the NASD By-Laws apply unless a Rule indicates
otherwise.
e. Proposed IM-2210-4
The Association proposes to add IM-2210-4 as a filed interpretation
of Rule 2210. IM-2210-4 is based on a resolution of the NASD Board of
Directors that currently is included in Article XVI, Section 2 of the
NASD By-Laws, which concerns the use of the Association's name by
members. Because the Association will no longer include corporate
resolutions with the By-Laws, the Association proposes to convert the
resolution into interpretive material for Rule 2210, which addresses
members' communications with the public. In addition, the language of
the resolution is clarified and reorganized to make it easier to read
and understand.
f. Proposed Changes to the Membership Application Procedures in the
Rule 1010 Series
The Rule 1010 Series sets forth procedures for processing
membership applications. The Rule 1010 Series is revised to reflect the
recommendations of the Implementation Plan and to comply with
Undertakings 4 and 5. The Implementation Plan recommended that the NASD
strive to bring about greater national uniformity and coordination in
the membership application process and lighten the National Business
Conduct Committee's workload in order to allow the National Business
Conduct Committee to assist in providing such uniformity. Undertaking 4
requires the NASD to ``provide for the autonomy and independence of the
regulatory staff * * * such that the staff, subject only to the
supervision of the Board of Governors of the NASD and the Board of
Directors of NASDR * * * has sole discretion to handle the approval of
applications for membership.'' Undertaking 4 also requires that the
District Business Conduct Committees no longer be involved in reviewing
or approving membership applications. Undertaking 5 requires that the
Association ``promulgate and apply on a consistent basis uniform
standards for regulatory and other access issues, such as admission to
the NASD as a member firm, and conditions to becoming a market maker;
and institute safeguards to ensure fair and evenhanded access to all
services and facilities of the NASD.''
(i) Current Rules
Under the current Rule 1010 Series, a prospective member files a
membership application with the district office in the district in
which it intends to have its principal place of business. A
Subcommittee is designated by the District Committee to render a
determination on the application. Current Rule 1011 specifies a short
list of documents and information to be provided with the application
and generally permits the district office to request any other relevant
information or documents. If the applicant fails to respond to a
request for information by the district office or responds to such a
request in a materially inadequate manner, the Rule provides that the
application terminates, unless the Subcommittee determines otherwise.
Before an applicant is admitted to membership, current Rule 1011
requires that the applicant participate in a pre-membership interview.
The Association has one year from the date of application to complete
the pre-membership interview process. During the pre-membership
interview, there is a review of the applicant's: (1) Business plan; (2)
capital arrangements; (3) proposed record keeping system; (4) proposed
internal procedures; (5) familiarity with Rules of the Association and
federal securities laws; and (6) capability to properly conduct the
type of business intended in view of (a) The number, experience, and
qualifications of persons to be associated with the applicant at the
time of its admission to membership, (b) the applicant's planned
facilities, (c) arrangements with banks and clearings corporations, (d)
supervisory personnel, methods, and procedures, and (e) other factors
relevant to the scope and operation of the applicant's business. The
applicant is required to demonstrate ``the appropriateness of its
admission to membership in the Association to conduct the type of
business intended in the manner specified in its submission.''
Within 30 days after the pre-membership interview or the receipt of
any additional documents requested, whichever is later, the
Subcommittee notifies the applicant whether its application is granted,
denied, or granted subject to restrictions on its business activities.
If restrictions are imposed at this stage or after appeal or review
under Rule 1012, the applicant must execute a written agreement to
abide by any restrictions imposed and to obtain the Association's
approval before modifying its business activities in any way
inconsistent with the agreement.
[[Page 25240]]
Under current Rule 1012, the applicant may request that the full
District Committee review the Subcommittee's determination. The
applicant may request a hearing before a separate Hearing Subcommittee
of the District Committee. No member of the Subcommittee that rendered
the initial determination on the application may participate in the
determination of the District Committee. After review, the District
Committee determines whether the application should be granted, denied,
or granted subject to restrictions.
The applicant may appeal the full District Committee's decision to
the National Business Conduct Committee, or the National Business
Conduct Committee on its own motion may call the decision for review.
The applicant has the right to appear before the National Business
Conduct Committee and may supplement the record; the National Business
Conduct Committee may require the applicant to appear and provide
additional information. Unless the NASD Board calls the membership
application proceeding for discretionary review, the National Business
Conduct Committee notifies the applicant whether its application is
granted, denied, or granted subject to restrictions, and the National
Business Conduct Committee's action constitutes final action of the
Association. The applicant may apply for review by the Commission.
A Governor of the NASD Board may call a determination of the
National Business Conduct Committee on a membership application for
review. The NASD Board may affirm, modify, or reverse the National
Business Conduct Committee's determination, and the Board's
determination constitutes final action of the Association. The
applicant may apply for review by the Commission.
Under current Rule 1013, a member may request that the Association
remove or modify any restrictions imposed on its business activities as
a result of the membership admission process. The request must be filed
in writing and reviewed by a Subcommittee of the District Committee of
the district in which the member currently has its principal place of
business. The member must demonstrate that such action is appropriate
in light of the criteria in current Rule 1013. The Subcommittee
considers the circumstances that gave rise to the imposition of the
restrictions, the operations of the member since the imposition of the
restrictions, and any new evidence submitted in connection with the
request. The District Committee, the National Business Conduct
Committee, and the NASD Board may review a modification of restrictions
approved by the Subcommittee pursuant to the procedures for reviewing a
membership application under current Rule 1012. If the Subcommittee
denies a request to remove or modify restrictions, the member may file
a request for review with the District Committee. The District
Committee's determination is subject to appeal or review pursuant to
current Rule 1012.
Under current Rule 1014, if the ownership or control of a member
changes, the Association may condition continuance in membership on
prompt compliance with the pre-membership procedures contained in
current Rules 1011 through 1015.
Under current Rule 1015, a member must notify the Association of
certain mergers, acquisitions, or other changes in equity ownership or
partnership capital within 10 business days after the event.
(ii) Proposed New Rules
The proposed rule change substantially alters current membership
procedures. First, consistent with Undertaking 4, the proposed rule
change shifts the authority to render an initial decision on a
membership application from the District Committees to the Department
of Member Regulation (``Department'') of NASD Regulation. Second,
consistent with Undertaking 5, the proposed rule change sets forth in
greater detail the information that must be submitted with a membership
application, sets forth more detailed and objective standards for
rendering a decision on a membership application, and requires that any
restrictions placed on an Applicant's business activities be
specifically related to a particular standard and that the rationale
for such restrictions be clearly articulated. Third, the proposed rule
change sets forth additional details about membership application
procedures and generally provides more procedural rights to Applicants,
including time limits by which the Department, and if applicable, the
National Business Conduct Committee, the NASD Regulation Board, and the
NASD Board must issue a decision. Finally, various other time limits
are imposed throughout the admission process to ensure that
applications are acted on promptly. These changes will help bring about
greater national uniformity and coordination in the membership
application process and more even-handed access to the facilities of
the NASD.
Proposed Rule 1011 sets forth definitions for the proposed Rule
1010 Series. The terms ``Applicant,'' ``Associated Person,''
``Department,'' ``Director,'' ``district,'' ``district office,''
``Governor,'' ``Interested Association Staff,'' ``sales practice
violations,'' and ``Subcommittee'' are defined.
Proposed Rule 1012 sets forth general procedural provisions for
service of notices and decisions by the Association and filings by an
Applicant, prohibitions on ex parte communications with Applicants or
Interested Association staff, recusals or disqualifications of NASD and
NASD Regulation Board members and National Business Conduct Committee
members, computations of time, and recording of events in the
Association's membership application docket.
Proposed Rule 1013 sets forth procedures for filing a membership
application and conducting a membership interview.39
Applicants must file membership applications with the Membership
Department,40 which will transmit the application for
processing to Department staff at the district office in the district
in which the Applicant has or intends to have its principal place of
business. Proposed Rule 1013(a) sets forth a detailed list of items
that must be submitted with a membership application. Newly specified
items include a more detailed business plan; evidence of all required
registrations and licenses and copies of the most recent Forms U-4 and
U-5 for each Associated Person; documentation of disciplinary history
and certain regulatory, civil, and criminal actions, arbitrations, and
customer complaints for the Applicant and its Associated Persons; a
written acknowledgment that heightened supervisory procedures may be
required for certain Associated Persons; copies of proposed or final
contracts with banks, clearing entities, and service bureaus; a
description of the nature and source of Applicant's capital; a
description of financial controls; a more detailed description of the
Applicant's supervisory system and
[[Page 25241]]
personnel; a description of the proposed recordkeeping system; and a
copy of the Applicant's written training plan.
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\39\ The Association proposes to discontinue the use of the term
``pre-membership interview'' and instead use the term ``membership
interview.'' Under the proposed rule change, interviews are required
before an Applicant may become a member and may be required after an
Applicant becomes a member in order to remove or modify a
restriction under proposed Rule 1018 or to review a change in
ownership or operations under proposed Rule 1019. Thus, interviews
will occur before and may occur after admittance to membership.
\40\ The Membership Department is located in the Association's
Rockville offices and performs certain administrative functions for
all membership applications. It is distinct from the Department of
Member Regulation.
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Proposed Rule 1013 adds a new provision requiring the Department to
determine if the application is complete within 30 days after receipt
of the application. If the application is not complete, the Department
may request additional information and documents, and may continue to
make such requests at any time during the membership application
process. Unless the Applicant and the Department agree otherwise,
additional documents or information must be provided within 60 days
after the initial request and 30 days after any subsequent request.
Proposed Rule 1013(b) provides that an application for membership
lapses if the Applicant fails to respond fully to requests for
information or fails to appear at a membership interview, absent a
showing of good cause by the Applicant.
Proposed Rule 1013(c) describes the membership interview process.
The Department must conduct a membership interview before it issues a
decision on an application for admission. The Applicant is notified of
the interview by facsimile or commercial courier at least seven days
before the interview. Unless the Department directs otherwise for good
cause shown, a membership interview must be scheduled to occur within
90 days after receipt of the application or within 60 days after the
receipt of all requested documents and information, whichever is later.
During the membership interview, the Department reviews the standards
for admission with the Applicant's representatives and informs them of
any preliminary determinations as to whether the Applicant meets such
standards. If the Department intends to rely on information not
submitted by the Applicant, such information is provided to the
Applicant.
Proposed Rule 1014 provides that after considering the application,
membership interview, other information and documents, the public
interest, and the protection of investors, the Department must
determine whether the Applicant meets the specified standards. For
standards relating to capital, supervision, and capability of complying
with applicable law, the proposed rule change sets forth specific
criteria that the Department may consider in determining whether the
Applicant meets the standard. Other standards address the completeness
and accuracy of the application and supporting documents; possession of
all required licenses and registrations; establishment of necessary
relationship with banks, clearing corporations, and service bureaus;
plans to obtain necessary facilities; financial controls; compliance,
supervisory, operational, and internal control practices and standards;
recordkeeping; and training. In addition, the Association must not
possess any information indicating that the Applicant may circumvent,
evade, or otherwise avoid compliance with the federal securities laws
or the Rules of the Association, and the application and supporting
documents must otherwise be consistent with the federal securities laws
and the Rules of the Association.
If an Applicant meets each of the standards, the Department grants
the application for membership. If an Applicant fails in whole or part
to meet one or more of the standards, the Department may deny the
application or grant it subject to restrictions designed to address
specific financial, operational, supervisory, disciplinary, investor
protection, or other regulatory concerns based on the standards in
proposed Rule 1014.
Under the proposed rule change, if the Department grants an
application, with or without restriction, the Applicant's approval for
membership is contingent upon the Applicant's submission of a
membership agreement to engage only in the business set forth in its
business plan and the membership agreement; abide by any restriction
specified in the Department's written decision; obtain the Department's
prior approval of the removal or modification of such restriction under
proposed Rule 1018; and notify and obtain the Department's approval of
a change in ownership or control or a material change in business
operations under proposed Rule 1019. The execution of this membership
agreement does not affect the Applicant's right to request a review of
the Department's decision under proposed Rule 1015.
Under subparagraph (d) of Rule 1014, if the Department denies an
application, the decision must explain the reason for the denial and
reference the applicable standard that is not met. If the Department
grants the application subject to restrictions, the decision must
explain the reason for each restriction, referencing the applicable
standard that is not met and identifying the specific financial,
operational, supervisory, disciplinary, investor protection, or other
regulatory concern that the restriction is designed to address and the
manner in which the restriction is reasonably designed to address the
concern.
The Department must issue a written decision within 30 days after
the conclusion of the membership interview or after the submission of
additional information or documents, whichever is later. The proposed
rule change also provides a new remedy if the Department fails to act
promptly on an application. If the Department fails to issue a written
decision within 180 days after receipt of an application, or such later
date as the Department and the Applicant agree, the Applicant may
request that the NASD Board direct the Department to issue the decision
immediately or show good cause for an extension. If the Department
shows good cause, the 180 day time limit may be extended by not more
than 90 days.
Under proposed Rule 1015, the Applicant may request that the
National Business Conduct Committee review the decision of the
Department by filing a written request within 25 days after service of
the Department's decision. As under current Rule 1012, upon submission
of the membership agreement, an Applicant may begin operating subject
to the terms of such agreement while the review is
pending.41
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\41\ The Commission notes that only an Applicant who has been
approved, but subject to a restriction, may begin operating subject
to the terms of its membership agreement while its review is
pending. An Applicant who has not been disapproved may not begin
operating.
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If the Applicant requests a review, the National Business Conduct
Committee appoints a Subcommittee to participate in the review. The
Subcommittee is composed of two or more members. At least one member
must be a current member of the National Business Conduct Committee;
the remaining member or members may be current or past members of the
NASD Regulation Board or past members of the NASD Board. The Applicant
may request a hearing before the Subcommittee, or the Subcommittee may
direct that a hearing be held. After the Subcommittee completes its
review, the Subcommittee transmits a recommended decision in writing to
the National Business Conduct Committee and to the other Directors of
the NASD Regulation Board not later than 60 days after the date of the
membership hearing, and not later than seven days before the National
Business Conduct Committee meeting at which the proceeding will be
considered.
After considering all matters presented in the review and the
Subcommittee's recommended decision, the National Business Conduct
Committee may affirm, modify, or reverse the Department's decision or
remand the proceeding with instructions. The National Business
[[Page 25242]]
Conduct Committee prepares a proposed written decision that describes
the Department's decision and rationale, describes the principal issues
raised in the review, summarizes the evidence on each issue, and states
the National Business Conduct Committee's disposition of the proceeding
and the rationale therefor, referencing the applicable standards in
proposed Rule 1014. A Director of the NASD Regulation Board or a
Governor of the NASD Board may call the National Business Conduct
Committee's proposed written decision for review in the sequence and
within the time limits set forth in proposed Rule 1016, as described
below.
If the National Business Conduct Committee's proposed written
decision is not called for review by either Board, the National
Business Conduct Committee's proposed written decision becomes the
final written decision. The Applicant is notified that the call for
review period has expired and that the National Business Conduct
Committee is required to serve its final written decision within 15
days. If the National Business Conduct Committee does not serve its
final written decision within 15 days, the Applicant may request that
the NASD Board direct the National Business Conduct Committee to serve
its decision immediately or show good cause for an extension of time.
If the National Business Conduct Committee shows good cause, the NASD
Board may extend the 15 day limit by an additional 15 days.
Proposed Rule 1016 sets forth procedures for the NASD Regulation
Board to call the National Business Conduct Committee's proposed
written decision for review and for the NASD Board to call a proposed
written decision of the National Business Conduct Committee or the NASD
Regulation Board for review. The call for review process begins with
the mailing of the Subcommittee's recommended decision to the National
Business Conduct Committee and to the other Directors at least seven
days in advance of the National Business Conduct Committee meeting at
which the National Business Conduct Committee will consider and act
upon the recommended decision. The National Business Conduct Committee
then holds its meeting and acts on the Subcommittee's recommended
decision. Under current practices, the NASD Regulation Board meets on
the day after the National Business Conduct Committee meeting. At this
Board meeting, each Director receives a summary (not the full written
text) of the National Business Conduct Committee's proposed decision,
including any changes the National Business Conduct Committee made to
the Subcommittee's recommended decision. Based upon the Subcommittee's
recommended decision (which Directors will have had at least seven days
to review) and the summary of the National Business Conduct Committee's
proposed decision, any Director may call the National Business Conduct
Committee's proposed decision for review.
After the Board meeting, Directors get a second opportunity to call
a proposed National Business Conduct Committee decision for review when
they receive the full written text and the summary of the National
Business Conduct Committee's proposed decision, which incorporate any
changes from the Subcommittee's recommended decision. A Director may
call the National Business Conduct Committee's proposed written
decision for review by the full Board not later than seven days after
the date on which the Director receives the decision. Thus, in most
cases a Director will have at least 14 days to consider whether to call
a proceeding for review--seven days before the Board meeting and at
least seven days after the Board meeting. (The Board, by a unanimous
vote, may shorten the seven-day period following the Board meeting, or
by majority vote, may lengthen the seven-day period following the Board
meeting.) If a Director calls the National Business Conduct Committee's
proposed written decision for review, the review is conducted at the
next Board meeting. The NASD Regulation Board may affirm, modify, or
reverse the National Business Conduct Committee's proposed written
decision or remand the proceeding with instructions. The NASD
Regulation Board prepares a proposed written decision that describes
the Department's decision and rationale, describes the principal issues
raised in the review, summarizes the evidence on each issue, and states
the NASD Regulation Board's disposition of the proceeding and the
rationale therefor, referencing the applicable standards in proposed
Rule 1014. The NASD Regulation Board transmits its proposed written
decision to the Governors of the NASD Board.
If a Governor does not call the NASD Regulation Board's proposed
written decision for review within the time prescribed, the NASD
Regulation Board's proposed written decision becomes the final written
decision. The Applicant is notified that the call for review period has
expired and that the NASD Regulation Board is required to serve its
final written decision within 15 days. If the decision is not served
within such time, the Applicant may request that the NASD Board direct
the NASD Regulation Board to serve its final written decision
immediately or show good cause for an extension of time. If the NASD
Regulation Board shows good cause, the NASD Board may extend the 15 day
limit by an additional 15 days.
The process for review by the NASD operates similarly to that
described above. A Governor of the NASD Board may call the NASD
Regulation Board's proposed written decision for review not later than
the next NASD Board meeting that is at least seven days after the date
on which the Governor receives the decision. (The Board, by a unanimous
vote, may shorten the seven-day period, or by majority vote, may
lengthen the seven-day period.) If a Governor calls the NASD Regulation
Board's proposed written decision for review, the review is conducted
at the following Board meeting. The NASD Board may affirm, modify, or
reverse the NASD Regulation Board's proposed written decision or remand
the proceeding with instructions. The NASD Board prepares a final
written decision that describes the Department's decision and
rationale, describes the principal issues raised in the review,
summarizes the evidence on each issue, and states the NASD Board's
disposition of the proceeding and the rationale therefor, referencing
the applicable standards in proposed Rule 1014. The NASD Board must
serve its final written decision within 15 days after the meeting at
which it conducted its review.
Alternatively, if a Director of the NASD Regulation Board does not
call the National Business Conduct Committee's proposed written
decision for review within the time prescribed, the NASD Board may call
such decision for review. Upon the expiration of the NASD Regulation
Board's call for review period, the National Business Conduct
Committee's proposed written decision is transmitted to the Governors
of the NASD Board. A Governor may call the National Business Conduct
Committee's proposed written decision for review not later than the
next Board meeting that is at least seven days after the Governor
receives the decision. (The Board, by a unanimous vote, may shorten the
seven-day period, or by majority vote, may lengthen the seven-day
period.) If a Governor calls the National Business Conduct Committee's
proposed written decision for review, the review is conducted at the
following NASD Board meeting. The NASD Board may affirm, modify, or
reverse the
[[Page 25243]]
National Business Conduct Committee's proposed written decision or
remand the proceeding with instructions. The NASD must serve its final
written decision within 15 days after the meeting at which it conducted
its review. The final written decision contains the same elements
described in the preceding paragraph.
Under proposed Rule 1017, as under current Rule 1012(h), a decision
by the National Business Conduct Committee, NASD Regulation Board, or
the NASD Board that constitutes final action of the Association may be
appealed to the Commission.
Under proposed Rule 1018, a member may submit an application to
remove or modify a restriction on its business activities by submitting
a written application to the Department at the district office in the
district in which the member's principal place of business is located.
The application must present facts showing that the circumstances that
gave rise to the restriction have changed and state with specificity
why the restriction should be modified or removed in light of the
membership application standards in proposed Rule 1014 and the
articulated rationale for the imposition of the restriction. The
Department has 30 days to determine whether an application is complete
and, if not, the Department may request that the Applicant submit
additional information or documents. The Department also may request
that the Applicant participate in a membership interview. The
Department issues its written decision after considering whether
maintenance of the restriction is appropriate in light of the standards
set forth in proposed Rule 1014, the circumstances that gave rise to
the imposition of the restrictions, the Applicant's operations since
the restrictions were imposed, any change in ownership or control or
supervisors and principals, and any new evidence submitted in
connection with the application. (Proposed Rule 1018(b)(1).) The
Applicant may file a written request for review of the Department's
decision by the National Business Conduct Committee. The procedures set
forth in proposed Rules 1015 and 1016 apply to such a request. In
addition, a new provision is added requiring the Department of Member
Regulation to modify or remove restrictions on its own initiative if
that Department determines that such action is appropriate in light of
the circumstances described above.
Current Rule 1015 requires a member to notify the Association of
certain changes in ownership and control within 10 days after the
event. In contrast, proposed Rule 1019 requires members to notify the
Association at least 30 days prior to the occurrence of certain changes
in ownership, control, or operations and obtain approval of such
changes prior to their effectiveness. The changes specified in proposed
Rule 1019 include a merger with or acquisition of another member, an
acquisition of substantially all assets of the member, a change in the
equity ownership or partnership capital of a member that results in one
person or entity controlling 25 percent or more of the equity or
partnership capital, and a material change in a member's business
operations. The Department must review such a change before it takes
effect and may maintain existing restrictions on the member's business
activities and place new interim restrictions on the member based on
the standards in proposed Rule 1014, pending final Department action.
The Department may condition continued membership on the submission of
information and the participation in a membership interview pursuant to
proposed Rule 1013 and on prompt compliance with the standards and
requirements in proposed Rule 1014, in which case all procedural
protections under the proposed Rule 1010 Series apply, including the
time limits imposed on the issuance of a decision.
As discussed above, the Association proposes that the proposed Rule
1010 Series become effective 30 days after approval by the Commission.
g. Proposed Changes to the Rule 8000 Series
The Association proposes to amend the Rule 8000 Series to reflect
proposed rule changes to the Rule 9000 Series and to clarify and
reorganize certain provisions in order to make them easier to read and
understand.
Rule 8110, which requires members to keep certain NASD corporate
documents, rules, and interpretations in their branch offices, is
revised to require members to keep a current copy of the NASD Manual in
their main and branch offices. The NASD Manual will contain the
corporate documents for the NASD, NASD Regulation, and Nasdaq as well
as the Rules of the Association and interpretations.
Current Rules 8120, 8130, and 8140 concern the initiation of
disciplinary proceedings. Current Rule 8120 allows any person who
believes he or she has been aggrieved by any act of any member or
associated person to institute a formal disciplinary proceeding. In
view of the enhancements to the disciplinary process being proposed
(including the change to staff-initiated disciplinary proceedings),
enhancements to the arbitration process, and the institution of an
expanded and independent NASD internal review function (including an
Ombudsman Office), the Association believes it is no longer necessary
to give ``aggrieved persons'' the right to invoke Association processes
to institute formal disciplinary actions. The Association also believes
that the availability of such a procedure to ``aggrieved persons,'' who
may include members and associated persons seeking to advance
competitive or pecuniary interests, as well as to members of the
public, could permit such persons to encumber the Association's
disciplinary process. This would be inconsistent with the fundamental
purpose of the Association's disciplinary procedures, which are
designed to provide a mechanism for the protection of investors
generally and the promotion of the public interest, rather than a means
to redress individual private grievances. In this connection, the
Association notes that no other self-regulatory organization has a
similar provision in its rules.
For these reasons, the Association proposes to rescind current Rule
8120. While the Association believes this Rule is no longer necessary
or appropriate, the Association also acknowledges its responsibility as
a self-regulatory organization to give due consideration to complaints
by members, associated persons, or members of the public who bring
forth information suggesting wrongdoing. Under these circumstances, the
Association recognizes its duty to investigate and to determine whether
its disciplinary process should be invoked. For this reason, the
Association proposes to add to the Delegation Plan a provision
requiring NASD Regulation to establish internal procedures for
considering complaints by members, associated persons, and members of
the public who request an investigation or disciplinary action by the
Association. 42 The procedures established would involve
regular oversight by NASD Internal Review.
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\42\ NASD Regulation currently logs, tracks, and investigates
all customer complaints through the Association's long-standing
customer complaint program.
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The Association also proposes to delete current Rule 8130, which
authorizes District Business Conduct Committees to file complaints, to
comply with Undertaking 4. The Association proposes to delete current
Rule 8140, which authorizes the NASD Board to file a complaint, because
[[Page 25244]]
procedures for the NASD Board and the NASD Regulation Board to initiate
a complaint are included in proposed Rule 9211.
The Association proposes a new Rule 8120 to clarify that the terms
used in the proposed Rule 8000 Series have the meaning defined in the
proposed Rule 0120 Series, except the term ``Adjudicator,'' which has
the meaning defined in the proposed Rule 9120 Series as described
below.
Proposed Rule 8210 combines current Rule 8210, which provides for
reports and inspections of books, records, and accounts for the purpose
of investigating or hearing a complaint, and current Rule 9132, which
requires members to provide reports and permit examinations of books
and records for the purpose of an investigation or a Rule 9000 Series
proceeding.43 Proposed Rule 8210 also clarifies that the
Association may require a member, a person associated with a member, or
a person still subject to the Association's jurisdiction to testify
under oath or affirmation if requested. In addition, proposed Rule 8210
divides the concepts in Rule 8210 into shorter sentences and more
paragraphs in order to make the Rule easier to read and understand.
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\43\ Proposed Rule 8210 also reflects a proposed rule change to
provide for electronic submissions, which was submitted to the
Commission in rule filing NASD-96-46.
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The Association proposes significant changes to current Rule 8220,
which authorizes the suspension of a member for failure to furnish the
Association with duly requested information or for failure to keep a
membership application and supporting documents current. The proposed
changes retain the summary suspension power the Association requires,
but provide members with enhanced procedural protections in connection
with the suspension process.
The proposed Rule 8220 Series applies to members and persons
associated with members. Under the proposed revisions to Rule 8221, the
National Business Conduct Committee, rather than the President of the
Association, must provide written notice of the suspension to the
member or associated person. The notice specifies the information that
must be provided or the action that must be taken and states that the
failure to do so within 20 days after service of the notice constitutes
grounds for suspension. The National Business Conduct Committee must
serve notice of the suspension via personal service or commercial
courier.
Proposed Rule 8222 makes explicit the right of a member or
associated person to request a hearing concerning the notice of
suspension. This change conforms the proposed Rule with the Act and
proposed Article VII, Section 2 of the NASD By-Laws, which authorize
such a suspension after notice and opportunity for a hearing is
provided. If a member or associated person wants a hearing on the
suspension, the member or associated person must request a hearing
within five days after service of the notice of suspension under Rule
8221. Any requested hearing is scheduled on an expedited basis (within
20 days after service of the Rule 8221 notice) and is held before a
subcommittee of the National Business Conduct Committee. At least seven
days before the scheduled hearing, the member or associated person
receives written notice (via commercial courier or facsimile) of the
date and time of the hearing and is provided with copies of all
documents the National Business Conduct Committee considered in
determining to issue the proposed Rule 8221 notice.
The appropriate NASD Regulation department or office 44
and the member or associated person may be represented by counsel at
the hearing. Copies of proposed hearing exhibits and witness lists must
be exchanged and provided to the subcommittee at least four days before
the hearing. Witnesses subject to the jurisdiction of the Association
must testify under oath or affirmation. The hearing is recorded by a
court reporter, and a transcript is prepared.
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\44\ The appropriate department or office of NASD Regulation is
the department or office that issued the request for information,
reports, material, data, or testimony that the member or associated
person failed to provide, or in the case of a member that failed to
keep its membership application or supporting documents current, the
Department of Member Regulation.
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Proposed Rule 8223 requires the subcommittee to prepare a proposed
written decision. If the subcommittee decides to impose a suspension,
then the decision must state the grounds for the suspension and the
conditions for terminating the suspension. The subcommittee's proposed
written decision must be presented to the NASD Board. A Governor may
call a suspension proceeding for review within ten days of receipt of
the subcommittee's proposed written decision, unless the Board votes to
extend or shorten this call for review period. If no Governor calls the
proposed decision for review within the prescribed time, the
subcommittee's decision becomes final and is served on the member or
associated person. If, however, a Governor calls the suspension
proceeding for review, the NASD Board must consider the matter not
later than its next meeting and, within seven days of that meeting,
serve a final written decision on the member or associated person. Any
decision to impose a suspension must state the grounds for the
suspension and the conditions for terminating it. A suspension, if
imposed, becomes final upon service of the decision.
Proposed Rule 8224 requires the Association to provide to the NASD
membership notice of any suspension imposed pursuant to Rule 8223, and
proposed Rule 8226 requires that the Association also serve a copy of a
notice or decision served on a person associated with a member on such
member.
Proposed Rule 8225 adds a new provision for termination of the
suspension. Upon request by the suspended member or associated person,
the head of the appropriate NASD Regulation department or office may
terminate a suspension if the member or associated person has fully
complied with a notice or decision issued under the Rule 8220 Series.
If the head of the appropriate department or office denies the request,
the proposed Rule provides the member or associated person with the
right to apply to the National Business Conduct Committee for relief
from the suspension on the ground of full compliance with the notice
issued under proposed Rule 8221 or the conditions specified in a
decision issued under proposed Rule 8223.
Finally, proposed Rule 8227 clarifies that any action taken under
the Rule 8220 Series does not foreclose the Association from taking
action against the member or associated person under any other Rule.
With respect to the Rule 8300 Series, the NASD proposes to amend
Rule 8310, which provides for sanctions, to conform with the proposed
Rule 9000 Series and to make Rule 8310 shorter, clearer, and easier to
understand. IM-8310-1, which addresses the effect of a suspension,
revocation, or bar, is amended to add clarity and readability to the
interpretive material. No change is proposed to IM-8310-2.45
Rule 8320, which sets forth requirements for the payment of fines,
other monetary sanctions, or costs, is amended to divide the provisions
of the Rule into shorter and clearer sentences and more numerous
paragraphs for clarity. Rule
[[Page 25245]]
8330, which addresses the assessment of costs in Rule 9000 Series
proceedings, is amended to conform to the proposed Rule 9000 Series.
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\45\ NASD Regulation has pending at the Commission a rule
proposal to amend IM-8310-2 that was published for comment by the
Commission in Securities Exchange Act Rel. No. 38380 (March 10,
1997), 62 FR 12866 (March 18, 1997). This rule filing does not
propose further changes to IM-8310-2.
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h. Proposed Changes to Disciplinary Proceedings in the Rule 9000 Series
(i) Summary
In the current and proposed Rule 9000 Series, the Rule 9100 Series
sets forth rules of general applicability to disciplinary proceedings
and other proceedings brought against a member or a person associated
with a member. The Rule 9200 Series sets forth the specific procedures
for disciplinary proceedings, including settlements, letters of
acceptance, waiver, and consent (``AWCs'') and minor rule plan
violation letters (``MRVs''), and the Rule 9300 Series sets forth the
appeal or review of a disciplinary proceeding.
The Rule 9100 Series now contains seven rules, the three most
important of which set forth a series of defined terms and provide for
disqualification of an adjudicator in case of conflict of interest, and
the service of complaints, decisions and notices.46 In
contrast, the proposed Rule 9100 Series contains 20 proposed Rules,
setting forth a variety of important procedural improvements, including
a series of rules regarding service and notice of various papers and
filing requirements (the proposed Rule 9130 Series), rules relating to
the appearance of counsel, or other person authorized to act in a
representative capacity (Proposed Rules 9141, 9142, 9150), a detailed
rule provision prohibiting ex parte communications generally (Proposed
Rule 9143) and a related provision regarding separation of functions
(Proposed Rule 9144), a proposed Rule providing for a motions practice
(Proposed Rule 9146), a provision for disqualification of an
Adjudicator (Proposed Rule 9160),47 and a provision
prohibiting interlocutory review (Proposed Rule 9148).48 The
more significant proposed Rules in the Rule 9100 Series are discussed
in greater detail below.
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\46\ The seven rules are: Rule 9110, entitled ``Application and
Purpose of Code''; Rule 9111, entitled ``Communications Relating to
Grievances''; Rule 9120, entitled ``Definitions''; Rule 9131,
entitled ``Grounds of Disqualification to Participate in
Proceedings''; Rule 9132, entitled ``Reports and Examination of
Books and Records''; Rule 9133, entitled ``Rulings on Procedural
Matters'; and, Rule 9134, entitled ``Service of Complaints,
Decisions and Other Notices.''
\47\ The term ``Adjudicator'' means: (1) A body, board,
committee, other group, or natural person that presides over a
proceeding and renders a decision; (2) a body, board, committee,
other group, or natural person that presides over a proceeding and
renders a recommended or proposed decision which is acted upon by an
Adjudicator described in (1); or, (3) a natural person who serves on
a body, board, committee, or other group described in (1) or (2).
The term includes a Subcommittee as defined in paragraph (z), an
Extended Proceeding Committee as defined in paragraph (k), and a
Statutory Disqualification Committee as defined in paragraph (y).
(Proposed Rule 9120(a).)
\48\ The proposed Rules of general applicability to all
proceedings do not include a specific provision regarding the
attorney-client privilege and the work-product privilege. The
Association has an important obligation to detect and address
violations of its rules and the federal securities laws and the
rules and regulations thereunder, and member firms are obligated to
cooperate in such efforts. The attorney-client privilege and the
work-product privilege are recognized. In the context of the
obligations and statutory responsibilities of a self-regulatory
organization (``SRO'') and a member's agreement to abide by the
rules of the SRO, however, the existence of such privileges does not
limit the obligation of a member to comply with duties imposed by
the SRO or shield a member from such obligations. (See, e.g., letter
from Edward Kwalwasser, Executive Vice President, Regulatory Group,
New York Stock Exchange (``NYSE''), to Robert I. Kleinberg,
Executive Vice President, Oppenheimer & Co., January 30, 1991,
appending 11 ``Broad Principles'' discussed by the NYSE and the
Securities Industry Association.)
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The Rule 9200 Series now contains 13 rules, the most important of
which provide for: the issuance of a complaint by a District Committee,
the Market Regulation Committee, or the NASD Board of Governors or the
National Business Conduct Committee; the use of AWCs or MRVs to resolve
certain disciplinary matters prior to issuing a complaint; summary
complaint procedures; hearings; the consideration of a complaint by a
Hearing Panel comprised of persons from a District Committee in the
geographic area where the relevant office of the Respondent is located
(the venue provision), the composition of Hearing Panels; evidence and
procedure in a committee hearing; the decision of a committee; and
settlement procedures.49
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\49\ The rules of the current Rule 9200 Series are: Rule 9211,
entitled ``Issuance of Complaints by Committees''; Rule 9212,
entitled ``Form, Content, Notice and Withdrawal of Complaints'';
Rule 9213, entitled ``Complaints Directed by the Board or the
National Business Conduct Committee''; Rule 9214, entitled
``Complaint Docket''; Rule 9215, entitled ``Consolidation of
Complaints''; Rule 9216 , entitled ``Answers to Complaints''; Rule
9217, entitled ``Acceptance, Waiver and Consent, Minor Rule
Violations, and Summary Complaint Procedures''; Rule 9221, entitled
``Request for Hearing''; Rule 9222, entitled ``Venue''; Rule 9223,
entitled ``Hearing Panels''; Rule 9224, entitled ``Evidence and
Procedure in Committee Hearings''; Rule 9225, entitled ``Decision of
the Committee''; and Rule 9226, entitled ``Settlement Procedure.''
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In comparison, the proposed Rule 9200 Series contains 30 proposed
Rules. The roles of the District Committee and Market Regulation
Committee are greatly reduced. Neither may initiate a complaint;
instead, the Department of Enforcement may investigate a case and file
a complaint to initiate a disciplinary proceeding. (Proposed Rule
9211(a).) Hearing Panels or, if applicable, Extended Hearing
Panels,50 are now selected by a Chief Hearing Officer, and
are composed of a Hearing Officer, a professional NASD Regulation staff
member, and two Panelists, both selected from the securities industry
and drawn from a pool of persons including those who currently serve on
a District Committee or who formerly served on a disciplinary hearing
panel, and others who have served previously in certain aspects of the
disciplinary process, including former members of the NASD Regulation
Board, the NASD Board and the Nasdaq Board of Directors. (Proposed
Rules 9120(o), 9120(i), 9120(n), 9120(q), 9213, 9231, and 9232.) The
Hearing Panel, or, if applicable, the Extended Hearing Panel, issues
the ``trial-level'' decision in a disciplinary proceeding. (Proposed
Rule 9268.)
A number of procedural enhancements are proposed. Proposed Rule
9215(c) provides for the filing of a motion for a more definite
statement (in addition to proposed Rule 9146, providing for the filing
of motions generally), proposed Rule 9221 allows a Hearing Officer or a
Hearing Panel to order a hearing if the Adjudicator determines a
hearing is necessary, notwithstanding that Respondents have waived
their rights to a hearing, and proposed Rules 9233 and 9234 set forth
detailed disqualification provisions.
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\50\ The Chief Hearing Officer appoints an Extended Hearing
Panel if upon consideration of the complexity of the issues
involved, the probable length of the hearing, or other factors, the
Chief Hearing Officer determines that a matter shall be an Extended
Hearing. (Proposed Rule 9120(i) and proposed Rule 9120(h).)
Designation of a matter as an Extended Hearing provides the Chief
Hearing Officer the ability to select, among other potential
Panelists, persons who are retired and may have both time and
relevant experience to bring to an Extended Hearing. (Proposed Rule
9231(c).)
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The proposed Rule 9240 Series and proposed Rule 9250 Series set
forth requirements for Parties to participate in pre-hearing
conferences, and exchange, before a hearing on the merits, documentary
evidence, a list of witnesses and expert witnesses, and an outline of
the case or defense. The same proposed rules also provide that a
Complainant must provide documents to a Respondent, and set forth
procedures for doing so. Sanctions for not complying with Rule
requirements regarding the production of Documents, other provisions of
the Rule 9200 Series, or an order of an Adjudicator in the Rule 9200
Series, are set forth in proposed Rule 9280.
At hearings, under proposed Rule 9262, a witness subject to the
jurisdiction of the Association is required to testify under oath or
[[Page 25246]]
affirmation. Under proposed Rule 9264, rules are set forth allowing a
Party to file a motion for summary disposition.
In the post-hearing time frame, under proposed Rule 9266, a Hearing
Officer may require a Party to file proposed findings of fact,
conclusions of law, and post-hearing briefs. A Hearing Officer prepares
a decision representing the majority of the Hearing Panel or, if
applicable, the Extended Hearing Panel under proposed Rule 9268.
Proposed Rule 9268(c) allows a Panelist or a Hearing Officer to write a
dissenting opinion. Under proposed Rule 9270, the Association proposes
to modify existing settlement procedures.
The most important of the changes proposed to the Rule 9200 Series
are discussed in greater detail below.
In the current and proposed Rule 9300 Series, procedures are set
forth for the appeal of a case by a Party or the review of a case by
the National Business Conduct Committee, and the NASD Regulation Board
and the NASD Board. Current Rule 9300 Series contains eight rules;
51 the proposed Rule 9300 Series contains 19 proposed rules.
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\51\ In the Rule 9300 Series, the eight rules are: Rule 9310,
entitled ``Review of Disciplinary Actions by the National Business
Conduct Committee and the Board'; Rule 9311, entitled
``Proceedings'; Rule 9312, entitled ``Evidence in National Business
Conduct Committee Proceedings'; Rule 9313, entitled ``Powers of the
National Business Conduct Committee on Review'; Rule 9314, entitled
``Decision of the National Business Conduct Committee'; Rule 9315,
entitled ``Notification of Decision; Final Disciplinary Action';
Rule 9316 entitled ``Discretionary Review by the Board'; and Rule
9317, entitled ``Application to SEC for Review.''
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In the proposed Rule 9300 Series, important changes include the
unlimited right of the Department of Enforcement to appeal a
disciplinary proceeding decision issued by a Hearing Panel or, if
applicable, an Extended Hearing Panel (Proposed Rule 9311(a)), the
requirement that persons subject to the jurisdiction of the Association
testify under oath or affirmation (Proposed Rule 9346(h)); and the
requirement that members of the NASD Regulation Board or the NASD Board
shall have at least a specific period of time to review a disciplinary
proceeding decision in order to determine whether to call a case for
discretionary review by such board. (Proposed Rules 9351 and 9352.)
Proposed Rule 9360 provides that a sanction imposed in a final
disciplinary action of the Association becomes effective not earlier
than 30 days after the date of service of the decision. In a proposed
change designed to reflect current practice in most cases, proposed
Rule 9370 codifies existing practice under which sanctions, other than
a bar or expulsion, are stayed when a person files a request for review
of a final disciplinary action of the Association with the Commission.
Some of the most significant proposed changes requiring greater
explanation are discussed in detail in the discussion following.
Currently, the Rule 9400 Series consists of two Rules, Rule 9410,
Sanctions, and Rule 9420, Costs of Proceedings. The Association
proposes to delete the current Rule 9400 Series because it duplicates
provisions in the current and proposed Rule 8000 Series. The Rules
providing for sanctions and the imposition of costs, now set forth in
proposed Rules in the Rule 8000 Series, are discussed above in Part g,
entitled ``Proposed Changes to Rule 8000 Series.''
(ii) The Role of the District Committees
Under the current Rule 9000 Series, each of the District
Committees, in addition to authorizing complaints, also (1) serves as a
pool for the hearing panels that hear disciplinary proceedings and
recommend decisions to the full District Business Conduct Committee;
and (2) issues initial decisions in disciplinary proceedings brought
against NASD members and their associated persons. (Rules 9211 through
Rule 9216, and Rules 9221 through 9225.) Under the proposed rule
change, a District Committee's adjudicatory role is to serve as a pool
of persons from which the Chief Hearing Officer may select Panelists to
serve on the adjudicatory panels. (Proposed Rules 9231 and 9232.) This
change is designed to preserve the core of the NASD's disciplinary
process, ``member participation and peer review,'' while eliminating
aspects of the disciplinary process pursuant to the Undertakings.
(Select Committee Report, p. C-16.)
Specifically, proposed Rule 9231(b) provides, in pertinent part:
``The Hearing Panel shall be composed of a Hearing Officer and two
Panelists * * *.'' To serve as a Panelist for a Hearing Panel, each
Panelist must be associated with a member and be:
(A) A current member of a District Committee;
(B) A person who previously served on a disciplinary hearing panel;
(C) A former member of the National Business Conduct Committee;
(D) A person who previously served on a disciplinary subcommittee
of the National Business Conduct Committee, including a Subcommittee,
an Extended Proceeding Committee, or their predecessor subcommittees;
or
(E) A person who previously was a Director, a member of the Nasdaq
Board of Directors, or a Governor, but does not sit currently on any of
the boards.(Proposed Rule 9231(b)(1) (A) through (E).) The parallel
provision in paragraph (c) of proposed Rule 9231 provides, in pertinent
part, that: ``The Extended Hearing Panel shall be composed of a Hearing
Officer and two Panelists * * *.'' To serve as a Panelist for an
Extended Hearing Panel, each Panelist must be associated with a member
or retired therefrom. In other respects, the pool from which a Panelist
may be drawn is identical to that described above for a Hearing Panel.
(Compare proposed Rule 9231(b)(1) (A) through (E) and proposed Rule
9231(c)(1) (A) through (E).)
Generally, both Panelists will be selected from the larger pool of
Panelists based upon whether they reside in the same geographic area in
which the alleged misconduct occurred. (Proposed Rule 9232(c).)
Specifically, in proposed Rule 9232(d), the Association proposes that
the Chief Hearing Officer generally select Panelists in the following
priority: (1) From the current members of the Primary District
Committee; (2) from the other categories of persons eligible to serve
as Panelists as set forth in Rule 9231(b)(1) (A) through (E) or, if
applicable, in Rule 9231(c)(1) (A) through (E), who are located in the
same geographic areas as the Primary District Committee; and (3) if
applicable, and discussed in greater detail below, from current or
former members of the Market Regulation Committee. However, the Chief
Hearing Officer has discretion to select one or both Panelists from the
larger, national pool. (Proposed Rule 9232 (d) and (e).)
Proposed Rule 9232 provides, in paragraph (a)(1), that the Chief
Hearing Officer shall determine ``which District Committee will be the
Primary District Committee from which Panelists may be selected.'' The
term ``Primary District Committee'' is defined in Rule
9120(w).52 Paragraph (c) of proposed Rule 9232 sets forth
the non-exclusive list of factors used by the Chief Hearing Officer to
designate a Primary District Committee.53
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\52\ The term ``Primary District Committee'' means, in a
disciplinary proceedings, the District Committee designated by the
Chief Hearing Officer pursuant to Rule 9232 to provide one or more
of the Panelists to a Hearing Panel or, if applicable, to an
Extended Hearing Panel, for such disciplinary proceedings. (Proposed
9120(w).)
\53\ The factors used by the Chief Hearing Officer are as
follows:
(1) The location of a Respondent's principal office if the
Respondent is or was a member firm;
(2) The location of a Respondent's office at the time of the
alleged misconduct if the Respondent is or was an associated person;
(3) The location of the office of a member or an associated
person, or a former member or associated person, where the alleged
misconduct occurred;
(4) The location of witnesses at the time of the filing of the
complaint, especially the location of witnesses who are or were
customers of a Respondent;
(5) The location, at the time of the alleged misconduct, of the
main, branch, or other office in which supervisory personnel, who
are or were responsible for the supervision of a Respondent, were
employed; and
(6) The location, at the time of the alleged misconduct, of the
main, branch, or other office in which supervisory personnel, who
are or were responsible for the supervision of the office, division,
function, or segment of the member where the alleged misconduct
occurred, were employed.
(Proposed Rule 9232(c).)
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[[Page 25247]]
After designating the Primary District Committee, the Chief Hearing
Officer selects two Panelists based on expertise, the absence of any
conflict of interest or bias, and any appearance thereof, availability,
and the frequency with which a member has served as a Panelist on
Hearing Panels or Extended Hearing Panels during the past two years.
(Proposed Rule 9232(d).) However, as noted previously, proposed Rule
9232 provides the Chief Hearing Officer flexibility to select one or
both Panelists from the national pool of Panelists. Specifically,
proposed Rule 9232 provides that the designation of a Primary District
Committee ``does not preclude the Chief Hearing Officer from selecting
one or more Panelists from other categories of eligible Panelists if
the Chief Hearing Officer determines that one or more persons from
other categories of eligible Panelists more clearly meet the criteria
of paragraph (d) (1) through (4)'' (Proposed Rule 9232(e) (regarding
expertise, absence of any conflict of interest or bias, availability,
and frequency of service)) ``and the public interest or the
administration of NASD Regulation's regulatory and enforcement program
would be enhanced'' by such selection (Proposed Rule 9232(e)).
Moreover, as discussed in greater detail below, proposed Rule 9232
provides the Chief Hearing Officer flexibility to select one Panelist
from the pool of Market Regulation Committee members and former
members, if appropriate. (Proposed Rule 9232 (b) and (d).)
In summary, the District Committees, in contrast to their current
authority, are not allowed to initiate a disciplinary proceeding, serve
as an evidentiary Hearing Panel for a disciplinary proceeding, issue a
final decision, or review or approve a final decision. These revisions
are consistent with Undertakings 3 and 4 and incorporate the
recommendations of the Select Committee.
(iii) The Role of the Market Regulation Committee
Under the proposed rule change, the only adjudicative role for the
former Market Surveillance Committee, now the Market Regulation
Committee, is to serve as a pool of Panelists to serve on a Hearing
Panel or, if applicable, an Extended Hearing Panel. A current or former
Market Regulation Committee member who is associated with an NASD
member may be chosen by the Chief Hearing Officer to serve as a
Panelist on a Hearing Committee or an Extended Hearing Committee.
However, a current or former member of the Market Regulation Committee
may be selected by the Chief Hearing Officer only in limited instances,
i.e., when the Chief Hearing Officer determines that the complaint
alleges at least one cause of action involving a violation of a statute
or a rule within the scope of proposed Rule 9120(q),54 the
Chief Hearing Officer, in the exercise of his or her discretion, may
determine to appoint one of the two Panelists from within the Market
Regulation Committee pool. (See, e.g., Rule 9232(b)(2).)
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\54\ See supra note 9.
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Specifically, proposed Rule 9231(b)(2) pertaining to Hearing Panel
selection provides: ``If the complaint alleges at least one cause of
action involving a violation of a statute or a rule described in Rule
9120(q), the Chief Hearing Officer may select as a Panelist a current
member of the Market Regulation Committee or a former member of the
Market Regulation Committee who previously served on a disciplinary
hearing panel.'' In addition, the general criteria in proposed Rule
9231 that a Panelist be associated with a member applies to any
Panelist drawn from the Market Regulation Committee pool.''
The parallel provision in paragraph (c)(2) of proposed Rule 9231
pertaining to Extended Hearing Panel selection provides: ``If the
complaint alleges at least one cause of action involving a violation of
a statute or a rule described in Rule 9120(q), the Chief Hearing
Officer may select as a Panelist a current member of the Market
Regulation Committee, or a Panelist drawn from the Market Regulation
Committee pool.
The parallel provision in paragraph (c)(2) of proposed Rule 9231
pertaining to Extended Hearing Panel selection provides: ``If the
complaint alleges at least one cause of action involving a violation of
a statute or a rule described in Rule 9120(q), the Chief Hearing
Officer may select as a Panelist a current member of the Market
Regulation Committee, or a former member of the Market Regulation
Committee, who, at the time of his or her membership on the Market
Regulation Committee, was associated with a member of the Association.
In order to be eligible to sit as a Panelist on an Extended Hearing
Panel, a former member of the Market Regulation Committee shall have
served previously on a disciplinary hearing panel.'' (Proposed Rule
9231(c)(2).) With respect to an Extended Hearing Panel, a former member
of the Market Regulation Committee may be chosen, if retired from the
securities industry, only if such person has retired from such
employment not earlier than four years before the date the complaint
was filed. (Proposed Rule 9231(c).)
The potential impact of Market Regulation Committee members or
former members on a disciplinary proceeding decision is limited in two
significant ways. First, a Market Regulation Committee member or former
member may not be selected to serve as a Panelist unless at least one
of the causes of action alleges a violation of a federal securities
statute, or a rule or regulation, a Rule of the Association or a policy
designated in proposed Rule 9120(q).55 Second, the Chief
Hearing Officer in each case has discretion whether to select a
Panelist from the Market Regulation Committee (Proposed Rules 9231 (b)
and (c), and 9232 (a)(2) and (b)), and may not select more than one
such Panelist (Proposed Rules 9231 (b)(2) and (c)(2), and 9232(a)(2)
and (b)).
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\55\ See supra note 9.
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In summary, the limitations on the Market Regulation Committee
imposed in the proposed Rule 9200 Series, in contrast to its current
authority in disciplinary proceedings, are parallel to those
limitations imposed on the District Committees. Thus, under the
proposed Rule 9200 Series, the Market Regulation Committee is not
allowed to initiate a disciplinary proceeding, serve as an evidentiary
Hearing Panel for a disciplinary proceeding, issue a final decision, or
review or approve a final decision. These revisions are consistent with
Undertakings 3 and 4 and incorporate the recommendations of the Select
Committee. In contrast to the District Committee provisions relating to
Panelists, Market Regulation Committee Panelists will participate in
fewer disciplinary proceedings than the Panelists drawn from the
District Committee portion of the pool.
[[Page 25248]]
(iv) How Disciplinary Proceedings Are Initiated
As noted above, currently, the Rule 9200 Series provides that a
complaint to initiate a disciplinary proceeding may be initiated by a
District Committee, the Market Regulation Committee, the National
Business Conduct Committee, or the NASD Board. (Rule 9211 and Rule
9213.) In contrast, proposed Rules 9211 authorizes the Department of
Enforcement of NASD Regulation to authorize and issue complaints.
(Proposed Rule 9211 (a) and (b).) In addition, as also provided in
Undertaking 3 of the SEC Settlement, the Department of Enforcement may
be directed to authorize and issue a complaint by the NASD Regulation
Board or the NASD Board. (Proposed Rule 9211(b).) The shift in the
allocation of the ``grand jury'' function from the District Committees
and the Market Regulation Committee to the Department of Enforcement is
a key element in providing the professional staff of NASD Regulation
with the autonomy and independence required to implement a vigorous and
evenhanded enforcement program. The Association believes proposed Rules
9211 (a) and (b) comply fully with Undertaking 3 of the SEC Settlement
and avoid conflicts of interest or inconsistencies in application that
may result from the division of the ``grand jury'' function among the
District Committees.
(v) Ex Parte Communications Prohibited
As recommended by the Select Committee, ex parte contacts between
the disciplinary panels and the Parties or their representatives
(counsel and other representatives) are prohibited in the new Rule 9000
Series disciplinary proceedings. Proposed Rule 9143 defines and
prohibits ex parte communications. Proposed Rule 9143 is derived from
Section 554(d) 56 and Section 557(d)(1) of the
APA,57 SEC Rules of Practice 120,58 and ACUS
Model Adjudication Rule 120.59 Where appropriate, the
prohibition also applies to the other proceedings governed by the Rule
9000 Series.
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\56\ 5 U.S.C. 554(d).
\57\ 5 U.S.C. 557(d)(7).
\58\ 17 CFR 201.120.
\59\ MAR 120.
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1. Persons Subject to Rule. In order to understand the scope of
proposed Rule 9143, the four basic parts of the Rule and proposed Rule
9120(p), the definition of ``Interested Association Staff,'' must be
considered together. First, in paragraphs (a) (1) and (2) of proposed
Rule 9143, three groups of people are identified (two Parties and
persons identified with such Parties and one Adjudicator and persons
identified with such Adjudicator). Each group is subject to the
prohibition against making or receiving communications in a proceeding
for the benefit of only one side or one Party. Second, in paragraphs
(a) (1) and (2) of proposed Rule 9143 and the introductory clause of
paragraph (a) providing ``or to the extent required for the disposition
of ex parte matters as authorized by this Rule 9000 Series,'' the broad
classes of communications that are subject to this prohibition are
described and narrow exceptions are set forth. Third, in proposed Rule
9143 (b) and (c), the remedy for an aggrieved Party and any remedial
action to be taken by an Adjudicator when an opposing Party (or a
person identified with such Party) has made a prohibited communication
is set forth. Fourth, in proposed Rule 9143(d), the point in time after
which communications in violation of the Rule could occur is
established for disciplinary proceedings. (In various provisions in the
proposed Rule 9400 Series and the proposed Rule 9500 Series, proposed
Rule 9143 applies, but the point in time after which violative
communications could occur is modified to reflect the particular
aspects of the proceeding.)
First, the adjudicatory group that is prohibited from making or
receiving prohibited communications includes the Adjudicator and any
person, such as a law clerk or other person, who is engaged in advising
the Adjudicator. In proposed Rule 9143, these persons are:
A Governor,60 a Director 61 or an
Adjudicator who is participating in a decision with respect to that
proceeding, or [to] an Association employee who is participating or
advising in the decision of a Governor, a Director, or an
Adjudicator with respect to that proceeding * * *.62
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\60\ The term ``Governor'' means a member of the NASD Board.
(Proposed Rule 9120(l).)
\61\ The term ``Director'' means a member of the NASD Regulation
Board only. Nasdaq directors are excluded intentionally because they
do not participate in disciplinary proceedings. (Proposed Rule
9120(e).)
\62\ Routinely, there are a number of people in addition to the
staff of the Department of Enforcement who participate in the
factual inquiry forming the basis for the determination that a
complaint should be issued. For example, district offices are
responsible for the examination of certain members. If, for example,
the Department of Enforcement authorizes the issuance of a complaint
against a member located in a particular district, in most cases, at
least the following staff would be involved in the disciplinary
process and would be considered ``Interested Association Staff': the
examiners employed in the district office who are responsible for
the examination of the member, the regional attorney in the
district, and the director of the district.
(Proposed Rule 9143(a)(1).) Like ACUS Model Rule 120,63 the
proposed rule is not intended to preclude persons acting in an
adjudicatory role, either singly or on a committee or panel, from
consulting with adjudicatory employees, such as attorney advisers or
law clerks, because they are viewed as within the Adjudicator's
group.64
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\63\ MAR 120.
\64\ MAR 120, comment 1.
The two other groups are identifiable based on their affiliation
with either the Complainant or Respondent. Each group consists of at
least a Party, and his or her counsel or representative. In
disciplinary proceedings, the relevant group includes the Respondent or
the several Respondents (each a member firm or an associated person),
and counsel or representatives.
The third group is the Complainant's group. The Complainant is the
Department of Enforcement, and because of its institutional nature,
this group is more difficult to identify. In addition to counsel or a
representative identified with such Party, an additional group of
persons is identified with the Complainant and also is subject to the
ex parte prohibition. This additional group of persons, ``Interested
Association Staff,'' is defined in proposed Rule 9120(p). ``Interested
Association Staff'' represents other parts of the Association that have
been involved with the Department of Enforcement in certain stages
prior to or during the actual prosecution of the disciplinary
proceeding (e.g., referring the case to the Department of Enforcement
or forwarding examination reports or other relevant information or
documents to the Department of Enforcement for use as evidence). For a
proposed Rule 9200 Series disciplinary proceeding, for example,
``Interested Association Staff'' means:
(a) The Head of Enforcement;
(b) A Department of Enforcement employee who reports to the Head
of Enforcement;
(c) An Association employee who directly participated in the
authorization of the complaint; or
(d) An Association employee who directly participated in an
examination, investigation, prosecution, or litigation related to a
specific disciplinary proceeding, and a district director or
department head to whom such employee reports * * *.''
(Proposed Rule 9120(p)(1)(D).) The definition encompasses persons who
are engaged ``in the investigative or prosecuting functions'' referred
to in SEC Rules of Practice 120(a)(2).65 For example,
certain Association personnel involved in examining a member may
[[Page 25249]]
be included in ``Interested Association Staff.''
---------------------------------------------------------------------------
\65\ 17 CFR 201.120(a)(2).
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2. Scope. To ensure that Respondents in an Association disciplinary
proceeding are protected from unfair ex parte communication, the
proposed ex parte Rule prohibits the initiating Party, the Department
of Enforcement, such Party's counsel, and all other persons within the
Association who have had sufficient contact with the case, i.e., the
``Interested Association Staff,'' from engaging in any prohibited
communication with the Adjudicator (or a person identified with such
Adjudicator).66 Proposed Rule 9143 is broader in that the
scope of persons who are subject to the prohibition against ex parte
communications is greater than under both Section 557 of the APA
67 and ACUS Model Rule 120 68 because
``Interested Association Staff,'' is broader than the term ``no
interested person outside the agency'' used in Section 557(d)(1) (A)
and(B) of the APA 69 and ACUS Model Rule 120.70
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\66\ In proceedings subject to the Rule 9000 Series other than
disciplinary proceedings, the Department of Member Regulation
generally initiates the specified proceeding.
\67\ 5 U.S.C. 557.
\68\ MAR 120.
\69\ 5 U.S.C. 557(d)(1) (A) and (B).
\70\ MAR 120.
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3. Narrow Exceptions. In Rule 9143(a) (1) and (2), all
communications ``relative to the merits'' of a proceeding are
prohibited between one Party (or persons identified with such Party)
and the Adjudicator (or persons identified with the Adjudicator).
Paragraph (a), which prohibits communication except ``to the extent
required for the disposition of ex parte matters as authorized by the
Rule 9000 Series,'' is intended to clarify that a communication that
ultimately is not related to the merits of the proceeding is not
intended to be prohibited. For example, the proposed Rule is not
intended to prohibit communications such as inquiries about such
matters as the status of the case, when it will be heard, and similar
inquiries. Similar language is found in Section 554 71 and
Section 557 of the APA 72 and ACUS Model Adjudication Rule
120.73
---------------------------------------------------------------------------
\71\ 5 U.S.C. 554.
\72\ 5 U.S.C. 557.
\73\ MAR 120, comment 2.
---------------------------------------------------------------------------
4. Remedy. In paragraphs (b) and (c), proposed Rule 9143 provides a
remedy for an aggrieved Party and remedial action to be taken by an
Adjudicator when an opposing Party (or a person identified with such
Party) has made a communication in violation of the Rule. Paragraph (b)
of proposed Rule 9143 is parallel to the language in Section
557(d)(1)(C) 74 of the APA and paragraph (C) of ACUS Model
Adjudication Rule 120.75 Paragraph (c) of proposed Rule 9143
is substantially drawn from Section 557(d)(1)(D) of the
APA.76 Paragraph (c) of proposed Rule 9143, although
somewhat parallel to paragraph (D) of ACUS Model Adjudication Rule
120,77 allows an Adjudicator to apply a sanction with more
frequency than the corresponding provision of ACUS Model Adjudication
Rule 120.78
---------------------------------------------------------------------------
\74\ 5 U.S.C. 557(d)(1)(C).
\75\ MAR 120.
\76\ 5 U.S.C. 557(d)(1)(D).
\77\ MAR 120.
\78\ Id.
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5. When Prohibition Begins. Proposed Rule 9143(d) establishes, for
a disciplinary proceeding brought under the proposed Rule 9200 Series,
the point in time beginning with which the prohibition applies.
Specifically, the prohibition applies upon ``the authorization of a
complaint * * * unless the person responsible for the communication has
knowledge that the complaint will be authorized, in which case the
prohibitions shall apply beginning at the time of his or her
acquisition of such knowledge.'' 79 Section 557(d)(1)(E) of
the APA 80 is more flexible in its application than Rule
9143(d). Section 557(d)(1)(E) of the APA 81 provides that
the prohibitions apply no ``later than the time at which a proceeding
is noticed for hearing unless the person responsible for the
communication has knowledge that it will be noticed, in which case the
prohibitions shall apply beginning at the time of his acquisition of
such knowledge.'' Model Adjudication Rule 120, paragraph (E), adopts a
similar standard, providing that: ``The prohibitions of this rule shall
apply beginning (time designated by (the AA)), but in no case shall
they begin to apply later than the time at which a proceeding is
noticed for hearing unless the person responsible for the communication
has knowledge that it will be noticed, in which case the prohibitions
shall apply beginning at the time of her/his acquisition of such
knowledge.'' 82
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\79\ For example, if after a meeting among various staff members
of NASD Regulation, a staff member who attended the meeting knew
that a complaint would be issued and then spoke to an Adjudicator
concerning the case, the staff member would violate the Rule 9143
prohibition against ex parte communication.
\80\ 5 U.S.C. 557(d)(1)(E).
\81\ Id.
\82\ MAR 120. In MAR 120, the term ``AA'' means ``adopting
agency.'' The phrase ``(time designated by (the AA))'' means the
time designated by the agency adopting the model rule.
---------------------------------------------------------------------------
6. Waiver. Paragraph (e) of proposed Rule 9143 provides that the
protections under the proposed rule for a Respondent, or a person
anticipating that he or she will be named as a Respondent if potential
charges are not resolved using alternative procedures (e.g., an AWC or
a MRV), are waived if: (1) A Respondent submits an offer of settlement
under Rule 9270, or (2) a member or a person associated with a member
executes an AWC under proposed Rule 9216(a) or a MRV under proposed
Rule 9216(b). This provision provides all persons involved in the
settlement process or the pre-complaint resolution process with the
flexibility to attempt to dispose of a disciplinary matter, and is
consistent with the ex parte concepts applied in civil litigation.
In summary, the Association believes that proposed Rule 9143 either
parallels or provides for slightly more stringent protections against
ex parte communications than do other standard procedural rules
referred to above. Based on the breadth of the term ``Interested
Association Staff'' and the other parts of proposed Rule 9143, the ex
parte protections in the proposed Rule provide assurance that no Party
will be able to obtain an unfair advantage by discussions with a person
involved in adjudicating a proceeding. Finally, proposed Rule 9143
incorporates a change specifically recommended by the Select Committee.
(vi) The Role of The Hearing Officer and Hearing Panel
1. Establishment of Office of Hearing Officers. As recommended by
the Select Committee and pursuant to Undertaking 3, NASD Regulation has
established an Office of Hearing Officers (``OHO'') as an independent
office within NASD Regulation. The OHO is headed by the Chief Hearing
Officer, who is an Executive Vice President and reports directly to the
President of NASD Regulation. The purpose of the OHO is to provide a
corps of independent and professional Hearing Officers (attorneys with
appropriate experience and training) to preside over all formal NASD
disciplinary proceedings. The Association believes the appointment of
such Hearing Officers is consistent with the recommendations of the
Select Committee and complies with Undertaking 3.
The participation of Hearing Officers will enhance dispassionate
application of the rules and promote fairness in the disciplinary
process. In addition, as recognized by the Select Committee, the
participation of Hearing Officers will help ensure that complex or
contentious
[[Page 25250]]
cases are managed effectively. All litigated disciplinary proceedings
will be decided by a panel comprised of one Hearing Officer and two
Panelists, i.e., the two securities industry representatives. The use
of industry Panelists is intended to ensure that market expertise and
judgment will continue to be brought to bear on the disciplinary
process. Participation of a professional Hearing Officer in a
securities industry disciplinary proceeding is not new; for example,
the New York Stock Exchange maintains a similar procedure.83
---------------------------------------------------------------------------
\83\ See, e.g., NYSE Rule 476.
---------------------------------------------------------------------------
2. Assignment of Hearing Officer. Proposed Rule 9213(a) requires
the Chief Hearing Officer to assign a Hearing Officer to preside over a
disciplinary proceeding ``as soon as practicable after a Complainant
has filed his or her complaint with the Office of Hearing Officers.''
Thus, once a complaint is filed, a Hearing Officer is appointed and
presides over all matters relating to the proceeding. This helps ensure
effective case management from the outset of the proceeding. For
example, a Hearing Officer considers motions to amend a complaint
(Proposed Rule 9212(b)) and motions by Respondents for a more definite
statement (Proposed Rule 9215(c)).
3. Appointment of Hearing Panel or Extended Hearing Panel, Timing,
and Hearing Panel Composition. Proposed Rule 9213(b) requires that the
Chief Hearing Officer appoint persons to serve as Panelists in the
disciplinary proceeding ``[a]s soon as practicable after assigning a
Hearing Officer'' to such proceeding. In doing so, the Chief Hearing
Officer must determine if the case will require the appointment of a
Hearing Panel or an Extended Hearing Panel. (Proposed Rule 9213(b).)
Proposed Rules 9231(a) and 9231(b) set forth the composition of a
Hearing Panel and an Extended Hearing Panel and provide that both types
of panels are composed of two Panelists and a Hearing Officer. A
Hearing Panel is appointed for and decides most disciplinary
proceedings. (Proposed Rule 9231(a).) As referenced above, an Extended
Hearing Panel is appointed if the Chief Hearing Officer determines that
the matter should be designated an Extended Hearing because the issues
are complex, or it is anticipated that the hearing will be lengthy, or
based upon other material factors. (Proposed Rules 9231(b) and
9120(h).) By designating a proceeding as an Extended Hearing, the Chief
Hearing Officer has a larger pool of persons from which to appoint
Panelists and may consider appointing persons who have greater time to
donate to the disciplinary process, i.e., persons who have retired
recently from employment in the securities industry.
4. Hearing Officer Responsibility for Case Management. Consistent
with the recommendations of the Select Committee, the Hearing Officer
has the authority to and will be responsible for determining
procedural, evidentiary, scheduling, and other matters pertaining to
case management during the pre-hearing and hearing phase of the
disciplinary process. In this regard, various rules setting forth the
authority of the Hearing Officer have been incorporated in the proposed
Rule 9000 Series. Also consistent with the recommendations of the
Select Committee, the Hearing Officer's authority is limited to
determining non-dispositive matters; determinations of motions for
summary disposition require action by the Hearing Panel, or, if
applicable, the Extended Hearing Panel. (Proposed Rule 9146(j).)
Effective case management by the Hearing Officer will enhance the
disciplinary process. Early, pre-hearing resolution of various
procedural and evidentiary matters will save time and assist in
streamlining the presentation of evidence at the hearing. Effective
case management also will help ensure that the Parties appropriately
satisfy their discovery and other obligations in a timely fashion, and
will thus enhance fairness in the disciplinary process.
Broad statements of a Hearing Officer's authority are set forth in
proposed Rule 9235, ``Hearing Officer Authority,'' proposed Rule 9241,
``Pre-hearing Conferences,'' proposed Rule 9242, ``Pre-hearing
Submissions,'' and proposed Rule 9266, ``Proposed Findings of Fact,
Conclusions of Law, and Post-Hearing Briefs.'' These proposed rules,
along with various other proposed rules addressing specific duties of a
Hearing Officer, delegate to a Hearing Officer responsibility for case
management, from the institution of a proceeding to its conclusion.
Specifically, proposed Rule 9235 provides that a Hearing Officer
shall have authority to: hold pre-hearing and other conferences and
require the attendance at such conferences of persons who have
authority to negotiate on behalf of the Parties (Proposed Rule
9235(a)(1)); regulate the course of the hearing (Proposed Rule
9235(a)(2)); order the Parties to present oral argument at any stage of
the disciplinary hearing (Proposed Rule 9235(a)(3)); resolve
procedural, evidentiary, discovery, and other non-dispositive matters
(Proposed Rule 9235(a)(4)); reopen any hearing, if necessary (Proposed
Rule 9235(a)(5)); create and maintain the official record of the
disciplinary proceeding (Proposed Rule 9235(a)(6)); and draft a
decision that represents the views of the majority of the Hearing Panel
or, if applicable, the Extended Hearing Panel assigned to the
proceeding (Proposed Rule 9235(a)(7)).
Proposed Rule 9235 expressly indicates that the list of powers is
illustrative, not exhaustive; the Hearing Officer is permitted to take
any action ``necessary and appropriate to discharge his or her
duties.'' The proposed rule is patterned on SEC Rules of Practice 111,
84 entitled ``Hearing Officer Authority,'' and the powers
enumerated in proposed Rule 9235 are consistent with many of the powers
enumerated in that rule. The powers set forth in proposed Rule 9235 are
also consistent with certain of the powers enumerated in ACUS Model
Adjudication Rule 111, 85 ``Adjudicator: Powers.''
---------------------------------------------------------------------------
\84\ 17 CFR 201.111.
\85\ MAR 111.
---------------------------------------------------------------------------
In connection with a Hearing Officer's responsibility for case
management, it is anticipated that through the use of pre-hearing
conferences (Proposed Rule 9241), a Hearing Officer will assist in
eliminating unnecessary delay and improving the quality of the hearing.
For example, these conferences may be used to clarify and simplify the
issues, sharpen the preparation of the case, and facilitate the pre-
hearing exchange of documents and witness lists. A Hearing Officer also
has the authority to require the submission of a variety of pre-hearing
materials (Proposed Rule 9242) and post-hearing findings of fact,
conclusions of law, and post-hearing briefs (Proposed Rule 9266). These
materials likely will be of particular assistance to the Hearing Panel,
or, if applicable, the Extended Hearing Panel in complex or lengthy
proceedings.
In addition to the broad delegations of discretionary authority
discussed above, the proposed rules specifically authorize a Hearing
Officer to perform various functions in the pre-hearing stage and
during the hearing. With respect to pre-hearing matters, a Hearing
Officer is authorized to: rule on motions to amend a complaint
(Proposed Rule 9212(b)); rule on motions for a more definite statement
and to amend an answer (Proposed Rule 9215 (c) and (d)); issue a notice
of hearing (Proposed Rule 9221(d)); grant the Parties' extensions of
time for the completion of tasks and grant adjournments of a hearing
(e.g., proposed Rule 9222); rule on motions to disqualify one or both
of the Panelists (Proposed Rule 9234(d)); and rule on discovery issues
(Proposed Rules 9251,
[[Page 25251]]
9252 and 9253). With respect to a hearing, a Hearing Officer is
authorized to rule on the admission of evidence during the hearing.
(Proposed Rule 9263.) These powers are comparable to the powers
delegated to a hearing officer in an SEC administrative proceeding.
Consistent with a Hearing Officer's case management
responsibilities, a Hearing Officer is authorized to enter a default
judgment when a Respondent fails to file an answer to the complaint
within the prescribed time (Proposed Rule 9215(f)); or when, after
receiving proper notice, a Respondent fails to appear at a pre-hearing
conference (Proposed Rule 9241(f)) or at the hearing (Proposed Rule
9269(a)). Finally, to help ensure that a Hearing Officer's efforts to
enhance the fairness of and promote order in the disciplinary process
are not thwarted by recalcitrant Parties, their representatives, or
their counsel, the proposed rules empower a Hearing Officer to fashion
discretionary sanctions for violations of an order issued by the
Hearing Officer, Hearing Panel or, if applicable, Extended Hearing
Panel, or for other contemptuous conduct during any stage of the
disciplinary proceeding. (Proposed Rule 9280.)
(vii) The Role of Motions
1. Establishment of Motions Practice. There is no rule in the
current Rule 9000 Series explicitly governing a motions practice. As
recommended by the Select Committee, the proposed Rule 9000 Series
provides for a formal motions practice in NASD disciplinary
proceedings. The purpose of the proposed change is to enhance the fair
and efficient preparation and conduct of the hearings.
The general provisions for and structure governing motions practice
set forth in proposed Rule 9146 are modeled upon ACUS Model
Adjudication Rule 170.86 Except for the treatment of motions
for summary disposition, proposed Rule 9146 incorporates all of the
provisions of ACUS Model Adjudication Rule 170 87 with only
minor variations. In addition, reference was made to Rule 154 of the
SEC Rules of Practice 88 and F.R.C.P. Rule 7(b).
---------------------------------------------------------------------------
\86\ MAR 170.
\87\ Id.
\88\ 17 CFR 201.154.
---------------------------------------------------------------------------
Consistent with ACUS Model Adjudication Rule 170,89
proposed Rule 9146 expressly permits written and oral motions, but the
Adjudicator may order that an oral motion be set forth in writing if
the Adjudicator finds that a written motion is warranted by the facts
and circumstances. Under both the ACUS Model Adjudication Rule 170
90 and the proposed Rule 9146, a motion must state the
specific relief requested, the basis for the motion, and it may be
denied without awaiting a response if it is dilatory, repetitive or
frivolous. Likewise, unless otherwise ordered, the filing of a motion
does not stay a proceeding.
---------------------------------------------------------------------------
\89\ MAR 170.
\90\ Id.
---------------------------------------------------------------------------
There are two minor dissimilarities between the proposed Rule 9146
and ACUS Model Adjudication Rule 170.91 First, the time
limit to respond to a written motion is longer under proposed Rule
9146(d) than it is under ACUS Model Adjudication Rule 170:
92 14 versus 10 days. In neither case, however, is the
moving party granted the right to file a reply to an opposition without
the Adjudicator's permission. Second, proposed Rule 9146(i) includes
page limits and format requirements for written motions. Similar format
requirements but not page limits are found in ACUS Model Adjudication
Rule 152.93 The Association believes that the page limit is
appropriate because in the disciplinary proceeding forum generally
there should be a narrower range of issues and fewer contested legal
issues than in civil litigation.
---------------------------------------------------------------------------
\91\ Id.
\92\ Id.
\93\ MAR 152.
---------------------------------------------------------------------------
2. Motion for Summary Disposition. Paragraph (a) of proposed Rule
9264 provides that, after a Respondent's answer has been filed and
Documents have been made available to that Respondent, the Respondent
or Complainant may file a motion for summary disposition of some or all
of the causes of action in the complaint without leave of the Hearing
Officer. Such motions must be filed at least 21 days before the time
set for the hearing on the merits. Paragraph (b) of proposed Rule 9264
provides that, after a Complainant has completed presentation of its
case in chief as to a Respondent, the Respondent or the Complainant,
without leave of the Hearing Officer, may file a motion for summary
disposition with respect to that Respondent. If a Complainant has not
completed its case in chief, a Complainant or Respondent may move for
summary disposition only with leave of the Hearing Officer. As noted
previously, the current Rule 9000 Series does not provide for the
filing of a motion for summary disposition.
The standards for motions for summary disposition under proposed
Rule 9264 deviate from the standards in the ACUS Model Adjudication
Rules 94 and the SEC Rules of Practice 95 in two
respects. First, proposed Rule 9146(j) explicitly states that a motion
for summary disposition may only be decided by a majority vote of a
Hearing Panel or Extended Hearing Panel'not by a Hearing Officer. This
provision should be read in conjunction with proposed Rules 9147 and
9235, which set out the power of a Hearing Officer to rule on
procedural and other administrative matters arising during the course
of a disciplinary proceeding. Proposed Rule 9235(a)(4) restricts a
Hearing Officer's decisional authority to resolving all procedural and
evidentiary matters, discovery requests, and other non-dispositive
motions. Second, proposed Rule 9264 limits when a motion for summary
disposition may be made without leave of a Hearing Officer. In this
aspect, proposed Rule 9264 closely mirrors SEC Rules of Practice
250,96 by restricting the filing of pre-hearing motions for
summary disposition until after a Respondent has answered and Documents
have been made available to the Respondent for inspection and copying
pursuant to proposed Rule 9251. After a hearing on the merits has
started, a motion for summary disposition may be made without leave of
the Hearing Officer only after the Complainant in the proceeding has
completed presentation of its case in chief.
---------------------------------------------------------------------------
\94\ Id.
\95\ 17 CFR 201.111.
\96\ 17 CFR 201.250.
---------------------------------------------------------------------------
(viii) Expanded Discovery
1. Basis for Expanded Discovery Provisions. The Select Committee
recommended that:
The documentary discovery rights of respondents in NASD
disciplinary proceedings should be expanded to furnish respondents,
at a reasonable time in advance of the initial hearing, with all
non-privileged materials in the NASD's possession (including
exculpatory evidence) directly relevant to the dispute.
(Select Committee Report, p. C-25.) In response to and consistent with
the Select Committee's recommendation, proposed Rules 9251 through 9253
provide for the discovery of non-privileged Documents 97 by
Respondents in a disciplinary proceeding. Special attention was devoted
to the Rule 9250 Series to assure that Documents received by the
Department of
[[Page 25252]]
Enforcement after a Respondent had inspected and copied Documents would
be made available expeditiously to Respondents (Proposed Rule
9251(a)(2)) and that evidence that becomes available shortly before or
during a hearing on the merits would be produced expeditiously to
Respondents 98 (Proposed Rule 9252(c)). Under the proposed
Rules, a Respondent has a right to obtain certain Documents, and the
right to insist upon their production based upon a schedule set forth
in the rules.
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\97\ ``Document'' means a writing, drawing, graph, chart,
photograph, recording, or any other data compilation, including data
stored by computer, from which information can be obtained.
(Proposed Rule 9120(g).)
\98\ Currently, the disciplinary hearing panel before whom the
Respondent shall appear determines the extent of discovery, the
scope and the timing of the production of documents, and other
issues.
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2. Mandatory Document Disclosure Obligations of the Department of
Enforcement. Proposed Rule 9251(a)(1) requires the Department of
Enforcement to make available for inspection and copying to any
Respondent Documents prepared or obtained by Interested Association
Staff in connection with the investigation that led to the institution
of the disciplinary proceeding. This includes, but is not limited to:
Requests for information pursuant to Rule 8210; written requests for
information to persons not employed by the Association and all
Documents provided in response to such requests; all transcripts and
transcript exhibits; and all other Documents obtained from persons not
employed by the Association.
Under proposed Rule 9251(d), unless otherwise ordered by a Hearing
Officer, the Department of Enforcement must begin making these
Documents available for inspection and copying not later than 21 days
after the last timely answer has been filed. These Documents will be
made available for inspection in the Association office where they are
ordinarily maintained, unless agreed to or ordered otherwise.
With respect to Documents obtained by the staff pursuant to Rule
8210 after the issuance of a complaint, but under the same
investigative file number, proposed Rule 9251(a)(2) specifies that the
Department of Enforcement also must make those documents available to
the Respondents for inspection and copying.
Proposed Rule 9251(b) identifies those Documents that may be
withheld by the Department of Enforcement. A Document need not be
produced if it is privileged, constitutes attorney work product, is an
examination or inspection report, or is an internal memorandum or
writing prepared by Association staff that will not be offered in
evidence. Documents that would disclose an examination or investigatory
technique or the identity of a confidential source likewise, need not
be disclosed. The proposed rule also allows the Hearing Officer to
grant leave to withhold Documents that are not relevant or for good
cause shown. The Hearing Officer may require the Department of
Enforcement to submit a list of the Documents withheld, and may conduct
an in camera inspection of any such Documents to determine whether they
should be produced.
Although Rule 9251(b)(1) allows the Department of Enforcement to
withhold certain Documents from discovery, proposed Rule 9251(b)(2)
requires the Department of Enforcement to provide a Document or a part
of a Document that contains material exculpatory evidence.99
For example, if a portion of an examination report includes statements
or documentary evidence that is exculpatory, the Department of
Enforcement is required to provide that portion of the Document. This
is a significant enhancement over the existing rules, which contain no
such obligation.
---------------------------------------------------------------------------
\99\ This provision is intended to be consistent with the
doctrine enunciated in Brady v. Maryland, 373 U.S. 83 (1963).
---------------------------------------------------------------------------
Proposed Rule 9251 is modeled on and is substantially the same as
SEC Rules of Practice 230 100 in that, among other things,
the proposed Rule: Affords Respondents an automatic right to Document
discovery from the Department of Enforcement; allows the Department of
Enforcement to withhold privileged and certain other categories of
Documents from discovery; requires the disclosure of material
exculpatory evidence; and requires that the Respondents bear the cost
of photocopying the Documents.
---------------------------------------------------------------------------
\100\ 17 CFR 201.230.
---------------------------------------------------------------------------
3. Respondents' Requests for Documents and Production of Witness
Statements. Proposed Rule 9252 formally recognizes a current practice
in disciplinary proceedings that allows Respondents to request the
Association to compel the production of Documents or testimony for
hearing pursuant to Rule 8210. As set forth in proposed Rule 9252, such
requests must be made not later than 21 days prior to the scheduled
hearing date; describe with specificity the Documents or testimony
sought; state why the Documents or testimony are material; describe the
Respondent's previous efforts to obtain the Documents or testimony
through other means; and state whether the custodian of the Documents
or each proposed witness is subject to the jurisdiction of the
Association.
4. Proposed Rule 9253. Proposed Rule 9253 further broadens the
discovery procedures by establishing a procedure for Respondents to
obtain copies of statements of any person called or to be called as a
witness by the Department of Enforcement that pertain to that witness'
direct testimony. Such written statements include those that would be
required to be furnished under the Jencks Act, 18 U.S.C. 3500. This new
requirement is consistent with SEC Rules of Practice 231.101
---------------------------------------------------------------------------
\101\ 17 CFR 201.231.
---------------------------------------------------------------------------
(ix) Pre-hearing Procedures
1. General Considerations. In connection with the goal of enhancing
the fairness and efficiency of NASD disciplinary proceedings, the
proposed rules grant the Hearing Officer discretionary authority to
require the Parties to participate in pre-hearing conferences or to
file a variety of informational materials in advance of the hearing.
Effective planning and increased control over the proceeding by the
Hearing Officer during the pre-hearing phase will assist in
accelerating the disciplinary process. The use of pre-hearing
procedures as a means of effective case management is consistent with
the practice in SEC administrative proceedings and in federal district
courts.
2. The Uses of Pre-Hearing Conferences. Proposed Rule 9241 grants
the Hearing Officer authority to require the Parties or their counsel
to participate in a pre-hearing conference. As set forth in the
proposed rule, the conference is intended, among other things, to:
expedite the disposition of the proceeding; establish procedures to
manage the proceeding efficiently; and improve the quality of the
hearing through more thorough preparation. (Proposed Rule 9241(a).) At
the discretion of the Hearing Officer, such conferences may be held
with one or more persons participating by telephone or other remote
means. (Proposed Rule 9241(b).)
The proposed rule enumerates a list of subjects that the Hearing
Officer may consider and with respect to which the Hearing Officer may
take action at the pre-hearing conference, including: Simplification
and clarification of the issues; exchange of witness and exhibit lists,
and copies of exhibits; stipulations and admissions; matters of which
official notice may be taken; the schedule for exchanging pre-hearing
motions, if any; the method of service and filing of papers by the
Parties; determination of hearing dates; amendments to the complaint or
[[Page 25253]]
answers; and production of documents. (Proposed Rule 9241(c).) By its
terms, the list of enumerated subjects is not exhaustive; any ``other
matters as may aid in the orderly and expeditious disposition of the
proceeding'' may be considered at a pre-hearing conference. (Proposed
Rule 9241(c)(10).) Following the conclusion of the pre-hearing
conference, the Hearing Officer is required to enter an order or ruling
reciting any agreements reached and any procedural determinations made
by the Hearing Officer during the conference.
Unless determined by the Hearing Officer to be unnecessary or
premature, the proposed rules require that an initial pre-hearing
conference be held within 21 days of the last-filed answer. Pursuant to
proposed Rule 9251(d), the Department of Enforcement is required to
commence making documents available to the Respondents for inspection
and copying within 21 days of the last-filed answer. Consequently, the
initial pre-hearing conference may be used to address any pending
issues related to document availability, as well as claims of privilege
and other matters pertaining to the Department of Enforcement's
document production.
Recognizing that pre-hearing conferences are important in
contributing to effective case management, the proposed Rule provides
for the imposition of sanctions, i.e., entry of a default judgment
against a Party who, after receiving proper notice, fails to appear at
a pre-hearing conference. (Proposed Rule 9241(f).)
Proposed Rule 9241 is consistent with the intent and concepts
underlying SEC Rules of Practice 221; 102 F.R.C.P. Rule 16,
entitled ``Pre-trial Conferences; Scheduling; Management;'' and ACUS
Model Adjudication Rule 221,103 entitled ``Pre-hearing,
Settlement, and Other Conferences.'' In addition, the provisions
included in proposed Rule 9241 are substantially the same as certain
provisions in SEC Rules of Practice 221,104 specifically,
those that set forth the purpose of pre-hearing conferences, the
subjects to be addressed at such conferences, the entry of a default
judgment for failure to attend such conferences, and the necessity of
issuing an order or ruling reciting any agreements reached and
determinations made during such conferences. For example, each of the
pre-hearing conference subjects enumerated in proposed Rule 9241(c) is
included in SEC Rules of Practice 221.105
---------------------------------------------------------------------------
\102\ 17 CFR 201.221.
\103\ MAR 221.
\104\ 17 CFR 201.221.
\105\ Id.
---------------------------------------------------------------------------
3. Pre-hearing Submissions. As part of the pre-hearing process, the
proposed rules also contemplate that the Hearing Officer may, in the
exercise of his or her discretion, order the Parties to file one or
more types of pre-hearing submissions. (Proposed Rule 9242.) Among the
possible pre-hearing submissions that may be required are: An outline
or narrative summary of the case or defense; the legal theories upon
which the parties will rely; a list of documents and copies of
documents that the Parties intend to introduce at the hearing; a list
of the Parties' anticipated witnesses, including the witnesses' names,
occupations, addresses, and brief summary of their expected testimony;
and, with respect to an expert witness, a statement of the expert's
qualifications, a listing of other proceedings in which the witness has
given expert testimony, a list of the expert's publications, and copies
of those publications that are not readily available. (Proposed Rule
9242(a) (1)-(5).)
Proposed Rule 9242 is modeled on SEC Rules of Practice 222
106 and also is consistent with ACUS Model Adjudication Rule
220,107 entitled ``Pre-hearing Statement.'' The descriptive
list of pre-hearing submissions in proposed Rule 9242 (a)(1)-(a)(5) is
virtually identical to that set forth in SEC Rules of Practice
222.108 It also reflects the concept underlying ACUS Model
Adjudication Rule 220,109 which suggests that the Parties,
in advance of hearing, file a statement setting forth the issues
involved in the adjudication, the facts in dispute, and the identity of
witnesses and exhibits to be presented at the hearing.
---------------------------------------------------------------------------
\106\ 17 CFR 201.222.
\107\ MAR 220.
\108\ 17 CFR 201.222.
\109\ MAR 220.
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(x) Pro Se Respondents
Enhancing the Rule 9000 Series to formalize requirements regarding
the filing of papers and service of such papers upon Parties, the
timely production to Respondents of relevant evidence, the use of
motions and to incorporate other procedural protections should improve
the fairness and efficiency of a disciplinary proceeding, but could
disadvantage some pro se Respondents.
The NASD, through the NASD Regulation's Office of Dispute
Resolution and the Chief Hearing Officer, is committed to providing a
fair forum for all Parties. Thus, the Chief Hearing Officer and all
Hearing Officers shall adopt as a practice the flexible approach
adopted in state and federal judicial proceedings. Pro se Respondents
shall be granted waivers from certain procedural requirements
110 or otherwise be excused from fully or partially
complying with certain procedural or technical rules to the extent that
the Adjudicator may allow and still: (i) Provide fair notice to other
Parties of the issues before the Adjudicator; (ii) provide the Parties
an opportunity to respond to the issues; and (iii) establish and
maintain a record for any appeal of the matter.
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\110\ For example, in certain circumstances it would be
appropriate to excuse a pro se Respondent from complying with
certain requirements in Rule 9146. NASD Regulation anticipates that
with respect to several of the proposed rules, pro se Respondents
will be treated with good faith, fairness, and flexibility.
---------------------------------------------------------------------------
The Association believes that this approach will be fairer for all
Parties and more effective in promoting the efficient administration of
disciplinary proceedings than adopting a general waiver of one or more
procedural rules for the benefit of a pro se Respondent. The Hearing
Officers will be trained and instructed to provide flexibility to pro
se Respondents to further fairness, which is a fundamental principle
guiding the revision of the proposed Rule 9000 Series.
(xi) Offers of Settlement, AWCs and MRVs
As set forth in proposed Rule 9216(a), an AWC is a letter that a
person or a member who perceives he or it will be the subject of a
complaint initiating a disciplinary proceeding agrees to execute to
resolve the matter in a pre-complaint environment. As set forth in
proposed Rule 9216(b), an MRV is a letter that a person or a member who
perceives he or it will be the subject of a complaint initiating a
disciplinary proceeding agrees to execute to resolve the matter prior
to the issuance of a complaint.111 As set forth in proposed
[[Page 25254]]
Rule 9270, an offer of settlement is an offer made by a Respondent
prior to a determination on the merits after a hearing, which a person
or a member makes in order to resolve the matter prior to the issuance
of a decision on the merits. Each of these proceedings exists in the
current Code. (Rules 9217 and 9226.)
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\111\ Current MRV procedures are set forth in Rule 9217(b) and
Rule IM-9217. Current Rule IM-9217 also includes Rules 2847(b) and
(c), Rules 4615 and 4616, the Rule 4650 Series, Rules 6620 and 6420,
Rules 4613(d), and the Rule 6700 Series.
By this filing, the Association proposes to amend IM-9216 by
removing trade reporting violations from the list. As amended,
proposed Rule IM-9216, listing those violations appropriate for
disposition under the minor rule violations plan, includes only the
following violations:
Rule 2210 (b) and (c), and Rule 2220(b) and (c)--
Failure to have advertisements and sales literature approved by a
principal prior to use, failure to maintain separate files of
advertisements and sales literature containing required information,
and failure to file advertisements with the Association within the
required time limits.
Rule 3360--Failure to timely file reports of short
positions on Form NS-1.
Rule 3110--Failure to keep and preserve books,
accounts, records, memoranda and correspondence in conformance with
all applicable laws, rules, regulations and statements of policy
promulgated thereunder and with the Rules of the Association.
Thus, only certain types of violations may be resolved pursuant
to an MRV.
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In proposing Rules 9216 and 9270 relating to AWC, MRVs, and offers
of settlement, the NASD recognizes that such actions taken voluntarily
by a Respondent, or a person about to be named as a Respondent, create
different conditions under which the involved persons may act. Thus, in
proposed Rules 9216 and 9270, to go forward with such procedures, a
Party (or a potential Party) must agree to waive the protections
offered against ex parte communications and the separation of function
concept expressed in proposed Rule 9144. (Proposed Rules 9216 (a)(2)
and (b)(2), and 9270(d)(3).) However, if the AWC, MRV, or offer of
settlement is not accepted by the final arbiter, the rejected document
does not constitute a part of the record in any proceeding. (See, e.g.,
Proposed Rules 9270(h), 9216(a)(4), and 9216(b)(4).)
The Select Committee recommended that the Association seek to
reduce the workload of the National Business Conduct Committee by
limiting its review of certain cases, including certain settlements and
related types of voluntary, negotiated resolutions of disputed matters,
such as AWCs and MRVs. To achieve this goal, NASD and NASD Regulation,
by resolution, have delegated to the General Counsel of NASD Regulation
the authority of the National Business Conduct Committee to accept or
refer to the National Business Conduct Committee for its consideration
AWCs, MRVs, and offers of settlement, and have delegated to the Chair
and the Vice Chair of the National Business Conduct Committee the
authority of the National Business Conduct Committee to accept or
reject such AWCs, MRVs, and offers of settlement. Proposed Rule 9216
and proposed Rule 9270(e)(2) codify these delegations. However, a
contested offer of settlement and order of acceptance may be accepted
or rejected only by either the full National Business Conduct Committee
or the Chair and Vice Chair, as provided in proposed Rule 9270(f)(2).
The Association believes these delegations will allow the National
Business Conduct Committee to concentrate on contested disciplinary
matters and those matters raising policy questions.
(xii) National Business Conduct Committee Appeals or Review of
Disciplinary Proceedings and Discretionary Review By the NASD
Regulation Board or the NASD Board
Like the current Rule 9300 Series, proposed Rule 9312 through
proposed Rule 9349 provide that the National Business Conduct Committee
may review any disciplinary proceeding for which a first or ``trial-
level'' decision has been rendered.112 Also, like current
Rule 9310(a), proposed Rule 9311 provides that a Respondent may appeal
any ``trial level'' decision, including a default
decision.113 Proposed Rule 9311(a) also contains a new
right--the right of the Department of Enforcement (or any other
Complainant) to appeal as a matter of right. This provision recognizes
that, following the complete separation of the adjudicative function
from the Department of Enforcement and the complete segregation of the
prosecutorial function within the Department of Enforcement, it is
appropriate to permit the Department of Enforcement staff to make an
independent, professional judgment as to whether an appeal should be
filed.
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\112\ In the current rules, such decisions are rendered by a
Hearing Committee or an Extended Hearing Committee. (Rule 9223 (a)
and (b).) As noted earlier, under the proposed rules such decisions
would be rendered by a Hearing Panel, or, if applicable, an Extended
Hearing Panel.
\113\ A Respondent may not ``appeal'' any final action contained
in an AWC, an MRV or an offer of settlement and an order of
acceptance that has been accepted by any of the General Counsel of
NASD Regulation, the Chair and the Vice Chair of the National
Business Conduct Committee, or the National Business Conduct
Committee. (Proposed Rules 9216 (a) and (b), and 9270.)
---------------------------------------------------------------------------
There are very few other changes of significance to the review
procedures used by the National Business Conduct Committee. Proposed
Rule 9311(c) and proposed Rule 9312(c) now explicitly set forth the
information required for a Party to file a notice of appeal and the
National Business Conduct Committee to file a notice of review.
Further, proposed Rule 9311 provides for the right of a Party to cross-
appeal.
In proposed Rule 9312(a)(1), the National Business Conduct
Committee's decision whether to call a case for review rests with a
National Business Conduct Committee Review Subcommittee. The Review
Subcommittee is composed of two to four persons who are current members
of the National Business Conduct Committee, and must include a balance
of Non-Industry Directors and Industry Directors, or, if not balanced,
shall include a majority of Non-Industry Directors. (Proposed Rule
9312(a)(1).)
Proposed Rule 9312(a)(2), codifies existing delegations to the
General Counsel of NASD Regulation of the authority of the National
Business Conduct Committee to determine if a default decision issued
pursuant to Rule 9269 should be reviewed by the National Business
Conduct Committee. The provision reflects another part of the decision
of the NASD Board to reduce the work of the National Business Conduct
Committee and the related Select Committee's recommendation.
Subcommittees 114 and Extended Proceeding Committees
115 continue to act as the appeal forum to which the Parties
present arguments, and if allowed, any new evidence. (Proposed Rule
9346.) Proposed Rule 9346(h) contains the new requirement that any
person testifying in such a hearing will do so under oath or by
affirmation, except in unusual circumstances.
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\114\ The term ``Subcommittee'' means an appellate body that is
appointed by the National Business Conduct Committee: (1)
Constituted by Rule 9331(a) to participate in the National Business
Conduct Committee's consideration of a disciplinary proceeding
pursuant to the Rule 9300 Series; or (2) constituted under the Rule
9400 Series or Rule 9500 Series to conduct a review proceeding.
(Proposed Rule 9120(z).)
\115\ The terms ``Extended Proceeding Committee'' means an
appellate body that is appointed by the National Business Conduct
Committee and constituted under Rule 9331(a)(2) to participate in
the National Business Conduct Committee's consideration of a
disciplinary proceeding that is classified as an ``Extended
Proceeding'' and governed by the Rule 9300 Series. (Proposed rule
9120(k).)
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A Subcommittee or, if applicable, an Extended Proceeding Committee
transmits a written, recommended decision to the National Business
Conduct Committee. (Proposed Rule 9345.) The National Business Conduct
Committee receives the recommended decision in writing not later than
seven days before the meeting of the National Business Conduct
Committee at which the disciplinary proceeding is considered. (Proposed
Rule 9345.) At the same time, all other Directors who sit on the NASD
Regulation Board also receive the written recommended decision.
(Proposed Rule 9345.)
Pursuant to proposed Rule 9349, the National Business Conduct
Committee, after considering all matters presented in the appeal or
review, and the written recommended decision of the Subcommittee, or,
if applicable, the
[[Page 25255]]
Extended Proceeding Committee, may affirm, modify, or reverse the
decision of the Hearing Panel, or, if applicable, the Extended Hearing
Panel, and may affirm, modify, reverse, increase, or reduce any
sanction, or impose any other fitting sanction. Alternatively, the
National Business Conduct Committee may remand the disciplinary
proceeding with instructions.
Although proposed Rule 9346 provides that the National Business
Conduct Committee may hear the Parties present arguments, and consider
and rule upon motions for leave to introduce new evidence, the
Association anticipates these functions will be performed by the
appointed Subcommittee or Extended Proceeding Committee as provided
explicitly in Rule 9331(b). Thus, the inclusion of the National
Business Conduct Committee in certain procedural rules (e.g., proposed
Rules 9341, 9342, 9343, 9346, and 9347) is intended to provide
flexibility to the whole National Business Conduct Committee in
extraordinary circumstances.116
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\116\ For example, Respondent in a simple case may unearth clear
new documentary evidence which may alter the disposition of the case
and submit a motion for consideration of such new evidence after the
Subcommittee or the Extended Proceeding Committee has transmitted a
recommended decision to the National Business Conduct Committee, but
before the National Business Conduct Committee had prepared a
proposed written decision. The National Business Conduct Committee
generally would request that the Subcommittee or the Extended
Proceeding Committee consider the motion, but, using the flexibility
provided in Rule 9346, could consider and decide the motion itself.
---------------------------------------------------------------------------
After reaching its conclusions on the issues, the National Business
Conduct Committee prepares a proposed written decision.117
(Proposed Rule 9349(b).) Under proposed Rule 9351 and proposed Rule
9352, the proposed written decision of the National Business Conduct
Committee may be called for review by, respectively, any Director of
the NASD Regulation Board, and any Governor of the NASD Board. The
opportunity for a Director or Governor to call a case for review occurs
sequentially.
---------------------------------------------------------------------------
\117\ Specifically, the decision must include:
(1) A statement describing the investigative or other origin of
the disciplinary proceeding;
(2) The specific statutory or rule provisions that were alleged
to have been violated;
(3) A statement setting forth the findings of fact with respect
to any act or practice the Respondent was alleged to have committed
or omitted;
(4) The conclusions as to whether the Respondent violated any
provision alleged in the complaint;
(5) A statement in support of the disposition of the principal
issues raised in the proceeding; and
(6) A statement describing any sanction imposed, the reasons
therefore, and, pursuant to Rule 9360, the date upon which such
sanction shall become effective.
(Proposed Rule 9349(b) (1)-(6).)
---------------------------------------------------------------------------
Each Director receives a summary of the National Business Conduct
Committee's decisions at the NASD Regulation Board meeting the day
after the National Business Conduct Committee meeting at which the
written recommended decisions of the Subcommittees or the Extended
Proceeding Committees are considered. As discussed above, each Director
previously will have received the full text of such written recommended
decisions of the Subcommittees and the Extended Proceeding Committees.
Any Director may call a case for review at the NASD Regulation Board
meeting next following the National Business Conduct Committee meeting.
Second, the National Business Conduct Committee transmits the full
text of its proposed written decisions and summaries to each of the
NASD Regulation Board Directors immediately after the Board meeting
following the National Business Conduct Committee meeting at which the
written recommended decisions of the Subcommittees and the Extended
Proceeding Committees are considered by the National Business Conduct
Committee.118 If no Director calls the case for review
during the second seven day call for review period provided in Rule
9351(b), then the National Business Conduct Committee proposed written
decision is transmitted to each Governor of the NASD Board. If no
Governor calls the case for review during the period provided in Rule
9352(b), then the proposed written decision of the National Business
Conduct Committee is served upon the Parties and is the final
disciplinary action of the Association for purposes of SEC Rule 19d-
1(c)(1). (Proposed Rule 9349(c).)
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\118\ Because the National Business Conduct Committee sometimes
changes the written recommended decisions of the Subcommittees (or,
if applicable, those of the Extended Proceeding Committees), the
second call-for-review period gives each Director a chance to
carefully consider whether these changes to the Subcommittees' (or,
if applicable, the Extended Proceeding Committees'') written
recommended decisions, which each Director receives seven days
before the NASD Regulation Board meeting, suggest the need for a
call for review.
---------------------------------------------------------------------------
If a proposed written decision of the National Business Conduct
Committee is called for review by a Director of the NASD Regulation
Board, the disciplinary proceeding is placed on the agenda for the next
scheduled meeting of the NASD Regulation Board and the NASD Regulation
Board considers the disciplinary proceeding at that meeting. (Proposed
Rule 9351(c).) The NASD Regulation Board then prepares a proposed
written decision, which becomes the final disciplinary action of the
Association for purposes of SEC Rule 19d-1(c)(1), unless the NASD Board
exercises its right to call the disciplinary proceeding for review
(Proposed Rules 9351(e) and 9352(b)(1)), or unless the proceeding is
remanded (Proposed Rule 9351(e)).
As referenced earlier, proposed Rule 9352 provides for the NASD
Board to call for review, and thereafter review at its next meeting,
either a proposed written decision of the National Business Conduct
Committee, or, if the NASD Regulation Board reviewed the disciplinary
proceeding, a proposed written decision of the NASD Regulation Board.
(Proposed Rule 9352(b) (1) and (2).) The review procedures of the NASD
Board in other respects follow those described above with respect to
review by the NASD Regulation Board. (Proposed Rule 9352.)
(xiii) Recusal or Disqualification
There are four provisions in the proposed Rule 9000 Series dealing
with the recusal or disqualification of an Adjudicator in the event the
Adjudicator in a disciplinary or other proceeding, at the ``trial
level'' or in a subsequent appeal or review of such proceeding, has a
conflict of interest or a bias. (Proposed Rules 9160, 9233, 9234, and
9332.) In the Rule 9000 Series, the standard set forth under which an
Adjudicator must recuse himself or herself or may be disqualified by
motion is: ``a conflict of interest or bias, or circumstances otherwise
exist where the * * * [the Adjudicator's] fairness might reasonably be
questioned.''
The standard borrows heavily from the conflict of interest standard
applicable to federal judges. Under 28 U.S.C. 455(a) ``[a]ny justice,
judge, or magistrate of the United States shall disqualify himself in
any proceeding in which his impartiality might reasonably be
questioned.'' In addition, the Association has also looked to the APA.
Section 556(b) of the APA provides that ``[a] presiding or
participating employee may at any time disqualify himself. On the
filing in good faith of a timely and sufficient affidavit of personal
bias or other disqualification of a presiding or participating
employee, the agency shall determine the matter * * * .''
The proposed standard will be interpreted in a manner that accords
with the operation of a self-regulatory disciplinary system in which
members of the industry are intended to serve as Adjudicators. The
judicial interpretation of 28 U.S.C. 455(a) provides a basis for
[[Page 25256]]
such an interpretation because the judicial interpretation relies upon
additional objective factors used to determine a disputed claim of
bias. The Association intends to rely on such judicial interpretation
of the clause ``in which his impartiality might reasonably be
questioned'' in 28 U.S.C. 455(a), in interpreting the proposed clause,
``if circumstances otherwise exist where * * * [the Adjudicator's]
fairness might reasonably be questioned.'' The notions of impartiality
and fairness are inextricably linked in an analysis of whether an
Adjudicator fairly judges a proceeding.
In Pepsico, Inc. v. McMillan, 764 F.2d 458, 460 (7th Cir.1985), the
Seventh Circuit said: ``[t]he test for an appearance of partiality is *
* * whether an objective, disinterested observer fully informed of the
facts underlying the grounds on which recusal was sought would
entertain a significant doubt that justice would be done in the case.''
Cases in the Second, Eighth and Eleventh Circuits set forth similar
interpretive language. The Second Circuit stated, in United States v.
Lovaglia, 954 F.2d 811, 815 (2d Cir. 1992), that in interpreting the
statutory standard, a person would be required to ask: ``Would a
reasonable person, knowing all the facts, conclude that the trial
judge's impartiality could reasonably be questioned?'' See also United
States v. Walker, 920 F.2d 513, 517 (8th Cir. 1990) (after considering
public and private circumstances, would a reasonable, uninvolved
observer question the judge's impartiality, and would an objective,
disinterested observer fully informed of facts underlying the ground on
which recusal is sought entertain significant doubt that justice would
be done); Parker v. Connors Steel Co., 855 F.2d 1510, 1524 (11th Cir.),
cert. denied, 490 U.S. 1066 (1988) (Section 455(a) embodies an
objective standard; ``whether an objective, disinterested, lay observer
fully informed of the facts underlying the grounds on which recusal was
sought would entertain a significant doubt about the judge's
impartiality'').
The general provision for disqualification is set forth in proposed
Rule 9160, and refers to each of the various persons or groups that may
act as an Adjudicator under the proposed Rule 9000 Series. Each of the
rules contemplates that an Adjudicator shall exercise good faith and
recuse himself or herself as necessary.
Consistent with the Select Committee Report, proposed Rules 9233
and 9234 expressly provide a procedure for a Party to seek the
disqualification of a Hearing Officer or a Hearing Panelist. The
purpose of these proposed changes is to formalize the existing practice
of permitting such challenges so that they can be dealt with
expeditiously.
In addition, the Association proposes to authorize the Chief
Hearing Officer to disqualify a Panelist of a Hearing Panel or an
Extended Hearing Panel. (Proposed Rule 9234(b).) This provision was
added to assure that if a Hearing Officer or any other person became
aware of a factual basis for the disqualification of a Panelist, the
Chief Hearing Officer could act even if the Parties did not, and the
Panelist or Hearing Officer had not recused himself or herself.
Proposed Rules 9233 and 9234 governing the disqualification of a
Hearing Officer or one or both Panelists of a Hearing Panel or an
Extended Hearing Panel draw, in part, on the basic provisions found in
Model Adjudication Rule 112 119 and SEC Rules of Practice
112. 120 But rather than relying on the challenged
Adjudicator to make the initial decision regarding disqualification,
the proposed rules initially place that decision with the Chief Hearing
Officer when the challenge is to the impartiality or fairness of a
Hearing Officer (Proposed Rule 9233(c)), or to the Hearing Officer
appointed to a disciplinary proceeding if the challenge is to the
impartiality or fairness of one or both of the other Panelists
(Proposed Rule 9234 (c) and (d)). If a person challenges the
composition of the entire Hearing Panel, or Extended Hearing Panel, the
Chief Hearing Officer decides whether one or all three members of the
Hearing Panel or Extended Hearing Panel shall be disqualified.
(Proposed Rule 9234(e).) In all cases a written ruling must be issued
on the motion, which will facilitate review of the decision.
---------------------------------------------------------------------------
\119\ MAR 112.
\120\ 17 CFR 201.112.
---------------------------------------------------------------------------
Proposed Rule 9332, providing for the disqualification of Panelists
appointed to one of the two panels or committees used in the appeal or
review process by the National Business Conduct Committee, the
Subcommittee or an Extended Proceeding Committee, as described above,
is substantively the same as proposed Rules 9233 and 9234, except that
under proposed Rule 9332 the Chair or the Vice Chair of the National
Business Conduct Committee shall determine a motion for the
disqualification of a Panelist, and appoint a replacement Panelist.
(Proposed Rule 9332 (c) and (d).)
(xiv) Contemptuous Conduct
The Select Committee recognized that NASD disciplinary proceedings
have become increasingly more ``contentious,'' which presents a
``growing need for the power to sanction frivolous practice or
contumacious conduct.'' (Select Committee Report, p. R-24.) The Select
Committee broadly recommended rule revisions ``to discipline parties or
counsel on either side who engage in such behavior.'' (Id.) The
prospect of potential sanctions can be an important impetus toward
compliance with otherwise unenforceable orders.
Proposed Rule 9280 is responsive to the Select Committee's
recommendation. The proposed rule suggests a variety of sanctions that
may be imposed for conduct that violates orders of a Hearing Officer, a
Hearing Panel or, if applicable, an Extended Hearing Panel, and for
other contemptuous conduct during a hearing.
Under Proposed Rule 9280(b)(1), The Hearing Officer, Hearing Panel,
or, if applicable, an Extended Hearing Panel can sanction contemptuous
conduct by ruling, among other things, that: the subject matter of the
violated order or any other designated facts be taken as established
for purposes of the proceeding; the violator or contemptuous Party be
precluded from supporting or opposing certain claims or defenses, or
precluded from introducing evidence on certain matters; and particular
pleadings or parts thereof be stricken.
Proposed Rule 9280(b)(2) provides for the imposition of sanctions
for a Party's unjustified refusal to make disclosures required by the
proposed Rule 9250 Series, or otherwise required by order of a Hearing
Officer, Hearing Panel, or, if applicable, an Extended Hearing Panel.
Unless the failure to make disclosures is harmless, the recalcitrant
Party is precluded from using any of the information withheld or the
testimony of the witness that was not disclosed as evidence at the
hearing, or otherwise relying on such information or testimony. This
sanction may be imposed in addition to, or in lieu of, the various
restrictions on the conduct of the case authorized by proposed Rule
9280(b)(1). Further, under Proposed Rule 9280(c), absent reasonable
basis, a Party's failure to admit the genuineness of a document that is
later found to be genuine may also be subject to the sanctions listed
in proposed Rule 9280(b)(1).
Proposed Rule 9280, read in conjunction with proposed Rule 9150,
also authorizes a Hearing Officer,
[[Page 25257]]
Hearing Panel, or, if applicable, an Extended Hearing Panel to exclude
an offending attorney or person acting in a representative capacity
from functioning as such in the particular proceedings. In this regard,
proposed Rule 9141(b) also makes clear that the right to representation
in a disciplinary proceeding is subject to the power to exclude a
Party's representative or attorney under proposed Rules 9150 and 9280.
Under proposed Rule 9280(c), an attorney or representative who is
excluded from participating in a disciplinary proceeding may seek
immediate review of the exclusion order by the National Business
Conduct Committee by filing a motion to vacate within five days after
service of the order. The filing of such a motion operates to stay all
aspects of the disciplinary proceeding, pending expedited consideration
and a prompt decision by the National Business Conduct Committee.
Proposed Rule 9280 is, in part, modeled on SEC Rules of Practice
180. 121 SEC Rule 180, 122 also entitled
``Contemptuous Conduct,'' similarly authorizes excluding the violator
from the proceeding and/or suspending that person from representing
others in it. Under SEC Rule 180(b), 123 any filing which
fails to comply with SEC rules or with any order issued in the
proceeding can be rejected. In addition, under SEC Rule 180(c),
124 a failure to make a required filing or to cure a
deficiency within the time ordered can lead to dismissal or default, or
to orders limiting or restricting the offending party's evidentiary
opportunities. The Association believes the discretionary sanctioning
powers granted to hearing officers in SEC administrative proceedings
are comparable to those authorized by proposed Rule 9280.
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\121\ 17 CFR 201.180.
\122\ Id.
\123\ 17 CFR 201.180(b).
\124\ 17 CFR 201.180(c).
---------------------------------------------------------------------------
The sanctions set forth in proposed Rule 9280(b)(1) are also drawn
from F.R.C.P. 37(b)(2), which authorizes federal district courts to
impose a variety of sanctions for violations of the courts' discovery
orders. As reflected in SEC Rule 180(c) 125 and ACUS Model
Rule 111(L), 126 F.R.C.P. 37-type sanctions may be
appropriate for other contemptuous conduct, in addition to discovery
violations. Comment 5 to ACUS Model Rule 111(L) lists possible
appropriate sanctions: ``Refusing to allow the support or opposition to
a defense, prohibiting the introduction of disputed matters into
evidence, excluding testimony or expelling a party or person from the
hearing.'' 127 As noted, these are among the sanctions set
forth in proposed Rule 9280.
---------------------------------------------------------------------------
\125\ Id.
\126\ See MAR 111(L), which authorizes the Adjudicator to impose
``appropriate sanctions'' for disobeying orders.
\127\ Id.
---------------------------------------------------------------------------
i. Proposed Changes to Proceedings in the Rule 9500 Rule Series and the
Rule 9600 Series
(i) General
The Association is requesting temporary approval of the proposed
Rule 9400 and 9500 Series as an interim step to give the Association
the opportunity to review comprehensively these Rules, consider the
consolidation of the procedures covered by these Rules, and propose a
revision of these Rules based upon this review. The Association will
submit this proposed revision as an amendment to this filing. Temporary
approval of the changes proposed in this filing will give the
Commission time to publish for comment and consider approval of this
amendment.
In this rule filing, in addition to renumbering the Rules (the
current Rules are found in the Rule 9500 and 9600 Series), the
Association proposes to amend the Rules only as necessary to conform
the procedures to the Association's revised organizational structure
and to the changes being made to the proposed Rule 9200 and 9300
Series. In addition, the Association proposes to delete Rule 9520
(Expedited Remedial Proceedings) because these proceedings, as
currently designed, do not serve their intended purpose. The
Association intends to submit a separate rule filing proposing a
different approach to expedited remedial proceedings after submitting
the amendment proposing the comprehensive revision of the other Rule
9500-9600 Series proceedings.
(ii) Proposed Rule 9410 Series
The current Rule 9510 Series sets forth procedures to limit the
business operations of a member that is experiencing financial or
operational difficulty as specified in Rules 3130 and 3131. Rule 3130
was adopted in connection with the adoption of regulatory changes by
the SEC to reduce net capital requirements, in order to permit the
Association to be able to respond quickly to a firm's deteriorating
financial or operational conditions. At the time Rule 3130 was adopted,
the New York Stock Exchange and other stock exchanges had long-
established rules to reduce or restrict the business activities of
their members under certain circumstances.
Rule 3130 applies to members for which the NASD is the designated
self-regulatory organization, but excludes certain brokers that
generally do not carry customer accounts, certain broker/dealers
engaged solely in the sale of redeemable shares of registered
investment companies and certain other share accounts, and any other
broker/dealer that is exempt from SEC Rule 15c3-1. Rule 3130 addresses
two levels of possible financial or operational difficulties. First, it
restricts a member from expanding its business whenever certain early
warning financial criteria relating to minimum net capital ratio
requirements are met, or scheduled capital withdrawals are exceeded.
Second, Rule 3130 covers a deteriorating situation in which another set
of warning criteria with lower tolerances are exceeded.
Rule 3131 was recently adopted to provide the Association with
similar authority with respect to certain members of the Association
that are registered with the Commission under Section 15C of the Act as
government securities brokers and dealers.
Under the current Rule 9510 Series, a District Surveillance
Committee notifies a member if limitations are to be imposed pursuant
to Rule 3130. The member may request a hearing before the District
Surveillance Committee, which issues a written decision. The decision
may be appealed by the member or called for review by the NASD Board.
The Association proposes to renumber this Rule Series as the Rule
9410 Series and to conform it to other changes made in the Rule 9000
Series. Under the proposed Rule 9410 Series, the Department of Member
Regulation notifies a member if limitations are to be imposed under
Rule 3130 or Rule 3131. The limitations may go into effect seven days
after service of the notice unless the member requests a hearing. The
member may request a hearing before the Department of Member
Regulation, which then issues a written decision. The member may
request review of the Department of Member Regulation's decision by the
National Business Conduct Committee, or a member of the National
Business Conduct Committee or the Review Subcommittee (described in the
discussion of proposed Rule 9312) may call such a decision for review.
Ex parte rules apply when Association staff has knowledge that the
member intends to file a request for a review with the National
Business Conduct Committee or that the National Business Conduct
Committee intends to
[[Page 25258]]
call the decision of the Department of Member Regulation for review. If
oral argument is requested, the National Business Conduct Committee
appoints a Subcommittee to hear it and take any evidence that the
member can show good cause for not previously submitting. The
Subcommittee recommends a decision to the full National Business
Conduct Committee. The National Business Conduct Committee may affirm,
modify, or reverse the Department of Member Regulation's decision or
remand it with instructions. The contents of the National Business
Conduct Committee's proposed decision, which must be in writing, are
specified in proposed Rule 9414(c)(2). The National Business Conduct
Committee's proposed decision is subject to discretionary review by the
NASD Regulation Board and the NASD Board. If the proceeding is not
called for review, the National Business Conduct Committee's proposed
written decision becomes final and is issued upon expiration of the
discretionary review periods specified in the proposed Rule. The call
for review procedures for the NASD Regulation Board and the NASD Board
are parallel to the procedures set forth in proposed Rules 9351 and
9352.
(iii) Proposed Rule 9420 Series
The current Rule 9520 Series sets forth procedures for implementing
Rule 3140, which requires a member to seek approval of a change in its
business operations that will result in a change in its exemptive
status under SEC Rule 15c3-3. Rule 15c3-3 generally sets forth minimum
requirements for reserves and custody of securities. Rule 15c3-3
exempts broker/dealers that engage in transactions limited to certain
investment company securities and that do not hold customer securities
or accounts, clearing broker/dealers that do not carry margin accounts
or hold customer securities or funds, and introducing broker/dealers
that clear on a fully disclosed basis. The purpose of Rule 3140 is to
require any firm that intends to begin holding customer funds or
securities or clearing its own transactions, and thereby change its
exemptive status, to notify the Association so that the Association can
determine if the firm has adequate procedures to safeguard customer
funds and securities.
Under the current Rule 9520 Series, a member must file an
application seeking the approval of the District Office staff prior to
making the type of change noted above. If the application is denied in
whole or in part, the member may request a hearing before the District
Business Conduct Committee. The written decision of the District
Business Conduct Committee may be appealed or called for review by the
NASD Board.
The Association proposes to renumber this Rule Series as the Rule
9420 Series and to conform it to other changes made in the Rule 9000
Series. Under the proposed Rule 9420 Series, the member files the
application with the Department of Member Regulation at the NASD
Regulation district office. The Department of Member Regulation issues
a written decision on the application. If the application is denied in
whole or part by the Department of Member Regulation, the member may
request review by the National Business Conduct Committee, or a member
of the National Business Conduct Committee or the Review Subcommittee
may call the decision for review. Ex parte rules apply when Association
staff has knowledge that the member intends to file a request for
review or that the National Business Conduct Committee intends to call
the decision of the Department of Member Regulation for review. If
review is requested, the National Business Conduct Committee appoints a
Subcommittee to hear oral argument and take any evidence that the
member can show good cause for not previously submitting. The
Subcommittee recommends a decision to the full National Business
Conduct Committee. The National Business Conduct Committee may affirm,
modify, or reverse the Department of Member Regulation's decision. The
National Business Conduct Committee's proposed decision must be in
writing, and the contents of the decision are specified in proposed
Rule 9423(c)(2).
The National Business Conduct Committee's proposed decision is
subject to discretionary review by the NASD Regulation Board and the
NASD Board. If the proceeding is not called for review, the National
Business Conduct Committee's proposed written decision becomes final
and is issued upon expiration of the discretionary review periods
specified in the proposed Rule. The call for review procedures for the
NASD Regulation Board and the NASD Board are parallel to the procedures
set forth in proposed Rules 9351 and 9352.
(iv) Proposed Rule 9510 Series
Summary suspension procedures are authorized by Section 15A(h)(3)
of the Act. The Act permits summary suspension if: (1) A member or
person associated with a member has been and is expelled or suspended
from any self-regulatory organization or barred or suspended from being
associated with a member of any self-regulatory organization; or (2) a
member is in such financial or operating difficulty that the
Association determines and so notifies the Commission that the member
cannot be permitted to continue to do business as a member with safety
to investors, creditors, other members, or the Association. The Act
also permits a summary limitation or prohibition against any person
with respect to access to services of the Association if the person is
subject to a summary suspension under (1) or (2) or, in the case of a
person who is not a member, if the Association determines that such
person does not meet the qualification requirements or other
prerequisites for such access and such person cannot be permitted to
continue to have such access with safety to investors, creditors, other
members, or the Association. The Act requires that any person aggrieved
by the summary action be promptly afforded an opportunity for a
hearing.
Under the current Rule 9610 Series, the NASD Board Executive
Committee may authorize the staff to issue a notice of summary
suspension to a member or person on any of the three grounds set forth
in the Act. The suspension is effective immediately. The member or
person may request a hearing before a Hearing Panel of the NASD Board,
which issues a written decision. The decision may be appealed to or
called for review by the full Board.
The Association proposes to amend the Rule 9610 Series and renumber
it as the Rule 9510 Series. Under the proposed Rule 9510 Series, the
NASD Board may authorize the President of NASD Regulation or Nasdaq to
issue a summary suspension to a member or person on the three grounds
listed in Section 15A(h)(3) of the Act. 128 Under the
proposed rule change, as under the current rule, the suspension is
effective immediately. The member or person may request a hearing on
the summary suspension before a Hearing Panel of the NASD Board. The
Hearing Panel is composed of two or more members, one of whom must be a
current NASD Board member. The other members of the Hearing Panel must
be current or former members of the NASD Regulation, Nasdaq, or NASD
Boards. The Hearing Panel determines whether the summary suspension
should be affirmed or reversed. The Hearing Panel's proposed decision
must be in writing, and the contents of the proposed decision are
specified in proposed Rule 9513(c)(2).
[[Page 25259]]
The proposed written decision is subject to discretionary review by the
NASD Board. If the NASD Board does not call the proceeding for review,
the Hearing Panel's proposed decision becomes final and is issued upon
expiration of the discretionary review period specified in the Rule.
The call for review procedures for the NASD Board are essentially
parallel to the procedures set forth in proposed Rule 9352.
---------------------------------------------------------------------------
\128\ In a subsequent rule filing, the Association intends to
propose to divide the authority to initiate a summary suspension on
the grounds set forth in the Act between NASD Regulation and Nasdaq
and set forth the procedures for each subsidiary in separate rule
series for clarity.
---------------------------------------------------------------------------
(v) Proposed Rule 9520 Series
Under the current Rule 9620 Series, ``revocation'' procedures
provide a rapid means to cancel or suspend the membership of a member
or bar or suspend a person from being associated with a member for the
following reasons: Ineligibility for membership or association; failure
to make a required payment of fees, dues, assessments, or other
charges; failure to submit a required report or information related to
such a payment; failure to comply with an arbitration award; failure to
comply with a settlement agreement obtained in connection with an
arbitration or mediation; or failure to file or submit on request any
report, document, or other information required to be filed with or
requested by the Association.
Under the current Rule 9620 Series, a ``revocation'' proceeding is
initiated by sending the affected member or associated person a notice.
If the member or associated person wants a hearing, he must request one
within five to 15 days of the notice (depending on which Article of the
NASD By-Laws authorizes the notice). The request stays the effective
date of the revocation. A hearing is held before a Hearing Panel of the
NASD Board, which issues a final decision. There is no appeal or call
for review by the full Board.
Under the proposed Rule 9520 Series, revocation procedures are
renamed ``Non-Summary Suspension, Cancellation, and Bar Procedures'' to
describe better the specific actions that the Association may take
under this Rule Series and to differentiate these procedures from other
similar procedures set forth in the Rules of the Association. Under the
proposed Rule 9520 Series, Association staff initiates a non-summary
cancellation, suspension, or bar proceeding by sending a notice to the
affected member or associated person. The member or associated person
may request a hearing before a Hearing Panel of the NASD Board. Ex
parte rules apply when the Association staff has knowledge that the
member or associated person intends to request a hearing on the notice.
As under the current Rule, the request stays the effective date of the
cancellation, suspension, or bar set forth in the notice. The Hearing
Panel is composed of two or more current or former members of the NASD
Regulation Board. The Hearing Panel decides whether a cancellation,
suspension, or bar should be imposed. The Hearing Panel's proposed
decision must be in writing, and the contents of the proposed decision
are specified in the proposed Rule 9523(g). The proposed written
decision is subject to discretionary review by the NASD Board. There is
no call for review by the full NASD Regulation Board in order to
expedite the resolution of the proceeding. If the NASD Board does not
call the proceeding for review, the Hearing Panel's proposed written
decision is issued as the final decision upon expiration of the
discretionary review period specified in the Rule. The call for review
procedures for the NASD Board is essentially parallel to the call for
review procedures in proposed Rule 9352.
(vi) Proposed Rule 9530 Series
The eligibility procedures in the current Rule 9640 Series provide
another means to cancel the membership of a member or bar a person from
association with a member when a statutory disqualification exists or a
member or person otherwise becomes ineligible for membership or
association (e.g., when there is a similarity of membership names).
Typically, a cancellation or bar proceeding is used when the ground for
statutory disqualification is serious (e.g., conviction of a financial
crime) and the Association needs to take quick action. An eligibility
proceeding, which moves more slowly, is used when the ground for the
statutory disqualification does not raise immediate customer protection
concerns (e.g., a drunk driving conviction). An eligibility proceeding
can be initiated by the Association or by a member when it determines
that a statutory disqualification exists (as to itself, which is less
common, or as to one of its current registered representatives, which
is more often the case) or when the member wishes to associate with a
person subject to a statutory disqualification.
Under the current Rule 9640 Series, an eligibility proceeding may
be initiated by the Association sending a notice to a member or by a
member filing an application for relief from the Association's
membership or eligibility requirements. A hearing on the application
may be held before a Hearing Panel of the NASD Board, which makes a
recommendation to the full NASD Board. The Board issues a written
decision, which may include conditions on the member and person.
Under the proposed Rule 9530 Series, the Department of Member
Regulation may initiate an eligibility proceeding by sending a notice
to the affected member or person if the Department of Member Regulation
has reason to believe that a statutory disqualification exists. The
notice specifies that a member may file a written application for
relief on its own behalf and on behalf of its associated person, as
applicable. Alternatively, a member may initiate an eligibility
proceeding by submitting a written application for relief. Ex parte
rules apply when the Department of Member Regulation initiates the
proceeding and Association staff has knowledge that the member intends
to file a written application for relief. If a member files an
application for relief, a National Business Conduct Committee Hearing
Panel is appointed. The Hearing Panel is composed of at least two
current or former members of the NASD Regulation Board or former
members of the NASD Board. The Hearing Panel holds a hearing and
provides a recommended written decision on the application for relief
to the Statutory Disqualification Committee. The Statutory
Disqualification Committee, which reviews the Hearing Panel's
recommendation to ensure consistency in the disposition of requests for
relief, then forwards a recommended written decision to the full
National Business Conduct Committee. The National Business Conduct
Committee decides whether to grant the request for relief. The National
Business Conduct Committee's proposed decision must be in writing, and
the contents of the decision are specified in the proposed Rule. The
National Business Conduct Committee's proposed written decision is
subject to discretionary review by the NASD Regulation Board and the
NASD Board. If neither Board calls the eligibility proceeding for
review, the National Business Conduct Committee's proposed decision is
issued as the final decision upon expiration of the discretionary
review periods specified in the Rule. The call for review procedures
for the NASD Regulation Board and the NASD Board are parallel to the
call for review procedures in proposed Rules 9351 and 9352.
2. Statutory Basis
The NASD believes the proposed rule change is consistent with
section 15A(b)(7), 15 U.S.C. 78o-3(b)(7), and Section 15A(b)(8), 15
U.S.C. 78o-3(b)(8), under the Act. In pertinent part, Section 15A(b)(7)
mandates that a national securities association establish rules
[[Page 25260]]
providing that ``its members and persons associated with its members
shall be appropriately disciplined for violation of any provision of
this title, the rules or regulations thereunder, the rules of the
Municipal Securities Rulemaking Board, or the rules of the association,
by expulsion, suspension, limitation of activities, functions, and
operations, fine, censure, being suspended or barred from being
associated with a member, or any other fitting sanction.'' In pertinent
part, section 15A(b)(8) mandates that a national securities association
establish rules providing for ``a fair procedure for the disciplining
of members and persons associated with members, the denial of
membership to any person seeking membership therein, the barring of any
person from becoming associated with a member thereof, and the
prohibition or limitation by the association of any person with respect
to access to services offered by the association or a member thereof.''
The NASD believes the proposed rule changes will further the goals of
Sections 15A(b) (7) and (8).
B. Self-Regulatory Organization's Statement on Burden on Competition
The NASD does not believe 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
The NASD 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. In addition to general comments
concerning the Association's proposal, the Commission requests
particular comments addressing whether the proposal would result in any
burdens on competition and whether the proposal would promote
efficiency, competition and capital formation. Furthermore, the
Commission invites interested persons to comment on the following
specific issues:
(a) Currently, the NASD By-Laws require applicants for NASD
membership to agree to waive the liability of the NASD, Nasdaq and
NASD Regulation Boards, committee members, officers, and employees
for action taken within the scope of their authority, except for
willful malfeasance. As proposed, the amended By-Laws will maintain
this waiver of liability provision. Prospective members will still
be required to sign an agreement to waive this liability as a
condition of membership in the NASD.
(b) The proposed By-Laws and Rules 1012, 9160, 9233, 9234, and
9332 prohibit Governors, Directors, and members of the NBCC or a
subcommittee thereof from participating in a matter if they have ``a
conflict of interest or bias, or if circumstances otherwise exist
where [their] fairness might reasonably be questioned.'' This
standard is derived from 28 U.S.C. 455(a).
(c) The proposed revisions to the procedures relating to
election of the members of the NASD Board of Governors, the NASD
Regulation Board of Directors and the Nasdaq Board of Directors.
(d) The proposed By-Laws incorporate the Delegation Plan
provision permitting ``employees of an entity that is affiliated
with a broker or dealer that does not account for a material portion
of the revenues of the consolidated entity, and who are primarily
engaged in the business of the non-member entity'' to serve as Non-
Industry Governors, Directors and/or Committee Members. Commenters
are asked to address whether a specific standard for materiality
would be appropriate and if so, what such a standard should be.
The Commission seeks comment on whether the proposal, given the
unique nature of the Association as a self-regulatory organization,
adequately promotes the goals of the Act.
Persons making written submissions should file six copies thereof
with the Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW., Washington, DC. 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. Sec. 552, will
be available for inspection and copying at the Commission's Public
Reference Room. Copies of such filing will also be available for
inspection and copying at the principal office of the Association.
Comments also may be submitted electronically at the following E-mail
address: [email protected]. File Number SR-NASD-97-28 should be
included on the subject line if E-mail is used to submit a comment
letter. Electronically submitted comment letters will be posted on the
Commission's Internet web site (http://www.sec.gov).
All submissions should refer to File No. SR-NASD-97-28 and should
be submitted by June 9, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.129
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\129\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
Exhibit 1
Additions are italicized; deletions are bracketed.
By-Laws of the National Association of Securities Dealers, Inc.
Article I
Definitions
When used in these By-Laws,[ and any rules of the Corporation,]
unless the context otherwise requires, the term: (a) ``Act'' means the
Securities Exchange Act of 1934, as amended; (b) ``bank'' means (1) a
banking institution organized under the laws of the United States, (2)
a member bank of the Federal Reserve System, (3) any other banking
institution, whether incorporated or not, doing business under the laws
of any State or of the United States, a substantial portion of the
business of which consists of receiving deposits or exercising
fiduciary powers similar to those permitted to national banks under the
authority of the Comptroller of the Currency pursuant to the first
section of Public Law 87-722 (12 U.S.C. Sec. 92a), and which is
supervised and examined by a State or Federal authority having
supervision over banks, and which is not operated for the purpose of
evading the provisions of the Act, and (4) a receiver, conservator, or
other liquidating agent of any institution or firm included in clauses
(1), (2), or (3) of this subsection; (c) ``Board'' means the Board of
Governors of the [Corporation.] NASD;
[(d) ``Boards'' means the Board of Governors of the Corporation and
the Boards of Directors of The Nasdaq Stock Market, Inc. and NASD
Regulation, Inc.;
(e)](d) ``branch office'' means an office defined as a branch
office in [NASD Rule 3010;] the Rules of the Association;
[[Page 25261]]
[(f)](e) ``broker'' means any individual, corporation, partnership,
association, joint stock company, business trust, unincorporated
organization, or other legal entity engaged in the business of
effecting transactions in securities for the account of others, but
does not include a bank;
[(g)](f) ``Commission'' means the Securities and Exchange
Commission;
[(h) ``Corporation'' means the National Association of Securities
Dealers, Inc.;]
[(i) ``Corporations'' means the National Association of Securities
Dealers, Inc. (``NASD''), and its subsidiaries, The Nasdaq Stock
Market, Inc. (``Nasdaq'') and NASD Regulation, Inc. (``NASD
Regulation'');]
(g) ``day'' means calendar days;
[(j)](h) ``dealer'' means any individual, corporation, partnership,
association, joint stock company, business trust, unincorporated
organization, or other legal entity engaged in the business of buying
and selling securities for [his] such individual's or entity's own
account, through a broker or otherwise, but does not include a bank, or
any person insofar as [he] such person buys or sells securities for
[his] such person's own account, either individually or in some
fiduciary capacity, but not as part of a regular business;
[(k) ``delegation] (i) ``Delegation Plan'' means the ``Plan of
Allocation and Delegation of Functions by NASD to Subsidiaries'' as
approved by the Commission, and as amended from time to time;
(j) ``district'' means a district established by the NASD
Regulation Board pursuant to the NASD Regulation By-Laws;
[(l)](k) ``government securities broker'' shall have the same
meaning as in Section 3(a)(43) of the Act except that it shall not
include financial institutions as defined in Section 3(a)(46) of the
Act;
[(m)](l) ``government securities dealer'' shall have the same
meaning as in Section 3(a)(44) of the Act except that it shall not
include financial institutions as defined in Section 3(a)(46) of the
Act;
[(n)](m) ``Governor'' means a member of the Board[.];
(n) ``Industry Director'' means a Director of the NASD Regulation
Board (excluding the President of NASD Regulation) or a Director of the
Nasdaq Board (excluding the President of Nasdaq) who: (1) is an
officer, director, or employee of a broker or dealer or has been
employed in any such capacity at any time within the prior three years;
or (2) has a consulting or employment relationship with or provides
professional services to the NASD, NASD Regulation, or Nasdaq or has
had any such relationship or provided any such services at any time
within the prior three years;
(o) ``Industry Governor'' or ``Industry committee member'' means a
Governor (excluding the Chief Executive Officer of the NASD) or
committee member who (1) is an officer, director, or employee of a
broker or dealer or has been employed in any such capacity at any time
within the prior three years; and (2) has a consulting or employment
relationship with or provides professional services to the NASD, NASD
Regulation, or Nasdaq or has had any such relationship or provided any
such services at any time within the prior three years;
[(o)](p) ``investment banking or securities business'' means the
business, carried on by a broker, dealer, or municipal securities
dealer (other than a bank or department or division of a bank), or
government securities broker or dealer, of underwriting or distributing
issues of securities, or of purchasing securities and offering the same
for sale as a dealer, or of purchasing and selling securities upon the
order and for the account of others;
[(p)](q) ``member'' means any broker or dealer admitted to
membership in the [Corporation] NASD;
[(q)](r) ``municipal securities'' means securities which are direct
obligations of, or obligations guaranteed as to principal or interest
by, a State or any political subdivision thereof, or any agency or
instrumentality of a State or any political subdivision thereof, or any
municipal corporate instrumentality of one or more States, or any
security which is an industrial development bond as defined by Section
3(a)(29) of the Act;
[(r)](s) ``municipal securities broker'' means a broker, except a
bank or department or division of a bank, engaged in the business of
effecting transactions in municipal securities for the account of
others;
[(s)](t) ``municipal securities dealer'' means any person, except a
bank or department or division of a bank, engaged in the business of
buying and selling municipal securities for [his] such person's own
account, through a broker or otherwise, but does not include any person
insofar as [he] such person buys or sells securities for [his] such
person's own account either individually or in some fiduciary capacity,
but not as a part of a regular business;
(u) ``NASD'' means the National Association of Securities Dealers,
Inc.;
(v) ``NASD Regulation'' means NASD Regulation, Inc.;
(w) ``NASD Regulation Board'' means the Board of Directors of NASD
Regulation;
(x) ``Nasdaq'' means The Nasdaq Stock Market, Inc.;
(y) ``Nasdaq Board'' means the Board of Directors of Nasdaq;
(z) ``National Nominating Committee'' means the National Nominating
Committee appointed pursuant to Article VII, Section 9 of these By-
Laws;
(aa) `` Non-Industry Director'' means a Director of the NASD
Regulation Board or Nasdaq Board who is (1) a Public Director; (2) an
officer or employee of an issuer of securities listed on Nasdaq or
traded in the over-the-counter market; (3) a person affiliated with a
broker or a dealer that operates solely to assist the securities-
related activities of the business of a non-member affiliate (such as a
broker or dealer established to (i) distribute an affiliate's
securities which are issued on a continuous or regular basis, or (ii)
process the limited buy and sell orders of the shares of employee
owners of the affiliate); (4) an employee of an entity that is
affiliated with a broker or a dealer that does not account for a
material portion of the revenues of the consolidated entity, and who is
primarily engaged in the business of the non-member entity; or (5) any
other individual who would not be an Industry Director;
(bb) ``Non-Industry Governor'' or ``Non-Industry committee member''
means a Governor or committee member who is (1) a Public Governor or
committee member; (2) an officer or employee of an issuer of securities
listed on Nasdaq or traded in the over-the-counter market; (3) a person
affiliated with a broker or dealer that operates solely to assist the
securities-related activities of the business of a non-member affiliate
(such as a broker or dealer established to (i) distribute an
affiliate's securities which are issued on a continuous or regular
basis, or (ii) process the limited buy and sell orders of the shares of
employee owners of the affiliate); (4) an employee of an entity that is
affiliated with a broker or a dealer that does not account for a
material portion of the revenues of the consolidated entity, and who is
primarily engaged in the business of the non-member entity; or (5) any
other individual who would not be an Industry Governor or committee
member;
[(t)](cc) ``person associated with a member'' or ``associated
person of a member'' means every sole proprietor, partner, officer,
director, or branch manager of any member, or any natural person
occupying a similar status or performing similar functions, or any
natural person engaged in the investment banking or securities
[[Page 25262]]
business who is directly or indirectly controlling or controlled by
such member, whether or not any such person is registered or exempt
from registration with the [Corporation] NASD pursuant to these By-Laws
or the Rules of the Association;
(dd) `` Public Director'' means a Director of the NASD Regulation
Board or Nasdaq Board who has no material business relationship with a
broker or dealer or the NASD, NASD Regulation, or Nasdaq;
(ee) ``Public Governor'' or ``Public committee member'' means a
Governor or committee member who has no material business relationship
with a broker or dealer or the NASD, NASD Regulation, or Nasdaq;
[(u)](ff) ``registered broker, dealer, municipal securities broker
or dealer, or government securities broker or dealer'' means any
broker, dealer, municipal securities broker or dealer, or government
securities broker or dealer which is registered with the Commission
under the Act; and
[(v) ``rules of the Corporation'' means all rules of the
Corporation (which rules may be referred to as ``NASD Rules''),
Certificate of Incorporation, By-Laws,] (gg) `` Rules of the
Association[, any other rules, and any interpretations thereunder.]''
or ``Rules'' means the numbered rules set forth in the NASD Manual
beginning with the Rule 0100 Series, as adopted by the Board pursuant
to these By-Laws, as hereafter amended or supplemented.
Article II
Offices
Location
Sec. 1. The address of the registered office of the NASD in the
State of Delaware and the name of the registered agent at such address
shall be: The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801. The NASD also may have offices at such
other places both within and without the State of Delaware as the Board
may from time to time designate or the business of the NASD may
require.
Change of Location
Sec. 2. In the manner permitted by law, the Board or the registered
agent may change the address of the NASD's registered office in the
State of Delaware and the Board may make, revoke, or change the
designation of the registered agent.
Article [II] III
Qualifications of Members and Associated Persons
Persons Eligible to [become] Become Members and Associated Persons
of Members
Sec. 1. (a) Any registered broker, dealer, municipal securities
broker or dealer, or government securities broker or dealer authorized
to transact, and whose regular course of business consists in actually
transacting, any branch of the investment banking or securities
business in the United States, under the laws of the United States,
shall be eligible for membership in the [Corporation] NASD, except such
registered brokers, dealers, or municipal securities brokers or
dealers, or government securities brokers or dealers which are excluded
under the provisions of [Sections 3 (a) or (b) of this Article] Section
3.
(b) Any person shall be eligible to become an associated person of
a member, except such persons who are excluded under the provisions of
Section 3[(b) of this Article].
Authority of Board to Adopt Qualification Requirements
Sec. 2. (a) The Board [of Governors] shall have authority to adopt
rules and regulations applicable to applicants for membership, members,
and persons associated with applicants or members establishing
specified and appropriate standards with respect to the training,
experience, competence, and such other qualifications as the Board [of
Governors] finds necessary or desirable, and in the case of an
applicant for membership or a member, standards of financial
responsibility and operational capability.
(b) In establishing and applying such standards, the Board [of
Governors] may classify members and persons associated with such
members, taking into account relevant matters, including the nature,
extent, and type of business being conducted and of securities sold,
dealt in, or otherwise handled. The Board [of Governors] may specify
that all or any portion of such standards shall be applicable to any
such class and may require the persons in any such class to be
registered with the [Corporation] NASD.
(c) The Board [of Governors] may from time to time make changes in
such rules, regulations, and standards as it deems necessary or
appropriate.
Ineligibility of Certain Persons for Membership or Association
Sec. 3. (a) No registered broker, dealer, municipal securities
broker or dealer, or government securities broker or dealer shall be
admitted to membership, and no member shall be continued in membership,
if such broker, dealer, municipal securities broker or dealer,
government securities broker or dealer, or member fails or ceases to
satisfy the qualification requirements established under Section 2 [of
this Article], if applicable, or if such broker, dealer, municipal
securities broker or dealer, government securities broker or dealer, or
member is or becomes subject to a disqualification under Section 4 [of
this Article], or if such member fails to comply with the requirement
that all forms filed pursuant to these By-Laws be filed via electronic
process or such other process the [Corporation] NASD may prescribe.
(b) No person shall become associated with a member, continue to be
associated with a member, or transfer association to another member, if
such person fails or ceases to satisfy the qualification requirements
under Section 2 [of this Article], if applicable, or if such person is
or becomes subject to a disqualification under Section 4 [of this
Article]; and no broker, dealer, municipal securities broker or dealer,
or government securities broker or dealer shall be admitted to
membership, and no member shall be continued in membership, if any
person associated with it is ineligible to be an associated person
under this subsection.
(c) If it deems appropriate, the Board [of Governors], upon notice
and opportunity for a hearing, may cancel the membership of a member if
it becomes ineligible for continuance in membership under subsection
(a) [hereof], may suspend or bar a person [for] from continuing to be
associated with any member if such person is or becomes ineligible for
association under subsection (b) [hereof], and may cancel the
membership of any member who continues to be associated with any such
ineligible person.
(d) Any [broker, dealer, municipal securities dealer, or government
securities broker or dealer which is ineligible for admission into
membership, or any member which] member that is ineligible for
continuance in membership[,] may file with the Board [of Governors] an
application requesting relief from the ineligibility pursuant to
[procedures adopted by the Board of Governors and contained in the
Corporation's Procedural Rules. The Board of Governors] the Rules of
the Association. A member may file such application on its own behalf
and on behalf of a current or prospective associated person. The Board
may, in its discretion, approve
[[Page 25263]]
the [admission] continuance in membership, and may also approve the
association or continuance of [an applicant or member, or the]
association [of any person], if the Board determines that such approval
is consistent with the public interest and the protection of investors.
Any approval hereunder may be granted unconditionally or on such terms
and conditions as the Board considers necessary or appropriate. In the
exercise of the authority granted hereunder, the Board [of Governors]
may[: (1)] conduct such inquiry or investigation into the relevant
facts and circumstances as it, in its discretion, considers necessary
to its determination, which, in addition to the background and
circumstances giving rise to the failure to qualify or
disqualification, may include the proposed or present business of [an
applicant for membership or of] a member and the conditions of
association of any current or prospective associated person.
[prospective or presently] associated person, among other matters; (2)
permit, in limited types of situations, a membership or association
with a member pending completion of its inquiry or investigation, and
its final determination, based upon a consideration of relevant
factors, and may classify situations taking into account the status of
brokers, dealers, municipal securities brokers and dealers and
government securities brokers and dealers as applicants or existing
members and of persons as prospective or presently associated persons
of members; the type of disqualification or failure to qualify; whether
a member or associated person has been the subject of a previous
approval and the terms and conditions thereof; and any other relevant
factors; and
(3) delegate any of its functions and authority under this
subsection (d) to appropriate committees of the Corporation or to
Corporation staff members.]
(e) An application filed under subsection (d) [hereof] shall not
foreclose any action which the Board [of Governors] is authorized to
take under subsection (c) [hereof] until approval has been granted.
(f) Approval by the Board of [Governors of] an application made
under subsection (d) shall be subject to whatever further action the
Commission may take pursuant to authority granted to the Commission
under the Act.
(g) The Board may delegate its authority under this Section in a
manner not inconsistent with the Delegation Plan.
Definition of Disqualification
Sec. 4. A person is subject to a ``disqualification'' with respect
to membership, or association with a member, if such person:
(a) has been and is expelled or suspended from membership or
participation in, or barred or suspended from being associated with a
member of, any self-regulatory organization, foreign equivalent of a
self-regulatory organization, foreign or international securities
exchange, contract market designated pursuant to Section 5 of the
Commodity Exchange Act, or foreign equivalent of a contract market
designated pursuant to any substantially equivalent foreign statute or
regulation, or futures association registered under Section 17 of the
Commodity Exchange Act or a foreign equivalent of a futures association
designated pursuant to any substantially equivalent foreign statute or
regulation, or has been and is denied trading privileges on any such
contract market or foreign equivalent;
(b) is subject to--
(1) an order of the Commission, other appropriate regulatory
agency, or foreign financial regulatory authority:
(i) denying, suspending for a period not exceeding 12 months, or
revoking [his] such person's registration as a broker, dealer,
municipal securities dealer, government securities broker, or
government securities dealer, or limiting [his] such person's
activities as a foreign person performing a function substantially
equivalent to any of the above; or
(ii) barring or suspending for a period not exceeding 12 months
[his] such person being associated with a broker, dealer, municipal
securities dealer, government securities broker, government securities
dealer, or foreign person performing a function substantially
equivalent to any of the above;
(2) an order of the Commodity Futures Trading Commission denying,
suspending, or revoking [his] such person's registration under the
Commodity Exchange Act (7 U.S.C. Sec. 1 et seq.); or
(3) an order by a foreign financial regulatory authority denying,
suspending, or revoking the person's authority to engage in
transactions in contracts of sale of a commodity for future delivery or
other instruments traded on or subject to the rules of a contract
market, board of trade, or foreign equivalent thereof;
(c) by [his] such person's conduct while associated with a broker,
dealer, municipal securities dealer, government securities broker, or
government securities dealer, or while associated with an entity or
person required to be registered under the Commodity Exchange Act, has
been found to be a cause of any effective suspension, expulsion, or
order of the character described in [subsections] subsection (a) or (b)
of this Section;
(d) by [his] such person's conduct while associated with any
broker, dealer, municipal securities dealer, government securities
broker, government securities dealer, or any other entity engaged in
transactions in securities, or while associated with an entity engaged
in transactions in contracts of sale of a commodity for future delivery
or other instruments traded on or subject to the rules of a contract
market, board of trade, or foreign equivalent thereof, has been found
to be a cause of any effective suspension, expulsion, or order by a
foreign or international securities exchange or foreign financial
regulatory authority empowered by a foreign government to administer or
enforce its laws relating to financial transactions as described in
subsection (a) or (b) of this Section;
(e) has associated with him or her any person who is known, or in
the exercise of reasonable care should be known, to him or her to be a
person described in [subsections] subsection (a), (b), (c), or (d) of
this Section;
(f) has willfully made or caused to be made in any application for
membership in a self-regulatory organization, or to become associated
with a member of a self-regulatory organization, or in any report
required to be filed with a self-regulatory organization, or in any
proceeding before a self-regulatory organization, any statement which
was at the time, and in light of the circumstances under which it was
made, false or misleading with respect to any material fact, or has
omitted to state in any such application, report, or proceeding any
material fact which is required to be stated therein;
(g)(1) has been convicted within ten years preceding the filing of
any application for membership in the [Corporation] NASD, or to become
associated with a member of the [Corporation] NASD, or at any time
thereafter, of any felony or misdemeanor or of a substantially
equivalent crime by a foreign court of competent jurisdiction which:
(i) involves the purchase or sale of any security, the taking of a
false oath, the making of a false report, bribery, perjury, burglary,
any substantially equivalent activity however denominated by the laws
of the relevant
[[Page 25264]]
foreign government, or conspiracy to commit any such offense;
(ii) arises out of the conduct of the business of a broker, dealer,
municipal securities dealer, government securities broker, government
securities dealer, investment adviser, bank, insurance company,
fiduciary, transfer agent, foreign person performing a function
substantially equivalent to any of the above, or any entity or person
required to be registered under the Commodity Exchange Act or any
substantially equivalent foreign statute or regulation;
(iii) involves the larceny, theft, robbery, extortion, forgery,
counterfeiting, fraudulent concealment, embezzlement, fraudulent
conversion, or misappropriation of funds or securities, or
substantially equivalent activity however denominated by the laws of
the relevant foreign government; or
(iv) involves the violation of Sections 152, 1341, 1342, or 1343 or
Chapters 25 or 47 of Title 18, United States Code, or a violation of a
substantially equivalent foreign statute;
(2) has been convicted within ten years preceding the filing of any
application for membership in the [Corporation] NASD, or to become
associated with a member of the [Corporation] NASD, or at any time
thereafter of any other felony;
(h) is permanently or temporarily enjoined by order, judgment, or
decree of any court of competent jurisdiction from acting as an
investment adviser, underwriter, broker, dealer, municipal securities
dealer, government securities broker, government securities dealer,
transfer agent, foreign person performing a function substantially
equivalent to any of the above, entity or person required to be
registered under the Commodity Exchange Act, or any substantially
equivalent foreign statute or regulation, or as an affiliated person or
employee of any investment company, bank, insurance company, foreign
entity substantially equivalent to any of the above, or entity or
person required to be registered under the Commodity Exchange Act or
any substantially equivalent foreign statute or regulation, or from
engaging in or continuing any conduct or practice in connection with
any such activity, or in connection with the purchase or sale of any
security;
(i) has been found by a foreign financial regulatory authority to
have--
(1) made or caused to be made in any application for registration
or report required to be filed with a foreign financial regulatory
authority, or in any proceeding before a foreign financial regulatory
authority with respect to registration, any statement that was at the
time and in the light of the circumstances under which it was made
false or misleading with respect to any material fact, or has omitted
to state in any application or report to the foreign financial
regulatory authority any material fact that is required to be stated
therein;
(2) violated any foreign statute or regulation regarding
transactions in securities, or contracts of sale of a commodity for
future delivery, traded on or subject to the rules of a contract market
or any board of trade; or
(3) aided, abetted, counseled, commanded, induced, or procured the
violation by any person of any provision of any statutory provisions
enacted by a foreign government, or rules or regulations thereunder,
empowering a foreign financial regulatory authority regarding
transactions in securities, or contracts of sale of a commodity for
future delivery, traded or subject to the rules of a contract market or
any board of trade, or has been found, by a foreign financial
regulatory authority, to have failed reasonably to supervise, with a
view to preventing violations of such statutory provisions, rules, and
regulations, another person who commits such a violation, if such other
person is subject to [his] such person's supervision.
Article [III] IV
Membership
Application for Membership
Sec. 1. (a) Application for membership in the [Corporation] NASD,
properly signed by the applicant, shall be made to the [Corporation]
NASD via electronic process or such other process the [Corporation]
NASD may prescribe, on the form to be prescribed by the [Corporation]
NASD, and shall contain: (1) an [acceptance of and an agreement to
abide by, comply with, and adhere to, all the provisions, conditions,
and covenants of the Restated Certificate of Incorporation, the By-
Laws] agreement to comply with the federal securities laws, the rules
and regulations [of the Corporation as they are or may from time to
time be adopted, changed or amended,] thereunder, the rules of the
Municipal Securities Rulemaking Board and the Treasury Department, the
By-Laws of the NASD, NASD Regulation, and NASDaq, the Rules of the
Association, and all rulings, orders, directions, and decisions [of,]
issued and sanctions imposed [by, the Board of Governors or any duly
authorized committee, and the provisions of the federal securities
laws, including the rules and regulations adopted thereunder, including
the rules of the Municipal Securities Rulemaking Board and the Treasury
Department, provided, however, that such an agreement shall not be
construed as a waiver by the applicant of any right to appeal as
provided in the Act;] under the Rules of the Association;
(2) an agreement to pay such dues, assessments, and other charges
in the manner and amount as [shall from time to time be fixed by the
Board of Governors pursuant to these By-Laws;] from time to time shall
be fixed pursuant to the NASD By-Laws, Schedules to the NASD By-Laws,
and the Rules of the Association;
(3) an agreement that [none of] neither the [Corporations, or]
NASD, nor any officer[,] or employee[, or] thereof, nor any member of
the Board [or committees of the Corporations] of Governors or of any
district or other committee, shall be liable, except for willful
malfeasance, to the applicant or to any member of the [Corporation]
NASD or to any other person, for any action taken by such officer or
member of the [Boards] Board of Governors or of any district or other
committee, in his official capacity, or by any employee of the
[Corporations] NASD while acting within the scope of his employment or
under instruction of any officer, [Board] board, or committee of the
[Corporations] NASD, in connection with the administration or
enforcement of any of the provisions of the [rules] Rules of the
[Corporation] Association as they are or may from time to time be
adopted, or amended, or any ruling, order, directive, decision of, or
penalty imposed by, the [Boards] Board of Governors or any duly
authorized committee [thereof], [or] the provisions of the federal
securities laws, including the rules and regulations adopted
thereunder, [and] including the rules of the Municipal Securities
Rulemaking Board and the Treasury Department; and
(4) such other reasonable information with respect to the applicant
as the [Corporation] Board of Governors may require. (b) Any
application for membership received by the [Corporation] NASD shall be
processed in the manner set forth in the [Procedural] Rules of the
[Corporation] Association. (c) Each member shall ensure that the
member's membership application with the [Corporation] NASD is kept
current at all times by supplementary amendments via electronic process
or such other process the [Corporation] NASD may prescribe to the
original application. Such amendments to the application shall be filed
with the [Corporation] NASD not later than [thirty (30) calendar] 30
days
[[Page 25265]]
after learning of the facts or circumstances giving rise to the
amendment.
Similarity of Membership Names
Sec. 2. (a) No person or firm shall be admitted to or continued in
membership in the [Corporation] NASD having a name [which] that is
identical to the name of another member appearing on the membership
roll of the [Corporation] NASD or a name so similar to any such name as
to tend to confuse or mislead. (b) No member may change its name
without prior approval of the [Corporation] NASD.
Executive Representative
Sec. 3. Each member shall appoint and certify to the Secretary of
the [Corporation one ``executive] NASD one ``executive representative''
who shall represent, vote, and act for the member in all the affairs of
the [Corporation] NASD, except that other executives of a member may
also hold office in the [Corporation] NASD, serve on the Board [of
Governors] or committees of the [Corporation] NASD, or otherwise take
part in the affairs of the [Corporation] NASD. A member may change its
executive representative upon giving notice thereof via electronic
process or such other process the [Corporation] NASD may prescribe to
the Secretary, or may, when necessary, appoint, by notice via
electronic process to the Secretary, a substitute for its executive
representative. An executive representative of a member or a substitute
shall be a member of senior management and registered principal of the
member.
Membership Roll
Sec. 4. The Secretary of the [Corporation] NASD shall keep a
currently accurate and complete membership roll, containing the name
and address of each member, and the name and address of the executive
representative of each member. In any case where a membership has been
terminated, such fact shall be recorded together with the date on which
the membership ceased. The membership roll of the [Corporation] NASD
shall at all times be available to all members of the [Corporation]
NASD, to all governmental authorities, and to the general public.
Resignation of Members
Sec. 5. Membership in the [Association] NASD may be voluntarily
terminated only by formal resignation. Resignations of members must be
filed via electronic process or such other process the [Corporation]
NASD may prescribe and addressed to the [Corporation] NASD. Any member
may resign from the [Corporation] NASD at any time. Such resignation
shall not take effect until [thirty (30) calendar] 30 days after
receipt thereof by the [Corporation] NASD and until all indebtedness
due the [Corporation] NASD from such member shall have been paid in
full and so long as any complaint or action is pending against the
member under the [Procedural] Rules of the Association. The
[Corporation] NASD, however, may in its discretion declare a
resignation effective at any time.
Retention of Jurisdiction
Sec. 6. A resigned member or a member that has had its membership
canceled or revoked shall continue to be subject to the filing of a
complaint under the [Procedural] Rules of the Association based upon
conduct which commenced prior to the effective date of the member's
resignation from the [Corporation] NASD or the cancellation or
revocation of its membership. Any such complaint, however, shall be
filed within two [(2)] years after the effective date of resignation,
cancellation, or revocation.
Transfer and Termination of Membership
Sec. 7. (a) Except as provided hereinafter, no member of the
[Corporation] NASD may transfer its membership or any right arising
therefrom and the membership of a corporation, partnership, or any
other business organization which is a member of the [Corporation] NASD
shall terminate upon its liquidation, dissolution, or winding up, and
the membership of a sole proprietor which is a member shall terminate
at death, provided that all obligations of membership under the By-Laws
and the [other rules] Rules of the [Corporation] Association have been
fulfilled.
(b) The consolidation, reorganization, merger, change of name, or
similar change in any corporate member shall not terminate the
membership of such corporate member provided that the member or
surviving organization, if any, shall be deemed a successor to the
business of the corporate member, and the member or the surviving
organization shall continue in the investment banking and securities
business, and shall possess the qualifications for membership in the
[Corporation] NASD. The death, change of name, withdrawal of any
partner, the addition of any new partner, reorganization,
consolidation, or any change in the legal structure of a partnership
member shall not terminate the membership of such partnership member
provided that the member or surviving organization, if any, shall be
deemed a successor to the business of the partnership member, and the
member or surviving organization shall continue in the investment
banking and securities business and shall possess the qualifications
for membership in the [Corporation] NASD. If the business of any
predecessor member is to be carried on by an organization deemed to be
a successor organization by the [Corporation] NASD, the membership of
such predecessor member shall be extended to the successor organization
subject to the notice and review requirements of the Rules of the
Association and the right of the NASD to place restrictions on the
successor organization pursuant to the Rules of the Association;
otherwise, any surviving organization shall be required to satisfy all
of the membership application requirements of [the] these By-Laws and
the Rules of the Association.
Registration of Branch Offices
Sec. 8. (a) Each branch office of a member of the [Corporation]
NASD shall be registered with and listed upon the membership roll of
the [Corporation] NASD, and shall pay such dues, assessments, and other
charges as shall be fixed from time to time by the Board [of Governors]
pursuant to Article [V of the By-Laws] VI. (b) Each member of the
[Corporation] NASD shall promptly advise the [Corporation] NASD via
electronic process or such other process the [Corporation] NASD may
prescribe of the opening, closing, relocation, change in designated
supervisor, or change in designated activities of any branch office of
such member not later than [thirty (30) calendar] 30 days after the
effective date of such change.
Article [IV] V
Registered Representatives and Associated Persons
Qualification Requirements
Sec. 1. No member shall permit any person associated with [such]
the member to engage in the investment banking or securities business
unless the member determines that such person [has complied with the
applicable provisions under Article II of the By-Laws.] satisfies the
qualification requirements established under Article III, Section 2 and
is not subject to a disqualification under Article III, Section 4.
[[Page 25266]]
Application for Registration
Sec. 2. (a) Application by any person for registration with the
[Corporation] NASD, properly signed by the applicant, shall be made to
the [Corporation] NASD via electronic process or such other process the
[Corporation] NASD may prescribe, on the form to be prescribed by the
[Corporation] NASD and shall contain:
(1) [an acceptance of and] an agreement to comply with the [all the
provisions of the rules of the Corporation as they are or may from time
to time be adopted or amended,] federal securities laws, the rules and
regulations thereunder, the rules of the Municipal Securities
Rulemaking Board and the Treasury Department, the By-Laws of the NASD,
NASD Regulation, and Nasdaq, the Rules of the Association, and all
rulings, orders, directions [and decisions of, and penalties imposed
by, the Board of Governors or any duly authorized committee, and the
provisions of the federal securities laws, including the rules and
regulations adopted thereunder, and the rules of the Municipal
Securities Rulemaking Board and the Treasury Department, provided,
however, that such an agreement shall not be construed as a waiver by
the applicant of any right to appeal as provided in the Act;], and
decisions issued and sanctions imposed under the Rules of the
Association;
(2) an agreement that [none of] neither the [Corporations, or]
NASD, nor any officer[,] or employee[, or] thereof, nor any member of
the [Boards or committees of the Corporation] Board of Governors or of
any district or other committee, shall be liable except for willful
malfeasance, to the applicant or to any member of the [Corporation]
NASD or to any other person, for any action taken by such officer,
member of the [Boards] Board of Governors or of any district or other
committee in his official capacity, or by any employee of the
[Corporation] NASD while acting within the scope of his employment, or
under instruction of any officer, [Board] board, or committee of the
[Corporations] NASD, in connection with the administration or
enforcement of any of the provisions of the By-Laws, any [rules] Rules
of the [Corporation] Association as they are or may from time to time
be adopted or amended, any ruling, order, direction, decision of, or
penalty imposed by the [Boards] Board of Governors or any duly
authorized committee [thereof], [and] the provisions of the federal
securities laws, including the rules and regulations adopted thereunder
including the rules of the Municipal Securities Rulemaking Board and
the rules of the Treasury Department; and
(3) such other reasonable information with respect to the applicant
as the [Corporation] NASD may require.
(b) The [Corporation] NASD shall not approve an application for
registration of any person who is not eligible to be an associated
person of a member under the provisions of Article III, Section 3[(b)
of Article II of these By-Laws].
(c) Every application for registration filed with the [Corporation]
NASD shall be kept current at all times by supplementary amendments via
electronic process or such other process the [Corporation] NASD may
prescribe to the original application. Such amendment to the
application shall be filed with the [Corporation] NASD not later than
[thirty (30) calendar] 30 days [of] after learning of the facts or
circumstances giving rise to the amendment. If such amendment involves
a statutory disqualification as defined in Section 3(a)(39) and Section
15(b)(4) of the Act, such amendment shall be filed not later than ten
[(10) calendar] days after such disqualification occurs.
Notification by Member to [Corporation] the NASD and Associated Person
of Termination; Amendments to Notification
Sec. 3. (a) Following the termination of the association with a
member of a person who is registered with it, such member shall not
later than [thirty (30) calendar] 30 days after such termination, give
notice of the termination of such association to the [Corporation] NASD
via electronic process or such other process the [Corporation] NASD may
prescribe on a form designated by the [Corporation] NASD, and
concurrently shall provide to the person whose association has been
terminated a copy of said notice as filed with the [Corporation.] NASD.
A member [which] that does not submit such notification, and provide a
copy to the person whose association has been terminated, within the
time period prescribed, shall be assessed a late filing fee as
specified by the [Corporation] NASD. Termination of registration of
such person associated with a member shall not take effect so long as
any complaint or action under the [rules] Rules of the [Corporation]
Association is pending against a member and to which complaint or
action such person associated with a member is also a respondent, or so
long as any complaint or action is pending against such person
individually under the [rules] Rules of the [Corporation. The
Corporation] Association. The NASD, however, may in its discretion
declare the termination effective at any time.
(b) The member shall notify the [Corporation] NASD via electronic
process or such other process the [Corporation] NASD may prescribe by
means of an amendment to the notice filed pursuant to subsection
[paragraph] (a) [above] in the event that the member learns of facts or
circumstances causing any information set forth in said notice to
become inaccurate or incomplete. Such amendment shall be filed with the
[Corporation] NASD via electronic process or such other process the
[Corporation] NASD may prescribe and a copy provided to the person
whose association with the member has been terminated not later than
[thirty (30) calendar] 30 days after the member learns of the facts or
circumstances giving rise to the amendment.
Retention of Jurisdiction
Sec. 4. A person whose association with a member has been
terminated and is no longer associated with any member of the
[Corporation] NASD or a person whose registration has been revoked or
canceled shall continue to be subject to the filing of a complaint
under the [rules] Rules of the [Corporation] Association based upon
conduct which commenced prior to the termination [or], revocation, or
cancellation or upon such person's failure, while subject to the
[Corporation's] NASD's jurisdiction as provided herein, to provide
information requested by the [Corporation] NASD pursuant to [NASD Rule
8210] the Rules of the Association, but any such complaint shall be
filed within:
(a) two [(2)] years after the effective date of termination of
registration pursuant to Section 3 [above], provided, however that any
amendment to a notice of termination filed pursuant to Section 3(b)
that is filed within two years of the original notice which discloses
that such person may have engaged in conduct actionable under any
applicable statute, rule, or regulation shall operate to recommence the
running of the two-year period under this [paragraph] subsection;
(b) two [(2)] years after the effective date of revocation or
cancellation of registration pursuant to [NASD Rule 8320] the Rules of
the Association; or
(c) in the case of an unregistered person, within two [(2)] years
after the date upon which such person ceased to be associated with the
member.
[[Page 25267]]
Article [V] VI
Dues, Assessments, and Other Charges
Power of [Corporation] the NASD to Fix and Levy Assessments
Sec. 1. The [Corporation] NASD shall prepare an estimate of the
funds necessary to defray reasonable expenses of administration in
carrying on the work of the [Corporation] NASD each fiscal year, and on
the basis of such estimate, shall fix and levy the amount of admission
fees, dues, assessments, and other charges to be paid by members of the
[Corporation] NASD and issuers and any other persons using any facility
or system which the [Corporation] NASD, NASD Regulation, or Nasdaq
operates or controls. Fees, dues, assessments, and other charges shall
be called and payable as determined by the [Corporation] NASD from time
to time; provided, however, that such admission fees, dues,
assessments, and other charges shall be equitably allocated among
members and issuers and any other persons using any facility or system
which the [Corporation] NASD operates or controls. The [Corporation]
NASD may from time to time make such changes or adjustments in such
fees, dues, assessments, and other charges as it deems necessary or
appropriate to assure equitable allocation of dues among members. In
the event of termination of membership or the extension of any
membership to a successor organization during any fiscal year for which
an assessment has been levied and become payable, the [Corporation]
NASD may make such adjustment in the fees, dues, assessments, or other
charges payable by any such member or successor organization or
organizations during such fiscal years as it deems fair and appropriate
in the circumstances.
Reports of Members
Sec. 2. Each member, issuer, or other person shall promptly furnish
all information or reports requested by the [Corporation] NASD in
connection with the determination of the amount of admission fees,
dues, assessments, or other charges.
Suspension or Cancellation of Membership or Registration
Sec. 3. The [Corporation] NASD after [fifteen (15)] 15 days notice
in writing, may suspend or cancel the membership of any member or the
registration of any person in arrears in the payment of any fees, dues,
assessments, or other charges or for failure to furnish any information
or reports requested pursuant to Section 2 [of this Article], or for
failure to comply with an award of arbitrators properly rendered
pursuant to [Section 41] the Rules of the [Code of Arbitration
Procedure] Association, where a timely motion to vacate or modify such
award has not been made pursuant to applicable law or where such a
motion has been denied, or for failure to comply with a written and
executed settlement agreement obtained in connection with an
arbitration or mediation submitted for disposition pursuant to the
[procedures specified by the Corporation] Rules of the Association.
Reinstatement of Membership or Registration
Sec. 4. Any membership or registration suspended or canceled under
this Article may be reinstated by the [Corporation] NASD upon such
terms and conditions as it shall deem just; provided, however, that any
applicant for reinstatement of membership or registration shall possess
the qualifications required for membership or registration in the
[Corporation.] NASD.
Delegation
Sec. 5. The NASD may delegate its authority under this Article in a
manner not inconsistent with the Delegation Plan.
Article [VI] VII
Board of Governors
Powers and Authority of Board
Sec. 1. (a) The Board [of Governors] shall be the governing body of
the [Corporation] NASD and, except as otherwise provided by applicable
law, the Restated Certificate of Incorporation, or these By-Laws, shall
be vested with all powers necessary for the management and
administration of the affairs of the [Corporation] NASD and the
promotion of the [Corporation's] NASD's welfare, objects, and purposes.
In the exercise of such powers, the Board [of Governors] shall have the
authority to:
[(1)](i) adopt for submission to the membership, as hereinafter
provided, such By-Laws and changes or additions thereto as it deems
necessary or appropriate;
[(2)](ii) adopt such other [rules] Rules of the [Corporation]
Association and changes or additions thereto as it deems necessary or
appropriate, provided, however, that the Board may at its option submit
to the membership any such adoption, change, or addition to such
[rules] Rules;
[(3)](iii) make such regulations, issue such orders, resolutions,
interpretations, including interpretations of these By-Laws and the
[rules] Rules of the [Corporation] Association, and directions, and
make such decisions as it deems necessary or appropriate;
[(4)](iv) prescribe [a code of arbitration procedure providing]
rules for the required or voluntary arbitration of controversies
between members and between members and customers or others as it shall
deem necessary or appropriate;
[(5)](v) establish rules and procedures to be followed by members
in connection with the distribution of securities issued by members and
affiliates thereof;
[(6)](vi) require all over-the-counter transactions in securities
between members, other than transactions in exempted securities as
defined in Section 3(a)(12) of the Act, to be cleared and settled
through the facilities of a clearing agency registered with the
Commission pursuant to the Act, which clears and settles such over-the-
counter transactions in securities;
[(7)](vii) organize and operate automated systems to provide
qualified subscribers with securities information and automated
services. The systems may be organized and operated by a division or
subsidiary company of the [Corporation] NASD or by one or more
independent firms under contract with the [Corporation] NASD as the
Board [of Governors] may deem necessary or appropriate. The Board [of
Governors] may adopt rules for such automated systems, establish
reasonable qualifications and classifications for members and other
subscribers, provide qualification standards for securities included in
such systems, require members to report promptly information in
connection with securities included in such systems, and establish
charges to be collected from subscribers and others;
[(8)](viii) require the prompt reporting by members of such
original and supplementary trade data as the Board deems appropriate.
Such reporting requirements may be administered by the [Corporation]
NASD, a division or subsidiary thereof, or a clearing agency registered
under the Act; and
[(9)](ix) engage in any activities or conduct necessary or
appropriate to carry out the [Corporation's] NASD's purposes under its
Restated Certificate of Incorporation and the federal securities laws.
(b) In the event of the refusal, failure, neglect, or inability of
any member of the Board [of Governors] to discharge [his] such member's
duties, or for any cause affecting the best interests of the
[Corporation] NASD the sufficiency of which the Board [of Governors]
shall be
[[Page 25268]]
the sole judge, the Board shall have the power, by the affirmative vote
of two-thirds of the Governors then in office, to remove such member
and declare [his] such member's position vacant and that it shall be
filled in accordance with the provisions of Section 6 [of this
Article].
(c) To the fullest extent permitted by applicable law, the Restated
Certificate of Incorporation [and applicable law, the Corporation], and
these By-Laws, the NASD may delegate any power of the [Corporation or
the Board of Governors to any person or entity, including a subsidiary
of the Corporation; provided that such delegation is] NASD or the Board
to a committee appointed pursuant to Article IX, Section 1, the NASD
Regulation Board, the Nasdaq Board, or NASD staff in a manner not
inconsistent with the Delegation Plan.
Authority to Cancel or Suspend for Failure to Submit Required
Information
Sec. 2. (a) The Board [of Governors] shall have authority, upon
notice and opportunity for a hearing, to cancel or suspend the
membership of any member or suspend the association of any person
associated with a member for failure to file, or to submit on request,
any report, document, or other information required to be filed with or
requested by the [Corporation.] NASD pursuant to these By-Laws or the
Rules of the Association.
(b) Any membership or association suspended or canceled pursuant to
this Section may be reinstated by the NASD pursuant to the Rules of the
Association.
[(b)](c) The Board [of Governors] is authorized to delegate [the
authority hereinabove granted to the Chief Executive Officer of the
Corporation; provided, however, that the Executive Committee of the
Board of Governors shall be notified in writing of any such
contemplated action by the Chief Executive Officer.] its authority
under this Section in a manner not inconsistent with the Delegation
Plan and otherwise in accordance with the Rules of the Association.
Authority To Take Action Under Emergency or Extraordinary Market
Conditions
Sec. 3. The Board [of Governors], or such person or persons as may
be designated by the Board, in the event of an emergency or
extraordinary market conditions, shall have the authority to take any
action regarding[;]:
[(1)](a) the trading in or operation of the over-the-counter
securities market, the operation of any automated system owned or
operated by the [Corporations] NASD, NASD Regulation, or Nasdaq, and
the participation in any such system of any or all persons or the
trading therein of any or all securities; and
[(2)](b) the operation of any or all member firms' offices or
systems, if, in the opinion of the Board or the person or persons
hereby designated, such action is necessary or appropriate for the
protection of investors or the public interest or for the orderly
operation of the marketplace or the system.
Composition [and Qualifications] of the Board
Sec. 4. (a) The Board [of Governors] shall be composed of [five or
more members] at least nine and not more than thirteen Governors, the
number thereof to be determined [from time to time by the Board of
Governors, and shall include at all times the] by the Board prior to
each annual election of the Governors. Any new Governor position
created as a result of an increase in the size of the Board shall be
filled as part of the annual election conducted under Sections 9
through 13. The Chief Executive Officer [and such Industry, Non-
Industry, and Public Governors as shall be determined from time to time
by the Board of Governors, both of which determinations shall be
consistent with the Delegation Plan and Section 15A(b)(4) of the Act.
The criteria for the categories of Industry, Non-Industry and Public
Governors, as used herein, shall be established by the Board of
Governors from time to time, which criteria shall be consistent with
the Delegation Plan.] of the NASD shall be a Governor, and a majority
of the remaining Governors shall be Non-Industry Governors, including
at least two Public Governors. In the event that the Board shall
consist of eleven or more Governors, at least three Governors shall be
Public Governors.
(b) As soon as practicable, following the annual election of
members to the Board [of Governors], the Board [of Governors] shall
elect from the members of the Board [of Governors a Chairman,] a Chair
and such other persons having such titles as it shall deem necessary or
advisable, to serve until the next annual election or until their
successors are chosen and qualify. The persons so elected shall have
such powers and duties as may be determined from time to time by the
Board [of Governors]. The Board [of Governors, by affirmative vote of],
by resolution adopted by a majority of [its members] the Governors then
in office, may remove any such person from such position at any time.
Term of Office of Governors
Sec. 5. Each Governor, except as otherwise provided by the Restated
Certificate of Incorporation or these By-Laws, shall hold office for a
term of not more than three years, such term to be fixed by the Board
at the time of the nomination or certification of such Governor, or
until [his] a successor is elected and qualified, or until [his] death,
resignation, disqualification, or removal. Except for the Chief
Executive Officer, no Governor may serve more than two consecutive
terms[,]; provided, however, that if a Governor is appointed to fill a
term of less than one year, such Governor may serve up to two
consecutive terms following the expiration of such Governor's [current]
initial term. The Chief Executive Officer of the [Corporation] NASD
shall serve as a member of the Board until [his] a successor is
selected and qualified, or until [his] death, resignation,
disqualification, or removal.
Disqualification
Sec. 6. A Governor shall immediately resign or be automatically
removed from office if the Board determines by a majority vote of the
remaining Governors that (a) the Governor no longer satisfies the
classification (Industry, Non-Industry, or Public Governor) for which
the Governor was elected; (b) failure to remove the Governor would
violate the compositional requirements of the Board set forth in
Section 4; and (c) the Governor has a remaining term of office of more
than six months.
Filling of Vacancies
Sec. [6.] 7. [(a) Any vacancy in the office of] If a Governor
position becomes vacant, whether [occurring by reason] because of
death, disability, disqualification, removal, or resignation, [other
than a vacancy by reason of an increase in the size of the Board, shall
be filled] the National Nominating Committee shall nominate, and the
Board shall elect by majority vote of the remaining Governors then in
office [and any person elected to fill such vacancy shall satisfy the
qualifications and criteria], a person satisfying the classification
(Industry, Non-Industry, or Public Governor) for the governorship
[being filled] as provided in Section 4 [of this Article.] to fill such
vacancy, except that if the remaining term of office for the vacant
Governor position is not more than six months, no replacement shall be
required. If the remaining term of office for the vacant Governor
position is more than one year, the Governor elected by the Board to
fill such position shall stand for election in the next annual election
pursuant to this Article.
[[Page 25269]]
[(b) Any vacancy in the office of a Governor occurring by reason of
an increase in the size of the Board shall be filled by majority vote
of the Board and any person elected to fill such vacancy shall satisfy
the criteria for such newly created governorship as shall be
established by resolution of the Board, provided that the filling of
any such vacancy shall not be inconsistent with any other provisions of
these By-Laws or the Delegation Plan.]
Meetings of Board; Quorum; Required Vote
Sec. 8. Meetings of the Board shall be held at such times and
places, upon such notice, and in accordance with such procedure as the
Board [of Governors] in its discretion may determine. At all meetings
of the Board, unless otherwise set forth in these By-Laws or required
by law, a quorum [of the Board of Governors] for the transaction of
business shall consist of a majority of the [total number of Governors
of the Corporation and any] Board, including not less than 50 percent
of the Non-Industry Governors. Any action taken by a majority vote at
any meeting at which a quorum is present, except as otherwise provided
in the Restated Certificate of Incorporation or these By-Laws, shall
constitute the action of the Board [of Governors]. Members of the Board
[of Governors], or any committee [appointed] designated by the Board
[of Governors] or any other committee of the [Corporation] NASD, may
participate in a meeting thereof by means of communications facilities
that ensure all persons participating in the meeting can hear and speak
to each other, and participation in a meeting pursuant to this By-Law
shall constitute presence in person at such meeting. No member of the
Board [of Governors] shall vote by proxy at any meeting of the Board.
The National Nominating Committee
[(b)] Sec. 9. (a) The National Nominating Committee shall [have
such powers and shall perform such functions as shall be determined by
resolution of the Board of Governors from time to time, consistent with
the Delegation Plan.] nominate Industry, Non-Industry, and Public
Governors for each vacant or new Governor position on the NASD Board
and Industry, Non-Industry, and Public Directors for each vacant or new
position on the NASD Regulation Board and the Nasdaq Board.
(b) The National Nominating Committee shall [consist of six or more
persons who shall have such qualifications, and who shall be selected
in such manner, as shall be determined by resolution of the Board of
Governors from time to time, which qualifications and manner of
selection shall be consistent with the Delegation Plan.] be composed of
at least six and not more than nine members, the number thereof to be
determined by the Board from time to time.
(c) The members of the National Nominating Committee shall be
equally balanced between Industry and Non-Industry committee members,
including at least two Public committee members. If the Nominating
Committee shall consist of seven or more members, at least three 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 NASD, NASD Regulation, or Nasdaq shall serve as a member of the
National Nominating Committee in any voting or non-voting capacity. The
NASD Regulation Board and the Nasdaq Board each shall select two
members of the National Nominating Committee, and the NASD Board shall
select the remaining committee members. Not more than three of the
committee members and not more than two of the Industry committee
members shall be current members of the Board, the NASD Regulation
Board, or the Nasdaq Board. A National Nominating Committee member may
not simultaneously serve on the National Nominating Committee and the
Board, the NASD Regulation Board, or the Nasdaq Board, unless such
member is in his or her final year of service on any such board, and
following that year, that member may not stand for election to the
Board, the NASD Regulation Board, or the Nasdaq Board until such time
as he or she is no longer a member of the National Nominating
Committee.
(d) Members of the National Nominating Committee shall be appointed
annually by the Board and may be removed for cause by a majority vote
of the Board. The Board shall ensure that the composition of the
National Nominating Committee meets the requirements of subsection (c).
If the selection of a National Nominating Committee member by the NASD
Regulation Board or Nasdaq Board would violate the compositional
requirements of subsection (c), the Board shall request that the NASD
Regulation Board or Nasdaq Board select another member such that the
compositional requirements of subsection (c) are met.
(e) The Secretary of the NASD shall collect from each nominee for
Governor of the NASD Board and each nominee for Director of the NASD
Regulation Board or Nasdaq Board such information as is reasonably
necessary to serve as the basis for a determination of the nominee's
classification as an Industry, Non-Industry, or Public Governor or
Director, and the Secretary shall certify to the National Nominating
Committee each nominee's classification.
Procedure for Nomination of Governors
[(c)] Sec. 10. At least 90 days prior to a meeting of members for
the election of Governors pursuant to Section 13, the [Corporation]
NASD shall notify the members of the date, place, and time of such
meeting and shall set forth in such notice the names of each nominee
[(a ``Nominee''),] as selected by the National Nominating Committee[,]
for each governorship up for election, [and shall further provide in
such notice the qualifications ]the category of governorship (Industry,
Non-Industry, or Public Governor) for which the nominee is nominated,
the qualifications of each nominee, and such other information
regarding each [such Nominee] nominee as the National Nominating
Committee deems pertinent. A person who has not been so nominated may
be included on the ballot for the election of Governors if [(1)](a) at
least 60 days prior to the scheduled date for the meeting of members,
such person [complies with the requirements and procedures for
nomination set forth in the Delegation Plan and (2) the person is
certified] presents duly executed petitions to the Secretary of the
NASD demonstrating that such person has the support of three percent of
the members, one-half of which must have their principal place of
business outside of the district in which the person is employed; and
(b) the Secretary certifies that (i) the petitions are duly executed by
the requisite number of members; and (ii) the person satisfies the
classification (Industry, Non-Industry, or Public Governor) of the
governorship to be filled, based on such information provided by the
person as is reasonably necessary to make the certification. The
Secretary shall not unreasonably withhold or delay the certification.
Upon certification, the election shall be deemed a contested election.
Communication of Views
Sec. 11. The NASD, the Board, the National Nominating Committee, a
committee appointed pursuant to Article IX, Section 1, and NASD staff
shall not take any position publicly or with a member or person
associated with or employed by a member with respect to any candidate
in a contested
[[Page 25270]]
election or nomination held pursuant to these By-Laws or the NASD
Regulation By-Laws. A Governor or a member of the National Nominating
Committee or any other committee may communicate his or her views with
respect to any candidate if such Governor or committee member acts
solely in his or her individual capacity and disclaims any intention to
communicate in any official capacity on behalf of the NASD, the NASD
Board, the National Nominating Committee or any other committee. Except
as provided herein, any candidate and his or her representatives may
communicate support for the candidate to a membership or person
associated with or employed by a member.
Administrative Support
Sec. 12. The Secretary shall provide administrative support to the
candidates in a contested election under this Article by sending to
NASD members eligible to vote up to two mailings of materials prepared
by the candidates. The NASD shall pay the postage for the mailings. The
materials shall be prepared on the personal stationery of each
candidate and shall state that the materials represent the opinions of
the candidate. A candidate nominated by the National Nominating
Committee may identify himself or herself as such in his or her
materials. Any candidate may send additional materials to NASD members
at the candidate's own expense. Except as provided in this Article, the
NASD, the Board, any committee, and NASD staff shall not provide any
other administrative support to a candidate in a contested election
conducted under this Article or a contested election or nomination
conducted under the NASD Regulation By-Laws.
Election of Board Members
Sec. [7.(a)] 13 The members of the Board [of Governors] shall be
elected by a plurality of the votes of the members of the [Corporation]
NASD present in person or represented by proxy at the annual meeting of
the [Corporation] NASD and entitled to vote thereat. The annual meeting
of the [Corporation] NASD shall be on such date and at such place as
the Board [of Governors] shall designate. Any Governor so elected must
be nominated or certified by the National Nominating Committee
[described in subsection (b) below or certified] pursuant to
[subsection (c) below and must satisfy the other qualifications for
Governors set forth in Section 4 of this Article or as established by
resolution of the Board of Governors from time to time, which
qualifications shall be consistent with the Delegation Plan] Section
10.
Maintenance of Compositional Requirements of the Board
Sec. 14. Each Governor shall update the information submitted under
Section 9(e) regarding his or her classification as an Industry, Non-
Industry, or Public Governor at least annually and upon request of the
Secretary, and shall report immediately to the Secretary any change in
such classification.
Article [VII] VIII
Officers, Agents, and Employees
Officers
Sec. 1. The Board [of Governors] shall [elect] select a Chief
Executive Officer, who shall be responsible for the management and
administration of its affairs and shall be the official representative
of the [Corporation] NASD in all public matters and who shall have such
powers and duties in the management of the [Corporation] NASD as may be
prescribed in a resolution by the Board [of Governors], and which
powers and duties shall not be inconsistent with the Delegation Plan.
The Board shall elect a Secretary, who shall have such powers and
duties conferred by these By-Laws and such other duties and powers as
may be prescribed in a resolution by the Board. The Board may provide
for such other executive or administrative officers as it shall deem
necessary or advisable, including, but not limited to, Executive Vice
[-]President, Senior Vice [-]President, Vice [-]President, [Secretary,]
and Treasurer of the [Corporation] NASD. All such officers shall have
such titles, [such] powers, and duties, and shall be entitled to such
compensation, as shall be determined from time to time by the Board [of
Governors]. Each such officer shall hold office until [his] a successor
is elected and qualified or until [his] such officer's earlier
resignation or removal. Any officer may resign at any time upon written
notice to the [Corporation.] NASD. The Board [of Governors] may remove
any officer, with or without cause, at any time, but such removal shall
be without prejudice to the contractual rights of such officer, if any,
with the [Corporation] NASD. Any number of offices may be held by the
same person. Any vacancy occurring in any office of the [Corporation]
NASD by death, resignation, removal, or otherwise may be filled for the
unexpired portion of the term by the Board [of Governors] at any
meeting.
Absence of Chief Executive Officer
Sec. 2. In the case of the absence or inability to act of the
[President] Chief Executive Officer of the [Corporation,] NASD, or in
the case of a vacancy in such office, the Board [of Governors] may
appoint its [Chairman] Chair or such other person as it may designate
to act as such officer pro tem, who shall assume all the functions and
discharge all the duties of the [President.] Chief Executive Officer.
Agents and Employees
Sec. 3. The Board may employ or authorize the employment and
prescribe the powers and duties of such agents and employees as it
deems necessary or advisable. The employment and compensation of such
agents and employees shall be at the pleasure of the Board, provided
that such determinations are not inconsistent with the requirements of
the Delegation Plan. Agents and employees of the NASD shall be under
the supervision and control of the officers of the NASD, unless the
Board, by resolution, provides that an agent or employee shall be under
the supervision and control of the Board.
Employment of Counsel
Sec. [3.] 4. The Board [of Governors] may retain or authorize the
employment of counsel, with such powers, titles, duties, and authority
as it shall deem necessary or advisable.
Administrative Staff
Sec. 4. The Board of Governors may employ or authorize the
employment and prescribe the powers and duties of such an
administrative staff as it deems necessary or advisable. The employment
and compensation of such administrative staff of the Corporation shall
be at the pleasure of the Board of Governors, provided that such
determinations are not inconsistent with the requirements of the
Delegation Plan.]
Delegation of Duties of Officers
Sec. 5. The Board may delegate the duties and powers of any officer
of the NASD to any other officer or to any Governor for a specified
period of time and for any reason that the Board may deem sufficient.
Resignation and Removal of Officers
Sec. 6. (a) Any officer may resign at any time upon written notice
of resignation to the Board, the President, or the Secretary. Any such
resignation shall take effect upon receipt of such notice or at any
later time specified therein. The acceptance of a resignation
[[Page 25271]]
shall not be necessary to make the resignation effective.
(b) Any officer of the NASD may be removed, with or without cause,
by resolution adopted by a majority of the Governors then in office at
any regular or special meeting of the Board or by a written consent
signed by all of the Governors then in office. Such removal shall be
without prejudice to the contractual rights of the affected officer, if
any, with the NASD.
Bond
Sec. 7. The NASD may secure the fidelity of any or all of its
officers, agents, or employees by bond or otherwise.
Article [VIII] IX
Committees
Appointment
Sec. 1. Subject to Article VII, Section 1(c), the Board may appoint
such committees or subcommittees as it deems necessary or desirable,
and it shall fix their powers, duties [and terms of office; provided
that such determinations are not inconsistent with requirements of the
Delegation Plan], and terms of office. Any such committee or
subcommittee consisting solely of one or more Governors, to the extent
provided by these By-Laws or by resolution of the Board, shall have and
may exercise all powers and authority of the Board in the management of
the business and affairs of the [Corporation.] NASD.
Maintenance of Compositional Requirements of Committees
Sec. 2. Upon request, each prospective committee member who is not
a Governor shall provide to the Secretary of the NASD such information
as is reasonably necessary to serve as the basis for a determination of
the prospective committee member's classification as an Industry, Non-
Industry, or Public committee member, and the Secretary shall certify
to the Board each prospective committee member's classification. Each
committee member shall update the information submitted under this
Section at least annually and upon request of the Secretary of the
NASD, and shall report immediately to the Secretary any change in such
classification.
Removal of Committee Member
Sec. [2] 3. Any member of any committee or subcommittee appointed
pursuant to this Article [VIII] may be removed from such committee or
subcommittee only by a majority vote of the whole Board, after
appropriate notice, for refusal, failure, neglect, or inability to
discharge [his] such member's duties, or for any cause the sufficiency
of which shall be decided by the Board.
[Resolution of the Board of Governors
Interpretations and Explanations
The Executive Committee be and hereby is authorized and directed to
consider and make recommendations to the Board of Governors with
respect to such interpretative questions, having to do with the
Certificate of Incorporation, By-Laws, Rules of Fair Practice and Code
of Procedure of the Association, as may from time to time be submitted
to the Committee by the Board of Governors or the President.
Where a decision is required as to which reasonable men, equally
well informed, might well not differ, the ruling shall be deemed to be
an explanation. Where a decision is required where reasonable men,
equally well informed, might well differ, the ruling shall be deemed to
be an interpretation.
Where in the judgment of the President and upon advice of Counsel,
any question involves an answer clearly in the nature of an
explanation, such question may be answered in the Office of the
President.
Where in the judgment of the President and upon advice of Counsel,
any question involves an answer in the nature of an interpretation, the
President shall present such question to the Executive Committee.
The President may, after consultation with and upon advice of
Counsel, give an office opinion. Such office opinion shall state that
it reflects only the opinion of the office of the President and it is
provisional and subject to the approval of the Board of Governors.
District Committees, District Business Conduct Committees, Counsel
or staff thereof, are hereby directed not to issue any interpretations
of the Certificate of Incorporation, By-Laws, Rules of Fair Practice or
Code of Procedure, either in oral or written form without presentation
of the question to the President and in such case, if the questions
presented appear to be an interpretation with the meaning of this
resolution the matter shall be presented in writing to the Executive
Committee.]
Executive Committee
Sec. 4. The Board may appoint an Executive Committee, which shall,
to the fullest extent permitted by the General Corporation Law and
other applicable law, have and be permitted to exercise all the powers
and authority of the Board in the management of the business and
affairs of the NASD between meetings of the Board and which may
authorize the seal of the NASD to be affixed to all papers that may
require it. The Chief Executive Officer of the NASD shall be a member
of the Executive Committee, and with respect to the remaining members,
the Executive Committee shall have a percentage of Non-Industry
Governors at least as great as the percentage of Non-Industry Governors
on the whole Board, and a percentage of Public Governors at least as
great as the percentage of Public Governors on the whole Board.
Audit Committee
Sec. 5. (a) The Board shall appoint an Audit Committee. The Audit
Committee shall be composed of four or five Governors, none of whom
shall be officers or employees of the Association. The Audit Committee
shall include at least one Public Governor who shall serve as Chair of
the Committee. If the Audit Committee is composed of five Governors, it
shall have not more than two Industry Governors. If the Committee is
composed of four Governors, it shall have not more than one Industry
Governor. If the size of the NASD Board shall at any time consist of 11
or more members, the Audit Committee shall include two Public
Governors. The NASD Regulation Board and the Nasdaq Board each shall
designate a Public Director of its Board as a liaison to the Audit
Committee. The Audit Committee may consult with such liaisons on issues
relating to the functions of NASD Regulation and Nasdaq, but neither
the liaisons nor any officer or employee of the NASD, NASD Regulation,
or Nasdaq shall serve on the Audit Committee in any voting or non-
voting capacity.
(b) The Audit Committee shall perform the following functions: (1)
ensure the existence of adequate controls and the integrity of the
financial reporting process of the NASD; (2) recommend to the NASD
Board, and monitor the independence and performance of, the certified
public accountants retained as outside auditors by the NASD; and (3)
direct and oversee all the activities of the NASD's internal review
function, including but not limited to management's responses to the
internal review function.
(c) No member of the Audit Committee shall participate in the
consideration or decision of any matter relating to a particular NASD
member, company, or individual if such Audit
[[Page 25272]]
Committee member has a material interest in, or a professional,
business, or personal relationship with, that member, company, or
individual, or if such participation shall create an appearance of
impropriety. Audit Committee members shall consult with the General
Counsel of the NASD to determine if recusal is necessary. If a member
of the Audit Committee is recused from consideration of a matter, any
decision on the matter shall be by a vote of a majority of the
remaining members of the Audit Committee.
(d) The Audit Committee shall have exclusive authority to: (1) hire
or terminate the Director of Internal Review; (2) determine the
compensation of the Director of Internal Review; and (3) determine the
budget for the Office of Internal Review. The Office of Internal Review
shall report directly to the Audit Committee. The Audit Committee may,
in its discretion, direct that the Office of Internal Review also
report to senior management of the NASD on matters the Audit Committee
deems appropriate and may request that senior NASD management perform
such operational oversight as necessary and proper, consistent with
preservation of the independence of the internal review function.
Article X
Compensation of Board and Committee Members
[Sec. 5.] The Board may provide for reasonable compensation of the
Chair[man] of the Board, the Governors, and the members of any
committee [of the Board from the Corporation]. The Board may also
provide for reimbursement of reasonable expenses incurred by such
persons in connection with the business of the [Corporation] NASD.
Article [IX] XI
Rules
To promote and enforce just and equitable principles of trade and
business, to maintain high standards of commercial honor and integrity
among members of the [Corporation] NASD, to prevent fraudulent and
manipulative acts and practices, to provide safeguards against
unreasonable profits or unreasonable rates of commissions or other
charges, to protect investors and the public interest, to collaborate
with governmental and other agencies in the promotion of fair practices
and the elimination of fraud, and in general to carry out the purposes
of the [Corporation] NASD and of the Act, the Board [of Governors] is
hereby authorized to adopt such [Rules of Fair Practice] rules for the
members and persons associated with members, and such amendments
thereto as it may, from time to time, deem necessary or appropriate. If
any such [Rules] rules or amendments thereto are approved by the
Commission as provided in the Act, they shall become effective Rules of
the Association as of such date as the Board [of Governors] may
prescribe. The Board [of Governors] is hereby authorized, subject to
the provisions of the By-Laws and the Act, to administer, enforce,
suspend, or cancel any Rules of [Fair Practice] the Association adopted
hereunder.
Article [X] XII
Disciplinary Proceedings
Sec. 1. The Board [of Governors] shall have authority to establish
procedures relating to disciplinary proceedings involving members and
their associated persons.
Sec. 2. Except as otherwise permitted under these By-Laws or the
Act, in any disciplinary proceeding [before the Corporation] under the
Rules of the Association, any member or person associated with a member
shall be given the opportunity to have a hearing at which [he] such
member or person associated with a member shall be entitled to be heard
in person [and/or by counsel] or by counsel or by a representative as
provided in the Rules of the Association. Such persons may present any
relevant material in accordance with the Rules of the Association. In
any such proceeding against a member or against a person associated
with a member to determine whether the member [and/or] or the person
associated with a member shall be disciplined:
(a) specific charges shall be brought;
(b) such member or person associated with a member shall be
notified of and be given an opportunity to defend against such charges;
(c) a record shall be kept; and
(d) any determination shall include a statement setting forth:
(1) any act or practice, in which such member or person associated
with a member may be found to have engaged or which such member or
person associated with a member may be found to have omitted;
(2) the rule, regulation, or statutory provision of which any such
act or practice, or omission to act, is deemed to be in violation;
(3) the basis upon which any findings are made; and
(4) the [penalty] sanction imposed.
Article [XI] XIII
Powers of Board to [Prescribe] Impose Sanctions
Sec. 1. The Board is hereby authorized to [prescribe] impose
appropriate sanctions applicable to members, including censure, fine,
suspension, or expulsion from membership, suspension or bar from being
associated with all members, limitation of activities, functions, and
operations of a member, or any other fitting sanction, and to
[prescribe] impose appropriate sanctions applicable to persons
associated with members, including censure, fine, suspension or barring
a person associated with a member from being associated with all
members, limitation of activities, functions, and operations of a
person associated with a member, or any other fitting sanction, for:
(a) breach by a member or a person associated with a member of any
covenant with the [Corporation] NASD or its members;
(b) violation by a member or a person associated with a member of
any of the terms, conditions, covenants, and provisions of the [rules
of the Corporation] By-Laws of the NASD, NASD Regulation, or Nasdaq,
the Rules of the Association, or the federal securities laws, including
the rules and regulations adopted thereunder, [and including] the rules
of the Municipal Securities Rulemaking Board, and the rules of the
Treasury Department;
(c) failure by a member or person associated with a member to
submit a dispute for arbitration [under the Code of Arbitration
Procedure (``Arbitration Code'')] as required by the [Arbitration Code]
Rules of the Association, or to fail to appear or to produce any
document in [their] the member's or person's possession or control as
directed pursuant to provisions of the [Arbitration Code] Rules of the
Association, or to fail to [honor] comply with an award of arbitrators
properly rendered pursuant to the [Arbitration Code] Rules of the
Association, where a timely motion [has not been made] to vacate or
modify such award has not been made pursuant to applicable law or where
such a motion has been denied or for failure to comply with a written
and executed settlement agreement obtained in connection with an
arbitration or mediation submitted for disposition pursuant to the
Rules of the Association;
(d) refusal by a member or person associated with a member to abide
by an official ruling of the Board or any committee exercising powers
assigned by the Board with respect to any
[[Page 25273]]
transaction which is subject to the Uniform Practice Code; or
(e) failure by a member or person associated with a member to
adhere to any ruling, order, direction, or decision of[,] or to pay any
[penalty,] sanction, fine, or costs[,] imposed by the Board[, or any
committee exercising powers assigned by the Board] or any entity to
which the Board has delegated its powers in accordance with the
Delegation Plan.
Sec. 2. The Board may delegate its authority under this Article in
accordance with the Delegation Plan.
Article [XII] XIV
Uniform Practice Code
Authority to Adopt Code
Sec. 1. The Board [of Governors] is hereby authorized to adopt a
Uniform Practice Code and amendments, interpretations and explanations
thereto, designed to make uniform, where practicable, custom, practice,
usage, and trading technique in the investment banking and securities
business with respect to such matters as trade terms, deliveries,
payments, dividends, rights, interest, reclamations, exchange of
confirmations, stamp taxes, claims, assignments, powers of
substitution, computation of interest and basis prices, due-bills,
transfer fees, ``when, as and if issued'' trading, ``when, as and if
distributed'' trading, marking to the market, and close-out procedure,
all to the end that the transaction of day-to-day business by members
may be simplified and facilitated, that business disputes and
misunderstandings, which arise from uncertainty and lack of uniformity
in such matters, may be eliminated, and that the mechanisms of a free
and open market may be improved and impediments thereto removed.
Administration of Code
Sec. 2. The administration of any Uniform Practice Code, or any
amendment thereto, adopted by the Board [of Governors] pursuant to
Section 1 [of this Article], shall be vested in the Board [of
Governors], and the Board is hereby granted such powers as are
reasonably necessary to achieve its effective operation. In the
exercise of such powers, the Board may issue explanations and
interpretations and make binding rulings with respect to the
applicability of the provisions of the Uniform Practice Code to
situations in which there is no substantial disagreement as to the
facts involved. [The] In accordance with the Delegation Plan, the Board
may delegate to [appropriate committees such of its powers,] the NASD
Regulation Board and the Nasdaq Board such of the Board's powers
hereunder as it deems necessary and appropriate to achieve effective
administration and operation of the Uniform Practice Code.
Transactions Subject to Code
Sec. 3. All over-the-counter transactions in securities by members,
except transactions in securities which are exempted under Section
3(a)(12) of the Act, or are municipal securities as defined in Section
3(a)(29) of the Act, are subject to the provisions of the Uniform
Practice Code and to the provisions of Section 2 [of this Article]
unless exempted therefrom by the terms of the Uniform Practice Code.
Article [XIII] XV
Limitation of Powers
Prohibitions
Sec. 1. Under no circumstances shall the Board [of Governors] or
any officer, employee, or member of the [Corporation] NASD have the
power to:
(a) make any donation or contribution from the funds of the
[Corporation] NASD or to commit the [Corporation] NASD for the payment
of any donations or contributions for political or charitable purposes;
or
(b) use the name of the facilities of the [Corporation] NASD in aid
of any political party or candidate for any public office.
Use of Name of [Corporation] the NASD by Members
Sec. 2. No member shall use the name of the [Corporation] NASD
except to the extent that may be [authorized by the Board of Governors]
permitted by the Rules of the Association.
[Resolution of the Board of Governors
Limitations Upon Use of the Association Name
Members are permitted, in conformity with Article XVI, Section 2 of
the Association's By-Laws, and within the limitations prescribed by
this Resolution, to indicate membership in the Association in the
following manner:
1. Solely as a matter of record in recognized trade directories or
other similar types of business listings.
2. Solely in conjunction with the identifying use of the firm name
on letterheads, booklet covers, sales literature headings, in the
masthead of market letters and on other similar types of circular
material, so long as this use is exclusively for identification
purposes, is separate and apart from the regular text of the literature
and is always in a smaller size type and with lesser emphasis than that
used for the firm name.
3. The Association's name may be used in institutional or any other
type of general print and/or electronic advertising media so long as
such use is solely and exclusively for identifying the firm as a
member, used only in proximity to and in conjunction with the firm
name, carries no implied or specific indication of Association approval
of the securities or services discussed in the advertisement, is
separate and apart from the primary text material in the advertisement,
and is always in a smaller size type and of lesser emphasis than that
used for the firm name.
4. The following language may be used on confirmation forms, ``this
transaction (if over-the-counter) has been executed in conformity with
the rules and regulations of the Uniform Practice Code of the National
Association of Securities Dealers, Inc.''
5. The name of the Association may be used on the door or entrance
way of a member's principal office or any registered branch office in
the following manner: ``Member, (of the) National Association of
Securities Dealers, Inc.''
6. Each member shall be entitled to receive upon request to the
Association an appropriate certification of membership which may be
displayed in the principal office or any registered branch office of
the member. Such certification shall be and remain the property of the
Association and shall be returned by a member upon request of the Board
of Governors or the President of the Association.
No member or person associated with a member shall use the name of
the Association in a fraudulent or misleading manner in connection with
the promotion or sale of any specific security or in connection with
any other aspect of the member's business; or imply orally, visually or
in writing that the Association endorses, indemnifies or guarantees any
member's business practices, selling methods or class or type of
securities offered.
Any improper, fraudulent or misleading use of the Association's
name by a member or person associated with a member shall be deemed
conduct inconsistent with high standards of commercial honor and just
and equitable principles of trade in violation of Article III, Section
1 of the Association's Rules of Fair Practice.]
Unauthorized Expenditures
Sec. 3. No officer, employee, member of the Board [of Governors] or
of any committee[,] shall have any power to
[[Page 25274]]
incur or contract any liability on behalf of the [Corporation] NASD not
authorized by the Board [of Governors]. The Board may delegate to the
Chief Executive Officer of the [Corporation or his delegate] NASD or
the Chief Executive Officer's delegate, such authority as it deems
necessary to contract on behalf of the [Corporation] NASD or to satisfy
unanticipated liabilities during the period between Board meetings.
Conflicts of Interest
Sec. 4. [A ](a) A Governor or a member of [the Board of Governors
or of any] a committee [of the Corporation] shall not directly or
indirectly participate in any adjudication of the interests of any
party if such [participation would violate the] Governor or committee
member has a conflict of interest [provisions of the Procedural Rules
of the Corporation.] or bias, or if circumstances otherwise exist where
his or her fairness might reasonably be questioned. In any such case,
the Governor or committee member shall recuse himself or herself or
shall be disqualified in accordance with the Rules of the Association.
(b) No contract or transaction between the NASD and one or more of its
Governors or officers, or between the NASD and any other corporation,
partnership, association, or other organization in which one or more of
its Governors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason
if: (i) the material facts pertaining to such Governor's or officer's
relationship or interest and the contract or transaction are disclosed
or are known to the Board or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the affirmative
vote of a majority of the disinterested Governors; or (ii) the material
facts are disclosed or become known to the Board or committee after the
contract or transaction is entered into, and the Board or committee in
good faith ratifies the contract or transaction by the affirmative vote
of a majority of the disinterested Governors. Only disinterested
Governors may be counted in determining the presence of a quorum at the
portion of a meeting of the Board or of a committee that authorizes the
contract or transaction.
Municipal Securities
Sec. 5. The provisions of the By-Laws conferring rulemaking
authority upon the Board [of Governors] shall not be applicable to the
municipal securities activities of members or persons associated with
members to the extent that the application of such authority would be
inconsistent with Section 15B of the Act.
[Government Securities
Sec. 6. The provisions of the By-Laws governing qualifications of
members and persons associated with members and conferring rulemaking
authority upon the Board of Governors shall not be applicable to the
Government securities activities of members or persons associated with
members to the extent that the application of such provisions or
authority would be inconsistent with Section 15A(f) of the Act.]
Article [XIV] XVI
Procedure for Adopting Amendments to By-Laws
[Any member of the Board of Governors by resolution, any District
Committee by resolution, or any twenty-five members of the Corporation
by petition signed by such members,] A Governor, a committee of the
Board, the NASD Regulation Board, and the Nasdaq Board by resolution
may propose amendments to these By-Laws. [Every proposed amendment
shall be presented in writing to the Board of Governors and a record
shall be kept thereof. The board of Governors may adopt any proposed
amendment to these By-Laws by affirmative vote of a majority of the
members of the Board of Governors then in office. The Board of
Governors, upon adoption of any such amendment to these By-Laws, except
as otherwise provided in these By-Laws shall forthwith cause a copy to
be sent to and voted upon by each member of the Corporation.] Any 25
members of the NASD by petition signed by such members may propose
amendments to these By-Laws. The Chief Executive Officer of the NASD,
the President of NASD Regulation, and the President of Nasdaq may
propose amendments to these By-Laws. Every proposed amendment shall be
presented in writing to the Board and a record shall be kept thereof.
The Board may adopt any proposed amendment to these By-Laws [is
approved by ]by affirmative vote of a majority of the members [voting
within thirty (30)] of the Board then in office. The Board, upon
adoption of any such amendment to these By-Laws, except as otherwise
provided in these By-Laws, shall forthwith cause a copy to be sent to
and voted upon by each member of the NASD. If such amendment to these
By-Laws is approved by a majority of the members voting within 30 days
after the date of submission to the membership, and is approved by the
Commission as provided in the Act, it shall become effective as of such
date as the Board [of Governors] may prescribe.
Article [XV] XVII
Corporate Seal
[Sec. 1.] The corporate seal shall have inscribed thereon the name
of the [Corporation] NASD, the year of its organization and the words
``Corporate Seal, Delaware.'' Said seal may be used by causing it or a
facsimile thereof to be imposed or affixed or reproduced or otherwise.
Article [XVI] XVIII
Checks
All checks or demands for money and notes of the [Corporation] NASD
shall be signed by such officer or officers or such other person or
persons as the Board [of Governors] may from time to time designate.
Article [XVII] XIX
Annual Financial Statement
As soon as practicable after the end of each fiscal year, the Board
[of Governors] shall send to each member of the [Corporation] NASD a
reasonably itemized statement of receipts and expenditures of the
[Corporation] NASD for such preceding fiscal year.
* * * * *
By-Laws of NASD Regulation, Inc.
Article I
Definitions
When used in these By-Laws, unless the context otherwise requires,
the term:
(a) ``Act'' means the Securities Exchange Act of 1934, as amended;
(b) ``Board'' means the Board of Directors of NASD Regulation;
(c) ``broker'' means any individual, corporation, partnership,
association, joint stock company, business trust, unincorporated
organization, or other legal entity engaged in the business of
effecting transactions in securities for the account of others, but
does not include a bank;
(d) ``Commission'' means the Securities and Exchange Commission;
(e) ``day'' means calendar day;
(f) ``dealer'' means any individual, corporation, partnership,
association, joint stock company, business trust, unincorporated
organization, or other legal entity engaged in the business of buying
and selling securities for such individual's or entity's own account,
through a broker or otherwise, but does not include a bank, or any
person insofar as such person buys or sells securities for such
person's own
[[Page 25275]]
account, either individually or in some fiduciary capacity, but not as
part of a regular business;
(g) ``Delaware law'' means the General Corporation Law of the State
of Delaware;
(h) ``Delegation Plan'' means the ``Plan of Allocation and
Delegation of Functions by NASD to Subsidiaries'' as approved by the
Commission, and as amended from time to time;
(i) ``Director'' means a member of the Board, excluding the Chief
Executive Officer of the NASD;
(j) ``district'' means a district established by the Board pursuant
to Article VIII, Section 8.1 of these By-Laws;
(k) ``District Committee'' means a District Committee elected
pursuant to Article VIII of these By-Laws;
(l) ``District Director'' means an NASD Regulation staff member who
heads a district office;
(m) ``District Nominating Committee'' means a District Nominating
Committee elected pursuant to Article VIII of these By-Laws;
(n) ``district office'' means an office of NASD Regulation located
in a district;
(o) ``Executive Representative'' means the executive representative
of an NASD member appointed pursuant to Article IV, Section 3 of the
NASD By-Laws;
(p) ``Independent Agent'' means a corporation or entity selected by
the Secretary of NASD Regulation to assist NASD Regulation with
nomination and election procedures under Articles VI and VIII of these
By-Laws and the representatives of such corporation or entity;
(q) ``Industry Director'' or ``Industry committee member'' means a
Director (excluding the President of NASD Regulation) or a committee
member who (1) is an officer, director, or employee of a broker or
dealer or has been employed in any such capacity at any time within the
prior three years; or (2) has a consulting or employment relationship
with or provides professional services to the NASD, NASD Regulation, or
Nasdaq or has had any such relationship or provided any such services
at any time within the prior three years;
(r) ``NASD'' means the National Association of Securities Dealers,
Inc.;
(s) ``NASD Board'' means the NASD Board of Governors;
(t) ``NASD member'' means any broker or dealer admitted to
membership in the NASD;
(u) ``NASD Regulation'' means NASD Regulation, Inc.;
(v) ``National Nominating Committee'' means the National Nominating
Committee appointed pursuant to Article VII, Section 9 of the NASD By-
Laws;
(w) ``Non-Industry Director'' or ``Non-Industry committee member''
means a Director or a committee member who is (1) a Public Director or
committee member; (2) an officer or employee of an issuer of securities
listed on Nasdaq or traded in the over-the-counter market; (3) a person
affiliated with a broker or dealer that operates solely to assist the
securities-related activities of the business of a non-member affiliate
(such as a broker or dealer established to (i) distribute an
affiliate's securities which are issued on a continuous or regular
basis, or (ii) process the limited buy and sell orders of the shares of
employee owners of the affiliate); (4) an employee of an entity that is
affiliated with a broker or dealer that does not account for a material
portion of the revenues of the consolidated entity, and who is
primarily engaged in the business of the non-member entity; or (5) any
other individual who would not be an Industry Director or committee
member;
(x) ``Public Director'' or ``Public committee member'' means a
Director or committee member who has no material business relationship
with a broker or dealer or the NASD, NASD Regulation, or Nasdaq;
(y) ``Regional Nominating Committee'' means a Regional Nominating
Committee that nominates to the National Nominating Committee a
candidate for the Board to represent a geographical region as provided
in Article VI of these By-Laws; and
(z) ``Rules of the Association'' or ``Rules'' means the numbered
rules set forth in the NASD Manual beginning with the Rule 0100 Series,
as adopted by the NASD Board pursuant to the NASD By-Laws, as hereafter
amended or supplemented.
Article [I] II
Offices
Location
Sec. [1.1] 2.1 The address of the registered office of [the
Corporation] NASD Regulation in the State of Delaware and the name of
the registered agent at such address shall be: The Corporation Trust
Company, 1209 Orange [St.,] Street, Wilmington, [DE] Delaware 19801.
[The Corporation may] NASD Regulation also may have offices at such
other places both within and without the State of Delaware as the Board
[of Directors] may from time to time designate or the business of [the
Corporation] NASD Regulation may require.
Change of Location
Sec. [1.2] 2.2 In the manner permitted by law, the Board [of
Directors] or the registered agent may change the address of [the
Corporation's] NASD Regulation's registered office in the State of
Delaware and the Board [of Directors] may make, revoke, or change the
designation of the registered agent.
Article [II] III
Meetings of Stockholders
[Annual Meeting
Sec. 2.1 The annual meeting of stockholders of the Corporation for
the election of Directors and for the transaction of such other
business as may properly come before the meeting shall be held on such
date, and at such time, and place, within or without the State of
Delaware, as may be fixed, from time to time, by the Board of
Directors.]
[Special Meetings
Sec. 2.2 Special meetings of stockholders of the Corporation,
unless otherwise prescribed by law, may be called at any time by the
Chair of the Board, by the President or by order of a majority of the
Board of Directors. Special meetings of stockholders prescribed by law
for the election of directors shall be called by the Board of
Directors, the President, or the Secretary. Special meetings of
stockholders shall be held at such place within or without the State of
Delaware as shall be designated in the notice of meeting.]
[Notice of Meetings
Sec. 2.3 (a) Whenever stockholders are required or permitted to
take any action at a meeting, they shall be given written notice
stating the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes thereof. Unless otherwise
required by law, the Certificate of Incorporation or these By-Laws,
written notice shall be delivered or mailed at least ten but not more
than sixty days before such meeting date to each stockholder entitled
to vote at such meeting. If mailed, such notice shall be deposited in
the United States mail, postage prepaid, directed to each stockholder
at the address that appears on the records of the Corporation.
[(b) When a meeting of stockholders is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting, the Corporation may transact any
business that might have been transacted at the original meeting. If,
however, the adjournment is for more than thirty days from the date of
the
[[Page 25276]]
original meeting, or if, after the adjournment, a new record date is
set for the adjourned meeting, notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting in
the manner prescribed above in subsection (a).]
[Quorum
Sec. 2.4 Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, at each meeting of stockholders the
presence in person or by proxy of the holders of record of a majority
of the outstanding shares of capital stock entitled to vote or act at
such a meeting shall constitute a quorum for the transaction of any
business. In the absence of a quorum, the stockholders so present may
by majority rule, adjourn any meeting until a quorum shall be present.
When a quorum is once present to organize a meeting, the quorum cannot
be destroyed by the subsequent withdrawal or revocation of the proxy of
any stockholder.]
[Voting
Sec. 2.5 (a) At any meeting of stockholders, each stockholder as
of the record date is entitled to one vote for each such share of stock
having voting power, upon the matter in question, except as otherwise
provided in the Certificate of Incorporation. Each stockholder entitled
to vote at a meeting of stockholders or to express consent or dissent
to corporate action in writing without a meeting may authorize another
person or persons to act for him by proxy, provided that no proxy shall
be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only so
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A stockholder may revoke any proxy that is not
irrevocable by attending the meeting and voting in person or by filing
an instrument in writing revoking the proxy or by delivering a proxy in
accordance with applicable law bearing a later date to the Secretary of
the Corporation.]
[(b) Directors of the Corporation shall be elected by a plurality
of the votes cast at a meeting of stockholders pursuant to Sec. 2.5 of
these By-Laws. Corporate action other than the election of directors
shall be authorized by a majority of the votes cast at a meeting of
stockholders, except as otherwise required by law, the Certificate of
Incorporation or these By-Laws.]
[(c) Upon the demand of any stockholder entitled to vote, the
election of directors or a vote on any other matter at a meeting of
stockholders shall be by written ballot; otherwise, the method of
voting and the manner in which votes are counted at such a meeting
shall be discretionary with the presiding officer of the meeting.]
[Presiding Officer and Secretary
Sec. 2.6 At every meeting of stockholders, the Chair, or in his/
her absence, the President, or in his/her absence, the appointee of the
meeting, shall preside. The Secretary, or in his/her absence, the
appointee of the presiding officer of the meeting, shall act as
Secretary of the meeting.]
Action by Consent of Stockholder[s]
Sec. [2.7] 3.1 Any action required[,] or permitted by law to be
taken at any meeting of the stockholder[s] of [the Corporation] NASD
Regulation may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so
taken, is signed by the holder[s] of the outstanding stock. [having not
less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled
to vote thereon were present and voted. Prompt notice of the taking of
corporate action without a meeting and by less than unanimous written
consent shall be given to those stockholders who have not consented in
writing.]
Article [III] IV
Board of Directors
General Powers
Sec. [3.1] 4.1 The property, business, and affairs of [the
Corporation] NASD Regulation shall be managed by or under the direction
of the Board [of Directors]. The Board [of Directors] may exercise all
such powers of [the Corporation] NASD Regulation and have the authority
to perform all such lawful acts as are permitted by law, the Restated
Certificate of Incorporation [or], these By-Laws, or the Delegation
Plan to assist the [National Association of Securities Dealers, Inc.]
NASD in fulfilling its self-regulatory responsibilities as set forth in
Section 15A of the [Securities Exchange Act of 1934, and] Act, and to
support such other initiatives as the Board [of Directors] may deem
appropriate. To the fullest extent permitted by applicable law, the
Restated Certificate of Incorporation, and these By-Laws, the Board may
delegate any of its powers to a committee appointed pursuant to Section
4.14 or to NASD Regulation staff in a manner not inconsistent with the
Delegation Plan.
Number of Directors
Sec. [3.2] 4.2 [The Board of Directors of the Corporation shall
consist of one or more members; the exact number of directors that
shall constitute the whole Board of Directors shall be fixed from time
to time by resolution adopted by the whole Board of Directors. After
fixing the number of directors constituting the whole Board of
Directors, the Board of Directors may, by resolution adopted by the
whole Board of Directors, from time to time change the number of
directors constituting the whole Board of Directors; provided that such
determination shall be consistent with the Plan of Allocation and
Delegation of Functions by NASD to Subsidiaries (the ``Delegation
Plan'').] The Board shall be composed of at least 21 and not more than
25 Directors, the number thereof to be determined by the Board prior to
the annual election of Directors. Any new Director position created as
a result of an increase in the size of the Board shall be filled as
part of the annual election conducted under Section 4.4.
Qualifications
Sec. [3.3]4.3 (a) Directors need not be stockholders of [the
Corporation. The Board of Directors shall include at all times the
President of the Corporation and such Industry, Non-Industry, and
Public Governors as shall be determined from time to time by the Board
of Directors, which determination shall be consistent with the
Delegation Plan. The criteria for the categories of Industry, Non-
Industry, and Public Directors, as used herein, shall be established by
the Board of Directors from time to time, which criteria shall be
consistent with the Delegation Plan.] NASD Regulation. The President of
NASD Regulation shall be a Director, and the remaining Directors shall
be equally balanced between Industry and Non-Industry Directors. If at
any time there shall be an odd number of Directors, excluding the
President, a majority of the Directors other than the President shall
be Non-Industry Directors. The Board shall include at least ten
Industry Directors, who shall represent a geographic region designated
by the Board pursuant to Article VI, Section 6.1, or who shall
represent the industry at-large. The Board shall include at least ten
Non-Industry Directors, including at least three Public Directors. In
the event that the Board shall consist of more than 22 Directors, at
least four shall be Public Directors. The Board shall include
representatives of an issuer of
[[Page 25277]]
investment company shares or an affiliate of such an issuer and an
insurance company or an affiliated NASD member. The Chief Executive
Officer of the NASD shall be an ex-officio non-voting member of the
Board.
(b) As soon as practicable, following the annual election of
Directors, the Board shall elect from its members a Chair and a Vice
Chair, and such other persons having such titles as it shall deem
necessary or advisable, to serve until the next annual election or
until their successors are chosen and qualify. The persons so elected
shall have such powers and duties as may be determined from time to
time by the Board. The Board, by resolution adopted by a majority of
Directors then in office, may remove any such person from such position
at any time.
(c) Each Director shall update the information submitted to the
Secretary of NASD pursuant to Article VII, Section 9(e) of the NASD By-
Laws regarding the Director's classification as an Industry, Non-
Industry, or Public Director at least annually and upon request of the
Secretary of the NASD, and shall report immediately to the Secretary of
the NASD any change in such classification.
Election
Sec. [3.4]4.4 (a) Except as otherwise provided by law [or], these
By-Laws, or the Delegation Plan, after the first meeting of [the
Corporation] NASD Regulation at which [directors] Directors are
elected, [directors of the Corporation] Directors of NASD Regulation
shall be elected each year at the annual meeting of [stockholders] the
stockholder, or at a special meeting called for such purpose in lieu of
the annual meeting[, by a plurality of the votes cast at such meeting].
If the annual election of [directors] Directors is not held on the date
designated [therefore,] therefor, the [directors] Directors shall cause
such election to be held as soon thereafter as convenient.
(b) The National Nominating Committee shall nominate Industry, Non-
Industry, and Public Directors for each vacant or new Director position
on the Board to the NASD Board in accordance with Article VII of the
NASD By-Laws. The Regional Nominating Committees shall nominate
Industry Directors to represent geographical regions for consideration
by the National Nominating Committee as provided in Article VI of these
By-Laws.
Term
Sec. [3.5]4.5 (a) Each Director shall hold office for a term of
three years or until [his] a successor is duly elected and qualified,
except in the event of earlier termination from office by reason of
death, resignation, removal[,] with or without cause, disqualification,
or other reason.
(b) The Board [of Directors] shall be divided into three classes.
The term of office of those of the first class shall expire at the
January 1997 meeting of the Board, of the second class one year
thereafter, and of the third class two years thereafter. At each annual
election, commencing January 1997, Directors shall be elected for a
term of three years to replace those whose terms expire.
(c) The President of [of the Corporation] NASD Regulation shall
serve as a [member of the Board] Director until a [his] successor is
selected and qualified, or until [his] death, resignation, or removal.
(d) Except for the President, no Director may serve more than two
consecutive terms; provided, however, that if a Director is appointed
to fill a term of less than one year, such Director may serve up to two
consecutive terms following the expiration of such Director's [current
term] initial term.
[(e) Each director chosen to fill a newly created directorship
shall serve until the next succeeding annual meeting of stockholders.]
Resignation
Sec. [3.6]4.6 Any [director] Director may resign at any time
either upon written notice of resignation to the Chair of the Board,
the President, or the Secretary. Any such resignation shall take effect
at the time specified therein or, if the time [be] is not specified,
upon receipt thereof, and the acceptance of such resignation, unless
required by the terms thereof, shall not be necessary to make such
resignation effective.
Removal
Sec. [3.7]4.7 Any or all of the [directors] Directors may be
removed from office at any time, with or without cause, [by the
stockholders] only by a majority vote of the NASD Board.
Disqualification
Sec. 4.8 A Director shall immediately resign or be automatically
removed from office if the NASD Board determines by majority vote that
(a) the Director no longer satisfies the definition for the category
(Industry, Non-Industry or Public Director) for which the Director was
elected; (b) failure to remove the Director would violate the
compositional requirements for the Board set forth in Section 4.3(a);
and (c) the Director has a remaining term of office of more than six
months.
Filling of Vacancies
Sec. 4.9 If a Director position becomes vacant, whether because of
death, disability, disqualification, removal, or resignation, the
National Nominating Committee shall nominate, and the NASD Board shall
elect by majority vote, a person satisfying the classification
(Industry, Non-Industry, or Public Director) for the directorship as
provided in Section 4.3 to fill such vacancy, except that if the
remaining term of office for the vacant Director position is not more
than six months, no replacement shall be required. If the remaining
term of office for the vacant Director position is more than one year,
and the Director who vacated the position was nominated pursuant to
Article VI, the Director elected by the Board to fill such position
shall stand for election in the next annual election pursuant to
Article VI.
Quorum and Voting
Sec. [3.8]4.10 (a) At all meetings of the Board [of Directors,
one-third of the total number of directors shall constitute], unless
otherwise set forth in these By-Laws or required by law, a quorum for
the transaction of business shall consist of a majority of the Board,
including not less than 50 percent of the Non-Industry Directors. In
the absence of a quorum, a majority of the [directors] Directors
present may adjourn the meeting until a quorum [be present] is present.
(b) [A director interested in a matter to be acted upon by the
Board of Directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors that determines the
Corporation's action.]
(c) Subject to the restrictions of Section 3.12] Except as provided
in Section 4.15(b), the vote of a majority of the [directors] Directors
present at a meeting at which a quorum is present shall be the act of
the Board [of Directors].
Regulation
Sec. [3.9]4.11 The Board [of Directors] may adopt such rules,
regulations, and requirements for the conduct of the business and
management of [the Corporation,] NASD Regulation not inconsistent with
the law, the Restated Certificate of Incorporation, these By-Laws, [or
the rules and By-Laws of the National Association of Securities
Dealers, Inc., as the Board of Directors may deem proper. A member of
the Board of Directors] the Rules of the Association, or the By-Laws of
the NASD, as the Board may deem proper. A Director
[[Page 25278]]
shall, in the performance of [his or her] such Director's duties, be
fully protected in relying in good faith upon the books of account or
reports made to [the Corporation] NASD Regulation by any of its
officers, [or] by an independent certified public accountant, [or] by
an appraiser selected with reasonable care by the Board [of Directors]
or any committee of the Board [of Directors] or by any agent of [the
Corporation] NASD Regulation, or in relying in good faith upon other
records of [the Corporation] NASD Regulation.
Meetings
Sec. [3.10]4.12 (a) An annual meeting of the Board [of Directors]
shall be held for the purpose of organization, election of officers,
and transaction of any other business. If such meeting is held promptly
after and at the place specified for the annual meeting of
[stockholders] the stockholder, no notice of the annual meeting of the
Board [of Directors] need be given. Otherwise, such annual meeting
shall be held at such time and place as may be specified in a notice
given in accordance with Section [3.11 of these By-Laws] 4.13.
(b) Regular meetings of the Board [of Directors] may be held at
such time and place, within or without the State of Delaware, as
determined from time to time by the Board [of Directors]. After such
determination has been made, notice shall be given in accordance with
Section [3.11 of these By-Laws] 4.13.
(c) Special meetings of the Board [of Directors] may be called by
the Chair of the Board, [or] by the President, or by at least one-third
of the [directors at that time being] Directors then in office. Notice
of any special meeting of the Board [of Directors] shall be given to
each [director] Director in accordance with Section [3.11 of these By-
Laws.] 4.13.
(d) [Members of the Board of Directors, or any committee designated
by the Board of Directors,] A Director or member of any committee
appointed by the Board may participate in a meeting of the Board [of
Directors] or of such committee through the use of a conference
telephone or similar communications [facilities that ensure] equipment
by means of which all persons participating in the meeting may hear one
another, and such participation in a meeting shall constitute presence
in person at such meeting for all purposes.
Notice of Meetings; Waiver of Notice
Sec. [3.11]4.13 (a) Notice of any meeting of the Board [of
Directors] shall be deemed to be duly given to a [director] Director
if: (i) [if] mailed to the address last made known in writing to [the
Corporation] NASD Regulation by such [director] Director as the address
to which such notices are to be sent, at least [two] seven days before
the day on which such [special] meeting is to be held[, or]; (ii) [if]
sent to the [director] Director at such address by telegraph, telefax,
cable, radio, or wireless, not later than the day before the day on
which such meeting is to be held[,]; or (iii) [if] delivered to the
[director] Director personally or orally, by telephone or otherwise,
not later than the day before the day on which such [special] meeting
is to be held. Each notice shall state the time and place of the
meeting and the purpose(s) thereof.
(b) Notice of any meeting of the Board [of Directors] need not be
given to any [director] Director if waived by that [director] Director
in writing (or by telegram, telefax, cable, radio, or wireless and
subsequently confirmed in writing) whether before or after the holding
of such meeting, or if such [director] Director is present at such
meeting, subject to [Section 7.3(b) hereof.] Article XI, Section
11.3(b).
(c) Any meeting of the Board shall be a legal meeting without any
prior notice if all Directors then in office shall be present thereat.
Committees [of the Board of Directors]
Sec. [3.13] 4.14 (a) The Board [of Directors] may, by resolution
or resolutions adopted by a majority of the whole Board [of Directors,
designate], appoint one or more committees[, each committee to consist
of one or more directors of the Corporation]. Except as herein
provided, vacancies in membership of any committee shall be filled by
the vote of a majority of the whole Board [of Directors]. The Board [of
Directors] may designate one or more [directors] Directors as alternate
members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or
disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting,
whether or not [he, she,] such member or [they] members constitute a
quorum, may unanimously appoint another [member of the Board of
Directors] Director to act at the meeting in the place of any such
absent or disqualified member. Members of a committee shall hold office
for such period as may be fixed by a resolution adopted by a majority
of the whole Board [of Directors], subject, however, to removal, with
or without cause, at any time only by the vote of a majority of the
whole Board [of Directors].
(b) [Any committee, to the extent permitted by law and to the
extent provided in the] The Board may, by resolution or resolutions
[creating such committee, shall have and may exercise all the powers
and authority of the Board of Directors] adopted by a majority of the
whole Board, delegate to one or more committees the power and authority
to act on behalf of the Board in carrying out the functions and
authority delegated to NASD Regulation by the NASD under the Delegation
Plan. Such delegations shall be in conformance with applicable law, the
Restated Certificate of Incorporation, these By-Laws, and the
Delegation Plan. Action taken by a committee pursuant to such delegated
authority shall be subject to review, ratification, or rejection by the
Board. In all other matters, the Board may, by resolution or
resolutions adopted by a majority of the whole Board, delegate to one
or more committees that consist solely of one or more Directors the
power and authority to act on behalf of the Board in the management of
the business and affairs of [the Corporation, and] NASD Regulation to
the extent permitted by law and not inconsistent with the Delegation
Plan. A committee, to the extent permitted by law and provided in the
resolution or resolutions creating such committee, may authorize the
seal of [the Corporation] NASD Regulation to be affixed to all papers
that may require it.
(c) Except as otherwise permitted by applicable law, no [such]
committee shall have the power or authority of the Board with regard
to: amending the Restated Certificate of Incorporation or the By-Laws
of [the Corporation,] NASD Regulation; adopting an agreement of merger
or consolidation; recommending to the [stockholders] stockholder the
sale, lease, or exchange of all or substantially all [the
Corporation's] NASD Regulation's property and assets; or recommending
to the [stockholders] stockholder a dissolution of [the Corporation]
NASD Regulation or a revocation of a dissolution. Unless the resolution
of the Board [of Directors] expressly so provides, no [such] committee
shall have the power or authority to authorize the issuance of stock.
[(c)] (d) Each committee may adopt its own rules of procedure and
may meet at stated times or on such notice as such committee may
determine. Each committee shall keep regular minutes of its proceedings
and report the same to the Board [of Directors] when required.
[[Page 25279]]
[(d)] (e) Unless otherwise provided by the Board [of Directors, a
majority of any such committee], a majority of committee, excluding the
President if the President is a member of the committee, shall
constitute a quorum for the transaction of business, and the vote of a
majority of the members of such committee present at a meeting at which
a quorum is present shall be an act of such committee.
(f) The Board may appoint an Executive Committee, which shall, to
the fullest extent permitted by Delaware law and other applicable law,
have and be permitted to exercise all the powers and authority of the
Board in the management of the business and affairs of NASD Regulation
between meetings of the Board, and which may authorize the seal of NASD
Regulation to be affixed to all papers that may require it. The
Executive Committee shall be composed of at least seven and not more
than nine Directors, a majority of whom shall be Non-Industry Directors
(including at least one Public Director). In the event that the
Executive Committee shall consist of nine members, at least two shall
be Public Directors. The President of NASD Regulation shall be a member
of the Executive Committee.
(g) The Board may appoint a Finance Committee. The Finance
Committee shall be composed of eight or more Directors. The President
of NASD Regulation shall serve as a member of the Committee, and the
Vice Chair of the Board shall be the Committee Chair. The Finance
Committee shall advise the Board with respect to the oversight of the
financial operations and conditions of NASD Regulation, including
recommendations for NASD Regulation's annual operating and capital
budgets and proposed changes to the rates and fees charged by NASD
Regulation.
(h) The Board may appoint a National Business Conduct Committee.
The National Business Conduct Committee shall be composed of at least
eight Directors equally balanced between Industry and Non-Industry
Directors (including at least two Public Directors). If at any time
there shall be an odd number of committee members, a majority of the
members shall be Non-Industry Directors. Each National Business Conduct
Committee member shall be elected to serve a one-year term. The
National Business Conduct Committee may be authorized and directed to
act for the Board in a manner consistent with these By-Laws, the Rules
of the Association, and the Delegation Plan with respect to: (1) An
appeal or review of a disciplinary proceeding; (2) a statutory
disqualification decision; (3) a review of a membership proceeding; (4)
a review of an offer of settlement, a letter of acceptance, waiver, and
consent, and a minor rule violation plan letter; (5) the exercise of
exemptive authority; and (6) such other proceedings or actions
authorized by the Rules of the Association.
(i) Upon request, each prospective committee member who is not a
Director shall provide to the Secretary of the NASD such information as
is reasonably necessary to serve as the basis for a determination of
the prospective committee member's classification as an Industry, Non-
Industry, or Public committee member, and the Secretary of the NASD
shall certify to the Board each prospective committee member's
classification. Such committee members shall update the information
submitted under this Section at least annually and upon request of the
Secretary of the NASD, and shall report immediately to the Secretary of
the NASD any change in such classification.
Conflicts of Interest; Contracts and Transactions Involving
Directors
Sec. [3.12] 4.15 (a) [No member of the Board of Directors or of
any committee of the Corporation shall] A Director or a member of any
committee shall not directly or indirectly participate in any
adjudication of the interests of any party [that would at the same time
substantially affect his interest or the interests of any person in
whom he is directly or indirectly interested] if that Director or
committee member has a conflict of interest or bias, or if
circumstances otherwise exist where his or her fairness might
reasonably be questioned. In any such case, the [member shall
disqualify himself or shall be disqualified by the Chairman of the
Board or Committee] Director or committee member shall recuse himself
or herself or shall be disqualified in accordance with the Rules of the
Association.
(b) No contract or transaction between [the Corporation] NASD
Regulation and one or more of its [directors] Directors or officers, or
between [the Corporation] NASD Regulation and any other corporation,
partnership, association, or other organization in which one or more of
its [directors] Directors or officers are directors or officers, or
have a financial interest, shall be void or voidable solely for this
reason[, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or the committee
thereof which] if: (i) the material facts pertaining to such Director's
or officer's relationship or interest and the contract or transaction
are disclosed or are known to the Board or the committee, and the Board
or committee in good faith authorizes the contract or transaction[, or
solely because his, her, or their votes are counted for such purposes
if: (i) the material facts pertaining to such director's or officer's
relationship or interest and] by the affirmative vote of a majority of
the disinterested Directors; (ii) the material facts are disclosed or
become known to the Board or committee after the contract or
transaction [are disclosed or are known to the Board of Directors or
the committee, and the Board] is entered into, and the Board or
committee in good faith [authorizes] ratifies the contract or
transaction by the affirmative vote of a majority of the disinterested
[directors, even though the disinterested directors be less than a
quorum; or (ii)] Directors; or (iii) the material facts pertaining to
the [director's] Director's or officer's relationship or interest and
the contract or transaction are disclosed or are known to the
[stockholders] stockholder entitled to vote thereon, and the contract
or transaction is specifically approved in good faith by vote of the
[stockholders; or (iii) the contract or transaction is fair as to the
Corporation as of the time it is authorized, approved or ratified by
the Board of Directors, a committee thereof, or the stockholders.
Common or interested directors] stockholder. Only disinterested
Directors may be counted in determining the presence of a quorum at the
portion of a meeting of the Board [of Directors,] or of a committee
that authorizes the contract or transaction.
Action Without Meeting
Sec. [3.14]4.16 Any action required or permitted to be taken at
[any] a meeting of the Board [of Directors or any] or of a committee
[thereof] may be taken without a meeting if all Directors or all
members of [the Board of Directors or] such committee, as the case may
be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board [of Directors or such] or
the committee.
Article V
Compensation
Compensation of Board and Committee Members
Sec. [4.6]5.1 The Board [of Directors] may provide for reasonable
compensation of the [Chairman] Chair of the Board, the Directors, and
the members of any committee of the Board or any District Committee
[from the
[[Page 25280]]
Corporation]. The Board may also provide for reimbursement of
reasonable expenses incurred by such persons in connection with the
business of [the Corporation] NASD Regulation.
[Article V
Indemnification
Indemnification of Directors, Officers, Employees and Agents Right to
Indemnification
Sec. 5.1 The corporation shall indemnify and hold harmless, to the
fullest extent permitted by applicable law as it presently exists or
may hereafter be amended, any person who was or is made or is
threatened to be made a party or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or
investigative (a ``proceeding''), by reason of the fact that he, or a
person for whom he is the legal representative, is or was a director,
officer, employee, or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee, or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or nonprofit entity, including service with respect to
employee benefit plans (an ``indemnitee''), against all liability and
loss suffered and expenses (including attorneys' fees) reasonably
incurred by such indemnitee, notwithstanding the foregoing, but subject
to Section 5.3 hereof, the corporation shall be required to indemnify
an indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if the initiation of such proceeding
(or part thereof) by the indemnitee was authorized by the Board of
Directors.]
[Payment of Expenses
Sec. 5.2 The corporation shall pay the expenses (including
attorneys' fees) incurred by the persons set forth in Section 5.1 in
defending any proceeding in advance of its final disposition, provided,
however, that the payment of expenses incurred by such person in
advance of the final disposition of the proceeding shall be made only
upon receipt of an undertaking by that person to repay all amounts
advanced if it should be ultimately determined that the person is not
entitled to be indemnified under this Article or otherwise.]
[Nonexclusivity of Rights
Sec. 5.3 The rights conferred on any person by this Article shall
not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, these By-Laws, agreement, vote of stockholders or
disinterested directors or otherwise.]
[Other Indemnification
Sec. 5.4 The corporation's obligation, if any, to indemnify or
advance expenses to any person who was or is serving at its request as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, enterprise or nonprofit entity shall
be reduced by any amount such person may collect as indemnification or
advancement from such other corporation, partnership, joint venture,
trust, enterprise or nonprofit entity.]
[Amendment or Repeal
Sec. 5.5 Any repeal or modification of the foregoing provisions of
this Article shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission occurring
prior to the time of such repeal or modification.]
[Indemnification Insurance
Sec. 5.6 The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, enterprise, or
nonprofit entity against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify
him against such liability under the provisions of this section.]
Article VI
Regional Nominating Committees
Establishment of Regions
Sec. 6.1 The Board shall establish boundaries for geographical
regions within the United States for the purpose of nominating
candidates for Industry Directors to the National Nominating Committee
to represent such regions on the Board pursuant to Article IV, Sections
4.3(a) and 4.4(b). The Board may make changes from time to time in the
number or boundaries of the regions as the Board deems necessary or
appropriate. The Board shall prescribe such policies and procedures as
are necessary or appropriate to address the implementation of a new
region configuration in the event of a change in the number or
boundaries of the regions.
Composition
Sec. 6.2 (a) A Regional Nominating Committee shall be elected for
each region designated by the Board under Section 6.1. Each District
Nominating Committee for a district located in the region shall elect
two District Committee members from the district to serve on the
Regional Nominating Committee. If a region shall consist of one
district, the District Nominating Committee for the district shall
elect four District Committee members from the district to serve on the
Regional Nominating Committee.
(b) In the event of the refusal, failure, neglect, or inability of
a member of a Regional Nominating Committee to discharge his or her
duties, or for any cause affecting the best interests of NASD
Regulation, the sufficiency of which shall be decided by the Regional
Nominating Committee, the Regional Nominating Committee may remove the
member by the affirmative vote of two-thirds of the members of the
Regional Nominating Committee then in office and declare the member's
position vacant. The Regional Nominating Committee shall notify the
Regional Nominating Committee member of his or her removal within seven
days after the vote. The member's position shall be filled pursuant to
Section 6.4. A member who is removed may submit a written appeal of the
removal to the Board within 30 days after the date he or she is
notified in writing of the removal. The Board may affirm, reverse, or
modify the determination of the Regional Nominating Committee. A vote
of a majority of the Directors then in office shall be required to
reverse or modify the action of the Regional Nominating Committee.
Term of Office
Sec. 6.3 Each regularly elected member of a Regional Nominating
Committee shall hold office for a term of one year, and until a
successor is elected and qualified, or until death, resignation, or
removal. A member of a Regional Nominating Committee may not serve more
than three consecutive terms.
Filling of Vacancies
Sec. 6.4 In the event of a vacancy on a Regional Nominating
Committee caused by the departure of a member prior to the expiration
of the member's term of office, the District Nominating Committee who
elected the member shall appoint by majority vote another member of the
District Committee to fill the vacancy. The appointment shall be
effective until the next regularly
[[Page 25281]]
scheduled election occurs pursuant to this Article.
Meetings
Sec. 6.5 Meetings of a Regional Nominating Committee shall be held
at such times and places, upon such notice, and in accordance with such
procedures as each Regional Nominating Committee in its discretion may
determine. A quorum of a Regional Nominating Committee shall consist of
a majority of its members, and any action taken by a majority at any
meeting, except as otherwise provided in these By-Laws, shall
constitute the action of the Committee. Action by a Regional Nominating
Committee may be taken by mail, telephonic, or telegraphic vote, in
which case any action taken by a majority of the Committee shall
constitute the action of the Committee. Action taken by telephonic vote
shall be confirmed in writing at a regular meeting of the Regional
Nominating Committee.
Election of Officers
Sec. 6.6 Following the annual election of members of the Regional
Nominating Committees pursuant to this Article, each Regional
Nominating Committee shall elect from its members a Chair and such
other officers as it deems necessary for the proper performance of its
duties under these By-Laws.
Expenses
Sec. 6.7 Funds to meet the regular expenses of each Regional
Nominating Committee shall be provided by the Board, and all such
expenses shall be subject to the approval of the Board.
Notice to Chair
Sec. 6.8 On or before August 1 of each year, the Secretary of NASD
Regulation shall send a written notice to the Chair of a Regional
Nominating Committee if the term of office of the Industry Director
representing the region shall expire in the next calendar year. The
notice shall describe the nomination procedures for filling the office.
Solicitation of Candidates
Sec. 6.9 NASD Regulation staff shall provide the Regional
Nominating Committee with a description of the NASD membership in the
region. The Regional Nominating Committee shall identify and solicit
candidates to nominate to the National Nominating Committee for the
Industry Director vacancy on the Board. The Regional Nominating
Committee Chair shall send a written notice of the upcoming vacancy to
the Executive Representative and each branch office of the NASD members
in the region and request that such NASD members submit names of
candidates to the Regional Nominating Committee or the Secretary of
NASD Regulation for consideration.
Secretary's Notice to NASD Members
Sec. 6.10 The Secretary of NASD Regulation shall send a written
notice to NASD members in the region describing the nomination
procedures.
Regional Nominating Committee Candidate
Sec. 6.11 The Regional Nominating Committee shall review the
background of the candidates and the description of the NASD membership
provided by NASD Regulation staff and shall propose one or more
candidates for nomination to the National Nominating Committee. In
proposing a candidate for nomination, the Regional Nominating Committee
shall endeavor to secure appropriate and fair representation of the
region.
Notice of Regional Nominating Committee Candidate
Sec. 6.12 The Regional Nominating Committee shall send to the
Executive Representatives and branch offices of the NASD members in the
region a written notice of the name of the candidate or candidates the
Regional Nominating Committee proposes for nomination to the National
Nominating Committee.
Designation of Additional Candidates
Sec. 6.13 If an officer, director, or employee of an NASD member
in the region is not proposed for nomination by the Regional Nominating
Committee and wants to seek the nomination, he or she shall send a
written notice to the Regional Nominating Committee Chair or the
Secretary of NASD Regulation within 14 calendar days after the mailing
date of the Regional Nominating Committee's notice under Section 6.12.
The Regional Nominating Committee Chair or the Secretary of NASD
Regulation shall make a written record of the time and date of the
receipt of the officer's, director's, or employee's notice. The
officer, director, or employee shall be designated as an ``additional
candidate.''
Communication of Views
Sec. 6.14 If the Regional Nominating Committee proposes more than
one candidate for nomination, or if an additional candidate is
designated pursuant to Section 6.13, NASD Regulation, the Board, the
Regional Nominating Committee, any other committee, and NASD Regulation
staff shall not take a position publicly or with an NASD member or
person associated with or employed by an NASD member with respect to
any candidate for the nomination. A Director or a member of the
Regional Nominating Committee or any other committee may communicate
his or her views with respect to any candidate for the nomination if
the Director or committee member acts solely in his or her individual
capacity and disclaims any intention to communicate in any official
capacity on behalf of NASD Regulation, the Board, the Regional
Nominating Committee, or any other committee. Except as provided
herein, any candidate and his or her representatives may communicate
support for the candidate to an NASD member or a person associated with
or employed by an NASD member.
List of NASD Members Eligible to Vote
Sec. 6.15 (a) The Secretary of NASD Regulation shall mail a list
of all NASD members eligible to vote in the region and their Executive
Representatives to the additional candidate immediately following
receipt of the additional candidate's notice by the Regional Nominating
Committee Chair or the Secretary of NASD Regulation.
(b) An NASD member that has its principal office, one or more
registered branch offices, or a principal office and one or more
registered branch offices in the region shall be eligible to cast one
vote on the nomination through the NASD member's Executive
Representative.
Requirement for Petition Supporting Additional Candidate
Sec. 6.16 An additional candidate shall be proposed for nomination
if a petition signed by at least ten percent of the NASD members
eligible to vote in the region is filed with the Regional Nominating
Committee within 30 calendar days after the date of mailing of the list
to the additional candidate pursuant to Section 6.15. Only an Executive
Representative may sign a petition on behalf of an NASD member.
Uncontested Nomination
Sec. 6.17 If the Regional Nominating Committee proposes one
candidate for nomination and no additional candidate is proposed for
nomination pursuant to Section 6.16, the Regional Nominating Committee
shall nominate its candidate to the National Nominating Committee.
[[Page 25282]]
Notice of Contested Nomination
Sec. 6.18 If the Regional Nominating Committee proposes more than
one candidate for nomination, or if an additional candidate is proposed
for nomination pursuant to Section 6.16, the Regional Nominating
Committee shall send a written notice to the Executive Representatives
of the NASD members eligible to vote in the region announcing the names
of the candidates and describing contested nomination procedures.
Administrative Support
Sec. 6.19 The Secretary of NASD Regulation shall designate a
district office in the region to provide administrative support to all
candidates by sending to NASD members eligible to vote in the region up
to two mailings of materials prepared by the candidates. NASD
Regulation shall pay the postage for the mailings. Each candidate may
prepare material for the mailing on his or her personal stationery, and
the material shall state that it represents the opinion of the
candidate. A candidate proposed for nomination by the Regional
Nominating Committee may identify himself or herself as such in his or
her materials. Any candidate may send additional mailings to NASD
members at the candidate's own expense. Except as provided in this
Article, NASD Regulation, the Board, the Regional Nominating Committee,
any other committee, and NASD Regulation staff shall not provide any
other administrative support to a candidate for the nomination or any
candidate in a contested election conducted under Article VII of the
NASD By-Laws.
Ballots
Sec. 6.20 With the assistance of the Secretary of NASD Regulation
and an Independent Agent, the Regional Nominating Committee shall
prepare a ballot with the name or names of its candidate and any
additional candidates proposed for nomination pursuant to Section 6.16.
The ballot shall list the candidates in alphabetical order and shall
identify the candidate or candidates proposed for nomination by the
Regional Nominating Committee. The Regional Nominating Committee shall
send a ballot to the Executive Representative of each NASD member
eligible to vote in the region. Instructions on the ballot shall direct
the Executive Representative to return the ballot to the Independent
Agent and state that the ballot envelope must be postmarked on or
before the return date specified on the ballot. The return date
specified on the ballot shall be at least 30 but not more than 45 days
after the date of mailing of the ballot.
Vote Qualification List
Sec. 6.21 Eligibility to vote on a regional nomination shall be
based on the NASD's membership records as of a date designated by the
Secretary of NASD Regulation that is not more than 30 days before the
date of mailing of the ballot. The Secretary of NASD Regulation shall
prepare a list of NASD members eligible to vote in the region and their
Executive Representatives, which shall be used for vote qualification
purposes, and shall provide the list to the candidates.
Ballots Returned As Undelivered
Sec. 6.22 The Independent Agent shall open any ballot envelope
returned undelivered and shall determine whether it was sent to the
NASD member's address of record. If incorrectly addressed, the
Independent Agent shall send a new ballot to the NASD member's address
of record.
General Procedures for Qualification and Accounting of Ballots
Sec. 6.23 After the voting period, on a date or dates designated
by the Secretary of NASD Regulation, the qualification and accounting
of ballots shall take place. The date or dates designated shall be not
later than 14 calendar days after the return date specified on the
ballot pursuant to Section 6.20. Candidates and their representatives
shall be allowed to observe the qualification and accounting of
ballots. Representation for each candidate shall be limited to two
individuals. The Independent Agent shall bring to a specified district
office in the region all ballots timely received. Under the direction
of the Secretary of NASD Regulation or the Secretary's designee, the
Independent Agent shall open and count the ballots. For ballot
qualification purposes, the Independent Agent shall identify to the
candidates the NASD members that timely returned ballots and inform the
candidates of the Independent Agent's determination of whether or not a
ballot is qualified for voting purposes. The determination shall be
based on a comparison of ballots received against the list of NASD
members eligible to vote in the region and their Executive
Representatives as prepared by the Secretary of NASD Regulation under
Section 6.21. The Secretary of NASD Regulation or the Secretary's
designee shall make the final determination of the qualification of a
ballot. Upon the qualification of a ballot, the Independent Agent shall
record the vote indicated on the ballot. The candidates and their
representatives shall not be allowed to see the vote of an NASD member.
Ballots Set Aside
Sec. 6.24 The Independent Agent shall set aside a ballot if: (a)
the ballot is received from an NASD member eligible to vote in the
region and the ballot is signed by a person who is not the Executive
Representative listed on the vote qualification list prepared under
Section 6.21, and the Secretary of the NASD has not received proper
notice of a change in Executive Representative pursuant to the NASD By-
Laws; or (b) two or more properly executed ballots are received from an
NASD member eligible to vote in the region. If the Independent Agent
determines that the ballots set aside are material to the outcome of
the nomination, the Secretary of NASD Regulation and the Independent
Agent shall make reasonable efforts to resolve each ballot set aside.
With respect to a ballot not signed by an Executive Representative of
record, the Secretary of NASD Regulation shall contact the NASD member
to request that the NASD member send proper written notice of any
change in Executive Representative by facsimile so that the ballot may
be counted. With respect to multiple ballots from an NASD member, the
Independent Agent shall contact the Executive Representative of the
NASD member to obtain the NASD member's vote. The Secretary of NASD
Regulation shall keep a list of NASD members that reported their ballot
was lost or not received and that were provided with a duplicate
ballot. The Secretary of NASD Regulation shall provide the list to the
Independent Agent and, upon request, to the candidates.
Invalid Ballots
Sec. 6.25 The Independent Agent shall declare a ballot invalid if
one or more of the following conditions exists:
(a) the ballot is not signed by the Executive Representative
(unless Section 6.24 applies);
(b) a vote is not indicated on the ballot; or
(c) a vote for more than one candidate is indicated on the ballot.
Certification of Nomination
Sec. 6.26 Under the direction of the Secretary of NASD Regulation
or the Secretary's designee, the Independent Agent shall count the
votes received for each candidate. The candidate receiving the largest
number of votes cast in the region shall be declared the nominee from
the region and the Regional
[[Page 25283]]
Nominating Committee shall nominate such candidate to the National
Nominating Committee. In the event of a tie, there shall be a run-off
vote for the nomination. The Regional Nominating Committee shall send a
written certification of the nomination results to the National
Nominating Committee. The certification shall state the number of votes
received by each candidate and the number of ballots set aside.
Rejection of Regional Nominating Committee Nominee
Sec. 6.27 If the National Nominating Committee rejects the nominee
of the Regional Nominating Committee, the Regional Nominating Committee
shall repeat the nomination procedures in Section 6.9 through Section
6.26.
Extension of Time and Additional Procedures
Sec. 6.28 The Secretary of NASD Regulation may extend a time
period under this Article for good cause shown. In extraordinary
circumstances, the Secretary of NASD Regulation, with the approval of
the Executive Committee or the Board, may adopt additional procedures
for nominations under this Article.
Article VII
Officers, Agents, and Employees
Officers
Sec. [4.1]7.1 The Board [of Directors] shall elect the officers of
[the Corporation] NASD Regulation, which shall include a President, a
Secretary, and such [for] other executive or administrative officers as
it shall deem necessary or advisable, including, but not limited to:
Executive Vice [-]President, Senior Vice [-]President, Vice [-
]President, General Counsel, [Secretary] and Treasurer of [the
Corporation] NASD Regulation. All such officers shall have such titles,
powers, and duties, and shall be entitled to such compensation, as
shall be determined from time to time by the Board [of Directors]. The
terms of office of such officers shall be at the pleasure of the Board
[of Directors], which by affirmative vote of a majority of the
[members] Board, may remove any such officer at any time. One person
may hold the offices and perform the duties of any two or more of said
offices, except the offices and duties of President and Vice President
or of President and Secretary. None of the officers, except the
President, need be [directors of the Corporation] Directors of NASD
Regulation.
Absence of the President
Sec. 7.2 In the case of the absence or inability to act of the
President of NASD Regulation, or in the case of a vacancy in such
office, the Board may appoint its Chair or such other person as it may
designate to act as such officer pro tem, who shall assume all the
functions and discharge all the duties of the President.
Agents and Employees
Sec. [4.2]7.3 In addition to the officers, [the Corporation] NASD
Regulation may employ such agents and employees as the Board [of
Directors] may deem necessary or advisable, each of whom shall hold
office for such period and exercise such authority and perform such
duties as the Board [of Directors], the President, or any officer
designated by the Board [of Directors,] may from time to time
determine. [The Board of Directors at any time may appoint and remove,
or may delegate to any principal officer the power to appoint and to
remove, any agent or employee of the Corporation.] Agents and employees
of NASD Regulation shall be under the supervision and control of the
officers of the NASD Regulation, unless the Board, by resolution,
provides that an agent or employee shall be under the supervision and
control of the Board.
Delegation of Duties of Officers
Sec. [4.3]7.4 The Board [of Directors] may delegate the duties and
powers of any officer of [the Corporation] NASD Regulation to any other
officer or to any [director] Director for a specified period of time
and for any reason that the Board [of Directors] may deem sufficient.
Resignation and Removal of Officers
Sec. [4.4]7.5 (a) Any officer may resign at any time upon written
notice of resignation to the Board [of Directors], the President, or
the Secretary. Any such resignation shall take effect upon receipt of
such notice or at any later time specified therein. The acceptance of a
resignation shall not be necessary to make the resignation effective.
(b) Any officer[, agent or employee of the Corporation] of NASD
Regulation may be removed, with or without cause, by resolution adopted
by a majority of the [directors] Directors then in office at any
regular or special meeting of the Board [of Directors] or by a written
consent signed by all of the [directors] Directors then in office. Such
removal shall be without prejudice to the contractual rights of the
affected officer, [agent, or employee,] if any, with [the Corporation]
NASD Regulation.
Bond
Sec. [4.5]7.6 [The Corporation] NASD Regulation may secure the
fidelity of any or all of its officers, agents, or employees by bond or
otherwise.
Article VIII
District Committees and District Nominating Committees
Establishment of Districts
Sec. 8.1 The Board shall establish boundaries for 11 districts
within the United States to assist NASD Regulation in administering its
affairs in a manner that is consistent with applicable law, the
Restated Certificate of Incorporation, these By-Laws, the Delegation
Plan, and the Rules of the Association. The Board may make changes from
time to time in the number or boundaries of the districts as it deems
necessary or appropriate. The Board shall prescribe such policies and
procedures as are necessary or appropriate to address the
implementation of a new district configuration in the event of a change
in the number or boundaries of the districts.
Composition of District Committees
Sec. 8.2 (a) A district created under Section 8.1 shall elect a
District Committee pursuant to this Article. A District Committee shall
be composed of not more than 12 members, unless otherwise provided by
resolution of the Board. A District Committee shall determine the
number of its members to be elected each year. Members of the District
Committees shall serve as panelists in disciplinary proceedings in
accordance with the Rules of the Association. The District Committees
shall consider and recommend policies and rule changes to the Board.
The District Committees shall endeavor, in such manner as they deem
appropriate, to educate NASD members and other brokers and dealers in
their respective districts as to the objects, purposes, and work of the
NASD, NASD Regulation, and Nasdaq in order to foster NASD members'
interest and cooperation.
(b) In the event of the refusal, failure, neglect, or inability of
a member of a District Committee to discharge his or her duties, or for
any cause affecting the best interests of NASD Regulation, the
sufficiency of which shall be decided by the District Committee, the
District Committee may remove the member by the affirmative vote of
two-thirds of the members of the District Committee then in office and
declare the member's position vacant. The District Committee shall
notify the District Committee member of his or her removal within
[[Page 25284]]
seven days after the vote. The member's position shall be filled
pursuant to Section 8.4. A member who is removed may submit a written
appeal of the removal to the Board within 30 days after the date he or
she is notified of the removal. The Board may affirm, reverse, or
modify the determination of the District Committee. A vote of a
majority of the Directors then in office shall be required to reverse
or modify the action of the District Committee.
Term of Office of District Committee Members
Sec. 8.3 Each regularly elected member of a District Committee
shall hold office for a term of three years, and until a successor is
elected and qualified, or until death, resignation, or removal. A
member of a District Committee may not serve more than two consecutive
terms.
Filling of Vacancies on District Committees
Sec. 8.4 In the event of a vacancy on a District Committee caused
by the departure of a Committee member prior to the expiration of the
member's term of office, the District Committee shall appoint by
majority vote a representative of an NASD member eligible to vote in
the district to fill the vacancy. The appointment shall be effective
until the next regularly scheduled election occurs. Following the
election, the newly elected Committee member shall serve only the
duration of the departed Committee member's term.
Meetings of District Committees
Sec. 8.5 Meetings of a District Committee shall be held at such
times and places, upon such notice, and in accordance with such
procedures as each District Committee in its discretion may determine.
A quorum of a District Committee shall consist of a majority of its
members, and any action taken by a majority at any meeting at which a
quorum is present, except as otherwise provided in these By-Laws, shall
constitute the action of the Committee. Action by a District Committee
may be taken by mail, telephonic, or telegraphic vote, in which case
any action taken by a majority of the Committee shall constitute the
action of the Committee. Any action taken by telephonic vote shall be
confirmed in writing at a regular meeting of the District Committee.
Election of District Officers
Sec. 8.6 Following the annual election of members of the District
Committees pursuant to this Article, each District Committee shall
elect from its members a Chair and such other officers as it deems
necessary for the proper performance of its duties under these By-Laws,
and shall prescribe their powers and duties.
Advisory Council
Sec. 8.7 (a) The Chairs of the District Committees, elected
pursuant to Section 8.6, shall constitute an Advisory Council to the
Board.
(b) The Advisory Council shall be advised of and entitled to attend
such meetings of the Board as the Board may designate for such Advisory
Council's attendance, and the Board shall designate at least one such
meeting annually. The Advisory Council shall not be entitled to vote at
meetings of the Board.
Expenses of District Committees
Sec. 8.8 Funds to meet the regular expenses of each District
Committee shall be provided by the Board, and all such expenses shall
be subject to the approval of the Board.
Composition of District Nominating Committees
Sec. 8.9 (a) Each district created under Section 8.1 shall elect a
District Nominating Committee pursuant to this Article. A District
Nominating Committee shall consist of five members, unless the Board by
resolution increases a District Nominating Committee to a larger
number. Members of a District Nominating Committee shall be
representatives of NASD members eligible to vote in the district, but
shall not be members of the District Committee. A District Nominating
Committee shall include a majority of persons who previously have
served on a District Committee or who are current or former Directors
or current or former Governors of the NASD Board, and shall include at
least one current or former Director or Governor.
(b) In the event of the refusal, failure, neglect, or inability of
a member of a District Nominating Committee to discharge his or her
duties, or for any cause affecting the best interests of NASD
Regulation, the sufficiency of which shall be decided by the District
Nominating Committee, the District Nominating Committee may remove the
member by the affirmative vote of two-thirds of the members of the
District Nominating Committee then in office and declare the member's
position vacant. The member's position shall be filled pursuant to
Section 8.11. The District Nominating Committee shall notify the
District Nominating Committee member of his or her removal within seven
days after the vote. A member who is removed may submit a written
appeal of the removal to the Board within 30 days after the date he or
she is notified in writing of the removal. The Board may affirm,
reverse, or modify the determination of the District Nominating
Committee. A vote of a majority of the Directors then in office shall
be required to reverse or modify the action of the District Nominating
Committee.
Term of Office of District Nominating Committee Members
Sec. 8.10 Each regularly elected member of a District Nominating
Committee shall hold office for a term of one year, and until a
successor is elected and qualified, or until death, resignation, or
removal. A member of a District Nominating Committee may not serve more
than two consecutive terms.
Filling of Vacancies for District Nominating Committees
Sec. 8.11 In the event of a vacancy on a District Nominating
Committee caused by the departure of a Committee member prior to the
expiration of the member's term of office, the District Nominating
Committee shall appoint by majority vote a representative of an NASD
member eligible to vote in the district to fill the vacancy. The
appointment shall be effective until the next regularly scheduled
election occurs pursuant to this Article.
Meetings of District Nominating Committees
Sec. 8.12 Meetings of a District Nominating Committee shall be
held at such times and places, upon such notice, and in accordance with
such procedures as each District Nominating Committee in its discretion
may determine. A quorum of a District Nominating Committee shall
consist of a majority of its members, and any action taken by a
majority of the entire Committee at any meeting, except as otherwise
provided in these By-Laws, shall constitute the action of the
Committee. Action by a District Nominating Committee may be taken by
mail, telephonic, or telegraphic vote, in which case any action taken
by a majority of the Committee shall constitute the action of the
Committee. Action taken by telephonic vote shall be confirmed in
writing at a regular meeting of the District Nominating Committee.
Election of District Nominating Committee Officers
Sec. 8.13 Following the annual election of members of the District
Nominating Committees pursuant to this Article, each District
Nominating Committee shall elect from its members
[[Page 25285]]
a Chair and such other officers as it deems necessary for the proper
performance of its duties under these By-Laws, and shall prescribe
their powers and duties.
Expenses of District Nominating Committees
Sec. 8.14 Funds to meet the regular expenses of each District
Nominating Committee shall be provided by the Board, and all such
expenses shall be subject to the approval of the Board.
Notice to Chair
Sec. 8.15 On or before May 1 of each year, the Secretary of NASD
Regulation shall send a written notice to the Chair of each District
Nominating Committee and each District Committee identifying the
members of the District Nominating Committee and the District Committee
whose terms of office shall expire in the next calendar year. The
notice shall describe election procedures for filling the offices.
Solicitation of Candidates
Sec. 8.16 NASD Regulation staff shall provide the District
Nominating Committee with a description of the NASD membership in the
region. The District Nominating Committee shall identify and solicit
candidates to nominate for the vacancies on the District Committee and
the District Nominating Committee. The District Nominating Committee
Chair shall send a written notice of the upcoming election to the
Executive Representative and each branch office of the NASD members in
the district and request that such NASD members submit names of
candidates to the District Nominating Committee or the District
Director for consideration.
Secretary's Notice to NASD Members
Sec. 8.17 The Secretary of NASD Regulation shall send a written
notice to NASD members in the district describing the election
procedures.
District Nominating Committee Slate
Sec. 8.18 (a) The District Nominating Committee shall review the
background of proposed candidates and the description of the NASD
membership provided by NASD Regulation staff and shall nominate a slate
of candidates for the election. The slate shall include one or more
candidates for each vacancy. In nominating candidates for the office of
member of the District Committee and the office of member of the
District Nominating Committee, the District Nominating Committee shall
endeavor to secure appropriate and fair representation on the District
Committee and on the District Nominating Committee of the various
sections of the district and all classes and types of NASD members
engaged in the investment banking or securities business within the
district. In nominating candidates for the office of member of the
District Nominating Committee, a District Nominating Committee shall
assure that the composition of the District Nominating Committee meets
the standards in Section 8.9(a).
(b) A District Nominating Committee shall not nominate an incumbent
member of the District Committee to succeed himself or herself unless
the District Nominating Committee first takes appropriate action by a
written ballot of the entire NASD membership within the district to
ascertain that such nomination is acceptable to a majority of the NASD
members in the district, unless the incumbent member of the District
Committee is serving pursuant to the provisions of Section 8.4. A
District Nominating Committee may not nominate more than two incumbent
members of the District Nominating Committee to succeed themselves.
Certification of Nomination
Sec. 8.19 The District Nominating Committee shall certify to the
District Committee each candidate nominated by the District Nominating
Committee. Within five calendar days after the certification, the
District Committee shall send to the Executive Representatives of NASD
members in the district a copy of the certification.
Designation of Additional Candidates
Sec. 8.20 If an officer, director, or employee of an NASD member
is not nominated by the District Nominating Committee and wants to be
considered for a vacancy on the District Committee or the District
Nominating Committee, he or she shall send a written notice to the
District Director within 14 calendar days after the mailing date of the
certification to the Executive Representatives pursuant to Section
8.19. The District Director shall make a written record of the time and
date of the receipt of the officer's, director's, or employee's notice.
The officer, director, or employee shall be designated as an
``additional candidate.''
Communication of Support
Sec. 8.21 If the District Nominating Committee nominates more than
one candidate for a vacancy, or if an additional candidate is
designated pursuant to Section 8.20, NASD Regulation, the Board, the
District Nominating Committee, any other committee, and NASD Regulation
staff shall not take any position publicly or with an NASD member or
person associated with or employed by an NASD member with respect to
any candidate. A Director or a member of the Regional Nominating
Committee or any other committee may communicate his or her views with
respect to any candidate if the Director or committee member acts
solely in his or her individual capacity and disclaims any intention to
communicate in any official capacity on behalf of NASD Regulation, the
NASD Regulation Board, the Regional Nominating Committee, or any other
committee. Except as provided herein, any candidate and his or her
representatives may communicate support for the candidate to an NASD
member or person associated with or employed by an NASD member.
List of NASD Members Eligible to Vote
Sec. 8.22 (a) The Secretary of NASD Regulation shall prepare a
list of all NASD members eligible to vote in the district and their
Executive Representatives to the additional candidate immediately
following receipt of the additional candidate's notice by the District
Director.
(b) An NASD member that has its principal office, one or more
registered branch offices, or its principal office and one or more
registered branch offices in the district shall be eligible to cast one
vote through the NASD member's Executive Representative for each
vacancy to be filled in the election.
Requirement for Petition Supporting Additional Candidate
Sec. 8.23 An additional candidate shall be nominated if a petition
signed by at least ten percent of the NASD members eligible to vote in
the district is filed with the District Nominating Committee within 30
calendar days after the date of mailing of the list to the additional
candidate pursuant to Section 8.22. Only an Executive Representative
may sign a petition on behalf of an NASD member.
Uncontested Election
Sec. 8.24 If the District Nominating Committee nominates one
candidate for each vacancy and no additional candidate is nominated
pursuant to Section 8.23, the candidates nominated by the District
Nominating Committee shall be considered duly elected and the District
Committee shall certify the election to the Board.
Notice of Contested Election
Sec. 8.25 If the District Nominating Committee nominates more than
one
[[Page 25286]]
candidate for a vacancy, or if an additional candidate is nominated
pursuant to Section 8.23, the election shall be considered a contested
election. The District Committee shall send a notice to the Executive
Representatives of the NASD members eligible to vote in the district
announcing the names of the candidates and describing contested
election procedures.
Administrative Support
Sec. 8.26 The District Office shall provide administrative support
to all candidates by sending mailings to NASD members eligible to vote
in the district up to two mailings of materials prepared by the
candidates. NASD Regulation shall pay the postage for the mailings.
Each candidate may prepare material for the mailing on his or her
personal stationery, and the material shall state that it represents
the opinion of the candidate. Candidates nominated by the District
Nominating Committee may identify themselves as such in their
materials. Any candidate may send additional mailings at the
candidate's own expense. Except as provided in this Article, NASD
Regulation, the Board, the Regional Nominating Committee, any other
committee, and NASD Regulation staff shall not provide any other
administrative support to a candidate in the election.
Ballots
Sec. 8.27 With the assistance of the Secretary of NASD Regulation
and an Independent Agent, the District Nominating Committee shall
prepare a ballot with the names of the District Nominating Committee's
candidates and any additional candidate nominated pursuant to Section
8.23. The ballot shall list the candidates in alphabetical order and
shall identify the candidates nominated by the District Nominating
Committee. The District Nominating Committee shall send a ballot to the
Executive Representative of each NASD member eligible to vote in the
district. Instructions on the ballot shall direct the Executive
Representative to return the ballot to the Independent Agent and state
that the ballot envelope must be postmarked on or before the return
date specified on the ballot. The return date specified on the ballot
shall be at least 30 but not more than 45 days after the date of
mailing of the ballot.
Vote Qualification List
Sec. 8.28 Eligibility to vote in a district election shall be
based on the NASD's membership records as of a date selected by the
Secretary of NASD Regulation that is not more than 30 days before the
date of mailing of the ballot. The Secretary of NASD Regulation shall
prepare a list of NASD members eligible to vote in the district and
their Executive Representatives, which shall be used for vote
qualification purposes, and shall provide the list to the candidates.
Ballots Returned As Undelivered
Sec. 8.29 The Independent Agent shall open any ballot envelope
returned undelivered and shall determine whether it was sent to the
NASD member's address of record. If incorrectly addressed, the
Independent Agent shall send a new ballot to the address of record.
General Procedures for Qualification and Accounting of Ballots
Sec. 8.30 After the voting period, on a date or dates designated
by the Secretary of NASD Regulation, the qualification and accounting
of ballots shall take place. The date or dates designated shall be not
later than 14 calendar days after the return date specified on the
ballot pursuant to Section 8.27. Candidates and their representatives
shall be allowed to observe the qualification and accounting of
ballots. Representation for each candidate shall be limited to two
individuals. The Independent Agent shall bring to the district office
all ballots timely received. Under the direction of the Secretary of
NASD Regulation or the Secretary's designee, the Independent Agent
shall open and count the ballots. For ballot qualification purposes,
the Independent Agent shall identify to the candidates the NASD members
that timely returned ballots and inform the candidates of the
Independent Agent's determination of whether or not a ballot is
qualified for voting purposes. The determination shall be based on a
comparison of ballots received against the list of NASD members
eligible to vote in the district and their Executive Representatives as
prepared by the Secretary of NASD Regulation pursuant to Section 8.28.
The Secretary of NASD Regulation or the Secretary's designee shall make
the final determination of the qualification of a ballot. Upon the
qualification of a ballot, the Independent Agent shall record the vote
indicated on the ballot. The candidates and their representatives shall
not be allowed to see the vote of an NASD member.
Ballots Set Aside
Sec. 8.31 The Independent Agent shall set aside a ballot if: (a)
the ballot is received from an NASD member eligible to vote in the
district and the ballot is signed by a person who is not the Executive
Representative listed on the vote qualification list prepared under
Section 8.28, and the Secretary of the NASD has not received proper
notice of a change in Executive Representative pursuant to the NASD By-
Laws; or (b) if two or more properly executed ballots are received from
an NASD member eligible to vote in the district. If the Independent
Agent determines that the ballots set aside are material to the outcome
of the election, the Secretary of NASD Regulation and the Independent
Agent shall make reasonable efforts to resolve each ballot set aside.
With respect to a ballot not signed by an Executive Representative of
record, the Secretary of NASD Regulation shall contact the NASD member
to request that the NASD member send written notice of any change in
Executive Representative by facsimile so that the ballot may be
counted. With respect to multiple ballots from an NASD member, the
Independent Agent shall contact the Executive Representative of the
NASD member to obtain the NASD member's vote. The Secretary of NASD
Regulation shall keep a list of NASD members that reported their ballot
was lost or not received and that were provided with a duplicate
ballot. The Secretary of NASD Regulation shall provide the list to the
Independent Agent and, upon request, to the candidates.
Invalid Ballots
Sec. 8.32 The Independent Agent shall declare a ballot invalid if
one or more of the following conditions exist:
(a) the ballot is not signed by the Executive Representative
(unless Section 8.31 applies);
(b) a vote is not indicated on the ballot; or
(c) the ballot indicates votes for more candidates than there are
vacancies for an office.
Certification of Election
Sec. 8.33 Under the direction of the Secretary of NASD Regulation
or the Secretary's designee, the Independent Agent shall count the
votes received for each candidate in a district. The candidates for the
office of member of the District Committee receiving the largest number
of votes cast in the district for the office shall be declared elected
such that the number of candidates declared elected equals the number
of vacancies on the District Committee. The candidates for the office
of member of the District Nominating Committee receiving the largest
number of votes cast in the district for the office shall be declared
elected such that the number of
[[Page 25287]]
candidates declared elected equals the number of vacancies on the
District Nominating Committee. In the event of a tie, there shall be a
run-off election. Each District Committee shall send a written
certification of the election results to the Board. The certification
shall state the number of votes received by each candidate and the
number of ballots set aside.
Extensions of Time and Additional Procedures
Sec. 8.34 The Secretary of NASD Regulation may extend a time
period under this Article for good cause shown. In extraordinary
circumstances, the Secretary of NASD Regulation, with the approval of
the Executive Committee or the Board, may adopt additional procedures
for elections under this Article.
Article IX
Indemnification
Indemnification of Directors, Officers, Employees, and Agents
Sec. 9.1 (a) NASD Regulation shall indemnify, and hold harmless,
to the fullest extent permitted by Delaware law as it presently exists
or may thereafter be amended, any person (and the heirs, executors, and
administrators of such person) who, by reason of the fact that he or
she is or was a Director, officer, or employee of NASD Regulation, or
is or was a Director, officer, or employee of NASD Regulation who is or
was serving at the request of NASD Regulation as a director, officer,
employee, or agent of another corporation, partnership, joint venture,
trust, enterprise, or non-profit entity, including service with respect
to employee benefit plans, is or was a party, or is threatened to be
made a party to:
(i) any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of NASD Regulation) against
expenses (including attorneys' fees and disbursements), judgments,
fines, and amounts paid in settlement actually and reasonably incurred
by such person in connection with any such action, suit, or proceeding;
or
(ii) any threatened, pending, or completed action or suit by or in
the right of NASD Regulation to procure a judgment in its favor against
expenses (including attorneys' fees and disbursements) actually and
reasonably incurred by such person in connection with the defense or
settlement of such action or suit.
(b) NASD Regulation shall advance expenses (including attorneys'
fees and disbursements) to persons described in subsection (a);
provided, however, that the payment of expenses incurred by such person
in advance of the final disposition of the matter shall be conditioned
upon receipt of a written undertaking by that person to repay all
amounts advanced if it should be ultimately determined that the person
is not entitled to be indemnified under this Section or otherwise.
(c) NASD Regulation may, in its discretion, indemnify and hold
harmless, to the fullest extent permitted by Delaware law as it
presently exists or may thereafter be amended, any person (and the
heirs, executors, and administrators of such persons) who, by reason of
the fact that he or she is or was an agent of NASD Regulation or is or
was an agent of NASD Regulation who is or was serving at the request of
NASD Regulation as a director, officer, employee, or agent of another
corporation, partnership, trust, enterprise, or non-profit entity,
including service with respect to employee benefit plans, was or is a
party, or is threatened to be made a party to any action or proceeding
described in subsection (a).
(d) NASD Regulation may, in its discretion, pay the expenses
(including attorneys' fees and disbursements) reasonably and actually
incurred by an agent in defending any action, suit, or proceeding in
advance of its final disposition; provided, however, that the payment
of expenses incurred by such person in advance of the final disposition
of the matter shall be conditioned upon receipt of a written
undertaking by that person to repay all amounts advanced if it should
be ultimately determined that the person is not entitled to be
indemnified under this Section or otherwise.
(e) Notwithstanding the foregoing or any other provision of these
By-Laws, no advance shall be made by NASD Regulation to an agent or
non-officer employee if a determination is reasonably and promptly made
by the Board by a majority vote of those Directors who have not been
named parties to the action, even though less than a quorum, or, if
there are no such Directors or if such Directors so direct, by
independent legal counsel, that, based upon the facts known to the
Board or such counsel at the time such determination is made: (1) the
person seeking advancement of expenses (i) acted in bad faith, or (ii)
did not act in a manner that he or she reasonably believed to be in or
not opposed to the best interests of NASD Regulation; (2) with respect
to any criminal proceeding, such person believed or had reasonable
cause to believe that his or her conduct was unlawful; or (3) such
person deliberately breached his or her duty to NASD Regulation.
(f) The indemnification provided by this Section in a specific case
shall not be deemed exclusive of any other rights to which a person
seeking indemnification may be entitled, both as to action in his or
her official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased
to be a Director, officer, employee, or agent and shall inure to the
benefit of such person's heirs, executors, and administrators.
(g) Notwithstanding the foregoing, but subject to subsection (j),
NASD Regulation shall be required to indemnify any person identified in
subsection (a) in connection with a proceeding (or part thereof)
initiated by such person only if the initiation of such proceeding (or
part thereof) by such person was authorized by the Board.
(h) NASD Regulation's obligation, if any, to indemnify or advance
expenses to any person who is or was serving at its request as a
director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, enterprise, or non-profit entity
shall be reduced by any amount such person may collect as
indemnification or advancement from such other corporation,
partnership, joint venture, trust, enterprise, or non-profit entity.
(i) Any repeal or modification of the foregoing provisions of this
Section shall not adversely affect any right or protection hereunder of
any person respecting any act or omission occurring prior to the time
of such repeal or modification.
(j) If a claim for indemnification or advancement of expenses under
this Article is not paid in full within 60 days after a written claim
therefor by an indemnified person has been received by NASD Regulation,
the indemnified person may file suit to recover the unpaid amount of
such claim and, if successful in whole or in part, shall be entitled to
be paid the expense of prosecuting such claim. In any such action, NASD
Regulation shall have the burden of proving that the indemnified person
is not entitled to the requested indemnification or advancement of
expenses under Delaware law.
Indemnification Insurance
Sec. 9.2 NASD Regulation shall have power to purchase and maintain
insurance on behalf of any person who is or was a Director, officer,
employee,
[[Page 25288]]
or agent of NASD Regulation, or is or was serving at the request of
NASD Regulation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, enterprise, or non-
profit entity against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not NASD Regulation would have the
power to indemnify such person against such liability hereunder.
Article X
Capital Stock
Sole Stockholder
Sec. 10.1 The NASD shall be the sole stockholder of the capital
stock of NASD Regulation.
Certificates
Sec. [6.1]10.2 [Each]The stockholder [in the Corporation] shall be
entitled to a certificate or certificates in such form as shall be
approved by the Board, certifying the number of shares of capital stock
in [the Corporation] NASD Regulation owned by [such] the stockholder.
Signatures
Sec. [6.2]10.3 (a) Certificates for shares of capital stock of
[the Corporation] NASD Regulation shall be signed in the name of [the
Corporation] NASD Regulation by two officers with one being the Chair
of the Board, the President, or a Vice President, and the other being
the Secretary, the Treasurer, or such other officer that may be
authorized by the Board [of Directors]. Such certificates may be sealed
with the corporate [Seal] seal of [the Corporation] NASD Regulation or
a facsimile thereof.
(b) If any such certificates are countersigned by a transfer agent
other than [the Corporation] NASD Regulation or its employee, or by a
registrar other than [the Corporation] NASD Regulation or its employee,
any other signature on the certificate may be a facsimile. In [case]
the event that any officer, transfer agent, or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall
[have ceased] cease to be such officer, transfer agent, or registrar
before such certificate is issued, such certificate may be issued by
[the Corporation] NASD Regulation with the same effect as if such
person were such officer, transfer agent, or registrar at the date of
issue.
Stock Ledger
Sec. [6.3]10.3 (a) A record of all certificates for capital stock
issued by [the Corporation] NASD Regulation shall be kept by the
Secretary or any other officer, employee, or agent designated by the
Board [of Directors]. Such record shall show the name and address of
the person, firm, or corporation in which certificates for capital
stock are registered, the number of shares represented by each such
certificate, the date of each such certificate, and in the case of
certificates that have been canceled, the date of cancellation thereof.
(b) [The Corporation] NASD Regulation shall be entitled to treat
the holder of record of shares of capital stock as shown on the stock
ledger as the owner thereof and as the person entitled to vote such
shares and to receive notice of meetings, and for all other purposes.
Except as otherwise required by applicable law, [the Corporation] NASD
Regulation shall not be bound to recognize any equitable or other claim
to or interest in any share of capital stock on the part of any other
person, whether or not [the Corporation] NASD Regulation shall have
express or other notice thereof.
Transfers of Stock
Sec. [6.4]10.4 (a) The Board [of Directors] may make such rules
and regulations as it may deem expedient, not inconsistent with law,
the Restated Certificate of Incorporation, or these By-Laws, concerning
the issuance, transfer, and registration of certificates for [share]
shares of capital stock of [the Corporation] NASD Regulation. The Board
[of Directors] may appoint, or authorize any principal officer to
appoint, one or more transfer agents or one or more transfer clerks and
one or more registrars and may require all certificates for capital
stock to bear the signature or signatures of any of them.
(b) Transfers of capital stock shall be made on the books of [the
Corporation] NASD Regulation only upon delivery to [the Corporation]
NASD Regulation or its transfer agent of: (i) a written direction of
the registered holder named in the certificate or such holder's
attorney lawfully constituted in writing[,]; (ii) the certificate for
the shares of capital stock being transferred[,]; and (iii) a written
assignment of the shares of capital stock evidenced thereby.
Cancellation
Sec. [6.5]10.5 Each certificate for capital stock surrendered to
[the Corporation] NASD Regulation for exchange or transfer shall be
cancelled and no new certificate or certificates shall be issued in
exchange for any existing certificate other than pursuant to [Sec. 6.6]
Section 10.6 until such existing certificate shall have been canceled.
Lost, Stolen, Destroyed, and Mutilated Certificates
Sec. [6.6]10.6 In the event that any certificate for shares of
capital stock of [the Corporation] NASD Regulation shall be mutilated,
[the Corporation] NASD Regulation shall issue a new certificate in
place of such mutilated certificate. In [case] the event that any such
certificate shall be lost, stolen, or destroyed [the Corporation] NASD
Regulation may, in the discretion of the Board [of Directors] or a
committee [designated] appointed thereby with power so to act, issue a
new certificate for capital stock in the place of any such lost,
stolen, or destroyed certificate. The applicant for any substituted
certificate or certificates shall surrender any mutilated certificate
or, in the case of any lost, stolen, or destroyed certificate, furnish
satisfactory proof of such loss, theft, or destruction of such
certificate and of the ownership thereof. The Board [of Directors] or
such committee may, in its discretion, require the owner of a lost or
destroyed certificate, or [his] such owner's representatives, to
furnish to [the Corporation] NASD Regulation a bond with an acceptable
surety or sureties and in such sum as [will] shall be sufficient to
indemnify [the Corporation] NASD Regulation against any claim that may
be made against it on account of the lost, stolen, or destroyed
certificate or the issuance of such new certificate. A new certificate
may be issued without requiring a bond when, in the judgment of the
Board [of Directors], it is proper to do so.
Fixing of Record Date
Sec. [6.7]10.7 The Board may fix a record date in accordance with
Delaware law. [(a) In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent or
dissent to corporate action in writing without a meeting, or to
exercise any rights with respect to any change, conversion or exchange
of stock, or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, pursuant to and in
accordance with Section 213 of the General Corporation Law of the State
of Delaware. Only such stockholders as shall be stockholders of record
on the date so fixed shall be entitled to notice of and to vote at such
meeting or any adjournment thereof, or to give such consent or dissent,
or to exercise such rights with respect to any such change, conversion
or exchange of stock, or to
[[Page 25289]]
participate in any such action, notwithstanding the transfer of any
stock on the books of the Corporation after any record date so fixed.]
[(b) If no record date is fixed by the Board of Directors:
(i) the record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the date on which notice is given,
or if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held;
(ii) the record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when
no prior action by the Board of Directors is necessary, shall be at the
close of business on the day on which the first written consent is
expressed; and
(iii) the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board
of Directors adopts the resolution relating thereto.]
[(c) A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.]
Article XI
Miscellaneous Provisions
Corporate Seal
Sec. [7.1]11.1 The seal of [the Corporation] NASD Regulation shall
be circular in form and shall bear, in addition to any other emblem or
device approved by the Board [of Directors], the name of [the
Corporation] NASD Regulation, the year of its incorporation, and the
words ``Corporate Seal'' and ``Delaware[''].'' The seal may be used by
causing it to be affixed or impressed, or a facsimile thereof may be
reproduced or otherwise used in such manner as the Board [of Directors]
may determine.
Fiscal Year
Sec. [7.2]11.2 The fiscal year of [the Corporation] NASD
Regulation shall begin on the [1st] first day of January in each year,
or such other month as the Board [of Directors] may determine by
resolution.
Waiver of Notice
Sec. [7.3]11.3 (a) Whenever notice is required to be given by law,
the Restated Certificate of Incorporation, or these By-Laws, a written
waiver thereof, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the
[stockholders, directors] stockholder, Directors, or members of a
committee of [directors] Directors need be specified in any written
waiver of notice.
(b) Attendance of a person at a meeting shall constitute a waiver
of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to
the transaction of any business because the meeting is not lawfully
called or convened.
Execution of Instruments, Contracts, Etc.
Sec. [7.4]11.4 (a) All checks, drafts, bills of exchange, notes,
or other obligations or orders for the payment of money shall be signed
in the name of [the Corporation] NASD Regulation by such officer or
officers or person or persons[,] as the Board [of Directors], or a duly
authorized committee thereof, may from time to time designate. Except
as otherwise provided by law, the Board [of Directors], any committee
given specific authority in the premises by the Board [of Directors],
or any committee given authority to exercise generally the powers of
the Board [of Directors] during intervals between meetings of the Board
[of Directors], may authorize any officer, employee, or agent, in the
name of and on behalf of [the Corporation] NASD Regulation, to enter
into or execute and deliver deeds, bonds, mortgages, contracts, and
other obligations or instruments, and such authority may be general or
confined to specific instances.
(b) All applications, written instruments, and papers required by
any department of the United States Government or by any state, county,
municipal, or other governmental authority, may be executed in the name
of [the Corporation] NASD Regulation by any principal officer or
subordinate officer of [the Corporation] NASD Regulation, or, to the
extent designated for such purpose from time to time by the Board [of
Directors], by an employee or agent of [the Corporation] NASD
Regulation. Such designation may contain the power to substitute, in
the discretion of the person named, one or more other persons.
Form of Records
Sec. [7.5]11.5 Any records maintained by [the Corporation] NASD
Regulation in the regular course of business, including its stock
ledger, books of account, and minute books, may be kept on, or be in
the form of, magnetic tape, computer disk, or any other information
storage device, provided that the records so kept can be converted into
clearly legible form within a reasonable time.
Article [VIII] XII
Amendments; Emergency By-Laws
By Stockholder[s]
Sec. [8.1]12.1 These By-Laws may be altered, amended, or repealed,
or new By-Laws may be adopted, at any meeting of [stockholders] the
stockholder, provided that, in the case of a special meeting, notice
that an amendment is to be considered and acted upon shall be inserted
in the notice or waiver of notice of said meeting.
By Directors
Sec. [8.2]12.2 To the extent permitted by the Restated Certificate
of Incorporation, these By-Laws may be altered, amended, or repealed,
or new By-Laws may be adopted, at any regular or special meeting of the
Board [of Directors].
Emergency By-Laws
Sec. [8.3]12.3 The Board [of Directors] may adopt emergency By-
Laws subject to repeal or change by action of the [stockholders]
stockholder that shall, notwithstanding any different provision of law,
the Restated Certificate of Incorporation, or these By-Laws, be
operative during any emergency resulting from any nuclear or atomic
disaster, an attack on the United States or on a locality in which [the
Corporation] NASD Regulation conducts its business or customarily holds
meetings of the Board [of Directors or stockholders] or stockholder,
any catastrophe, or other emergency condition, as a result of which a
quorum of the Board [of Directors] or a committee thereof cannot
readily be convened for action. Such emergency By-Laws may make any
provision that may be practicable and necessary [for] under the
circumstances of the emergency.
* * * * *
By-Laws of the NASDAQ Stock Market, Inc.
Article I
Definitions
When used in these By-Laws, unless the context otherwise requires,
the term:
(a) ``Act'' means the Securities Exchange Act of 1934, as amended;
(b) ``Board'' means the Board of Directors of Nasdaq;
[[Page 25290]]
(c) ``broker'' means any individual, corporation, partnership,
association, joint stock company, business trust, unincorporated
organization, or other legal entity engaged in the business of
effecting transactions in securities for the account of others, but
does not include a bank;
(d) ``Commission'' means the Securities and Exchange Commission;
(e) ``day'' means calendar day;
(f) ``dealer'' means any individual, corporation, partnership,
association, joint stock company, business trust, unincorporated
organization, or other legal entity engaged in the business of buying
and selling securities for such individual's or entity's own account,
through a broker or otherwise, but does not include a bank, or any
person insofar as such person buys or sells securities for such
person's own account, either individually or in some fiduciary
capacity, but not as part of a regular business;
(g) ``Delaware law'' means the General Corporation Law of the State
of Delaware;
(h) ``Delegation Plan'' means the ``Plan of Allocation and
Delegation of Functions by NASD to Subsidiaries'' as approved by the
Commission, and as amended from time to time;
(i) ``Director'' means a member of the Board, excluding the Chief
Executive Officer of the NASD;
(j) ``Industry Director'' or ``Industry committee member'' means a
Director (excluding the President of Nasdaq) or committee member who
(1) is an officer, director, or employee of a broker or dealer or has
been employed in any such capacity at any time within the prior three
years; or (2) has a consulting or employment relationship with or
provides professional services to the NASD, NASD Regulation, or Nasdaq
or has had any such relationship or provided any such services at any
time within the prior three years;
(k) ``NASD'' means the National Association of Securities Dealers,
Inc.;
(l) ``NASD Board'' means the NASD Board of Governors;
(m) ``NASD Regulation'' means NASD Regulation, Inc.;
(n) ``Nasdaq'' means The Nasdaq Stock Market, Inc.;
(o) ``National Nominating Committee'' means the National Nominating
Committee appointed pursuant to Article VII, Section 9 of the NASD By-
Laws;
(p) ``Non-Industry Director'' or ``Non-Industry committee member''
means a Director or committee member who is (1) a Public Director or
committee member; (2) an officer or employee of an issuer of securities
listed on Nasdaq or traded in the over-the-counter market; (3) a person
affiliated with a broker or a dealer that operates solely to assist the
securities-related activities of the business of a non-member affiliate
(such as a broker or dealer established to (i) distribute an
affiliate's securities which are issued on a continuous or regular
basis, or (ii) process the limited buy and sell orders of the shares of
employee owners of the affiliate; (4) an employee of an entity that is
affiliated with a broker or dealer that does not account for a material
portion of the revenues of the consolidated entity, and who is
primarily engaged in the business of the non-member entity; or (5) any
other individual who would not be an Industry Director or committee
member;
(q) ``Public Director'' or ``Public committee member'' means a
Director or committee member who has no material business relationship
with a broker or dealer or the NASD, NASD Regulation, or Nasdaq; and
(r) ``Rules of the Association'' or ``Rules'' means the numbered
rules set forth in the NASD Manual beginning with the Rule 0100 Series,
as adopted by the NASD Board pursuant to the NASD By-Laws, as hereafter
amended or supplemented.
Article [I] II
Offices
Location
Sec. [1.1]2.1 The address of the registered office of [the
Corporation] Nasdaq in the State of Delaware and the name of the
registered agent at such address shall be: The Corporation Trust
Company, 1209 Orange [St.,] Street, Wilmington, [DE] Delaware 19801.
[The Corporation] Nasdaq also may [also] have offices at such other
places both within and without the State of Delaware as the Board [of
Directors] may from time to time designate or the business of [the
Corporation] Nasdaq may require.
Change of Location
Sec. [1.2]2.2 In the manner permitted by law, the Board [of
Directors] or the registered agent may change the address of [the
Corporation's] Nasdaq's registered office in the State of Delaware and
the Board [of Directors] may make, revoke, or change the designation of
the registered agent.
Article[II] III
Meetings of Stockholder[s]
[Annual Meeting
Sec. 2.1 The annual meeting of stockholders of the Corporation for
the election of Directors and for the transaction of such other
business as may properly come before the meeting shall be held on such
date, and at such time, and place, within or without the State of
Delaware, as may be fixed, from time to time, by the Board of
Directors.]
[Special Meetings
Sec. 2.2 Special meetings of stockholders of the Corporation,
unless otherwise prescribed by law, may be called at any time by the
Chair of the Board, by the President or by order of a majority of the
Board of Directors. Special meetings of stockholders prescribed by law
for the election of directors shall be called by the Board of
Directors, the President, or the Secretary. Special meetings of
stockholders shall be held at such place within or without the State of
Delaware as shall be designated in the notice of meeting.]
[Notice of Meetings
Sec. 2.3 (a) Whenever stockholders are required or permitted to
take any action at a meeting, they shall be given written notice
stating the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes thereof. Unless otherwise
required by law, the Certificate of Incorporation or these By-Laws,
written notice shall be delivered or mailed at least ten but not more
than sixty days before such meeting date to each stockholder entitled
to vote at such meeting. If mailed, such notice shall be deposited in
the United States mail, postage prepaid, directed to each stockholder
at the address that appears on the records of the Corporation.]
[(b) When a meeting of stockholders is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting, the Corporation may transact any
business which might have been transacted at the original meeting. If,
however, the adjournment is for more than thirty days from the date of
the original meeting, or if, after the adjournment, a new record date
is set for the adjourned meeting, notice of the adjourned meeting shall
be given to each stockholder of record entitled to vote at the meeting
in the manner prescribed above in subsection (a).]
[Quorum
Sec. 2.4 Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, at each meeting of stockholders the
presence in person or by proxy of the holders of
[[Page 25291]]
record of a majority of the outstanding shares of capital stock
entitled to vote or act at such a meeting shall constitute a quorum for
the transaction of any business. In the absence of a quorum, the
stockholders so present may by majority rule, adjourn any meeting until
a quorum shall be present. When a quorum is once present to organize a
meeting, the quorum cannot be destroyed by the subsequent withdrawal or
revocation of the proxy of any stockholder.]
[Voting
Sec. 2.5 (a) At any meeting of stockholders, each stockholder as
of the record date is entitled to one vote for each such share of stock
having voting power, upon the matter in question. Each stockholder
entitled to vote at a meeting of stockholders or to express consent or
dissent to corporate action in writing without a meeting may authorize
another person or persons to act for him by proxy, provided that no
proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and
only so long as, it is coupled with an interest, whether in the stock
itself or in the Corporation, sufficient in law to support an
irrevocable power. A stockholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by filing
an instrument in writing revoking the proxy or by delivering a proxy in
accordance with applicable law bearing a later date to the Secretary of
the Corporation.]
[(b) Directors of the Corporation shall be elected by a plurality
of the votes cast at a meeting of stockholders pursuant to Sec. 2.5 of
these By-Laws. Corporate action other than the election of directors
shall be authorized by a majority of the votes cast at a meeting of
stockholders, except as otherwise required by law, the Certificate of
Incorporation or these By-Laws.]
[(c) Upon the demand of any stockholder entitled to vote, the
election of directors or a vote on any other matter at a meeting of
stockholders shall be by written ballot; otherwise, the method of
voting and the manner in which votes are counted at such a meeting
shall be discretionary with the presiding officer of the meeting.]
[Presiding Officer and Secretary
Sec. 2.6 At every meeting of stockholders, the Chair, or in his/
her absence, the President, or in his/her absence, the appointee of the
meeting, shall preside. The Secretary, or in his/her absence, the
appointee of the presiding officer of the meeting, shall act as
Secretary of the meeting.]
Action by Consent of Stockholder[s]
Sec. [2.7]3.1 Any action required[,] or permitted by law to be
taken at any meeting of the stockholder [stockholders] of [the
Corporation] Nasdaq may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the
action so taken, is signed by the [holders] holder of the outstanding
stock [having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. Prompt notice
of the taking of corporate action without a meeting and by less than
unanimous written consent shall be given to those stockholders who have
not consented in writing and who would be entitled to vote thereon at a
meeting].
Article [III] IV
Board of Directors
General Powers
Sec. [3.1]4.1 The property, business, and affairs of [the
Corporation] Nasdaq shall be managed by or under the direction of the
Board [of Directors]. The Board [of Directors] may exercise all such
powers of [the Corporation] Nasdaq and have the authority to perform
all such lawful acts as are permitted by law, the Restated Certificate
of Incorporation [or], these By-Laws, or the Delegation Plan for the
organization, development, and operation of electronic data processing
and communications facilities, including computer hardware and
software, for the purposes of: [(i)](a) supporting the operation,
regulation, and surveillance of The Nasdaq Stock Market and other
organized securities markets established for trading equity securities,
debt securities, derivative instruments, or other financial products
that may be developed; [(ii)](b) supporting the efficient clearance and
settlement of securities transactions; [(iii)](c) supporting various
elements of the national market system pursuant to Section 11A of the
[Securities Exchange Act of 1934 (``Exchange Act'')] Act and the rules
thereunder; [(iv)](d) assisting the [National Association of Securities
Dealers, Inc.] NASD in fulfilling its self-regulatory responsibilities
as set forth in Section 15A of the [Exchange] Act[,]; and [(v)](e)
supporting such other initiatives as the Board [of Directors] may deem
appropriate. To the fullest extent permitted by applicable law, the
Restated Certificate of Incorporation, and these By-Laws, the Board may
delegate any of its powers to a committee appointed pursuant to Section
4.14 or to Nasdaq staff in a manner not inconsistent with the
Delegation Plan.
Number of Directors
Sec. [3.2]4.2 [The Board of Directors of the Corporation shall
consist of one or more members; the exact number of directors which
shall constitute the whole Board of Directors shall be fixed from time
to time by resolution adopted by a majority of the whole Board of
Directors. After fixing the number of directors constituting the whole
Board of Directors, the Board of Directors may, by resolution adopted
by a majority of the whole Board of Directors, from time to time change
the number of directors constituting the whole Board of Directors.] The
Board shall be composed of at least 11 and not more than 15 Directors,
the number thereof to be determined by the Board prior to the annual
election of Directors. Any new Director position created as a result of
an increase in the size of the Board shall be filled as part of the
annual election conducted under Section 4.4.
Qualifications
Sec. [3.3]4.3 (a) Directors need not be stockholders of [the
Corporation] Nasdaq. The President of Nasdaq shall be a Director, and
the remaining Directors shall be equally balanced between Industry and
Non-Industry Directors, including at least two Public Directors. If at
any time there shall be an odd number of Directors, excluding the
President, a majority of the Directors other than the President shall
be Non-Industry Directors. In the event that the Board shall consist of
more than 12 Directors, at least three shall be Public Directors. The
Chief Executive Officer of the NASD shall be an ex-officio non-voting
member of the Board.
(b) Each Director shall update the information submitted to the
Secretary of the NASD pursuant to Article VII, Section 9(e) of the NASD
By-Laws regarding the Director's classification as an Industry, Non-
Industry, or Public Director at least annually and upon request of the
Secretary of the NASD, and shall report immediately to the Secretary of
the NASD any change in such classification.
Election
Sec. [3.4]4.4 (a) Except as otherwise provided by law [or], these
By-Laws, or the Delegation Plan, after the first meeting of [the
Corporation] Nasdaq at which [directors] Directors are elected,
[[Page 25292]]
[directors of the Corporation] Directors of Nasdaq shall be elected
each year at the annual meeting of [stockholders] the stockholder, or
at a special meeting called for such purpose in lieu of the annual
meeting[, by a plurality of the votes cast at such meeting]. If the
annual election of [directors] Directors is not held on the date
designated [therefore,] therefor, the [directors] Directors shall cause
such election to be held as soon thereafter as convenient.
(b) The National Nominating Committee shall nominate Industry, Non-
Industry, and Public Directors for each vacant or new Director position
on the Board to the NASD Board in accordance with Article VII of the
NASD By-Laws.
Term
Sec. [3.5]4.5 (a) Each [director] Director shall hold office for a
term of three years or until [his] a successor is duly elected and
qualified, except in the event of earlier termination from office by
reason of death, resignation, removal[,] with or without cause,
disqualification, or other reason.
(b) The Board [of Directors] shall be divided into three classes.
The term of office of those of the first class shall expire at the
January 1998 meeting of the Board, of the second class one year
thereafter, and of the third class two years thereafter. At each annual
election, commencing January 1998, Directors shall be elected for a
term of three years to replace those whose terms expire.
(c) The President of [the Corporation] Nasdaq shall serve as a
[member of the Board] Director until [his] a successor is selected and
qualified, or until [his] death, resignation, or removal.
(d) Except for the President, no Director may serve more than two
consecutive terms; provided, however, that if a Director is appointed
to fill a term of less than one year, such Director may serve up to two
consecutive terms following the expiration of such Director's [current
term] initial term.
[(e) Each Director chosen to fill newly created directorship shall
serve until the next succeeding annual meeting of stockholders.]
Resignation
Sec. [3.6]4.6 Any [director] Director may resign at any time
either upon written notice of resignation to the Chair of the Board,
the President, or the Secretary. Any such resignation shall take effect
at the time specified therein or, if the time [be] is not specified,
upon receipt thereof, and the acceptance of such resignation, unless
required by the terms thereof, shall not be necessary to make such
resignation effective.
Removal
Sec. [3.7]4.7 Any or all of the [directors] Directors may be
removed from office at any time, with or without cause, only by a
majority vote of the [stockholders] NASD Board.
Disqualification
Sec. 4.8 A Director shall immediately resign or be automatically
removed from office if the NASD Board determines by majority vote that
(a) the Director no longer satisfies the definition for the category
(Industry, Non-Industry or Public Director) for which the Director was
elected; (b) failure to remove the Director would violate the
compositional requirements for the Board set forth in Section 4.3(a);
and (c) the Director has a remaining term of office of more than six
months.
Filling of Vacancies
Sec. 4.9 If a Director position becomes vacant, whether because of
death, disability, disqualification, removal, or resignation, the
National Nominating Committee shall nominate, and the NASD Board shall
elect by majority vote, a person satisfying the classification
(Industry, Non-Industry, or Public Director) for the directorship as
provided in Section 4.3 to fill such vacancy, except that if the
remaining term of office for the vacant Director position is not more
than six months, no replacement shall be required.
Quorum and Voting
Sec. [3.8]4.10 (a) At all meetings of the Board [of Directors,
one-third of the total number of directors shall constitute], unless
otherwise set forth in these By-Laws or required by law, a quorum for
the transaction of business shall consist of a majority of the Board,
including not less than 50 percent of the Non-Industry Directors. In
the absence of a quorum, a majority of the [directors] Directors
present may adjourn the meeting until a quorum be present.
(b) [A director interested in a contract or transaction may be
counted in determining the presence of a quorum at a meeting of the
Board of Directors which authorizes the contract or transaction.]
Except as provided in Section 4.15(b), the vote of a majority of the
Directors present at a meeting at which a quorum is present shall be
the act of the Board.
[(c) The vote of a majority of the directors present at a meeting
at which a quorum is present shall be the act of the Board of
Directors.]
Regulation
Sec. [3.9]4.11 The Board [of Directors] may adopt such rules,
regulations, and requirements for the conduct of the business and
management of [the Corporation] Nasdaq, not inconsistent with law, the
Restated Certificate of Incorporation, these By-Laws, [or the rules and
By-Laws of the National Association of Securities Dealers, Inc., as the
Board of Directors may deem proper. A member of the Board of Directors]
the Rules of the Association, or the By-Laws of the NASD, as the Board
may deem proper. A Director shall, in the performance of [his or her]
such Director's duties, be fully protected in relying in good faith
upon the books of account or reports made to [the Corporation] Nasdaq
by any of its officers, [or] by an independent certified public
accountant, [or] by an appraiser selected with reasonable care by the
Board [of Directors] or any committee of the Board [of Directors] or by
any agent of [the Corporation] Nasdaq, or in relying in good faith upon
other records of [the Corporation] Nasdaq.
Meetings
Sec. [3.10]4.12 (a) An annual meeting of the Board [of Directors]
shall be held for the purpose of organization, election of officers,
and transaction of any other business. If such meeting is held promptly
after and at the place specified for the annual meeting of
[stockholders] the stockholder, no notice of the annual meeting of the
Board [of Directors] need be given. Otherwise, such annual meeting
shall be held at such time and place as may be specified in a notice
given in accordance with Section [3.11 of these By-Laws] 4.13.
(b) Regular meetings of the Board [of Directors] may be held at
such time and place, within or without the State of Delaware, as
determined from time to time by the Board [of Directors]. After such
determination has been made, notice shall be given in accordance with
Section [3.11 of these By-Laws] 4.13.
(c) Special meetings of the Board [of Directors] may be called by
the Chair of the Board, [or] by the President, or by at least one-third
of the [directors at that time being] Directors then in office. Notice
of any special meeting of the Board [of Directors] shall be given to
each [director] Director in accordance with Section [3.11 of these By-
Laws.] 4.13.
(d) [Members of the Board of Directors, or any committee designated
by the Board of Directors,] Directors or members of any committee
appointed
[[Page 25293]]
by the Board may participate in a meeting of the Board [of Directors]
or of such committee through the use of a conference telephone or
similar communications equipment by means of which all persons
participating in the meeting may hear one another, and such
participation in a meeting shall constitute presence in person at such
meeting for all purposes.
Notice of Meetings; Waiver of Notice
Sec. [3.11]4.13 (a) Notice of any meeting of the Board [of
Directors] shall be deemed to be duly given to a [director (i) if
]Director if: (i) mailed to the address last made known in writing to
[the Corporation] Nasdaq by such [director] Director as the address to
which such notices are to be sent, at least [two] seven days before the
day on which such [special] meeting is to be held[, or]; (ii) [if] sent
to the [director] Director at such address by telegraph, telefax,
cable, radio, or wireless, not later than the day before the day on
which such meeting is to be held[,]; or (iii) [if] delivered to the
[director] Director personally or orally, by telephone or otherwise,
not later than the day before the day on which such [special] meeting
is to be held. Each notice shall state the time and place of the
meeting and the purpose(s) thereof.
(b) Notice of any meeting of the Board [of Directors] need not be
given to any [director] Director if waived by that [director] Director
in writing (or by telegram, telefax, cable, radio, or wireless and
subsequently confirmed in writing) whether before or after the holding
of such meeting, or if such [director] Director is present at such
meeting, subject to Article IX, Section 9.3(b).
(c) Any meeting of the Board [of Directors] shall be a legal
meeting without any prior notice if all [directors] Directors then in
office shall be present thereat.
Committees [of the Board of Directors]
Sec. [3.13]4.14 (a) The Board [of Directors] may, by resolution or
resolutions adopted by a majority of the whole Board [of Directors,
designate], appoint one or more committees[, each committee to consist
of one or more directors of the Corporation]. Except as herein
provided, vacancies in membership of any committee shall be filled by
the vote of a majority of the whole Board [of Directors]. The Board [of
Directors] may designate one or more [directors] Directors as alternate
members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or
disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting,
whether or not [he, she,] such member or [they] members constitute a
quorum, may unanimously appoint another [member of the Board of
Directors] Director to act at the meeting in the place of any such
absent or disqualified member. Members of a committee shall hold office
for such period as may be fixed by a resolution adopted by a majority
of the whole Board [of Directors], subject, however, to removal, with
or without cause, at any time only by the vote of a majority of the
whole Board [of Directors].
(b) [Any committee, to the extent permitted by law and to the
extent provided in the] The Board may, by resolution or resolutions
[creating such committee, shall have and may exercise all the powers
and authority of the Board of Directors] adopted by a majority of the
whole Board, delegate to one or more committees the power and authority
to act on behalf of the Board in carrying out the functions and
authority delegated to Nasdaq by the NASD under the Delegation Plan.
Such delegations shall be in conformance with applicable law, the
Restated Certificate of Incorporation, these By-Laws, and the
Delegation Plan. Action taken by a committee pursuant to such delegated
authority shall be subject to review, ratification, or rejection by the
Board. In all other matters, the Board may, by resolution or
resolutions adopted by a majority of the whole Board, delegate to one
or more committees that consist solely of one or more Directors the
power and authority to act on behalf of the Board in the management of
the business and affairs of [the Corporation, and]Nasdaq to the extent
permitted by law and not inconsistent with the Delegation Plan. A
committee, to the extent permitted by law and provided in the
resolution or resolutions creating such committee, may authorize the
seal of [the Corporation] Nasdaq to be affixed to all papers [which]
that may require it.
(c) Except as otherwise provided by applicable law, no [No such]
committee shall have the power or authority of the Board with regard
to: amending the Restated Certificate of Incorporation or the By-Laws
of [the Corporation,] Nasdaq; adopting an agreement of merger or
consolidation; recommending to the [stockholders] stockholder the sale,
lease, or exchange of all or substantially all [the Corporation's]
Nasdaq's property and assets; or recommending to the [stockholders]
stockholder a dissolution of [the Corporation] Nasdaq or a revocation
of a dissolution. Unless the resolution of the Board [of Directors]
expressly so provides, no [such] committee shall have the power or
authority to authorize the issuance of stock.
(d) The Board may appoint an Executive Committee, which shall, to
the fullest extent permitted by Delaware law and other applicable law,
have and be permitted to exercise all the powers and authority of the
Board in the management of the business and affairs of Nasdaq between
meetings of the Board, and which may authorize the seal of Nasdaq to be
affixed to all papers that may require it. The President of Nasdaq
shall be a member of the Executive Committee, and with respect to the
remaining members, the Executive Committee shall have a percentage of
Non-Industry Directors at least as great as the percentage of Non-
Industry Directors on the whole Board, and a percentage of Public
Directors at least as great as the percentage of Public Directors on
the whole Board.
(e)[(c)] Each committee may adopt its own rules of procedure and
may meet at stated times or on such notice as such committee may
determine. Each committee shall keep regular minutes of its proceedings
and report the same to the Board [of Directors] when required.
(f) [(d)]Unless otherwise provided by the Board [of Directors, a
majority of any such committee ], a majority of a committee, excluding
the President if the President is a member of the committee, shall
constitute a quorum for the transaction of business, and the vote of a
majority of the members of such committee present at a meeting at which
a quorum is present shall be an act of such committee.
(g) Upon request, each prospective committee member who is not a
Director shall provide to the Secretary of the NASD such information as
is reasonably necessary to serve as the basis for a determination of
the prospective committee member's classification as an Industry, Non-
Industry, or Public committee member, and the Secretary of the NASD
shall certify to the Board each prospective committee member's
classification. Such committee members shall update the information
submitted under this Section at least annually and upon request of the
Secretary of the NASD, and shall report immediately to the Secretary of
the NASD any change in such classification.
Conflicts of Interest; Contracts and Transactions Involving Directors
Sec. [3.12.]4.15 (a) A Director or a member of any committee shall
not directly or indirectly participate in any
[[Page 25294]]
adjudication of the interests of any party if that Director or
committee member has a conflict of interest or bias, or if
circumstances otherwise exists where his or her fairness might
reasonably be questioned. In any such case, the Director or committee
member shall recuse himself or herself or shall be disqualified.
(b) No contract or transaction between [the Corporation] Nasdaq and
one or more of its [directors] Directors or officers, or between [the
Corporation] Nasdaq and any other corporation, partnership,
association, or other organization in which one or more of its
[directors] Directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason[,
or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or the committee thereof
which] if: (i) the material facts pertaining to such Director's or
officer's relationship or interest and the contract or transaction are
disclosed or are known to the Board or the committee, and the Board or
committee in good faith authorizes the contract or transaction[, or
solely because his, her, or their votes are counted for such purposes
if: (i) the material facts pertaining to such director's or officer's
relationship or interest and] by the affirmative vote of a majority of
the disinterested Directors; (ii) the material facts are disclosed or
become known to the Board or committee after the contract or
transaction [are disclosed or are known to the Board of Directors or
the committee, and the Board] is entered into, and the Board or
committee in good faith [authorizes] ratifies the contract or
transaction by the affirmative vote of a majority of the disinterested
[directors, even though the disinterested directors be less than a
quorum; or (ii)] Directors; or (iii) the material facts pertaining to
the [director's] Director's or officer's relationship or interest and
the contract or transaction are disclosed or are known to the
[stockholders] stockholder entitled to vote thereon, and the contract
or transaction is specifically approved in good faith by vote of the
[stockholders; or (iii) the contract or transaction is fair as to the
Corporation as of the time it is authorized, approved or ratified by
the Board of Directors, a committee thereof, or the stockholders.
Common or interested directors] stockholder. Only disinterested
Directors may be counted in determining the presence of a quorum at the
portion of a meeting of the Board [of Directors,] or of a committee
that [which] authorizes the contract or transaction.
Communication of Views Regarding NASD or NASD Regulation Election or
Nomination
Sec. 4.16 Nasdaq, the Board, any committee, and Nasdaq staff shall
not take any position publicly or with an NASD member or person
associated with or employed by a member with respect to any candidate
in a contested election or nomination held pursuant to the NASD By-Laws
or the NASD Regulation By-Laws. A Director or committee member may
communicate his or her views with respect to a candidate if such
Director or committee member acts solely in his or her individual
capacity and disclaims any intention to communicate in any official
capacity on behalf of Nasdaq, the Board, or any committee. Nasdaq, the
Board, any committee, and the Nasdaq staff shall not provide any
administrative support to any candidate in a contested election or
nomination conducted pursuant to the NASD By-Laws or the NASD
Regulation By-Laws.
Action Without Meeting
Sec. [3.14]4.17 Any action required or permitted to be taken at
[any] a meeting of the Board [of Directors or any] or of a committee
[thereof] may be taken without a meeting if all Directors or all
members of [the Board of Directors or] such committee, as the case may
be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board [of Directors or such
committee] or the committee.
Article V
Compensation
Compensation of Board and Committee Members
Sec. 5.1 The Board may provide for reasonable compensation of the
Chair of the Board, the Directors, and the members of any committee.
The Board may also provide for reimbursement of reasonable expenses
incurred by such persons in connection with the business of Nasdaq.
Article [IV]VI
Officers, Agents, and Employees
Principal Officers
Sec. [4.1]6.1 The principal officers of [the Corporation] Nasdaq
shall be elected by the Board [of Directors] and shall include a Chair,
a President, a Secretary, a Treasurer, and such other officers as may
be designated by the Board [of Directors]. One person may hold the
offices and perform the duties of any two or more of said principal
offices, except the offices and duties of President and Vice President
or of President and Secretary. None of the principal officers, except
the Chair of the Board and the President, need be [directors of the
Corporation] Directors of Nasdaq.
Election of Principal Officers; Term of Office
Sec. [4.2]6.2 (a) The principal officers of [the Corporation]
Nasdaq shall be elected annually by the Board [of Directors] at the
annual meeting of the Board [of Directors] convened pursuant to Section
[3.10(a) of these By-Laws] 4.12(a). Failure to elect any principal
officer annually shall not dissolve [the Corporation] Nasdaq.
(b) If the Board [of Directors] shall fail to fill any principal
office at an annual meeting, or if any vacancy in any principal office
shall occur, or if any principal office shall be newly created, such
principal office may be filled at any regular or special meeting of the
Board [of Directors].
(c) Each principal officer shall hold office until [his or her] a
successor is duly elected and qualified, or until [his or her earlier]
death, resignation, or removal.
Subordinate Officers, Agents, or Employees
Sec. [4.3]6.3 In addition to the principal officers, [the
Corporation] Nasdaq may have one or more subordinate officers, agents,
and employees as the Board [of Directors] may deem necessary, each of
whom shall hold office for such period and exercise such authority and
perform such duties as the Board [of Directors], the President, or any
officer designated by the Board [of Directors], may from time to time
determine. [The Board of Directors at any time may appoint and remove,
or may delegate to any principal officer the power to appoint and to
remove, any subordinate officer, agent, or employee of the
Corporation.] Agents and employees of Nasdaq shall be under the
supervision and control of the officers of Nasdaq, unless the Board, by
resolution, provides that an agent or employee shall be under the
supervision and control of the Board.
Delegation of Duties of Officers
Sec. [4.4]6.4 The Board [of Directors] may delegate the duties and
powers of any officer of [the Corporation] Nasdaq to any other officer
or to any [director] Director for a specified period of time and for
any reason that the Board [of Directors] may deem sufficient.
[[Page 25295]]
Resignation and Removal of Officers
Sec. [4.5]6.5 (a) Any officer may resign at any time upon written
notice of resignation to the Board [of Directors], the President, or
the Secretary. Any such resignation shall take effect upon receipt of
such notice or at any later time specified therein. The acceptance of a
resignation shall not be necessary to make the resignation effective.
(b) Any officer[, agent or employee of the Corporation] of Nasdaq
may be removed, with or without cause, by resolution adopted by a
majority of the [directors] Directors then in office at any regular or
special meeting of the Board [of Directors] or by a written consent
signed by all of the [directors] Directors then in office. Such removal
shall be without prejudice to the contractual rights of the affected
officer, [agent, or employee,] if any, with [the Corporation] Nasdaq.
Bond
Sec. [4.6]6.6 [The Corporation] Nasdaq may secure the fidelity of
any or all of its officers, agents, or employees by bond or otherwise.
Chair of the Board
Sec. [4.7]6.7 The Chair of the Board shall preside at all meetings
of the Board [of Directors] at which [he or she] the Chair is present.
The Chair shall exercise such other powers and perform such other
duties as may be assigned to [him or her] the Chair from time to time
by the Board [of Directors].
President
Sec. [4.8]6.8 The President shall, in the absence of the Chair of
the Board, preside at all meetings of the Board [of Directors] at which
[he or she] the President is present. The President shall be the [chief
executive officer of the Corporation] Chief Executive Officer of Nasdaq
and shall have general supervision over the business and affairs of
[the Corporation] Nasdaq. The President shall have all powers and
duties usually incident to the office of the President, except as
specifically limited by a resolution of the Board [of Directors]. The
President shall exercise such other powers and perform such other
duties as may be assigned to [him or her] the President from time to
time by the Board [of Directors].
Vice President
Sec. [4.9]6.9 The Board shall elect one or more Vice Presidents.
In the absence or disability of the President or if the office of
President [be] becomes vacant, the Vice Presidents in the order
determined by the Board [of Directors], or if no such determination has
been made, in the order of their seniority, shall perform the duties
and exercise the powers of the President, subject to the right of the
Board [of Directors] at any time to extend or restrict such powers and
duties or to assign them to others. Any Vice President may have such
additional designations in [his or her] such Vice President's title as
the Board [of Directors] may determine. The Vice Presidents shall
generally assist the President in such manner as the President shall
direct. Each Vice President shall exercise such other powers and
perform such other duties as may be assigned to [him or her] such Vice
President from time to time by the Board [of Directors] or the
President. The term ``Vice President'' used in this Section shall
include the positions of Executive Vice President, Senior Vice
President, and Vice President.
Secretary
Sec. [4.10]6.10 Secretary shall act as Secretary of all meetings
of [stockholders] the stockholder and of the Board [of Directors] at
which [he or she] the Secretary is present, shall record all the
proceedings of all such meetings in a book to be kept for that purpose,
shall have supervision over the giving and service of notices of [the
Corporation] Nasdaq, and shall have supervision over the care and
custody of the corporate records and the corporate seal of [the
Corporation] Nasdaq. The Secretary shall be empowered to affix the
corporate seal to documents, the execution of which on behalf of [the
Corporation] Nasdaq under its seal, is duly authorized, and when so
affixed, may attest the same. The Secretary shall have all powers and
duties usually incident to the office of Secretary, except as
specifically [listed] limited by a resolution of the Board [of
Directors]. The Secretary shall exercise such other powers and perform
such other duties as may be assigned to [him or her] the Secretary from
time to time by the Board [of Directors] or the President.
Assistant Secretary
Sec. [4.11]6.11 In the absence of the Secretary or in the event of
[his or her] the Secretary's inability or refusal to act, any Assistant
Secretary, approved by the Board, shall exercise all powers and perform
all duties of the Secretary. An Assistant Secretary shall also exercise
such other powers and perform such other duties as may be assigned to
[him or her] such Assistant Secretary from time to time by the Board
[of Directors] or the Secretary.
Treasurer
Sec. [4.12]6.12 The Treasurer shall have general supervision over
the care and custody of the funds and over the receipts and
disbursements of [the Corporation] Nasdaq and shall cause the funds of
[the Corporation] Nasdaq to be deposited in the name of [the
Corporation] Nasdaq in such banks or other depositories as the Board
[of Directors] may designate. The Treasurer shall have supervision over
the care and safekeeping of the securities of [the Corporation] Nasdaq.
The Treasurer shall have all powers and duties usually incident to the
office of Treasurer except as specifically limited by a resolution of
the Board [of Directors]. The Treasurer shall exercise such other
powers and perform such other duties as may be assigned to [him] the
Treasurer from time to time by the Board [of Directors] or the
President.
Assistant Treasurer
Sec. [4.13]6.13 In the absence of the Treasurer or in the event of
[his or her] the Treasurer's inability or refusal to act, any Assistant
Treasurer, approved by the Board, shall exercise all powers and perform
all duties of the Treasurer. An Assistant Treasurer shall also exercise
such other powers and perform such other duties as may be assigned to
[him or her] such Assistant Treasurer from time to time by the Board
[of Directors] or the Treasurer.
Article [V] VII
Indemnification
Indemnification of Directors, Officers, Employees, and Agents
Sec. [5.1]7.1 (a) [The Corporation] Nasdaq shall indemnify, and
hold harmless, to the fullest extent permitted by Delaware law as it
presently exists or may thereafter be amended, any person (and the
heirs, executors, and administrators of such person) who, by reason of
the fact that he or she is or was a [director or] Director, officer [of
the Corporation], or employee of Nasdaq, or is or was a [director or]
Director, officer, or employee of Nasdaq who is or was serving at the
request of [the Corporation] Nasdaq as a director, officer, employee,
or agent of another corporation, partnership, joint venture, trust [or
other enterprise, ], enterprise, or non-profit entity, including
service with respect to employee benefit plans, is or was a party, or
is threatened to be made a party to:
(i) any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of [the Corporation)]
[[Page 25296]]
Nasdaq) against expenses (including attorneys' fees and disbursements),
judgments, fines, and amounts paid in settlement actually and
reasonably incurred by such person in connection with any such action,
suit, or proceeding; or (ii) any threatened, pending, or completed
action or suit by or in the right of [the Corporation] Nasdaq to
procure a judgment in its favor against expenses (including attorneys'
fees and disbursements) actually and reasonably incurred by such
[persons] person in connection with the defense or settlement of such
action or suit.
(b) Nasdaq shall advance expenses (including attorneys' fees and
disbursements) to persons described in subsection (a); provided,
however, that the payment of expenses incurred by such person in
advance of the final disposition of the matter shall be conditioned
upon receipt of a written undertaking by that person to repay all
amounts advanced if it should be ultimately determined that the person
is not entitled to be indemnified under this Section or otherwise.
[(b)](c) [The Corporation] Nasdaq may, in its discretion, indemnify
and hold harmless, to the fullest extent permitted by Delaware law as
it presently exists or may thereafter be amended, any person (and the
heirs, executors, and administrators of such persons) who, by reason of
the fact that he or she is or was an [employee or agent of the
Corporation, or] agent of Nasdaq or is or was an agent of Nasdaq who is
or was serving at the request of [the Corporation] Nasdaq as a
director, officer, employee, or agent of another corporation,
partnership, trust [or other enterprise] enterprise, or non-profit
entity, including service with respect to employee benefit plans, was
or is a party, or is threatened to be made a party to any action or
proceeding described [above] in subsection (a).
[(c)](d) [The Corporation] Nasdaq may, in its discretion, pay the
expenses (including attorneys' fees and disbursements) reasonably and
actually incurred by an agent in defending any action, suit, or
proceeding in advance of its final disposition[,]; provided, however,
that the payment of expenses incurred by [a director, officer, or
employee] such person in advance of the final disposition of the matter
shall be conditioned upon receipt of a written undertaking by [the
officer, director, or employee] that person to repay all amounts
advanced if it should be ultimately determined that [such] the person
is not entitled to be indemnified under this Section [5.1 or otherwise]
or otherwise.
(e) Notwithstanding the foregoing or any other provision of these
By-Laws, no advance shall be made by Nasdaq to an agent or non-officer
employee if a determination is reasonably and promptly made by the
Board by a majority vote of those Directors who have not been named
parties to the action, even though less than a quorum, or, if there are
no such Directors or if such Directors so direct, by independent legal
counsel, that, based upon the facts known to the Board or such counsel
at the time such determination is made: (1) the person seeking
advancement of expenses (i) acted in bad faith, or (ii) did not act in
a manner that he or she reasonably believed to be in or not opposed to
the best interests of Nasdaq; (2) with respect to any criminal
proceeding, such person believed or had reasonable cause to believe
that his or her conduct was unlawful; or (3) such person deliberately
breached his or her duty to Nasdaq.
[(d)] (f) The indemnification provided by this [section] Section in
a specific case shall not be deemed exclusive of any other rights to
which a person seeking indemnification may be entitled [under any by-
law, agreement, vote of stockholders or disinterested directors or
otherwise], both as to action in his or her official capacity and as to
action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a [director] Director,
officer, employee, or agent and shall inure to the benefit of [his or
her] such person's heirs, executors, and administrators.
(g) Notwithstanding the foregoing, but subject to subsection (j),
Nasdaq shall be required to indemnify any person identified in
subsection (a) in connection with a proceeding (or part thereof)
initiated by such person only if the initiation of such proceeding (or
part thereof) by such person was authorized by the Board.
[(e)](h) [The Corporation's] Nasdaq's obligation, if any, to
indemnify or advance expenses to any person who is or was serving at
its request as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust [or other], enterprise,
or non-profit entity shall be reduced by any amount such person may
collect as indemnification or advancement from such other corporation,
partnership, joint venture, trust, [or other] enterprise, or non-profit
entity.
[(f)] (i) Any repeal or modification of the foregoing provisions of
this Section [5.1] shall not adversely affect any right or protection
hereunder of any person respecting any act or omission occurring prior
to the time of such repeal or modification.
(j) If a claim for indemnification or advancement of expenses under
this Article is not paid in full within 60 days after a written claim
therefor by an indemnified person has been received by Nasdaq, the
indemnified person may file suit to recover the unpaid amount of such
claim and, if successful in whole or in part, shall be entitled to be
paid the expense of prosecuting such claim. In any such action, Nasdaq
shall have the burden of proving that the indemnified person is not
entitled to the requested indemnification or advancement of expenses
under Delaware law.
Indemnification Insurance
Sec. [5.2]7.2 [The Corporation] Nasdaq shall have power to
purchase and maintain insurance on behalf of any person who is or was a
[director] Director, officer, employee, or agent of [the Corporation]
Nasdaq, or is or was serving at the request of [the Corporation] Nasdaq
as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust [or other], enterprise, or non-profit
entity against any liability asserted against [him or her] such person
and incurred by [him or her] such person in any such capacity, or
arising out of [his or her] such person's status as such, whether or
not [the Corporation] Nasdaq would have the power to indemnify [him or
her] such person against such liability [under the provisions of this
section] hereunder.
Article [VI] VIII
Capital Stock
Sole Stockholder
Sec. 8.1 The NASD shall be the sole stockholder of the capital
stock of Nasdaq.
Certificates
Sec. [6.1]8.2 [Each] The stockholder [in the Corporation] shall be
entitled to a certificate or certificates in such form as shall be
approved by the Board [of Directors], certifying the number of shares
of capital stock in [the Corporation] Nasdaq owned by [such] the
stockholder.
Signatures
Sec. [6.2]8.3 (a) Certificates for shares of capital stock of [the
Corporation] Nasdaq shall be signed in the name of [the Corporation]
Nasdaq by two officers with one being the Chair of the Board, the
President, or a Vice President, and the other being the Secretary, the
Treasurer, or such other
[[Page 25297]]
officer that may be authorized by the Board [of Directors]. Such
certificates may be sealed with the corporate [Seal] seal of [the
Corporation] Nasdaq or a facsimile thereof.
(b) If any such certificates are countersigned by a transfer agent
other than [the Corporation] Nasdaq or its employee, or by a registrar
other than [the Corporation] Nasdaq or its employee, any other
signature on the certificate may be a facsimile. In [case] the event
that any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall [have
ceased] cease to be such officer, transfer agent, or registrar before
such certificate is issued, such certificate may be issued by [the
Corporation] Nasdaq with the same effect as if such person were such
officer, transfer agent, or registrar at the date of issue.
Stock Ledger
Sec. [6.3]8.4 (a) A record of all certificates for capital stock
issued by [the Corporation] Nasdaq shall be kept by the Secretary or
any other officer, employee, or agent designated by the Board [of
Directors]. Such record shall show the name and address of the person,
firm, or corporation in which certificates for capital stock are
registered, the number of shares represented by each such certificate,
the date of each such certificate, and in the case of certificates
which have been canceled, the date of cancellation thereof.
(b) [The Corporation] Nasdaq shall be entitled to treat the holder
of record of shares of capital stock as shown on the stock ledger as
the owner thereof and as the person entitled to vote such shares and to
receive notice of meetings, and for all other purposes. [The
Corporation] Nasdaq shall not be bound to recognize any equitable or
other claim to or interest in any share of capital stock on the part of
any other person, whether or not [the Corporation] Nasdaq shall have
express or other notice thereof.
Transfers of Stock
Sec. [6.4]8.5 (a) The Board [of Directors] may make such rules and
regulations as it may deem expedient, not inconsistent with law, the
Restated Certificate of Incorporation, or these By-Laws, concerning the
issuance, transfer, and registration of certificates for [share] shares
of capital stock of [the Corporation] Nasdaq. The Board [of Directors]
may appoint, or authorize any principal officer to appoint, one or more
transfer agents or one or more transfer clerks and one or more
registrars and may require all certificates for capital stock to bear
the signature or signatures of any of them.
(b) Transfers of capital stock shall be made on the books of [the
Corporation] Nasdaq only upon delivery to [the Corporation] Nasdaq or
its transfer agent of: (i) a written direction of the registered holder
named in the certificate or such holder's attorney lawfully constituted
in writing[,]; (ii) the certificate for the shares of capital stock
being transferred[,]; and (iii) a written assignment of the shares of
capital stock evidenced thereby.
Cancellation
Sec. [6.5]8.6 Each certificate for capital stock surrendered to
[the Corporation] Nasdaq for exchange or transfer shall be canceled and
no new certificate or certificates shall be issued in exchange for any
existing certificate other than pursuant to [Sec. 6.6. of these By-
Laws] Section 8.7 until such existing certificate shall have been
canceled.
Lost, Stolen, Destroyed, and Mutilated Certificates
Sec. [6.6]8.7 In the event that any certificate for shares of
capital stock of [the Corporation] Nasdaq shall be mutilated, [the
Corporation] Nasdaq shall issue a new certificate in place of such
mutilated certificate. In [case] the event that any such certificate
shall be lost, stolen, or destroyed [the Corporation], Nasdaq may, in
the discretion of the Board [of Directors] or a committee [designated]
appointed thereby with power so to act, issue a new certificate for
capital stock in the place of any such lost, stolen, or destroyed
certificate. The applicant for any substituted certificate or
certificates shall surrender any mutilated certificate or, in the case
of any lost, stolen, or destroyed certificate, furnish satisfactory
proof of such loss, theft, or destruction of such certificate and of
the ownership thereof. The Board [of Directors] or such committee may,
in its discretion, require the owner of a lost or destroyed
certificate, or [his] the owner's representatives, to furnish to [the
Corporation] Nasdaq a bond with an acceptable surety or sureties and in
such sum as will be sufficient to indemnify [the Corporation] Nasdaq
against any claim that may be made against it on account of the lost,
stolen, or destroyed certificate or the issuance of such new
certificate. A new certificate may be issued without requiring a bond
when, in the judgment of the Board [of Directors], it is proper to do
so.
Fixing of Record [Dates] Date
Sec.[6.7]8.8 The Board may fix a record date in accordance with
Delaware law. [ (a) In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent or
dissent to corporate action in writing without a meeting, or to
exercise any rights with respect to any change, conversion or exchange
of stock, or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be more
than sixty nor less than ten days before the date of any meeting of
stockholders, nor more than sixty days prior to any other action. Only
such stockholders as shall be stockholders of record on the date so
fixed shall be entitled to notice of and to vote at such meeting or any
adjournment thereof, or to give such consent or dissent, or to exercise
such rights with respect to any such change, conversion or exchange of
stock, or to participate in any such action, notwithstanding the
transfer of any stock on the books of the Corporation after any record
date so fixed.]
[(b) If no record date is fixed by the Board of Directors:
(i) the record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the date on which notice is given,
or if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held;
(ii) the record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when
no prior action by the Board of Directors is necessary, shall be at the
close of business on the day on which the first written consent is
expressed; and
(iii) the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board
of Directors adopts the resolution relating thereto.]
[(c) A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.]
Article [VII] IX
Miscellaneous Provisions
Corporate Seal
Sec. [7.1]9.1 The seal of [the Corporation] Nasdaq shall be
circular in
[[Page 25298]]
form and shall bear, in addition to any other emblem or device approved
by the Board [of Directors], the name of [the Corporation] Nasdaq, the
year of its incorporation, and the words ``Corporate Seal'' and
``Delaware[''].'' The seal may be used by causing it to be affixed or
impressed, or a facsimile thereof may be reproduced or otherwise used
in such manner as the Board [of Directors] may determine.
Fiscal Year
Sec. [7.2]9.2 The fiscal year of [the Corporation] Nasdaq shall
begin the 1st day of January in each year, or such other month as the
Board [of Directors] may determine by resolution.
Waiver of Notice
Sec. [7.3]9.3 (a) Whenever notice is required to be given by law,
the Restated Certificate of Incorporation, or these By-Laws, a written
waiver thereof, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the
[stockholders, directors] stockholder, Directors, or members of a
committee of [directors] Directors need be specified in any written
waiver of notice.
(b) Attendance of a person at a meeting shall constitute a waiver
of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to
the transaction of any business because the meeting is not lawfully
called or convened.
Execution of Instruments, Contracts, Etc.
Sec. [7.4.]9.4 (a) All checks, drafts, bills of exchange, notes,
or other obligations or orders for the payment of money shall be signed
in the name of [the Corporation] Nasdaq by such officer or officers or
person or persons[,] as the Board [of Directors], or a duly authorized
committee thereof, may from time to time designate. Except as otherwise
provided by law, the Board [of Directors], any committee given specific
authority in the premises by the Board [of Directors], or any committee
given authority to exercise generally the powers of the Board [of
Directors] during intervals between meetings of the Board [of
Directors], may authorize any officer, employee, or agent, in the name
of and on behalf of [the Corporation] Nasdaq, to enter into or execute
and deliver deeds, bonds, mortgages, contracts, and other obligations
or instruments, and such authority may be general or confined to
specific instances.
(b) All applications, written instruments, and papers required by
any department of the United States Government or by any state, county,
municipal, or other governmental authority, may be executed in the name
of [the Corporation] Nasdaq by any principal officer or subordinate
officer of [the Corporation] Nasdaq, or, to the extent designated for
such purpose from time to time by the Board [of Directors], by an
employee or agent of [the Corporation] Nasdaq. Such designation may
contain the power to substitute, in the discretion of the person named,
one or more other persons.
Form of Records
Sec. [7.5]9.5 Any records maintained by [the Corporation] Nasdaq
in the regular course of business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of,
magnetic tape, computer disk, or any other information storage device,
provided that the records so kept can be converted into clearly legible
form within a reasonable time.
Article [VIII] X
Amendments; Emergency By-Laws
By [Stockholders] Stockholder
Sec. [8.1]10.1 These By-Laws may be altered, amended, or repealed,
or new By-Laws may be adopted, at any meeting of [stockholders by the
vote of the holders of not less than a majority of the outstanding
shares of stock entitled to vote thereat] the stockholder, provided
that, in the case of a special meeting, notice that an amendment is to
be considered and acted upon shall be inserted in the notice or waiver
of notice of said meeting.
By Directors
Sec. [8.2]10.2 To the extent permitted by the Restated
Certificate of Incorporation, these By-Laws may be altered, amended, or
repealed, or new By-Laws may be adopted, at any regular or special
meeting of the Board [of Directors] by a resolution adopted by a vote
of a majority of the whole Board [of Directors].
Emergency By-Laws
Sec. [8.3]10.3 The Board [of Directors] may adopt emergency By-
Laws subject to repeal or change by action of the [stockholders]
stockholder which shall, notwithstanding any different provision of
law, the Restated Certificate of Incorporation, or these By-Laws, be
operative during any emergency resulting from any nuclear or atomic
disaster, an attack on the United States or on a locality in which [the
Corporation] Nasdaq conducts its business or customarily holds meetings
of the Board [of Directors or stockholders] or the stockholder, any
catastrophe, or other emergency condition, as a result of which a
quorum of the Board [of Directors] or a committee thereof cannot
readily be convened for action. Such emergency By-Laws may make any
provision that may be practicable and necessary [for] under the
circumstances of the emergency.
* * * * *
Plan of Allocation and Delegation of Functions by NASD to
Subsidiaries
I. NASD, Inc.
The NASD, Inc. (referenced as ``NASD''), the Registered Section 15A
Association, is the parent company of the wholly-owned Subsidiaries
NASD Regulation, Inc. (referenced individually as [''NASDR'')]''NASD
Regulation'') and The Nasdaq Stock Market, Inc. (referenced
individually as ``Nasdaq'') (referenced collectively as the
``Subsidiaries''). The term ``Association'' shall refer to the NASD and
the Subsidiaries collectively.
A. Governors, Directors and Committee Members
The terms ``Industry Governors,'' ``Non-Industry Governors,''
``Public Governors,'' ``Industry Directors,'' ``Non-Industry
Directors,'' ``Public Directors,'' ``Industry committee members,''
``Non-Industry committee members,'' and ``Public committee members,''
as used herein, shall have the meanings set forth in the By-Laws of the
NASD, NASD Regulation and Nasdaq, as applicable. [following definitions
are applicable to Governors of the NASD, Directors of the Subsidiaries,
and Members of Committees of the NASD and the Subsidiaries.
1. ``Industry'' Governors, Directors or Committee Members shall
include (a) officers, directors and employees of brokers and dealers
and persons who have been employed in any such capacity at any time
within the prior three years; and (b) persons who have consulting or
employment relationships with or provided professional services to the
Association and persons who have had any such relationship or provided
any such services at any time within the prior three years.
2. ``Non-industry'' Governors, Directors or Committee Members shall
be (a) Public Governors; (b) officers and employees of issuers of
securities listed on The Nasdaq Stock Market or traded
[[Page 25299]]
in the over-the-counter market; (c) persons affiliated with brokers and
dealers that operate solely to assist the securities-related activities
of the business of non-member affiliates (such as a broker or dealer
established to (i) distribute an affiliate's securities which are
issued on a continuous or regular basis, or (ii) process the limited
buy and sell orders of the shares of employee owners of the affiliate);
(d) employees of an entity that is affiliated with a broker or dealer
that does not account for a material portion of the revenues of the
consolidated entity, and who are primarily engaged in the business of
the non-member entity; and (e) other individuals who would not be
Industry Governors, Directors or Committee Members.
3. ``Public'' Governors, Directors or Committee Members shall be
non-industry persons who have no material business relationship with a
broker, dealer or the Association.]
B. Functions and Authority of the NASD
The NASD shall have ultimate responsibility for the rules and
regulations of the Association and its operation and administration. As
set forth below in Sections II.A. and III.A., the NASD has delegated
certain authority and functions to its [subsidiaries] Subsidiaries.
Actions taken pursuant to delegated authority, however, remain subject
to review, ratification or rejection by the NASD Board in accordance
with procedures established by that Board. Any function or
responsibility as a registered securities association under the
Securities Exchange Act of 1934 (``Act''), or as set forth in the
[articles of incorporation] Restated Certificate of Incorporation or
the by-laws is hereby reserved, except as expressly delegated to the
[subsidiaries] Subsidiaries. In addition, the NASD expressly retains
the following authority and functions:
1. To exercise overall responsibility for ensuring that the
Association's statutory and self-regulatory obligations and functions
are fulfilled.
2. To delegate authority to the Subsidiaries to take actions on
behalf of the NASD.
3. To elect the Subsidiary Boards of Directors.
4. To review the rulemaking and disciplinary decisions of the
Subsidiaries (See Sections [II.C.] II.B. and [III.C] III.B. below).
5. To coordinate actions of the Subsidiary Boards as necessary.
6. To resolve any disputes between the Subsidiaries.
7. To administer common overhead and technology of the
Subsidiaries.
8. To administer the Office of Internal Review as provided in
Section [I.D.4] I.C.4. below.
9. To manage external Association relations on major policy issues.
10. To direct the Subsidiaries to take action necessary to
effectuate the purposes and functions of the Association.
[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 in
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 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 may be included on the ballot
only if the Committee certifies that the candidate's petitions 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.
4. Term of Office
a. Each Governor shall hold office for a term of not more than
three years, or until a successor is elected and qualified, or until
death, disqualification, resignation, or removal. Except as provided in
paragraph (b) and (c), Governors may not serve more than two
consecutive terms of office on any Association Board.
b. The CEO of the NASD shall serve as a member of the NASD Board
until a successor is selected and qualified, or until death,
resignation, disqualification, or removal.
c. Where a Governor is appointed to fill a term of less than one
year, such Governor shall not be precluded from serving two additional
terms of office.
5. Vacancies
a. If a Governor position becomes vacant before the expiration of
the Governor's term of office, the National Nominating Committee shall
recommend, and the NASD Board shall elect by majority vote of the
remaining Governors, a person satisfying the criteria for a Governor
position of the type (Industry, Non-industry or Public), vacated as
defined in Section I.A. above, unless such Governor has a remaining
term of office of no more than six months, in which case no replacement
will be required.
[[Page 25300]]
b. If a Governor no longer satisfies the criteria for the category
in which he or she was elected (Industry, Non-industry or Public) and
has a remaining term of office of more than six months, such Governor
shall be automatically removed from office unless the remaining members
of the NASD Board determine otherwise by a majority vote and the
failure to remove the Governor does not affect the proportional
representation set forth in Section I.C.1. above.
D. Audit Committee
1. The Audit Committee shall be a committee of the NASD Board and
shall include the following functions:
a. To ensure the existence of adequate controls and the integrity
of the financial reporting process of the Association.
b. To recommend to the NASD Board, and to monitor the independence
and performance of, the certified public accountants retained as
outside auditors by the NASD.
c. To direct and oversee all the activities of the Association's
internal review function, including but not limited to management's
responses to the internal review function.
2. Composition: The Audit Committee shall be composed of Four (4)
or Five (5) members of the NASD Board, none of whom are officers or
employees of the Association. The Committee shall include at least one
Public Committee Member who shall serve as Chairperson of the
Committee. The Committee shall have no more than two Industry Committee
Members. If the Committee shall have Four (4) members it shall have not
more than One (1) Industry Committee Member. In the event that the size
of the NASD Board shall at any time consist of Eleven (11) or more
members, the Audit Committee shall include Two (2) Public Committee
Members. In addition, each Subsidiary shall designate a Public Member
of its Board as a liaison to the Audit Committee. The Audit Committee
may consult with that person on issues relating to the functions of the
Subsidiary, but neither the liaison nor any officer or employee of the
Association shall serve on the Audit Committee in any voting or non-
voting capacity.
3. No member of the Audit Committee shall participate in the
consideration or decision of any matter relating to a particular NASD
member, company or individual if he or she has a material interest in,
or a professional, business or personal relationship with, that member,
company or individual or if such participation shall create an
appearance of impropriety. Committee members shall consult with the
General Counsel of NASD to determine if recusal is necessary. In the
event that a member of the Committee is recused from consideration of a
matter, any decision on the matter shall be by a vote of a majority of
the remaining members of the Committee.
4. Office of Internal Review: The Audit Committee shall have
exclusive authority: (a) to hire or terminate the Director of Internal
Review, (b) to determine the compensation of the Director of Internal
Review, and (c) to determine the budget for the Office of Internal
Review. The Office of Internal Review shall report directly to the
Audit Committee. The Audit Committee may, in its discretion, direct
that the Office of Internal Review also report to senior management of
the NASD on matters it deems appropriate and may request that senior
NASD management perform such operational oversight as necessary and
proper, consistent with preservation of the independence of the
internal review function.]
C.[E.] Management Compensation Committee
1. The Management Compensation Committee shall be a Committee of
the NASD Board and shall have the following functions: To consider and
recommend compensation policies, programs, and practices for employees
of the Association.
2. Composition: The Management Compensation Committee shall be
composed of [Four (4)] four or more [Members] members of the NASD
Board, equally balanced between Industry and Non[-industry]-Industry
Governors. If at any time there shall be an odd number of members of
the Management Compensation Committee, Non[-industry Committee
Members]-Industry committee members shall be in the majority.
D.[F.] Access to and Status of Officers, Directors, Employees, Books,
Records, and Premises of Subsidiaries
Notwithstanding the delegation of authority to the Subsidiaries, as
set forth in Sections II.A. and III.A. below, the staff, books,
records, and premises of the Subsidiaries are the staff, books,
records, and premises of the NASD subject to oversight pursuant to the
[Securities Exchange Act of 1934 (``Act'')] Act, and all officers,
directors, employees, and agents of the Subsidiaries are officers
[and], directors, employees, and agents of the NASD for purposes of the
Act.
II. NASD Regulation, Inc. [``NASDR'')](``NASD Regulation'')
A. Delegation of Functions and Authority
1. The NASD hereby delegates to [the NASDR and the NASDR] NASD
Regulation and NASD Regulation assumes the following responsibilities
of and functions as a registered securities association:
a. To establish rules and regulations for NASD members including,
but not limited to fees [and], membership requirements [and the Code of
Arbitration and Mediation Procedure.], and arbitration procedures.
b. To determine Association policy, including developing and
adopting necessary or appropriate rule changes, relating to the
business and sales practices of NASD members and associated persons
with respect to, but not limited to, (i) arbitration of disputes among
and between NASD members, associated persons and customers, (ii) public
and private sale or distribution of securities including underwriting
arrangements and compensation, (iii) financial responsibility, (iv)
qualifications for NASD membership and association with NASD members,
(v) clearance and settlement of securities transactions, (vi) NASD
member advertising practices, (vii) administration, interpretation and
enforcement of Association rules, (viii) administration and enforcement
of Municipal Securities Rulemaking Board (``MSRB'') rules, the federal
securities laws, and other laws, rules and regulations the Association
has the authority to administer or enforce, and (ix) standards of proof
for violations and sanctions imposed on NASD members and associated
persons in connection with disciplinary actions.
c. To take necessary or appropriate action to assure compliance
with Association policy, Association and MSRB rules, the federal
securities laws, and other laws, rules and regulations the Association
has the authority to administer or enforce, through examination,
surveillance, investigation, enforcement, disciplinary, and other
programs.
d. To administer programs and systems for the surveillance and
enforcement of rules governing NASD members' conduct and trading
activities in The Nasdaq Stock Market, other markets operated by The
Nasdaq Stock Market, the third market for securities listed on a
registered exchange, and the over[-]-the[-]-counter market.
e. To examine and investigate NASD members and associated persons
to determine if they have violated
[[Page 25301]]
Association or MSRB rules, the federal securities laws, and other laws,
rules, and regulations the Association has the authority to administer,
interpret [or enforce. ], or enforce.
f. To establish and maintain procedures for the consideration and
determination regarding complaints by members, associated persons, and
members of the public who request investigative or disciplinary actions
by the Association.
g. To administer Association enforcement and disciplinary programs,
including investigation, adjudication of cases and the imposition of
fines and other sanctions.
[g] h. To administer the Association's office of professional
hearing officers.
[h] i. To conduct arbitrations, mediations, and other dispute
resolution programs.
[i] j. To conduct qualification examinations and continuing
education programs.
[j] k. To operate the Central Registration Depository[(``CRD'')].
[k] l. To determine whether applicants for NASD membership have met
the requirements for membership established by the Association.
[l] m. To place restrictions on the business activities of NASD
members consistent with the public interest, the protection of
investors and the federal securities laws.
[m] n. To determine whether persons seeking to register as
associated persons of NASD members have met such qualifications for
registration as may be established by the Association, including
whether statutorily disqualified persons will be permitted to associate
with particular NASD members and the conditions of such association.
[n] o. To oversee all District Office activities.
[o] p. To establish the annual budget and business plan for
[NASDR.] NASD Regulation.
[p] q. To determine allocation of [NASDR] NASD Regulation
resources.
[q] r. To establish and assess fees and other charges on NASD
members, persons associated with NASD members, and others using the
services or facilities of [NASDR.] NASD Regulation.
[r] s. To manage external relations on enforcement, regulatory, and
other policy issues with Congress, the Securities and Exchange
Commission [(``SEC'')](``Commission''), state regulators, other self-
regulatory organizations, business groups, and the public.
t. To operate Stockwatch in conjunction with Nasdaq pursuant to
Section IV.
2. All action taken pursuant to authority delegated pursuant to (1)
shall be subject to the review, ratification, or rejection by the NASD
Board in accordance with procedures established by the NASD Board.
[B. Board of Directors
1. Subsequent to January of 1997, the NASDR Board of Directors
(``NASDR Board'') shall be composed of at least Twenty-one (21) and no
more than Twenty-five (25) Directors. The President of NASDR shall be a
member of the NASDR Board and the remaining members shall be equally
balanced between Industry and Non-industry Directors. If at any time
there shall be an odd number of Directors, excluding the President, a
majority of the Directors other than the President shall be Non-
industry. The NASDR Board shall include Seven (7) representatives of
NASD members representing geographical regions defined by the NASDR
Board, and at least Three (3) at-large industry representatives. The
NASDR Board shall include at least Ten (10) Non-industry Directors,
including at least Three (3) Public Directors. In the event that the
NASDR Board shall consist of more than Twenty-two (22) Members, at
least Four (4) shall be Public Directors. The NASDR Board shall include
representatives of an issuer of investment company shares or an
affiliate of such an issuer and an insurance company or an affiliated
NASD member. The CEO of NASD shall be an ex-officio non-voting member
of the NASDR Board.
2. Election Procedures
a. The National Nominating Committee shall propose to the NASD
Board nominees for each position on the NASDR Board.
b. The Seven (7) Industry Members of the NASDR Board shall be
nominated by Regional Nominating Committees for consideration by the
National Nominating Committee. A Regional Nominating Committee shall
consist of equal numbers of members from each district comprising the
regions and members shall be selected by the District Committee for
that District.
c. Any officer, director or employee of a NASD member who has not
otherwise been nominated by the Regional Nominating Committee may seek
nomination if the candidate presents duly executed petitions to the
Regional Nominating Committee for the appropriate geographical region
demonstrating that such candidate has the support of at least Ten (10)
percent of the NASD members in that region. The Regional Nominating
Committee shall submit the names of its nominees and of all the
candidates presenting qualifying petitions to the members in that
region for nomination by secret ballot. The Regional Nominating
Committee shall nominate to the National Nominating Committee the
candidate receiving the most votes.
d. Terms of Office and Vacancies: The terms of office of Directors
and the procedures for the filling of vacancies shall be the same as
those set forth under Section I.C.4. and 5. above.]
[C. NASDR] B. NASD Regulation 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] in accordance with the procedures set forth in the [Code of
Procedure. A] Rules of the Association. Any disciplinary decision of
the NBCC and 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]
the NASD Regulation Board in accordance with the procedures set forth
in the Rules of the Association. Any disciplinary decision of the NBCC
or [the NASDR Board] NASD Regulation Board and any decision of the NBCC
or NASD Regulation Board with respect to statutory disqualification 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
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] the NASD Board in
accordance with the procedures set forth in the Rules of the
Association. A respondent has the right to appeal a final action of the
Association taken by the NBCC, [NASDR or NASD to the SEC.] NASD
Regulation or NASD to the Commission.
[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
[[Page 25302]]
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]
2. Rule Filings--Any rule change adopted by the NASD Regulation
Board that imposes fees or other charges on persons or entities other
than NASD members or that the NASD Regulation Board refers to the NASD
Board because in the view of the NASD Regulation 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 NASD
Regulation Board does not refer a rule change to the NASD Board for
review, the NASD Regulation Board action will 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] NASD Regulation Board's action but which is 15 calendar days or
more following the action of the [NASDR Board.] NASD Regulation Board.
Notwithstanding the 15 day requirement, the NASD Board may determine it
is advisable to call or not call for review any rule change within the
15 calendar day period following the decision of the NASD Regulation
Board. During the process of developing rule proposals, [NASDR] NASD
Regulation staff shall consult with and seek the advice of Nasdaq staff
before presenting any rule proposal to the [NASDR Board.] NASD
Regulation 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.
D] C. Supplemental Delegation Regarding [the Formation of Committees]
Committees
[1. The NASDR board may designate one or more committees and
delegate to such committees such powers and authority, as necessary and
appropriate, to act on behalf of the NASDR Board in carrying out the
functions and authority delegated to the NASDR by the NASD. Such
delegations shall be in conformance with law, the charter and the by-
laws and the requirements as set forth below as part of this Plan of
Allocation and Delegation. Any action taken by a committee pursuant to
delegated authority shall be subject to review, ratification or
rejection by the NASDR Board in accordance with procedures established
by the NASDR Board.]
1. Market Regulation Committee
[(a) National Business Conduct Committee--A National Business
Conduct Committee may be created for the purpose of: ]
a. The Market Regulation Committee shall advise the NASD Regulation
board on regulatory proposals and industry initiatives relating to
quotations, execution, trade reporting the trading practices; advise
the NASD Regulation Board in its administration of programs and systems
for the surveillance and enforcement of rules governing NASD members'
conduct and trading activities in The Nasdaq Stock Market, other
markets operated by The Nasdaq Stock Market, the third market for
securities listed on a registered exchange, and the over-the-counter
market; provide a pool of panelists for those hearing panels that the
Chief Hearing Officer or his or her designees determines should include
a member of the Market Regulation Committee pursuant to the Rules of
the Association; participate in the training of hearing panelists on
issues relating to quotations, executions, trade reporting, and trading
practices; and review the recommend to the National Business Conduct
Committee changes to the Association's Sanction Guidelines.
[(i) Hearing and deciding appeals of initial disciplinary decisions
of the Association.
(ii) Considering and recommending to the NASDR Board policy and
rule changes relating to the business and sales practices of NASD
members and associated persons.
(iii) Considering and recommending Association enforcement
policies, including policies with respect to fines and other sanctions.
(b) The NBCC shall be composed of at least Eight (8) members of the
NASDR Board equally]
b. The NASD Regulation Board shall appoint the Market Regulation
Committee by resolution. The members of the Market Regulation Committee
shall be balanced between Industry and Non-Industry committee members.
[industry Committee Members (including at least one Public Member). If
at any time there shall be an odd number of Committee Members, a
majority of the Members shall be Non-industry. Each NBCC Member shall
be elected to serve a one-year term.]
[2. Other Committees--With respect to any other committees that may
be formed pursuant to this Section D for purposes other than those set
forth in (1) above, such committee shall be created in accordance with
the by-laws by resolution or resolutions adopted by a majority of the
whole NASDR Board.]
2. National Arbitration and Mediation Committee
a. The National Arbitration and Mediation Committee shall have the
powers and authority pursuant to the Rules of the Association to advise
the NASD Regulation Board on the development and maintenance of an
equitable and efficient system of dispute resolution that will equally
serve the needs of public investors and Association members, to monitor
rules and procedures governing the conduct of dispute resolution, and
to have such other powers and authority as is necessary to effectuate
the purposes of the Rules of the Association.
b. The NASD Regulation Board shall appoint the National Arbitration
and Mediation Committee by resolution. The members of the National
Arbitration and Mediation Committee shall be equally balanced between
Industry and Non-Industry committee members.
III. Delegation to Nasdaq
A. Delegation of Functions and Authority
1. The NASD hereby delegates to Nasdaq and Nasdaq assumes the
following responsibilities and functions as a registered securities
association:
a. To operate The Nasdaq Stock Market, automated systems supporting
The Nasdaq Stock Market, and other markets or systems for non-Nasdaq
securities.
b. To provide and maintain a telecommunications network
infrastructure linking market participants for the efficient processing
[[Page 25303]]
and handling of quotations, orders, transaction reports, and
comparisons of transactions.
c. To collect, process, consolidate, and provide to [NASDR] NASD
Regulation the information requisite to operation of the surveillance
audit trail.
d. To develop and adopt rule changes (i) applicable to the
collection, processing, and dissemination of quotation and transaction
information for securities traded on The Nasdaq Stock Market, on other
markets operated by The Nasdaq Stock Market, in the third market for
securities listed on a registered exchange, and in the over[-]-the[-]-
counter market, (ii) for Nasdaq[-]-operated trading systems for these
securities, and (iii) establishing trading practices with respect to
these securities.
e. To develop and adopt rules, interpretations, policies, and
procedures to maintain and enhance the integrity, fairness, efficiency,
and competitiveness of The Nasdaq Stock Market and other markets
operated by The Nasdaq Stock Market.
f. To act as a Securities Information Processor for quotations and
transaction information related to securities traded on The Nasdaq
Stock Market and other markets operated by The Nasdaq Stock Market.
g. To act as processor under the Nasdaq/Unlisted Trading Privileges
Plan to collect, consolidate, and disseminate quotation and transaction
reports in eligible securities from all Plan Participants in a fair and
non[-]-discriminatory manner.
h. To administer the Association's involvement in National Market
System Plans related to Nasdaq/Unlisted Trading Privileges or the
trading in the third market for securities listed on a registered
exchange.
i. To develop, adopt, and administer rules governing listing
standards applicable to securities traded on The Nasdaq Stock Market
and the issuers of those securities.
j. To establish standards for participation in The Nasdaq Stock
Market[,] and other markets or systems operated by Nasdaq, and
determine in accordance with Association and Nasdaq procedures if: (i)
persons seeking to participate in any of such markets and systems have
met the standards established for participants; and (ii) persons
participating in any of the markets or systems continue to meet the
standards established for participants.
k. To establish and assess listing fees upon issuers and fees for
the products and services offered by Nasdaq.
l. To establish the annual budget and business plan for Nasdaq.
m. To determine allocation of Nasdaq resources.
n. To manage external relations on matters related to trading on
and the operation and functions of The Nasdaq Stock Market, other
markets operated by The Nasdaq Stock Market and systems operated by the
Nasdaq Stock Market with Congress, the [SEC] Commission, state
regulators, other self-regulatory organizations, business groups, and
the public.
o. To operate Stockwatch in conjunction with NASD Regulation
pursuant to Section IV.
2. All action taken pursuant to authority delegated pursuant to (1)
shall be subject to the review, ratification, or rejection by the NASD
Board in accordance with procedures established by the NASD Board.
[B. Board of Directors
1. Composition--As of January of 1997 the Nasdaq Board of Directors
(``Nasdaq Board'') shall be composed of at least Eleven (11) and not
more than Fifteen (15) Directors. The President of Nasdaq shall be a
member of the Nasdaq Board and the remaining Members shall be equally
balanced between Industry and Non-industry Directors, including at
least two (2) Public Directors. If at any time there shall be an odd
number of Directors, excluding the President, a majority of the
Directors other than the President shall be Non-industry. In the event
that the Nasdaq Board shall consist of more than Twelve (12) Members,
at least Three (3) shall be Public Directors. The CEO of NASD shall be
an ex-officio non-voting member of the Nasdaq Board.
2. Election Procedures
a. The National Nominating Committee shall propose to the NASD
Board nominees for each position on the Nasdaq Board.
b. Terms of Office and Vacancies: The terms of office of Directors
and the procedures for the filling of vacancies shall be the same as
those set forth under I.C.4. and 5. above.]
[C.] B. 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
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.
[D.] C. Supplemental Delegation Regarding [the Formation of Committees]
Committees
[The Nasdaq Board may designate one or more committees and delegate
to such committees such powers and authority, as necessary and
appropriate, to act on behalf of the Nasdaq Board in carrying out the
functions and authority delegated to Nasdaq by the NASD. Such
delegations shall be in conformance with law, the charter and the by-
laws and the requirements as set forth below as part of this Plan of
Allocation and Delegation. Any action taken by a
[[Page 25304]]
committee pursuant to delegated authority shall be subject to review,
ratification or rejection by the Nasdaq Board.
1. Specific Committees
a.] 1. Quality of Markets Committee (``QOMC'')
[(1)](a) The QOMC shall be a committee appointed by the Nasdaq
Board and shall have the following functions:
[(i)](1) To provide advice and guidance to the Nasdaq Board on
issues relating to the fairness, integrity, efficiency, and
competitiveness of the information, order handling and execution
mechanisms of The Nasdaq Stock Market, other markets operated by The
Nasdaq Stock Market, and systems operated by The Nasdaq Stock Market
from the perspective of investors, both individual and institutional,
retail firms, market making firms, Nasdaq[-]-listed companies, and
other participants in The Nasdaq Stock Market.
[(ii)](2) To advise the Nasdaq Board with respect to national
market systems plans and linkages between the facilities of Nasdaq and
registered exchanges.
[(2)](b) The QOMC will have broad representation that is equally
balanced between [industry] Industry and [non-industry] Non-Industry
committee members. The committee members shall include broad
representation of participants in The Nasdaq Stock Market, including
investors, market makers, integrated retail firms, and order entry
firms.
[b] 2. Market Operations Review Committee (``MORC'')
[(1)](a) The MORC shall be a committee appointed by the Nasdaq
Board and shall exercise the functions contained in [Section 70] Rule
11890 of the [Uniform Practice Code (``UPC''),] Rules of the
Association in accordance with the procedures specified therein.
[NASDR] NASD Regulation shall receive weekly reports of all
determinations made by the staff or MORC under [Section 70 of the UPC]
Rule 11890 for regulatory review.
[(2)](b) The MORC shall be appointed by resolution of the Nasdaq
Board and shall have no more than [Fifty (50)] 50 percent of its
members directly engaged in market making activity or employed by a
member firm whose revenues from market making activity exceed 10 [%]
percent of its total revenues.
[c] 3. Firm Operations and Clearance Committee (``FOCC'')
[(1)](a) The FOCC shall be a committee appointed by the Nasdaq
Board and shall have the following functions:
[(i)](1) To issue interpretations or rulings with respect to
[Sections 4-10, 12, 46, 67-68 and 71 of the UPC] Rules 11130-11180,
11200-11220, 11320, 11620, 11830, 11880 of the Rules of the
Association, as well as any other provision of the [UPC] Rule 11000
Series pertaining to transactions and post execution processing.
[(ii)](2) To advise the Nasdaq Board with respect to modifications
to the [UPC] Rule 11000 Series dealing with the transactions and post
execution processing.
[d] 4. Nasdaq Listing and Hearing Review Committee (``Listing
Committee'')
[(1)](a) The Listing Committee shall be a committee appointed by
the Nasdaq Board and shall have the following functions:
[(i)](1) To advise the Nasdaq Board on the formulation or
modification of initial or maintenance eligibility criteria and fees
applicable to securities listed on The Nasdaq Stock Market or traded on
other markets operated by The Nasdaq Stock Market.
[(ii)](2) To exercise the functions set forth in [Article IX] the
Rules of the [Code of Procedure] Association, in accordance with the
procedures specified therein.
[(2)](b) The Listing Committee shall be appointed by resolution of
the Nasdaq Board and shall have no more than [Fifty (50)] 50 percent of
its members directly engaged in market making activity or employed by a
member firm whose revenues from market making activity exceed 10[%]
percent of its total revenues.
[2. Other Committees
With respect to any other committees that may be formed pursuant to
this Section D for purposes other than those set forth in (1) above,
such committee shall be created in accordance with the By-laws by
resolution or resolutions adopted by a majority of the whole Nasdaq
Board.
E.] IV. Stockwatch
The Stockwatch section handles the trading halt functions for The
Nasdaq Stock Market and exchange-listed securities traded in the over-
the-counter market (i.e., the Third Market). Review of all questionable
market activity, possible rule infractions or any other matters that
require any type of investigative or regulatory follow-up will be
referred to and conducted by [NASDR] NASD Regulation, which will assume
sole responsibility for the matter until resolution. This
responsibility will include examinations, investigations, document
requests, and any enforcement actions that [the NASDR] NASD Regulation
may deem necessary. [NASDR] NASD Regulation staff at all times will
have access to all records and files of the Stockwatch function.
* * * * *
Restated Certificate of Incorporation of National Association of
Securities Dealers, Inc.
The present name of the corporation is National Association of
Securities Dealers, Inc. [(the ``Corporation''). The Corporation]
(``NASD''). The NASD was originally incorporated as a nonstock
corporation under the name of Investment Bankers Conference, Inc., and
its original Certificate of Incorporation was filed with the Secretary
of State of the State of Delaware on September 3, 1936. This Restated
Certificate of Incorporation of the [Corporation] NASD, which both
restates and further amends the provisions of the [Corporation's]
NASD's Certificate of Incorporation as heretofore amended, was duly
adopted in accordance with the provisions of Sections 242 and 245 of
the General Corporation Law of the State of Delaware.
Name
First: The name of the [Corporation] corporation is National
Association of Securities Dealers, Inc.
Delaware Office and Agent
Second: The registered office of the [Corporation] NASD in the
State of Delaware is located at 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name and address of its
registered agent is the Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware.
Objects or Purposes
Third: The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the
State of Delaware, and, without limiting the generality of the
foregoing, the business or purposes to be conducted or promoted shall
include the following:
(1) To promote through cooperative effort the investment banking
and securities business, to standardize its principles and practices,
to promote therein high standards of commercial honor, and to encourage
and promote among members observance of Federal and [State] state
securities laws;
[[Page 25305]]
(2) To provide a medium through which its membership may be enabled
to confer, consult, and cooperate with governmental and other agencies
in the solution of problems affecting investors, the public, and the
investment banking and securities business;
(3) To adopt, administer, and enforce rules of fair practice and
rules to prevent fraudulent and manipulative acts and practices, and in
general to promote just and equitable principles of trade for the
protection of investors;
(4) To promote self-discipline among members, and to investigate
and adjust grievances between the public and members and between
members;
(5) To establish, and to register with the Securities and Exchange
Commission as, a national securities association pursuant to Section
15A of the Securities Exchange Act of 1934, as amended, and thereby to
provide a medium for effectuating the purposes of said [section;]
Section; and
(6) To transact business and to purchase, hold, own, lease,
mortgage, sell, and convey any and all property, real and personal,
necessary, convenient, or useful for the purposes of the [Corporation;]
NASD.
The objects and purposes specified in the foregoing clauses shall,
except where otherwise expressed, not be limited or restricted by
reference to, or inference from, the terms of any other clause in this
[certificate of incorporation] Restated Certificate of Incorporation,
but the objects and purposes specified in each of the foregoing clauses
of this [article] Article shall be regarded as independent objects and
purposes.
Form of Organization
Fourth: [This Corporation] The NASD shall be a membership
corporation and shall have no capital stock. The [Corporation] NASD is
not organized and shall not be conducted for profit, and no part of its
net revenues or earnings shall inure to the benefit of any individual,
subscriber, contributor, or member.
Except as may be otherwise provided by [applicable law] the General
Corporation Law of the State of Delaware or this Restated Certificate
of Incorporation, the members of the [Corporation] NASD shall have no
voting rights. Notwithstanding the foregoing, the members shall be
entitled to vote for the election of Governors and on any amendment to
the By-Laws of the [Corporation] NASD in accordance with the procedures
for such a vote as provided in the By-Laws.
Except as may be otherwise provided by the General Corporation Law
of the State of Delaware, other applicable law or this Restated
Certificate of Incorporation, the conditions, method of admission,
qualifications and classifications of membership, the limitations,
rights, powers and duties of members, the dues, assessments, and
contributions of members, the method of expulsion from and termination
of membership, and all other matters pertaining to the membership and
the conduct, management, and control of the business, property, and
affairs of the [Corporation] NASD shall be as provided from time to
time in the By-Laws of the [Corporation] NASD and the Rules of the
Association.
Indemnification; Governor Liability
Fifth: (a) [To] The NASD shall indemnify, and hold harmless, to the
fullest extent permitted by [applicable law] the General Corporation
Law of the State of Delaware as it presently exists or may [hereafter
be amended, the Corporation shall indemnify any person who was or is
made] thereafter be amended, any person (and the heirs, executors, and
administrators of such person) who, by reason of the fact that he or
she is or was a Governor, officer, or employee of the NASD, or is or
was a Governor, officer, or employee of the NASD who is or was serving
at the request of the NASD as a director, officer, employee, or agent
of another corporation, partnership, joint venture, trust, enterprise,
or non-profit entity, including service with respect to employee
benefit plans, is or was a party, or is threatened to be made a party
[or is otherwise involved in any ]to:
(i) any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative [or
investigative,], or investigative (other than an action by or in the
right of the NASD) against expenses (including attorneys' fees and
disbursements), judgments, fines, and amounts paid in settlement
actually and reasonably incurred by such person in connection with any
such action, suit, or proceeding; or
(ii) any threatened, pending, or completed action or suit by or in
the right of the NASD to procure a judgment in its favor against
expenses (including attorneys' fees and disbursements) actually and
reasonably incurred by such person in connection with the defense or
settlement of such action or suit.
[(b) A Governor of the Corporation shall not be liable to the
Corporation or its members for monetary damages for breach of fiduciary
duty as a Governor, except to the extent such exemption from liability
or limitation thereof is not permitted under the General Corporation
Law as the same exists or may hereafter by amended.]
(b) The NASD shall advance expenses (including attorneys' fees and
disbursements) to persons described in Article Fifth (a); provided,
however, that the payment of expenses incurred by such person in
advance of the final disposition of the matter shall be conditioned
upon receipt of a written undertaking by that person to repay all
amounts advanced if it should be ultimately determined that the person
is not entitled to be indemnified under this Article Fifth or
otherwise.
(c) The NASD may, in its discretion, indemnify and hold harmless,
to the fullest extent permitted by the General Corporation Law of the
State of Delaware as it presently exists or may thereafter be amended,
any person (and the heirs, executors, and administrators of such
persons) who, by reason of the fact that he[, or a person for whom he
is the legal representative, is or was a Governor or officer of the
Corporation or ] or she is or was an agent of the NASD or is or was an
agent of the NASD who is or was serving at the request of the
[Corporation] NASD as a director, officer, employee, or agent of
another corporation [or of a], partnership, [joint venture,] trust,
enterprise, or non-profit entity, including service with respect to
employee benefit plans, [against all expenses, liability, and loss
reasonably incurred or suffered by such person, and the Corporation
shall advance expenses (including attorneys' fees) to such person.] was
or is a party, or is threatened to be made a party to any action or
proceeding described in Article Fifth (a).
(d) The NASD may, in its discretion, pay the expenses (including
attorneys' fees and disbursements) reasonably and actually incurred by
an agent in defending any action, suit, or proceeding in advance of its
final disposition; provided, however, that the payment of expenses
incurred by such person in advance of the final disposition of the
matter shall be conditioned upon receipt of a written undertaking by
that person to repay all amounts advanced if it should be ultimately
determined that the person is not entitled to be indemnified under this
Article Fifth or otherwise.
(e) Notwithstanding the foregoing[, the Corporation shall be
required to indemnify a person and advance expenses to such person in
connection with a proceeding (or part thereof) commenced by such person
only if the commencement of such proceeding (or part thereof) was
authorized by the
[[Page 25306]]
Board of Governors. The Board of Governors may indemnify and/or advance
expenses to any employee or agent of the Corporation to the extent it
deems appropriate and to the extent permitted by applicable law. The
rights conferred on any person by this Article Fifth(a) shall not be ]
or any other provision of these By-Laws, no advance shall be made by
the NASD to an agent or non-officer employee if a determination is
reasonably and promptly made by the Board by a majority vote of those
Governors who have not been named parties to the action, even though
less than a quorum, or, if there are no such Governors or if such
Governors so direct, by independent legal counsel, that, based upon the
facts known to the Board or such counsel at the time such determination
is made: (1) The person seeking advancement of expenses (i) acted in
bad faith, or (ii) did not act in a manner that he or she reasonably
believed to be in or not opposed to the best interests of the NASD; (2)
with respect to any criminal proceeding, such person believed or had
reasonable cause to believe that his or her conduct was unlawful; or
(3) such person deliberately breached his or her duty to the NASD.
(f) The indemnification provided by this Article Fifth in a
specific case shall not be deemed exclusive of any other rights [which
such person may have or hereafter acquire under any statute, provision
of this Restated Certificate of Incorporation, By-Law, agreement, vote
of members or disinterested Governors or otherwise.] to which a person
seeking indemnification may be entitled, both as to action in his or
her official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased
to be a Governor, officer, employee, or agent and shall inure to the
benefit of such person's heirs, executors, and administrators.
(g) Notwithstanding the foregoing, but subject to Article Fifth
(j), the NASD shall be required to indemnify any person identified in
Article Fifth (a) in connection with a proceeding (or part thereof)
initiated by such person only if the initiation of such proceeding (or
part thereof) by such person was authorized by the Board.
(h) The NASD's obligation, if any, to indemnify or advance expenses
to any person who is or was serving at its request as a director,
officer, employee, or agent of another corporation, partnership, joint
venture, trust, enterprise, or non-profit entity shall be reduced by
any amount such person may collect as indemnification or advancement
from such other corporation, partnership, joint venture, trust,
enterprise, or non-profit entity.
(i) Any repeal or modification of the [first sentence] foregoing
provisions of this Article Fifth[(b)] shall not adversely affect any
right or protection [of a Governor of the Corporation existing
hereunder with respect to] hereunder of any person respecting any act
or omission occurring prior to the time of such repeal or modification.
(j) If a claim for indemnification or advancement of expenses under
this Article Fifth is not paid in full within 60 days after a written
claim therefore by an indemnified person has been received by the NASD,
the indemnified person may file suit to recover the unpaid amount of
such claim and, if successful in whole or in part, shall be entitled to
be paid the expense of prosecuting such claim. In any such action, the
NASD shall have the burden of proving that the indemnified person is
not entitled to the requested indemnification or advancement of
expenses under the General Corporation Law of the State of Delaware.
(k) The NASD shall have power to purchase and maintain insurance on
behalf of any person who is or was a Governor, officer, employee, or
agent of the NASD, or is or was serving at the request of the NASD as a
director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, enterprise, or non-profit entity
against any liability asserted against such person and incurred by such
person in any such capacity, or arising out of such person's status as
such, whether or not the NASD would have the power to indemnify such
person against such liability hereunder.
(l) A Governor shall not be liable to the NASD or its members for
monetary damages for breach of fiduciary duty as a Governor, except to
the extent such exemption from liability or limitation thereof is not
permitted under the General Corporation Law of the State of Delaware as
it presently exists or may hereafter be amended.
Perpetual Existence
Sixth: The [Corporation] NASD shall have perpetual existence.
Members' Liability
Seventh: The private property of the members shall not be subject
to the payment of corporate debts to any extent whatever.
Governors
Eighth: To the fullest extent permitted by Sections 141(a), 141(j),
and 215 of the General Corporation Law of the State of Delaware and
other applicable law, the business and affairs of the [Corporation]
NASD shall be managed and the election of Governors shall be conducted
in the manner provided in this Restated Certificate of Incorporation
and the By-Laws of the [Corporation] NASD. To the extent there is any
inconsistency between the provisions of this Restated Certificate of
Incorporation and the By-Laws relating to such matters and the General
Corporation Law, the provisions of this Restated Certificate of
Incorporation and the By-Laws shall govern to the fullest extent
permitted by the General Corporation Law and other applicable law. To
the fullest extent permitted by the General Corporation Law of the
State of Delaware and other applicable law, the Board of Governors may
delegate such powers, authority, and functions as it shall determine
from time to time, in a manner not inconsistent with the ``Plan of
Allocation and Delegation of Functions by NASD to Subsidiaries,''
approved by the Securities and Exchange Commission, as amended from
time to time.
The [Corporation] NASD shall be managed under the direction of a
Board of Governors having such powers and duties as shall be provided
from time to time in this Restated Certificate of Incorporation or the
By-Laws of the [Corporation] NASD. The Board of Governors shall be the
governing body of the [Corporation] NASD. The members of the Board of
Governors shall be elected by a plurality of the votes of the members
of the [Corporation] NASD present in person or represented by proxy at
the annual meeting of the members of the [Corporation] NASD and
entitled to vote thereat. Elections shall be by written ballot. Any
Governor so elected must be nominated by the National Nominating
Committee or certified by the Secretary of the NASD (as provided in the
By-[laws)] Laws) and must satisfy the other qualifications for
Governors set forth in the By-Laws or established by resolution of the
Board of Governors from time to time, which qualifications shall be
consistent with the ``Plan of Allocation and Delegation of Functions by
NASD to Subsidiaries['' as approved by the Securities and Exchange
Commission, as amended from time to time. ].'' The By-Laws may also
provide for such assistants to the Board of Governors, and such
officers, agents, and employees, as may be deemed necessary to
administer affairs of the [Corporation] NASD.
The Board of Governors shall be divided into three classes. Each
Governor shall hold office for a term of not more than three years,
such term to
[[Page 25307]]
be fixed by the Board at the time of the nomination or certification of
such Governor, or until [his] a successor is duly elected and
qualified, or until [his] death, resignation, disqualification, or
removal. Except for the Chief Executive Officer, no Governor may serve
more than two consecutive terms, provided, however, that if a Governor
is appointed to fill a term of less than one year, such Governor may
serve up to two consecutive terms following the expiration of such
Governor's [current] initial term. The Chief Executive Officer of the
[Corporation] NASD shall serve as a member of the Board until [his] a
successor is selected and qualified, or until [his] death, resignation,
disqualification, or removal.
In furtherance and not in limitation of the powers granted by
[applicable law] the General Corporation Law of the State of Delaware,
the Board of Governors is expressly authorized unless the By-Laws
otherwise provide, to make, alter, or repeal the By-Laws of the
[Corporation] NASD.
In the event of the refusal, failure, neglect, or inability of any
member of the Board of Governors to discharge [his] such member's
duties, or for any cause affecting the best interest of the
[Corporation] NASD the sufficiency of which the Board of Governors
shall be the sole judge, the Board shall have the power, by the
affirmative vote of two-thirds of the Governors then in office, to
remove such member and declare [his] such member's position vacant and
that it shall be filled in accordance with the provisions of the By-
Laws.
The [Corporation] NASD may, in its By-Laws, confer powers upon its
Board of Governors in addition to the foregoing and in addition to the
powers and authorities expressly conferred upon them by [applicable
law.] the General Corporation Law of the State of Delaware.
Meetings and Offices
Ninth: Both members and the Board of Governors shall have power, if
the By-Laws so provide, to hold their meetings and to have one or more
offices within or without the State of Delaware and to keep the books
of the [Corporation] NASD (subject to the provision of the statutes),
outside the State of Delaware at such places as may be from time to
time designated by the Board of Governors.
Right to Amend Certificate of Incorporation
Tenth: The [Corporation] NASD reserves the right to amend, alter,
change, or repeal any provisions contained in this [certificate of
incorporation] Restated Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon
members herein are granted subject to this reservation.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has
been signed under the seal of the [Corporation] NASD this ________ day
of[, 1996] ________________________, 1997.
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.
By:--------------------------------------------------------------------
[signature]
----------------------------------------------------------------------
[printed name]
----------------------------------------------------------------------
[title]
Attest:----------------------------------------------------------------
[title]
* * * * *
Restated Certificate of Incorporation of NASD Regulation, Inc.
The undersigned, Mary Schapiro, President of NASD Regulation, Inc.
(``NASD Regulation''), a Delaware corporation, does hereby certify:
FIRST: That [The] the name of the corporation is NASD Regulation,
Inc. The date of filing of its original Certificate of Incorporation
with the Secretary of State of the State of Delaware was January 25,
1996. The name under which NASD Regulation was originally incorporated
was NASD Regulation, Inc.
SECOND: [The address of the Corporation's] That the Certificate of
Incorporation of NASD Regulation has been amended and restated in its
entirety as follows:
Article First
The name of the corporation is NASD Regulation, Inc.
Article Second
The address of NASD Regulation's registered office in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New
Castle, 19801. The name of [the Corporation's] NASD Regulation's
registered agent at such address is The Corporation Trust Company.
Article Third
[THIRD:] The purpose of [the Corporation] NASD Regulation is to
engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of
Delaware[.], and, without limiting the generality of the forgoing
business or purposes to be conducted or promoted, shall include the
responsibilities and functions set forth in the ``Plan of Allocation
and Delegation of Functions by NASD to Subsidiaries,'' as approved by
the Securities and Exchange Commission, as amended from time to time.
NASD Regulation [The Corporation] is not organized for profit and no
part of the net earnings of [the Corporation] NASD Regulation shall
inure to the benefit of any private stockholder or individual.
Article Fourth
[FOURTH:] The total number of shares of stock which [the
Corporation] NASD Regulation shall have authority to issue is 2,000,
par value $0.01 per share, all of which shall be shares of common
stock.
Article Fifth
[FIFTH:] (a) The business and affairs of [the Corporation] NASD
Regulation shall be managed by or under the direction of the Board of
Directors. The qualifications, number, tenure, powers, and duties of
the members of the Board of Directors shall be provided in the By-Laws.
Except as otherwise provided in this Restated Certificate of
Incorporation, the By-Laws shall specify the manner by which directors
of [the Corporation] NASD Regulation shall be nominated and elected.
(b) Unless and except to the extent that the By-Laws of NASD
Regulation [the Corporation] shall so require, the election of
directors of [the Corporation] NASD Regulation need not be by written
ballot.
[SIXTH: To the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, the Corporation shall
indemnify any person who was or is made or is threatened to be made a
party or is otherwise involved in any action, suit, or proceeding,
whether civil, criminal, administrative or investigative, by reason of
the fact that he, or a person for whom he is the legal representative,
is or was a director or officer of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or non-profit entity, including service with respect to
employee benefit plans, against all expenses, liability, and loss
reasonably incurred or suffered by such person, and the Corporation
shall advance expenses (including attorneys' fees) to such person.
Notwithstanding the foregoing, the Corporation shall be required to
indemnify a person and advance expenses to such person in connection
with a proceeding (or part thereof)
[[Page 25308]]
commenced by such person only if the commencement of such proceeding
(or part thereof) was authorized by the Board of Directors. The rights
conferred on any person by this Article SIXTH shall not be exclusive of
any other rights which such person may have or hereafter acquire under
any statute, provision of this Certificate of Incorporation, By-Law,
agreement, vote of stockholders or disinterested directors or
otherwise.]
Article Sixth
[SEVENTH:] A director of [the Corporation] NASD Regulation shall
not be liable to [the Corporation] NASD Regulation or its
[stockholders] stockholder for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability
or limitation thereof is not permitted under the General Corporation
Law as the same exists or may hereafter be amended. Any repeal or
modification of the first sentence of this Article [SEVENTH] SIXTH
shall not adversely affect any right or protection of a director of
[the Corporation] NASD Regulation existing hereunder with respect to
any act or omission occurring prior to such repeal or modification.
Article Seventh
[EIGHTH:] In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware, the Board of Directors
is expressly authorized and empowered to make, alter, and repeal the
By-Laws of [the Corporation] NASD Regulation, subject to the power of
the [stockholders of the Corporation] stockholder of NASD Regulation to
alter or repeal any By-Law made by the Board of Directors.
Article Eighth
[NINTH: The Corporation] NASD Regulation reserves the right [at any
time, and from time to time,] to amend, alter, change, or repeal any
provision contained in this Restated Certificate of Incorporation, [and
other provisions authorized by the laws of the State of Delaware at the
time in force may be added or inserted,] in the manner now or hereafter
prescribed by [law; and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other
persons whomsoever by and pursuant to this Certificate of Incorporation
in its present form or as hereafter amended] statute, and all rights
conferred herein are granted subject to [the rights reserved in this
Article NINTH.] this reservation.
Article Ninth
[TENTH: The Corporation] NASD Regulation shall have perpetual
existence.
[ELEVENTH: The name and mailing address of the incorporator is
Joseph R. Hardiman, c/o National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
TWELFTH: The powers of the Incorporator shall terminate upon the
filing of this] THIRD: That such Restated Certificate of
Incorporation[. The names and mailing addresses of the persons who are
to serve as the directors of the Corporation until the first annual
meeting of the stockholders of the Corporation, or until their
successors are elected and qualified are Joseph R. Hardiman, c/o
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006, Richard G. Ketchum, c/o National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006
and Mary Schapiro, c/o National Association of Securities Dealers,
Inc., 1735 K Street, N. W., Washington, D. C. 20006.] has been duly
adopted by the stockholder of NASD Regulation in accordance with the
applicable provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, [I, the undersigned, being the sole
incorporator hereinabove named, hereby acknowledge that the foregoing
Certificate of Incorporation is my act and deed and further certify
that the facts hereinabove stated are truly set forth, and accordingly
I have hereunto set my hand this ________ day of January, 1996.] the
undersigned have executed this certificate this ________ day of
____________________, 1997.
----------------------------------------------------------------------
[Incorporator] Mary Schapiro President
Attest:----------------------------------------------------------------
Alden S. Adkins
General Counsel
* * * * *
Restated Certificate of Incorporation of the NASDAQ Stock Market,
Inc.
[Adopted in accordance with the provisions of Section 242 and
Section 245 of the General Corporation Law of the State of Delaware]
[The undersigned, Joseph R. Hardiman] The undersigned, Alfred
Berkeley, President of The Nasdaq Stock Market, Inc. (``Nasdaq''), a
Delaware corporation [(the ``Corporation'')], does hereby certify:
FIRST: That the name of the [Corporation] corporation is The Nasdaq
Stock Market, Inc. The date of filing of its original Certificate of
Incorporation with the Secretary of State of the State of Delaware was
November 13, 1979. The name under which [the Corporation] Nasdaq was
originally incorporated was ``NASD Market Services, Inc.''
SECOND: That the Certificate of Incorporation of [the Corporation]
Nasdaq has been amended and restated in its entirety as follows:
Article First
The name of the [Corporation] corporation is The Nasdaq Stock
Market, Inc.
Article Second
The address of [the Corporation's] Nasdaq's registered office in
the State of Delaware is 1209 Orange Street, City of Wilmington,
[Delaware 19801,] County of New Castle, Delaware 19801. The name of
[its] Nasdaq's registered agent at such address is The Corporation
Trust Company.
Article Third
The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of
Delaware, and, without limiting the generality of the foregoing
business or purposes to be conducted or promoted, shall include the
responsibilities and functions set forth in the ``Plan of Allocation
and Delegation of Functions by NASD to Subsidiaries,'' as approved by
the Securities and Exchange Commission, as amended from time to time.
[shall include the following:
(a) to investigate, study, organize, develop, maintain and operate,
and to assist and contract with others for the investigation, study,
organization, development, maintenance and operation of systems for
collecting, processing, and preparing for distribution and publication,
and otherwise assisting, participating in, and coordinating the
distribution and publication of information with respect to
transactions in and quotations for securities by means of an electronic
data processing system or systems, as such may be required or permitted
by federal statute and regulation (in particular the Securities
Exchange Act of 1934 (``Exchange Act'') and the regulations thereunder,
as either may be amended from time to time) on a current and continuing
basis, consistent with the public interest, the protection of
investors, the maintenance of fair and orderly markets in securities,
and the removal if impediments to and
[[Page 25309]]
perfection of the mechanism of a national market system;
(b) to organize, develop, operate and maintain securities markets
and related systems that assure: (i) economically efficient execution,
clearance and settlement of securities transactions; (ii) fair
competition among brokers and dealers, and among exchange markets and
markets other than exchange markets; (iii) the practicability of
broker/dealers executing inventors' orders in the best market; (iv) the
linking of all markets for qualified securities through communications
and data processing facilities; and (v) appropriate regulatory
oversight;
(c) to develop, organize, operate and maintain securities markets
and related systems that will assist the National Association of
Securities Dealers, Inc. in carrying out its regulatory
responsibilities under the Exchange Act, particularly Sections 11A and
15A and all applicable rules promulgated under the Exchange Act;
(d) to establish terms, conditions, rules, regulations, orders, and
schedules for the operation, maintenance, and regulation of methods,
means and systems established by the Corporation; and
(e) to offer consulting services respecting the organization,
development, operation, and maintenance of securities market systems
and facilities, including systems and procedures for regulatory
oversight of trading in securities markets.]
Article Fourth
[The Corporation] Nasdaq shall be authorized to issue a total of
2,000 shares of common stock with no par value.
Article Fifth
[The Corporation] Nasdaq shall be governed by the Board of
Directors of such number and having such qualifications, powers, and
duties[,] as shall be provided in the By-Laws. The Board shall be
selected in such manner, and shall serve for such term, as shall be
stated in the By-Laws. The Board of Directors shall have the power to
adopt, alter, or repeal the By-Laws of [the Corporation] Nasdaq at any
meeting at which a quorum is present by the affirmative vote of the
majority of the whole Board of Directors.
A [Director of this Corporation] director of Nasdaq shall not be
liable to [the Corporation] Nasdaq or its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the
extent that such exemption from liability or limitation thereof is not
permitted under the General Corporation Law of the State of Delaware as
the same exists or may hereafter be amended.
Any repeal or modification of the foregoing paragraph shall not
adversely affect any right or protection of a director of [the
Corporation] Nasdaq existing hereunder with respect to any act or
omission occurring prior to such repeal or modification.
Article Sixth
Nasdaq reserves the right to amend, alter, change, or repeal any
provisions contained in this Restated Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights
conferred herein are granted subject to this reservation.
Article Seventh
Nasdaq [The Corporation] shall have perpetual existence.
THIRD: That such Restated Certificate of Incorporation has been
duly adopted by the [stockholders of the Corporation] stockholder of
Nasdaq in accordance with the applicable provisions of Sections 242 and
245 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned have executed this certificate
this ________ day of __, 199__.
----------------------------------------------------------------------
[Joseph R. Hardiman] Alfred Berkeley
President
Attest:----------------------------------------------------------------
Robert E. Aber
[Secretary] General Counsel
* * * * *
Rule 0120
0120. Definitions
When used in these Rules, unless the context otherwise requires:
(a) ``Act''
The term ``Act'' means the Securities Exchange Act of 1934, as
amended.
(b) ``Association''
The term ``Association'' means, collectively, the NASD, NASD
Regulation, and Nasdaq. [National Association of Securities Dealers,
Inc., (NASD) a nonprofit membership corporation organized under the
laws of the State of Delaware.]
(c) ``By-Laws''
The term ``By-Laws'' means the By-Laws of the Corporation.
(d) ``Code of Procedure''
The term ``Code of Procedure'' means the procedural rules contained
in the Rule 9000 Series.
(e) ``Commission''
The term ``Commission'' means the Securities and Exchange
Commission (SEC), established pursuant to the Act.
(f) ``Completion of the Transaction''
The term ``the completion of the transaction'' means:
(1) In the case of a customer who purchases a security through or
from a member, except as provided in subparagraph (2), the time when
such customer pays the member any part of the purchase price, or, if
payment is effected by a bookkeeping entry, the time when such
bookkeeping entry is made by the member for any part of the purchase
price;
(2) In the case of a customer who purchases a security through or
from a member and who makes payment therefor prior to the time when
payment is requested or notification is given that payment is due, the
time when such member delivers the security to or into the account of
such customer;
(3) In the case of a customer who sells a security through or to a
member, except as provided in subparagraph (4), if any security is not
in the custody of the member at the time of sale, the time when the
security is delivered to the member, and if the security is in the
custody of the member at the time of sale, when the member transfers
the security from the account of such customer;
(4) In the case of a customer who sells a security through or to a
member and who delivers such security to such member prior to the time
when delivery is requested or notification is given that delivery is
due, the time when such member makes payment to or into the account of
such customer.
(g) ``Customer''
The term ``customer'' shall not include a broker or dealer.
(h) ``Fixed Price Offering''
The term ``fixed price offering'' means the offering of securities
at a stated public offering price or prices, all or part of which
securities are publicly offered in the United States or any territory
thereof, whether or not registered under the Securities Act of 1933,
except that the term does not include offerings of ``exempted
securities'' or ``municipal securities'' as those terms are defined in
Sections 3(a)(12) and 3(a)(29), respectively, of the Act or offerings
of redeemable securities of investment companies registered pursuant to
the Investment Company Act of 1940 which are offered at prices
determined by the net asset value of the securities.
(i) ``Member''
The term ``member'' means any individual, partnership, corporation
or other legal entity admitted to
[[Page 25310]]
membership in the Association under the provisions of Articles II and
III of the By-Laws.
(j) ``NASD''
The term ``NASD'' means NASD, Inc.
(k) ``Nasdaq''
The term ``Nasdaq'' means The Nasdaq Stock Market, Inc.
(l) ``NASD Regulation''
The term ``NASD Regulation'' means NASD Regulation, Inc.
(m) ``National Business Conduct Committee''
The term ``National Business Conduct Committee'' means the
committee of the Board of Directors of NASD Regulation which may be
authorized and directed to act for the Board of Directors of NASD
Regulation in a manner consistent with the By-Laws of NASD Regulation,
the Rules of the Association, and the Delegation Plan with respect to
(1) an appeal or review of a disciplinary proceeding; (2) a statutory
disqualification decision; (3) a review of a membership proceeding; (4)
a review of an offer of settlement, a letter of acceptance, waiver, and
consent, and a minor rule violation plan letter; (5) the exercise of
exemptive authority; and (6) such other proceedings or actions
authorized by the Rules of the Association.
(n)[(j)] ``Person''
The term ``person'' shall include any natural person, partnership,
corporation, association, or other legal entity.
(o)[(k)] ``Rules'' or ``Rules of the Association''
The term ``Rules'' or ``Rules of the Association'' means the
numbered rules set forth in the NASD Manual beginning with the Rule
0100 Series, as adopted by the Board of Governors of the NASD pursuant
to the By-Laws of the NASD, as hereafter amended or supplemented.
[means the Rules as adopted pursuant to Article VII of the By-laws, as
the same may be hereafter amended or supplemented, as provided in the
By-Laws.]
(p)[(l)] ``Selling Group''
The term ``selling group'' means any group formed in connection
with a public offering, to distribute all or part of an issue of
securities by sales made directly to the public by or through members
of such selling group, under an agreement which imposes no financial
commitment on the members of such group to purchase any such securities
except as they may elect to do so.
(q)[(m)] ``Selling Syndicate''
The term ``selling syndicate'' means any syndicate formed in
connection with a public offering, to distribute all or part of an
issue of securities by sales made directly to the public by or through
participants in such syndicate under an agreement which imposes a
financial commitment upon participants in such syndicate to purchase
any such securities.
* * * * *
Proposed Rule 0121
0121. Definitions in NASD By-Laws
Unless the context otherwise requires, or unless otherwise defined
in these Rules, terms used in the Rules and interpretive material, if
defined in the NASD By-Laws, shall have the meaning as defined in the
NASD By-Laws.
* * * * *
Proposed Rule IM-2210-4
M-2210-4. Limitations on Use of Association's Name
(a) Use of Association Name
Members may indicate membership in the Association in conformity
with Article XVI, Section 2 of the NASD By-Laws in one or more of the
following ways:
(1) A member may indicate membership in the Association in
recognized trade directories or other similar types of business
listings.
(2) A member may indicate membership in the Association in the
member's advertisements and sales literature if such use is:
(A) separate from the regular text of the advertisement or sales
literature;
(B) in a smaller type size and with less emphasis than that used
for the member's name; and
(C) carries no direct or implied indication of Association approval
of any security or service discussed in the advertisement or sales
literature.
(3) A confirmation form for an over-the-counter transaction may
include the following statement: ``This transaction has been executed
in conformity with the Uniform Practice Code of the National
Association of Securities Dealers, Inc.''.
(4) A member may indicate membership in the Association on the door
or entrance way of a member's principal office or a registered branch
office in the following manner: ``Member, National Association of
Securities Dealers, Inc.'' or ``Member of the National Association of
Securities Dealers, Inc.''.
(b) Certification of Membership
Upon request to the Association, a member shall be entitled to
receive an appropriate certification of membership, which may be
displayed in the principal office or a registered branch office of the
member. The certification shall remain the property of the Association
and shall be returned by the member upon request of the NASD Board or
the Chief Executive Officer of the Association.
(c) Fraudulent or Misleading Use Prohibited
A member or person associated with a member shall not use the name
of the Association in a fraudulent or misleading manner in connection
with the promotion or sale of any security or in connection with any
other aspect of the member's business or imply orally, visually, or in
writing that the Association endorses, indemnifies, or guarantees a
member's business practices, selling methods, or class or type of
securities offered.
(d) Violation of Rule 2110
An improper, fraudulent, or misleading use of the Association's
name by a member or person associated with a member shall be deemed
conduct inconsistent with high standards of commercial honor and just
and equitable principles of trade in violation of Rule 2110.
* * * * *
Membership and Registration Rules 130
---------------------------------------------------------------------------
\130\ The Tables of Contents for the proposed Rule 1010 Series,
the proposed Rule 8000 Series, and the proposed Rule 9000 Series are
included as a convenience to guide the reader through a lengthy
document, but are not part of the proposed rule change.
---------------------------------------------------------------------------
The Tables of Contents
1000. MEMBERSHIP, REGISTRATION AND QUALIFICATION REQUIREMENTS
IM-1000-1. Filing of Misleading Information as to Membership or
Registration
IM-1000-2. Status of Sole Proprietors and Registered
Representatives Serving in the Armed Forces
IM-1000-3. Failure to Register Personnel
IM-1000-4. Appointment of Executive Representative
1010. Application for Membership
1011. Definitions
1012. General Provisions
1013. Application and Membership Interview
1014. Department Decision
1015. Review by the National Business Conduct Committee
1016. Discretionary Review by Boards
1017. Application to Commission for Review
1018. Removal or Modification of Business Restrictions
1019. Change in Ownership, Control, or Operations
* * * * *
[[Page 25311]]
Rule 1010 Series
1010. Membership Proceedings
1011. Definitions
Unless otherwise provided, terms used in the Rule 1010 Series shall
have the meaning as defined in Rule 0120.
(a) ``Applicant''
The term ``Applicant'' means a person or entity that applies for
membership in the Association in accordance with Rule 1013 or seeks to
remove or modify a restriction in accordance with Rule 1018.
(b) ``Associated Person''
The term ``Associated Person'' means a sole proprietor, partner,
officer, director, branch manager, or natural person occupying a
similar status or performing similar functions who will be or is
anticipated to be associated with the Applicant, or any natural person
engaged in the investment banking or securities business who will be or
is anticipated to be directly or indirectly controlling or controlled
by the Applicant, whether or not any such person is registered or
exempt from registration under the NASD By-Laws or the Rules of the
Association.
(c) ``Department''
The term ``Department'' means the Department of Member Regulation
of NASD Regulation, Inc.
(d) Director
The term ``Director'' means a member of the NASD Regulation Board,
excluding the Chief Executive Officer of the NASD.
(e) ``district''
The term ``district'' means a district established by the NASD
Regulation Board under Article VIII, Section 8.1 of the NASD Regulation
By-Laws.
(f) ``district office''
The term ``district office'' means an office of NASD Regulation,
Inc. located in a district.
(g) ``Governor''
The term ``Governor'' means a member of the NASD Board.
(h) ``Interested Association Staff''
The term ``Interested Association Staff'' means an employee who
directly participates in a decision on a membership application or in a
decision under Rule 1018 or 1019, an employee who directly supervises
an employee with respect to such decision, an employee who conducted an
investigation or examination of a member that files an application
under Rule 1018 or a notice under Rule 1019, the District Director for
the relevant district, and the head of the Department.
(i) ``NASD Board''
The term ``NASD Board'' means the Board of Governors of the NASD.
(j) ``NASD Regulation Board''
The term ``NASD Regulation Board'' means the Board of Directors of
NASD Regulation.
(k) ``sales practice violations''
The term ``sales practice violations'' means any conduct directed
at or involving a customer that would constitute a violation of any
Rule in the Rule 2000 or 3000 Series, any provision of the Act, or any
state statute prohibiting fraudulent conduct in connection with the
offer, sale, or purchase of a security or in connection with the
rendering of investment advice.
(l) ``Subcommittee''
The term ``Subcommittee'' means a subcommittee of the National
Business Conduct Committee that is constituted pursuant to Rule 1015 to
conduct a review of a Department decision issued under the Rule 1010
Series.
1012. General Provisions
(a) Service of Notices and Decisions; Filing by Applicant
Except as provided in Rules 1013 and 1015, a notice or a decision
issued by the Association under the Rule 1010 Series with respect to an
application shall be served promptly by first-class mail on the
Applicant or its counsel. Service by the Association or filing by an
Applicant by mail shall be deemed complete upon mailing. Service by the
Association or filing by an Applicant by commercial courier or
facsimile shall be deemed complete on the date specified in the written
confirmation of receipt.
(b) Ex Parte Communications
(1) Unless on notice and opportunity for an Applicant and
Interested Association Staff to participate, or to the extent required
for the disposition of ex parte matters as authorized by the Rules of
the Association:
(A) an Applicant, a counsel or representative of an Applicant, or
an Interested Association Staff shall not make or knowingly cause to be
made an ex parte communication relevant to the merits of a membership
proceeding under the Rule 1010 Series to a Governor, a Director, a
member of the National Business Conduct Committee or a Subcommittee
thereof, or an Association employee who is participating or advising in
a decision of such a person with respect to that proceeding; and
(B) a Governor, a Director, a member of National Business Conduct
Committee or a Subcommittee thereof, or an Association employee who is
participating or advising in the decision of such a person with respect
to a membership proceeding shall not make or knowingly cause to be made
to an Applicant, a counsel or representative of the Applicant, or an
Interested Association Staff an ex parte communication relevant to the
merits of that proceeding.
(2) A Governor, a Director, a member of the National Business
Conduct Committee or a Subcommittee thereof, or an Association employee
participating or advising in the decision of such a person, who
receives, makes, or knowingly causes to be made a communication
prohibited by this paragraph shall place in the record of the
membership proceeding:
(A) all such written communications;
(B) memoranda stating the substance of all such oral
communications; and
(C) all written responses and memoranda stating the substance of
all oral responses to all such communications.
(3) The prohibitions against ex parte communications shall become
effective when Association staff has knowledge that an Applicant
intends to file a written request for review by the National Business
Conduct Committee under Rule 1015.
(c) Recusal or Disqualification
A Governor, a Director, or a member of the National Business
Conduct Committee or a Subcommittee thereof shall not participate in a
matter governed by the Rule 1010 Series as to which that person has a
conflict of interest or bias, or if circumstances otherwise exist where
his or her fairness might reasonably be questioned. In such a case, the
person shall recuse himself or shall be disqualified as follows:
(1) The Chair of the NASD Board shall have authority to direct the
disqualification of a Governor, and the Vice Chair of the NASD Board
shall have authority to direct the disqualification of the Chair of the
NASD Board.
(2) The Chair of the NASD Regulation Board shall have authority to
direct the disqualification of a Director, and the Vice Chair of the
NASD Regulation Board shall have authority to direct the
disqualification of the Chair of the NASD Regulation Board.
(3) The Chair of the National Business Conduct Committee shall have
authority to direct the disqualification of a member of the Committee
or a member of a Subcommittee appointed pursuant to Rule 1015, and the
Vice Chair of the Committee shall have authority to direct the
disqualification of the Chair of the National Business Conduct
Committee.
(d) Separation of Review Functions
A Director shall not participate or advise in the decision of a
Governor with respect to the review of a membership proceeding under
the Rule 1010 Series, and a Governor shall not
[[Page 25312]]
participate or advise in the decision of a Director with respect to the
review of a membership proceeding under the Rule 1010 Series.
(e) Computation of Time
(1) Calendar Day
In the Rule 1010 Series, ``day'' means calendar day.
(2) Formula
In computing a period of time under the Rule 1010 Series, the day
of the act, event, default, or lapse from which the period of time
designated begins to run shall not be included. The last day of the
period so computed shall be included unless it is a Saturday, Sunday,
or Federal holiday, in which event the period runs until the end of the
next day that is not a Saturday, Sunday, or Federal holiday.
Intermediate Saturdays, Sundays, and Federal holidays shall be excluded
from the computation when the period prescribed is ten days or less.
(f) Membership Application Docket
The Department shall promptly record in the Association's
membership application docket each request for review filed with the
National Business Conduct Committee under Rule 1015 and each subsequent
event, filing, and change in the status of a membership proceeding.
1013. Application and Membership Interview
(a) Filing of Application
(1) Each Applicant for Association membership shall file a written
application with the Membership Department, which shall transmit the
application to the Department staff at the district office in the
district in which the Applicant has or intends to have its principal
place of business. An application shall include the following
information and documents:
(A) a detailed business plan, in a form prescribed by the
Association, that describes all material aspects of the business that
will be, or are reasonably anticipated to be, performed at and after
the initiation of business operations, and includes:
(i) a trial balance, balance sheet, supporting schedules, and
computation of net capital, each of which has been prepared as of a
date that is within 30 days before the date of application;
(ii) a monthly projection of income and expenses, with a supporting
rationale, for the first twelve months of operations;
(iii) an organizational chart;
(iv) a list of the intended locations of all offices, whether or
not such offices would be required to be registered under the Rules of
the Association, and the names of the persons who will be in charge of
each office;
(v) a list of the types of securities to be offered and sold and
the types of retail or institutional customers to be solicited;
(vi) a description of the methods and media to be employed to
develop a customer base and to offer and sell products and services to
customers, including the use of the Internet, telephone solicitation,
seminars, or mailings;
(vii) a description of the business facilities and a copy of any
proposed or final lease;
(viii) the number of markets to be made, if any, the type and
volatility of the products, and the anticipated maximum inventory
positions;
(ix) any plan to enter into contractual commitments, such as
underwritings or other securities-related activities;
(x) any plan to distribute or maintain securities products in
proprietary positions, and the risks, volatility, degree of liquidity,
and speculative nature of the products; and
(xi) any other activity that the Applicant may engage in that
reasonably could have a material impact on capital within the first six
months of business operations;
(B) a copy of the Applicant's most recent Form BD;
(C) evidence of all registrations and licenses required by the
Commission, state securities authorities, the Municipal Securities
Rulemaking Board, the National Securities Clearing Corporation, and
self-regulatory organizations, and a copy of any decision by a federal
or state authority or self-regulatory organization taking permanent or
temporary adverse action with respect to a registration or licensing
determination regarding the Applicant or an Associated Person;
(D) a list of all Associated Persons, the most recent Form U-4 and
Form U-5 for each Associated Person, any other document that discloses
the disciplinary history of each Associated Person, and a list of any
other persons or entities that will exercise control with respect to
the Applicant's business;
(E) documentation of any:
(i) regulatory action against or investigation of the Applicant or
an Associated Person by the Commission, the Commodity Futures Trading
Commission, a federal, state, or foreign regulatory agency, or a self-
regulatory organization that is pending, adjudicated, or settled;
(ii) investment-related civil action for damages or an injunction
against the Applicant or an Associated Person that is pending,
adjudicated, or settled;
(iii) investment-related customer complaint or arbitration
involving sales practice violations, theft, misappropriation,
conversion, or breach of fiduciary duty, against the Applicant or an
Associated Person that is pending, settled, or has resulted in an award
or judgement; and
(iv) criminal action (other than a minor traffic violation) against
the Applicant or an Associated Person that is pending, adjudicated, or
that has resulted in a guilty or no contest plea;
(F) a copy of any document evidencing a termination for cause or a
permitted resignation after investigation of an alleged violation of a
federal or state securities law, a rule or regulation thereunder, a
self-regulatory organization rule, or an industry standard of conduct;
(G) a description of any remedial action, such as special training
or continuing education requirements or heightened supervision, imposed
on an Associated Person by a state or federal authority or self-
regulatory organization;
(H) a written acknowledgment that heightened supervisory procedures
and special educational programs may be required for an Associated
Person whose records reflect: (i) disciplinary actions involving sales
practice violations; (ii) customer complaints; or (iii) arbitrations
that were resolved adversely to the Associated Person;
(I) a copy of final or proposed contracts with banks, clearing
entities, or service bureaus, and a general description of any other
final or proposed contracts;
(J) a description of the nature and source of Applicant's capital,
including a list of all persons or entities that have contributed or
plan to contribute financing to the Applicant's business, the terms and
conditions of such financing arrangements, the risk to capital
presented by the Applicant's proposed business activities, and any
arrangement for additional capital should a business need arise;
(K) a description of the financial controls to be employed by the
Applicant;
(L) a description of the Applicant's supervisory system and a copy
of its written supervisory procedures, internal operating procedures
(including operational and internal controls), compliance procedures,
internal inspections plan, written approval process, and qualifications
investigations required by Rule 3010;
(M) a description of the number, experience, and qualifications of
supervisors and principals and the number, experience, and
qualifications of persons to be supervised by such
[[Page 25313]]
personnel, the other responsibilities of the supervisors and principals
with the Applicant, their full-time or part-time status, any business
activities that the supervisors or principals may engage in outside of
their association with the Applicant, the hours per week devoted to
such activities, and an explanation of how a part-time supervisor or
principal will be able to discharge his or her designated functions on
a part-time basis;
(N) a description of Applicant's proposed recordkeeping system; and
(O) a copy of the Applicant's written training plan to comply with
Firm Element continuing education requirements described in Rule
1120(b), including the name of the Associated Person responsible for
implementation.
(2) Within 30 days after the receipt of an application, the
Department shall determine whether the application is complete and, if
not, shall request additional information or documents. The Department
may request additional information or documents at any time during the
membership application process.
(3) Unless otherwise agreed by the Department and the Applicant,
the Applicant shall file any additional information and documents with
the Department within 60 days after the Department's initial request
and 30 days after any subsequent request.
(b) Lapse of Application
(1) Absent a showing of good cause, an application for membership
shall lapse if an Applicant fails to:
(A) respond fully within 60 days after an initial request for
information or documents, within 30 days after any subsequent request,
or within such other time period agreed to by the Department and the
Applicant; or
(B) appear at or otherwise participate in a scheduled membership
interview pursuant to paragraph (c).
(2) The lapse of an application shall require an Applicant
continuing to seek membership to submit a new application under
paragraph (a).
(c) Membership Interview
(1) Requirement for Interview
Before the Department issues a decision on an application for
membership in the Association, the Department shall conduct a
membership interview with a representative or representatives of the
Applicant.
(2) Service of Notice
At least seven days before the membership interview, the Department
shall serve on the Applicant a written notice that specifies the date
and time of the interview and the representative or representatives of
the Applicant who are required to participate in the interview. The
Department shall serve the notice by facsimile or commercial courier.
(3) Time
Unless the Department directs otherwise for good cause shown, a
membership interview shall be scheduled to occur within 90 days after
the receipt of an application or within 60 days after the receipt of
all additional information or documents requested, whichever is later.
(4) Place
Unless the Department and the Applicant otherwise agree, the
membership interview shall be conducted in the district office for the
district in which the Applicant has or intends to have its principal
place of business.
(5) Review of Standards for Admission
During the membership interview, the Department shall review the
standards for admission to membership with the Applicant's
representative or representatives and inform them of the Department's
preliminary decision, if any, as to whether the Applicant meets each
standard.
(6) Information From Other Sources
During the membership interview, the Department shall provide to
the Applicant's representative or representatives any information or
document that the Department has obtained from the Central Registration
Depository or a source other than the Applicant and upon which the
Department intends to base its decision under Rule 1014. If the
Department receives such information or document after the membership
interview or decides to rely on such information after the membership
interview, the Department shall promptly serve the information or
document and an explanation thereof on the Applicant.
1014. Department Decision
(a) Standards for Admission
After considering the application, the membership interview, other
information and documents provided by the Applicant, other information
and documents obtained by the Department, and the public interest and
the protection of investors, the Department shall determine whether the
Applicant meets each of the following standards:
(1) The application and all supporting documents are complete and
accurate.
(2) The Applicant and its Associated Persons have all licenses and
registrations required by state and federal authorities and self-
regulatory organizations.
(3) The Applicant and its Associated Persons are capable of
complying with the federal securities laws, the rules and regulations
thereunder, and the Rules of the Association, including observing high
standards of commercial honor and just and equitable principles of
trade. In determining whether this standard is met, the Department may
take into consideration whether:
(A) a state or federal authority or self-regulatory organization
has taken permanent or temporary adverse action with respect to a
registration or licensing determination regarding the Applicant or an
Associated Person;
(B) an Applicant's or Associated Person's records reflect: (i)
disciplinary actions involving sales practice violations; (ii) customer
complaints; or (iii) arbitrations that were resolved adversely to the
Applicant or Associated Person;
(C) an Applicant or Associated Person is the subject of a pending,
adjudicated, or settled regulatory action or investigation by the
Commission, the Commodity Futures Trading Commission, a federal, state,
or foreign regulatory agency, or a self-regulatory organization; a
pending, adjudicated, or settled investment-related civil action for
damages or an injunction; an investment-related customer complaint or
arbitration alleging sales practice violations, theft,
misappropriation, conversion, or breach of fiduciary duty that is
pending, settled, or has resulted in an award or judgment; or a
criminal action (other than a minor traffic violation) that is pending,
adjudicated, or that has resulted in a guilty or no contest plea;
(D) an Associated Person was terminated for cause or permitted to
resign after an investigation of an alleged violation of a federal or
state securities law, a rule or regulation thereunder, a self-
regulatory organization rule, or industry standard of conduct;
(E) a state or federal authority or self-regulatory organization
has imposed a remedial action, such as special training or continuing
education requirements or heightened supervision, on an Associated
Person; and
(F) a state or federal authority or self-regulatory organization
has provided information indicating that the Applicant or an Associated
Person otherwise poses a threat to public investors.
(4) The Applicant has established all contractual or other
arrangements and business relationships with banks, clearing
corporations, service bureaus, or others necessary to: (i) initiate the
operations described in the Applicant's business plan, considering the
nature and scope of operations and the number
[[Page 25314]]
of personnel; and (ii) comply with the federal securities laws, the
rules and regulations thereunder, and the Rules of the Association.
(5) The Applicant has or has adequate plans to obtain facilities
that are sufficient to: (i) initiate the operations described in the
Applicant's business plan, considering the nature and scope of
operations and the number of personnel; and (ii) comply with the
federal securities laws, the rules and regulations thereunder, and the
Rules of the Association .
(6) The Applicant is capable of maintaining a level of capital in
excess of the minimum net capital requirements set forth in SEC Rule
15c3-1 adequate to support the Applicant's intended business operations
on a continuing basis, based on information that is current within 30
days before the membership interview. The Department may impose a
reasonably determined higher capital requirement for the initiation of
operations after considering:
(A) the amount of the capital sufficient to avoid early warning
level reporting requirements, such as SEC Rule 17a-11;
(B) the amount of capital necessary to meet expenses net of
revenues for at least twelve months, based on reliable projections
agreed to by the Applicant and the Department;
(C) any planned market making activities, the number of markets to
be made, the type and volatility of products, and the anticipated
maximum inventory positions;
(D) any plan to enter into other contractual commitments, such as
underwritings or other securities-related activities;
(E) any plan to distribute or maintain securities products in
proprietary positions, and the risks, volatility, degree of liquidity,
and speculative nature of the products; and
(F) any other activity that the Applicant will engage in that
reasonably could have a material impact on capital within the first six
months of business operations.
(7) The Applicant has financial controls to ensure compliance with
the federal securities laws, the rules and regulations thereunder, and
the Rules of the Association.
(8) The Applicant has compliance, supervisory, operational, and
internal control practices and standards that are consistent with
practices and standards regularly employed in the investment banking or
securities business, taking into account the nature and scope of
Applicant's proposed business.
(9) The Applicant has a supervisory system, including written
supervisory procedures, internal operating procedures (including
operational and internal controls), and compliance procedures designed
to prevent and detect, to the extent practicable, violations of the
federal securities laws, the rules and regulations thereunder, and the
Rules of the Association. In evaluating the adequacy of a supervisory
system, the Department shall consider the overall nature and scope of
the Applicant's intended business operations and shall consider
whether:
(A) the number, experience, and qualifications of supervisory
personnel are adequate in light of the number, experience, and
qualifications of persons to be supervised; the disciplinary history of
such persons; any criminal, civil, administrative, or arbitration
actions or written customer complaints against such persons; and the
number and locations of the offices that the Applicant intends to open;
(B) the Applicant has identified specific Associated Persons to
supervise and discharge: (i) each of the functions in Applicant's
business plan; and (ii) each of the Applicant's intended offices,
whether or not such offices are required to be registered under the
Rules of the Association;
(C) each Associated Person identified to discharge a supervisory
function in the business plan has at least one year of direct
experience or two years of related experience in the subject area;
(D) the Applicant will solicit retail or institutional business;
(E) the Applicant will recommend securities to customers;
(F) the part-time status of a supervisor or principal will affect
such person's ability to be an effective supervisor;
(G) the records of an Associated Person reflect: (i) disciplinary
actions involving sales practice violations; (ii) customer complaints;
or (iii) arbitrations that were resolved adversely to the Associated
Person;
(H) any remedial action, such as special training or continuing
education requirements or heightened supervision, has been imposed on
an Associated Person by a state or federal authority or self-regulatory
organization; and
(I) any other condition that will have a material impact on the
Applicant's ability to detect and prevent violations of the federal
securities laws, the rules and regulations thereunder, and the Rules of
the Association.
(10) The Applicant has a recordkeeping system that enables
Applicant to comply with federal, state, and self-regulatory
organization recordkeeping requirements and a staff that is sufficient
in qualifications and numbers to prepare and preserve required records.
(11) The Applicant has completed a training needs assessment and
has a written training plan that complies with the continuing education
requirements imposed by the federal securities laws, the rules and
regulations thereunder, and the Rules of the Association.
(12) The Association does not possess any information indicating
that the Applicant may circumvent, evade, or otherwise avoid compliance
with the federal securities laws, the rules and regulations thereunder,
or the Rules of the Association.
(13) The application and all supporting documents otherwise are
consistent with the federal securities laws, the rules and regulations
thereunder, and the Rules of the Association.
(b) Granting or Denying Application
(1) If the Department determines that the Applicant meets each of
the standards in paragraph (a), the Department shall grant the
application for membership.
(2) If the Department determines that the Applicant does not meet
one or more of the standards in paragraph (a) in whole or in part, the
Department may:
(A) grant the application subject to one or more restrictions
reasonably designed to address a specific financial, operational,
supervisory, disciplinary, investor protection, or other regulatory
concern based on the standards for admission in Rule 1014(a); or
(B) deny the application.
(c) Submission of Membership Agreement
If the Department grants an application, with or without
restriction, the Applicant's approval for membership shall be
contingent upon the Applicant's submission of a written membership
agreement, satisfactory to the Department, undertaking to:
(1) engage only in the business set forth in the business plan and
the membership agreement;
(2) abide by any restriction specified in the Department's
decision;
(3) obtain the Department's prior approval of the removal or
modification of such a restriction pursuant to Rule 1018; and
(4) notify and obtain the Department's approval of a change in
ownership or control or a material change in business operations
pursuant to Rule 1019.
The Applicant shall not waive the right to file a written request
for review under Rule 1015 by executing a membership agreement under
this paragraph.
[[Page 25315]]
(d) Decision
(1) Time
The Department shall issue a written decision on the membership
application within 30 days after the conclusion of the membership
interview or after the submission of additional information or
documents, whichever is later.
(2) Content
If the Department denies the application, the decision shall
explain the reason for denial, referencing the applicable standard or
standards in paragraph (a). If the Department grants the application
subject to restrictions, the decision shall explain the reason for each
restriction, referencing the applicable standard or standards in
paragraph (a) upon which the restriction is based and identify the
specific financial, operational, supervisory, disciplinary, investor
protection, or other regulatory concern that the restriction is
designed to address and the manner in which the restriction is
reasonably designed to address the concern.
(3) Failure to Issue Decision
If the Department fails to issue a decision within 180 days after
receipt of an application or such later date as the Department and the
Applicant have agreed in writing, the Applicant may file a written
request with the NASD Board requesting that the NASD Board direct the
Department to issue a decision. Within seven days after receipt of such
a request, the NASD Board shall direct the Department to serve its
written decision immediately or to show good cause for an extension of
time. If the Department shows good cause for an extension of time, the
NASD Board may extend the 180 day time limit by not more than 90 days.
(e) Service and Effectiveness of Decision
The Department shall serve its decision on the Applicant in
accordance with Rule 1012. The decision shall become effective upon
service and shall remain in effect during the pendency of any review
until a decision constituting final action of the Association is issued
under Rule 1015 or 1016, unless otherwise directed by the National
Business Conduct Committee, the NASD Regulation Board, the NASD Board,
or the Commission.
(f) Effectiveness of Restriction
A restriction imposed under this Rule shall remain in effect and
bind the Applicant and all successors to the ownership or control of
the Applicant unless:
(1) removed or modified by the Department under Rule 1018;
(2) removed or modified by a decision constituting final action of
the Association issued under Rule 1015 or 1016; or
(3) stayed by the National Business Conduct Committee, the NASD
Regulation Board, the NASD Board, or the Commission.
(g) Final Action
Unless the Applicant files a written request for a review under
Rule 1015, the Department's decision shall constitute final action by
the Association.
1015. Review by National Business Conduct Committee
(a) Request
Within 25 days after service of a decision under Rule 1014, an
Applicant may file a written request for review with the National
Business Conduct Committee. A request for review shall state with
specificity why the Applicant believes that the Department's decision
is inconsistent with the membership standards set forth in Rule 1014,
or otherwise should be set aside, and state whether a hearing is
requested. The Applicant simultaneously shall send by first-class mail
a copy of the request to the district office where the Applicant filed
its membership application.
(b) Transmission of Documents
Within ten days after receipt of a request for review, the
Department shall:
(1) transmit to the National Business Conduct Committee copies of
all documents that were considered in connection with the Department's
decision and an index to the documents; and
(2) serve on the Applicant a copy of such documents (other than
those documents originally submitted by Applicant) and a copy of the
index.
(c) Appointment of Subcommittee
The National Business Conduct Committee shall appoint a
Subcommittee to participate in the review. The Subcommittee shall be
composed of at least two members. One member shall be a current member
of the National Business Conduct Committee. The remaining member or
members shall be current or past members of the NASD Regulation Board
or past members of the NASD Board.
(d) Powers of Subcommittee
If a hearing is requested, the Subcommittee shall conduct the
hearing. If a hearing is not requested, the Subcommittee may serve a
notice directing that a hearing be held. If a hearing is not requested
or directed, the Subcommittee shall conduct its review on the basis of
the record developed before the Department and any written submissions
made by the Applicant or the Department in connection with the request
for review.
(e) Hearing
(1) Notice
If a hearing is requested or directed, the hearing shall be held
within 45 days after the receipt of the request or service of the
notice by the National Business Conduct Committee. The National
Business Conduct Committee shall send written notice of the date and
time of the hearing to the Applicant by facsimile or commercial courier
not later than 14 days before the hearing.
(2) Counsel
The Applicant and the Department may be represented by counsel at a
hearing conducted pursuant to this Rule.
(3) Evidence
Formal rules of evidence shall not apply to a hearing under this
Rule. Not later than five days before the hearing, the Applicant and
the Department shall exchange copies of their proposed hearing exhibits
and witness lists and provide copies of the same to the National
Business Conduct Committee. If the Applicant or the Department fails to
provide copies of its proposed hearing exhibits or witness list within
such time, the Subcommittee shall exclude the evidence or witnesses
from the proceeding, unless the Subcommittee determines that good cause
is shown for failure to comply with the production date of this
subparagraph.
(4) Transcript
The hearing shall be recorded and a transcript prepared by a court
reporter. A transcript of the hearing shall be available for purchase
from the court reporter at prescribed rates. The Applicant, the
Department, or a witness may seek to correct its transcript. A proposed
correction of the transcript shall be submitted to the Subcommittee
within a reasonable period of time prescribed by the Subcommittee. Upon
notice to the Applicant and the Department, the Subcommittee may direct
the correction to the transcript as requested or sua sponte.
(5) Failure to Appear at Hearing
If an Applicant fails to appear at a hearing for which it has
notice, the National Business Conduct Committee may dismiss the request
for review as abandoned, and the decision of the Department shall
become the final action of the Association. Upon a showing of good
cause, the National Business Conduct Committee may withdraw a dismissal
entered pursuant to this subparagraph.
(f) Additional Information, Briefs
At any time during its consideration, the Subcommittee or the
National Business Conduct Committee may direct the Applicant or the
Department to submit additional information and to
[[Page 25316]]
file briefs. Any additional information or brief submitted shall be
provided to all parties before the National Business Conduct Committee
renders its decision.
(g) Subcommittee Recommendation
The Subcommittee shall present a recommended decision in writing to
the National Business Conduct Committee and all other Directors within
60 days after the date of the hearing held pursuant to paragraph (e),
and not later than seven days before the meeting of the National
Business Conduct Committee at which the membership proceeding shall be
considered.
(h) Decision
(1) Proposed Written Decision
After considering all matters presented in the review and the
Subcommittee's recommended written decision, the National Business
Conduct Committee may affirm, modify, or reverse the Department's
decision or remand the membership proceeding with instructions. The
National Business Conduct Committee shall prepare a proposed written
decision pursuant to subparagraph (2).
(2) Contents
The decision shall include:
(A) a description of the Department's decision, including its
rationale;
(B) a description of the principal issues raised in the review;
(C) a summary of the evidence on each issue; and
(D) a statement whether the Department's decision is affirmed,
modified, or reversed, and a rationale therefor that references the
applicable standards in Rule 1014.
(3) Issuance of Decision After Expiration of Call for Review
Periods
The National Business Conduct Committee shall provide its proposed
written decision to the NASD Regulation Board, and, if such decision is
not called for review by the NASD Regulation Board, to the NASD Board.
The NASD Regulation Board may call the membership proceeding for review
pursuant to Rule 1016(a). The NASD Board may call the membership
proceeding for review pursuant to Rule 1016(b). If neither the NASD
Regulation Board nor the NASD Board calls the membership proceeding for
review, the proposed written decision of the National Business Conduct
Committee shall become final. The National Business Conduct Committee
shall serve the Applicant with a written notice specifying the date on
which the call for review period expired and stating that the final
written decision will be served within 15 days after such date. The
National Business Conduct Committee shall serve its final written
decision within 15 days after the date on which the call for review
period expired. The decision shall constitute the final action of the
Association for purposes of SEC Rule 19d-3, unless the National
Business Conduct Committee remands the membership proceeding.
(4) Failure to Issue Decision
If the National Business Conduct Committee fails to serve its final
written decision within the time prescribed in subparagraph (3), the
Applicant may file a written request with the NASD Board requesting
that the NASD Board direct the National Business Conduct Committee to
serve its decision immediately or to show good cause for an extension
of time. Within seven days after receipt of such a request, the NASD
Board shall direct the National Business Conduct Committee to serve its
written decision immediately or to show good cause for an extension of
time. If the National Business Conduct Committee shows good cause for
an extension of time, the NASD Board may extend the 15 day time limit
by not more than 15 days.
1016. Discretionary Review by Boards
(a) Discretionary Review by the NASD Regulation Board
(1) Call For Review By Director
A Director may call a membership proceeding for review by the NASD
Regulation Board if the call for review is made within the period
prescribed in paragraph (2).
(2) Seven Day Period, Waiver
After receiving the proposed written decision of the National
Business Conduct Committee pursuant to Rule 1015, a Director shall have
not less than seven days to determine if the membership proceeding
should be called for review. A Director shall call a membership
proceeding for review by notifying the General Counsel of NASD
Regulation. By a unanimous vote of the NASD Regulation Board, the NASD
Regulation Board may shorten the period to less than seven days. By an
affirmative vote of the majority of the NASD Regulation Board then in
office, the NASD Regulation Board may, during the seven day period,
vote to extend the period to more than seven days.
(3) Review at Next Meeting
If a Director calls a membership proceeding for review within the
time prescribed in subparagraph (2), the NASD Regulation Board shall
review the membership proceeding not later than the next meeting of the
NASD Regulation Board. The NASD Regulation Board may direct the
Applicant and the Department to file briefs in connection with review
proceedings pursuant to this paragraph.
(4) Decision of NASD Regulation Board, Including Remand
After review, the NASD Regulation Board may affirm, modify, or
reverse the proposed written decision of the National Business Conduct
Committee. Alternatively, the NASD Regulation Board may remand the
membership proceeding with instructions. The NASD Regulation Board
shall prepare a proposed written decision that includes all of the
elements described in Rule 1015(h)(2).
(5) Issuance of Decision After Expiration of Call for Review Period
The NASD Regulation Board shall provide its proposed written
decision to the NASD Board. The NASD Board may call the membership
proceeding for review pursuant to paragraph (b). If the NASD Board does
not call the membership proceeding for review, the proposed written
decision of the NASD Regulation Board shall become final. The NASD
Regulation Board shall serve the Applicant with a written notice
specifying the date on which the call for review period expired and
stating that a final written decision will be served within 15 days
after such date. The NASD Regulation Board shall serve its final
written decision within 15 days after the date on which the call for
review period expired. The decision shall constitute the final action
of the Association for purposes of SEC Rule 19d-3, unless the NASD
Regulation Board remands the membership proceeding.
(6) Failure to Issue Decision
If the NASD Regulation Board fails to serve its final written
decision within the time prescribed in subparagraph (5), the Applicant
may file a written request with the NASD Board requesting that the NASD
Board direct the NASD Regulation Board to serve its decision
immediately or to show good cause for an extension of time. Within
seven days after receipt of such a request, the NASD Board shall direct
the NASD Regulation Board to serve its written decision immediately or
to show good cause for an extension of time. If the NASD Regulation
Board shows good cause for an extension of time, the NASD Board may
extend the 15 day time limit by not more than 15 days.
(b) Discretionary Review by the NASD Board
(1) Call for Review by Governor
A Governor may call a membership proceeding for review by the NASD
Board if the call for review is made within the period prescribed in
subparagraph (2).
(2) Seven Day Period; Waiver
(A) Membership Proceeding Called for Review by NASD Regulation
Board
[[Page 25317]]
If the NASD Regulation Board reviewed the membership proceeding
under paragraph (a), a Governor shall make his or her call for review
at the next meeting of the NASD Board that is at least seven days after
the date on which the NASD Board receives the proposed written decision
of the NASD Regulation Board.
(B) Membership Proceeding Not Called For Review By NASD Regulation
Board
If no Director of the NASD Regulation Board called the membership
proceeding for review under paragraph (a), a Governor shall make his or
her call for review at the next meeting of the NASD Board that is at
least seven days after the date on which the NASD Board receives the
proposed written decision of the National Business Conduct Committee.
(C) Waiver
By unanimous vote of the NASD Board, the NASD Board may shorten the
period in subparagraph (1) or (2) to less than seven days. By an
affirmative vote of the majority of the NASD Board then in office, the
NASD Board may, during the seven day period in subparagraph (1) or (2),
vote to extend the period in subparagraph (1) or (2) to more than seven
days.
(3) Review At Next Meeting
If a Governor calls a membership proceeding for review within the
time prescribed in subparagraph (2), the NASD Board shall review the
membership proceeding not later than the next meeting of the NASD
Board. The NASD Board may order the Applicant and the Department to
file briefs in connection with review proceedings pursuant to this
paragraph.
(4) Decision of NASD Board, Including Remand
After review, the NASD Board may affirm, modify, or reverse: (1)
the proposed written decision of the NASD Regulation Board, or (2) if
the NASD Regulation Board did not call the membership proceeding for
review under paragraph (a), the proposed written decision of the
National Business Conduct Committee. Alternatively, the NASD Board may
remand the membership proceeding with instructions. The NASD Board
shall prepare a written decision that includes all of the elements
described in Rule 1015(h)(2).
(5) Issuance of Decision
The NASD Board shall serve its written decision on the Applicant
within 15 days after the meeting at which it conducted its review. The
decision shall constitute the final action of the Association for
purposes of SEC Rule 19d-3, unless the NASD Board remands the
membership proceeding.
1017. Application to Commission for Review
A person aggrieved by final action of the Association under Rule
1015 or 1016 may apply for review by the Commission pursuant to Section
19(d)(2) of the Act. The filing of an application for review shall not
stay the effectiveness of a decision constituting final action of the
Association, unless the Commission otherwise orders.
1018. Removal or Modification of Business Restrictions
(a) Application
(1) A member of the Association may seek modification or removal of
a restriction on its business activities imposed pursuant to the Rule
1010 Series by filing a written application with the Department at the
district office for the district in which the member's principal place
of business is located. The application shall present facts showing
that the circumstances that gave rise to the restriction have changed
and state with specificity why the restriction should be modified or
removed in light of the standards set forth in Rule 1014 and the
articulated rationale for the imposition of the restriction. A copy of
the decision pertaining to such restriction shall be appended to the
application.
(2) Within 30 days after the receipt of an application to remove or
modify a restriction, the Department shall determine whether the
application is complete and, if not, shall request additional
information or documents. Unless otherwise agreed to by the Department
and the Applicant, the Applicant shall file any additional information
or documents with the Department within 30 days after the Department's
request. The Department may require the Applicant to participate in a
membership interview pursuant to Rule 1013 within 30 days after the
receipt of the application or within 30 days after the filing of any
additional documents or information requested by the Department.
(3) Absent a showing of good cause, an application to modify or
remove a restriction shall lapse if an Applicant fails to respond
within 30 days after a request for information or documents. A lapse
shall require the Applicant to submit a new application to modify or
remove a restriction.
(b) Department Decision
(1) In evaluating an application submitted under paragraph (a), the
Department shall consider whether maintenance of the restriction is
appropriate in light of:
(A) the standards set forth in Rule 1014;
(B) the circumstances that gave rise to the imposition of the
restrictions;
(C) the Applicant's operations since the restrictions were imposed;
(D) a change in ownership or control or supervisors and principals;
and
(E) any new evidence submitted in connection with the application.
(2) Within 30 days after receipt of an application under paragraph
(a), or within 30 days after the submission of additional information
or documents, whichever is later, the Department shall issue a written
decision. The decision shall state whether the application to modify or
remove the restriction is granted or denied in whole or in part, and
shall provide a rationale for the Department's decision, referencing
the applicable standard in Rule 1014. If the Department fails to issue
a decision within the such time, the Applicant may file a written
request with the NASD Board requesting that the NASD Board direct the
Department to issue a decision. Within seven days after receipt of such
a request, the NASD Board shall direct the Department to issue a
written decision immediately or to show good cause for an extension of
time. If the Department shows good cause for an extension of time, the
NASD Board may extend the 30 day time limit by not more than 30 days.
(3) If the Department modifies or removes a restriction on the
Applicant's business activities, the membership agreement submitted
under Rule 1014 shall be modified accordingly.
(c) Request for Review
An Applicant may file a written request for review of the
Department's decision with the National Business Conduct Committee
pursuant to Rule 1015. The procedures set forth in Rule 1015 shall
apply to such a review, and the National Business Conduct Committee's
decision shall be subject to discretionary review by the NASD
Regulation Board and the NASD Board pursuant to Rule 1016.
(d) Removal or Modification of Restriction on Department's
Initiative
The Department shall modify or remove a restriction on its own
initiative if the Department determines such action is appropriate in
light of the considerations set forth in paragraph (b)(1). The
Department shall notify the member in writing of the Department's
determination and inform the member that it may apply for further
modification or removal of a restriction by filing an application under
paragraph (a).
[[Page 25318]]
1019. Change in Ownership, Control, or Operations
(a) Notice
At least 30 days prior to the occurrence of any of the following
changes in ownership, control, or operations, a member shall file a
written notice of the change with the Department at the district office
in the district in which the member's principal place of business is
located:
(1) a merger of the member with another member;
(2) an acquisition by the member of another member;
(3) an acquisition of substantially all of the member's assets;
(4) a change in the equity ownership or partnership capital of the
member that results in one person or entity owning or controlling 25
percent or more of the equity or partnership capital; or
(5) a material change in the member's business operations.
(b) Review
The Department shall review a change in ownership, control, or
operations described in paragraph (a) prior to the change taking
effect. The Department may maintain existing restrictions on the
member's business activities and place new interim restrictions on the
member based on the standards in Rule 1014, pending final Department
action. The Department may condition continued membership on the
submission of additional information or documents and participation in
a membership interview pursuant to Rule 1013 and on prompt compliance
with the standards and requirements in Rule 1014, in which case all
procedural protections under the Rule 1010 Series shall apply,
including the time limits required for issuance of a decision.
* * * * *
Complaints, Investigations and Sanctions
Table of Contents
8000. Investigations and Sanctions
8100. General Provisions
8110. Availability of Manual to Customers
8120. Definitions
8200. Investigations
8210. Provision of Information and Testimony and Inspection of
Books
8220. Suspension for Failure to Provide Requested Information
Notice to Members and Persons Associated with Members
Hearing
Decision
Notice to Membership
Termination of Suspension
Copies of Notices and Decisions to Members
Other Action Not Foreclosed
8300. Sanctions
8310. Sanctions for Violation of the Rules
IM-8310-1. Effect of a Suspension, Revocation, Cancellation, or Bar
IM-8310-2. Release of Disciplinary Information
8320. Payment of Fines, Other Monetary Sanctions, or Costs; Summary
Action for Failure to Pay
8330. Costs of Proceedings
* * * * *
Rule 8000 Series
* * * * *
8000. [Complaints,] Investigations and Sanctions
8100. [Complaints] General Provisions
8110. Availability [of Certificate, By-Laws and Rules] of Manual to
Customers
Every member of the Association shall keep in [each branch office
maintained by him, in the form to be supplied by the Board of
Governors, a copy of the Certificate of Incorporation, By-Laws and
Rules of the Association, and of all additions and amendments from time
to time made thereto, and of all published interpretive rulings made by
the Board of Governors, all of which shall be available for the
examination of any customer who makes requests therefor] its main
office and each of its branch offices a current copy of the
Association's Manual and all amendments to it. Upon request, a member
shall make the Manual and amendments available to any customer for
examination.
[8120. Complaints by Public Against Members for Violations of
Rules]
[Any person feeling aggrieved by any act, practice or omission of
any member or any person associated with a member of the Association,
which such person believes to be in violation of the Act, the rules and
regulations thereunder, the rules of the Municipal Securities
Rulemaking Board, or any of the Rules of the Association, may, on the
form to be supplied by the Board of Governors, file a complaint against
such member or such persons associated with a member in regard thereto
with any District Business Conduct Committee of the Association, and
any such complaint shall be handled in accordance with the Code of
Procedure, as set forth in the Rule 9000 Series.]
8120. Definitions
(a) Unless otherwise provided, terms used in the Rule 8000 Series
shall have the meaning as defined in Rule 0120.
(b) The term ``Adjudicator'' shall have the meaning as defined in
Rule 9120.
[8130. Complaints by District Business Conduct Committees]
[Any District Business Conduct Committee which, on information and
belief, is of the opinion that any act, practice, or omission of any
member of the Association or any person associated with a member is in
violation of the Act, the rules and regulations thereunder, the rules
of the Municipal Securities Rulemaking Board, or any of the Rules of
the Association, may, on the form to be supplied by the Board of
Governors, file a complaint against such member or such person
associated with a member in regard thereto with itself or with any
other District Business Conduct Committee of the Association, as the
necessities of the complaint may require, and any such complaint shall
be handled in accordance with the Rule 9000 Series and in the same
manner as if it had been filed by an individual or member.]
[8140. Complaints by the Board of Governors]
[The Board of Governors shall have authority when on the basis of
information and belief it is of the opinion that any act, practice or
omission of any member of the Association or of any person associated
with a member is in violation of the Act, the rules and regulations
thereunder, the rules of the Municipal Securities Rulemaking Board, or
any Rule of the Association to file a complaint against such member or
such person associated with a member in respect thereto or to instruct
any District Business Conduct Committee to do so, and any such
complaint shall be handled in accordance with the Rule 9000 Series.]
8200. Investigations
8210. [Reports] Provision of Information and Testimony and
Inspection of Books [for Purpose of Investigating Complaints]
[(a) For the purpose of any investigation, or determination as to
filing of a complaint or any hearing of any complaint against any
member of the Association or any person associated with a member made
or held in accordance with the Rule 9000 Series, or made or held by
another domestic or foreign self-regulatory organization, association,
securities or contract market or regulator of such markets,
[[Page 25319]]
with whom the Association has entered into an agreement providing for
the exchange of information and other forms of material assistance
solely for market surveillance, investigative, enforcement or other
regulatory purposes, any District Business Conduct Committee, the
Market Surveillance Committee, or the Board of Governors, or any duly
authorized member or members of any such Committees or Board or any
duly authorized agent or agents of any such Committee or Board]
(a) Authority of Adjudicator and Association Staff
For the purpose of an investigation, complaint, examination, or
proceeding authorized by the NASD By-Laws or the Rules of the
Association, an Adjudicator or Association staff shall have the right
to:[:]
(1) [to] require [any] a member [of the Association], person
associated with a member, or person [no longer associated with a member
when such person is] subject to the Association's jurisdiction to
[report, either informally or on the record, orally or in writing with
regard] provide information orally, in writing, or electronically (if
the requested information is, or is required to be, maintained in
electronic form) and to testify, under oath or affirmation administered
by a court reporter or a notary public if requested, with respect to
any matter involved in [any such investigation or hearing, and] the
investigation, complaint, examination, or proceeding; and
[(2) to investigate the books, records and accounts of any such
member or person with relation to any matter involved in any such
investigation or hearing.
(b) No such member or person shall fail to make any report as
required in this Rule, or fail to permit any inspection of books,
records and accounts as may be validly called for under this Rule. Any
notice requiring an oral or written report or calling for an inspection
of books, records and accounts pursuant to this Rule shall be deemed to
have been received by the member or person to whom it is directed by
the mailing thereof to the last known address of such member or person
as reflected on the Association's records.]
(2) inspect the books, records, and accounts of such member or
person with respect to any matter involved in the investigation,
complaint, examination, or proceeding.
(b) Other SRO's and Regulators
Association staff also may exercise the authority set forth in
paragraph (a) for the purpose of an investigation, complaint,
examination, or proceeding conducted by another domestic or foreign
self-regulatory organization, association, securities or contract
market, or regulator of such markets with which the Association has
entered into an agreement providing for the exchange of information and
other forms of material assistance solely for market surveillance,
investigative, enforcement, or other regulatory purposes.
(c) Requirement to Comply
No member or person shall fail to provide information or testimony
or to permit an inspection of books, records, or accounts pursuant to
this Rule.
(d) Receipt of Notice
A notice under this Rule shall be deemed to have been received by
the member or person to whom it is directed by the mailing thereof to
the last known address of such member or person as reflected on the
Association's records, unless the Adjudicator or Association staff
responsible for serving the member or associated person has actual
knowledge that the address is out of date. In such case, a copy of the
notice shall be served on the member at its last known address, or in
the case of an associated person, at the associated person's last known
residential address and the business address in the Central
Registration Depository of the member with which the person is employed
or affiliated.
(e) Electronic Interface
In carrying out its responsibilities under this Rule, the
Association may, as appropriate, establish programs for the submission
of information to the Association on a regular basis through a direct
or indirect electronic interface between the Association and members.
8220. Suspension [of Members] for Failure to [Furnish] Provide
Requested Information [Duly Requested]
[(a) The President is hereby directed and authorized to notify
members of the Association who fail to provide information with respect
to their business practices and/or who fail to keep membership
applications and supporting documents current and/or who fail to
furnish such other information or reports or other material or data
duly requested by the Association pursuant to the powers duly vested in
it by its Certificate of Incorporation, By-Laws and such other duly
authorized resolutions and directives as are necessary in the conduct
of the business of the Association, that the continued failure to
furnish duly requested information, reports, data or other material,
constitutes grounds for suspension from membership.]
[(b) After fifteen (15) days' notice in writing thereof, and
continued failure to furnish the information, reports, data or other
material as described in paragraph (a), the President is hereby
directed and authorized to suspend the membership of any such member on
behalf of the Board of Governors, and to cause notification thereof in
the next following membership supplement, to the effect that the
membership has been suspended for failure to furnish such duly
requested information.]
[(c) Prior to such notice, in writing to the member, the Executive
Committee of the Board of Governors shall be notified in writing of
such contemplated action by the President.]
[(d) The President shall advise the member concerned, in writing,
of the suspension.]
[(e) It is essential for the promotion of the Association's
welfare, object and purposes and more particularly for the
administration and enforcement of its Rules:
(1) that any District Business Conduct Committee, any Market
Surveillance Committee, or any duly authorized member or members of any
such Committees, or any duly authorized agent or agents of any such
Committees, or any Association examiner duly authorized by the
President shall have the right, in order to and solely for the purpose
of determining whether any member is complying with the Rules of the
Association:
(A) to require any such member to submit a report in writing with
regard to any matter connected with such member's business or business
practices, and
(B) to inspect the books, records and accounts of any such member;
and
(2) that any such Committee or any such member or members thereof,
or any such agent or agents thereof, or any such examiner, be and
hereby is granted such rights.]
8221. Notice
(a) Notice to Member
If a member fails to provide any information, report, material,
data, or testimony requested pursuant to the NASD By-Laws or the Rules
of the Association, or fails to keep its membership application or
supporting documents current, the National Business Conduct Committee
shall provide written notice to such member specifying the nature of
the failure and stating that the failure to take such action within 20
days after service of the notice constitutes grounds for suspension
from membership.
(b) Notice to Person Associated with Member
[[Page 25320]]
If a person associated with a member fails to provide any
information, report, material, data, or testimony requested pursuant to
the NASD By-Laws or the Rules of the Association, the National Business
Conduct Committee shall provide written notice to such person
specifying the nature of the failure and stating that the failure to
take such action within 20 days after service of the notice constitutes
grounds for suspending the association of the person with the member.
(c) Service of Notice
The National Business Conduct Committee shall serve the member or
associated person with such notice via personal service or commercial
courier.
8222. Hearing
(a) Request for Hearing
Within five days after the date of service of a notice issued under
Rule 8221, a member or associated person may file with the National
Business Conduct Committee a written request for an expedited hearing
before a subcommittee of the National Business Conduct Committee. The
request shall state with specificity why the member or associated
person believes that there are insufficient grounds for suspension or
any other reason for setting aside the notice issued by the National
Business Conduct Committee.
(b) Hearing Procedures
(1) Appointment of Subcommittee
If a hearing is requested, the National Business Conduct Committee
shall appoint a subcommittee to conduct the hearing and decide whether
the member or associated person should be suspended. The subcommittee
shall be composed of a member of the National Business Conduct
Committee and one or more current or past members of the NASD
Regulation Board.
(2) Time of Hearing
The hearing shall be held within 20 days after the date of service
of the notice issued under Rule 8221. Not later than seven days before
the hearing, the subcommittee shall serve the member or associated
person with written notice of the date and time of the hearing via
commercial courier or facsimile and notify the appropriate department
or office of NASD Regulation of the date and time of the hearing. The
appropriate department or office of NASD Regulation (hereinafter
``appropriate department or office'' in the Rule 8220 Series) shall be
the department or office that issued the request for the information,
report, material, data, or testimony that the member or associated
person failed to provide, or in the case of a member that failed to
keep its membership application or supporting documents current, the
Department of Member Regulation.
(3) Transmission of Documents
Within seven days before the hearing, the subcommittee shall serve
the member or associated person via commercial courier with all
documents that were considered in connection with the National Business
Conduct Committee's decision to issue a notice under Rule 8221.
(4) Counsel
The member or associated person and the appropriate department or
office may be represented by counsel at a hearing conducted under this
Rule.
(5) Evidence
Formal rules of evidence shall not apply to a hearing under this
Rule. Not later than four days before the hearing, the member or
associated person and the appropriate department or office shall
exchange copies of proposed hearing exhibits and witness lists and
provide copies of the same to the subcommittee.
(6) Witnesses
A person who is subject to the jurisdiction of the Association
shall testify under oath or affirmation. The oath or affirmation shall
be administered by a court reporter or a notary public.
(7) Additional Information
At any time during its consideration, the subcommittee may direct
the member or associated person or the appropriate department or office
to submit additional information. Any additional information submitted
shall be provided to all parties before the subcommittee renders its
decision.
(8) Transcript
The hearing shall be recorded and a transcript prepared by a court
reporter. The member or associated person may purchase a copy of the
transcript from the court reporter.
(9) Record
The record shall consist of all documents that were considered in
connection with the National Business Conduct Committee's decision to
issue a notice under Rule 8221, the notice issued under Rule 8221, the
request for hearing filed under Rule 8222, the transcript of the
hearing, and each document or other item of evidence presented to or
considered by the Subcommittee. The Office of the General Counsel of
NASD Regulation shall be the custodian of the record.
(10) Failure to Appear at Hearing
If a member or associated person fails to appear at a hearing for
which it has notice, the subcommittee may dismiss the request for a
hearing as abandoned, and the notice of the National Business Conduct
Committee issued under Rule 8221 shall become the final action of the
Association. Upon a showing of good cause, the subcommittee may
withdraw a dismissal entered pursuant to this subparagraph.
8223. Decision
(a) Subcommittee
(1) Proposed Written Decision
The subcommittee may suspend the membership of a member or suspend
the association of a person with a member for failure to take the
action required by the notice issued under Rule 8221. The subcommittee
shall prepare a proposed written decision, and if the subcommittee
determines that a suspension should be imposed, the proposed written
decision shall state the grounds for the suspension and the conditions
for terminating the suspension. The subcommittee shall provide its
proposed written decision to the NASD Board of Governors.
(2) Issuance of Decision After Expiration of Call for Review Period
If no Governor calls the suspension proceeding for review within
the time prescribed in paragraph (b)(1), the subcommittee's proposed
written decision shall become final, and the subcommittee shall serve
the final written decision on the member or associated person via
commercial courier or facsimile.
(b) NASD Board of Governors
(1) Call For Review by Governor
A Governor may call the suspension proceeding for review if the
call for review is made not later than ten days after the Governor
receives the subcommittee's proposed written decision. By a unanimous
vote of the NASD Board of Governors, the NASD Board of Governors may
shorten the call for review period to less than ten days. By an
affirmative vote of the majority of the NASD Board of Governors then in
office, the NASD Board of Governors may, during the ten day period,
vote to extend the period to more than ten days.
(2) Review and Decision
If a Governor calls the suspension proceeding for review within the
time prescribed in subparagraph (1), the NASD Board of Governors shall
conduct a review not later than its next meeting. The NASD Board of
Governors may affirm, modify, or reverse the decision of the
subcommittee. Not later than seven days after the NASD Board of
Governors meeting, the NASD Board of Governors shall serve a final
written decision on the member or associated person via commercial
courier or facsimile. The decision shall state the disposition of the
suspension proceeding, and if a suspension is imposed, state the
[[Page 25321]]
grounds for the suspension and the conditions for terminating the
suspension.
(c) Effective Date.
A final written decision served under this Rule shall become
effective upon service and shall constitute final action of the
Association.
8224. Notice to Membership
The Association shall provide notice of a suspension under the Rule
8220 Series and the grounds therefor in the next membership supplement.
8225. Termination of Suspension
A suspended member or associated person may file a written request
for termination of the suspension on the ground of full compliance with
the notice issued under Rule 8221 or, if applicable, the conditions of
a decision under Rule 8223, with the head of the appropriate department
or office. The head of the appropriate department or office shall
respond to the request in writing within five days after receipt of the
request. If the head of the appropriate department or office grants the
request, he or she shall serve the member or associated person with
written notice of the termination of the suspension via commercial
courier or facsimile. If the head of the department or office denies
the request, the suspended member or associated person may file a
written request for relief with the National Business Conduct
Committee. The National Business Conduct Committee shall respond to the
request in writing within ten days after receipt of the request. The
National Business Conduct Committee's response shall be served on the
member or associated person via commercial courier or facsimile.
8226. Copies of Notices and Decisions to Member
A copy of a notice or decision under the Rule 8220 Series that is
served on a person associated with a member shall be served on such
member.
8227. Other Action Not Foreclosed
Action by the Association under the Rule 8220 Series shall not
foreclose action by the Association under any other Rule.
8300. Sanctions
8310. Sanctions for Violation of the Rules
[Any District Business Conduct Committee, Market Surveillance
Committee, the National Business Conduct Committee (NBCC), any other
committee exercising powers assigned by the Board, or the Board, in the
administration and enforcement of these Rules, the Act, the rules and
regulations there under, or the rules of the Municipal Securities
Rulemaking Board, and after compliance with the Rule 9000 series, may:]
(a) Imposition of Sanction
After compliance with the Rule 9000 Series, the Association may
impose one or more of the following sanctions on a member or associated
person for each violation of the federal securities laws, rules or
regulations thereunder, the rules of the Municipal Securities
Rulemaking Board, or Rules of the Association, or may impose one or
more of the following sanctions on a member or associated person for
any neglect or refusal to comply with an order, direction, or decision
issued under the Rules of the Association:
[(a)](1) censure [any] member or person associated with a member [,
and/or];
[(b)](2) impose a fine upon [any] a member or person associated
with a member [, and/or ];
[(c)](3) suspend the membership of [any] a member or suspend the
registration of a person associated with a member [, if any,] for a
definite period [, and/or for] or a period contingent on the
performance of a particular act[, and/or];
[(d)(4) expel [any] a member, cancel the membership of a member, or
revoke or cancel the registration of [any] a person associated with a
member [, if any, and/or ];
[(e)](5) suspend or bar a member or person associated with a member
from association with all members [, and/or]; or
[(f)](6) impose any other fitting sanction [deemed appropriate
under the circumstances, ].
[for each or any violation of any of these Rules by a member or
person associated with a member or for any neglect or refusal to comply
with any orders, directions or decisions issued by any such committee
or by the Board in the enforcement of these Rules, including any
interpretative ruling made by the Board, as any such committee or the
Board, in its discretion, may deem to be just; provided, however, that
no such sanction imposed by any such committee shall take effect until
the period for appeal therefrom or review thereof by the National
Business Conduct Committee or the Board, as applicable, has expired and
any such appeal or review has been completed in accordance with the
Rule 9000 Series; and provided, further, that all parties to any]
(b) Assent to Sanction
Each party to a proceeding resulting in a sanction shall be deemed
to have assented to [or to have acquiesced in] the imposition of [such]
the sanction unless [any party aggrieved thereby shall have made] such
party files a written application for appeal, review [thereof], or
relief pursuant to the Rule 9000 Series[, within fifteen (15) days
after the date of the decision rendered in such proceeding].
IM-8310-1. Effect of a Suspension, Revocation, Cancellation, or Bar
If the Association or the Commission issues an order [which] that
imposes a suspension, revocation, or cancellation of the registration[,
if any,] of a person associated with a member or bars [that] a person
from further association with any member, a member shall not allow
[that] such person to remain associated with [that member] it in any
capacity [whatever], including a clerical or ministerial [functions.
When an individual is suspended, a member, in addition to the above,]
capacity. If the Association or the Commission suspends a person
associated with a member, the member also shall not pay or credit any
salary, or any commission, profit, or other remuneration [which] that
results directly or indirectly from any security transaction [which],
that [individual] the associated person might have earned during the
period of suspension.
IM-8310-2. Release of Disciplinary Information
[No change.]
8320. Payment of Fines, Other Monetary Sanctions, or Costs; Summary
Action for Failure to Pay
(a) Payment to Treasurer
All fines and other monetary sanctions shall be paid to the
Treasurer of the Association and shall be used for the general
corporate purposes.
(b) Summary Suspension or Expulsion
[Any member who fails promptly to pay any] After seven days notice
in writing, the Association may summarily suspend or expel from
membership a member that fails to:
(1) pay promptly a fine or other monetary sanction imposed pursuant
to Rule 8310[,] or [any costs] cost imposed pursuant to Rule 8330
[after] when such fine, monetary sanction, or [costs have become] cost
becomes finally due and payable[, may after seven (7) days' notice in
writing be summarily suspended or expelled from membership in the
Association. A member may also be summarily suspended or expelled from
membership in the Association if the
[[Page 25322]]
member fails to immediately terminate the association of any person who
fails promptly to pay any]; or
(2) terminate immediately the association of a person who fails to
pay promptly a fine or other monetary sanction imposed pursuant to Rule
8310[,] or [any costs] a cost imposed pursuant to Rule 8330 [after]
when such fine, monetary sanction, or cost [has become] becomes finally
due and payable [after seven (7) days' notice in writing. The].
(c) Summary Revocation of Registration
After seven days notice in writing, the Association may summarily
revoke the registration of a person associated with a member[, if any,
may be summarily revoked] if such person fails [promptly] to pay [any]
promptly a fine or other monetary sanction imposed pursuant to Rule
8310[, or any costs] or a cost imposed pursuant to Rule 8330 [after]
when such fine, monetary sanction, or cost [has become] becomes finally
due and payable [after seven (7) days' notice in writing].
8330. Costs of Proceedings
[Any] A member or [any] person associated with a member disciplined
pursuant to Rule 8310 shall bear such [part of the costs of the
proceedings as any committee referred to in such Rule or the Board]
costs of the proceeding as the Adjudicator deems fair and appropriate
[in] under the circumstances.
* * * * *
Code of Procedure
Table of Contents
9000. Code of Procedure
9100. Application and Purpose
9110. Application
9120. Definitions
9130. Service; Filing of Papers
9131. Service of Complaint and Document Initiating a Proceeding
9132. Service of Orders, Notices and Decisions by Adjudicator
9133. Service of Papers Other Than Complaints, Orders, Notices, or
Decisions
9134. Methods of, Procedures for Service
9135. Filing of Papers With Adjudicator: Procedure
9136. Filing of Papers: Form
9137. Filing of Papers: Signature Requirement and Effect
9138. Computation of Time
9140. Proceedings
9141. Appearance and Practice; Notice of Appearance
9142. Withdrawal By Attorney or Representative
9143. Ex Parte Communications
9144. Separation of Functions
9145. Rules of Evidence; Official Notice
9146. Motions
9147. Rulings on Procedural Matters
9148. Interlocutory Review
9150. Exclusion of Person From Rule 9000 Proceeding
9160. Recusal or Disqualification
9200. Disciplinary Proceedings
9210. Complaint and Answer
9211. Issuance of Complaints
9212. Complaints--Requirements, Service, Amendment, Withdrawal and
Docketing
9213. Assignment of Hearing Officer and Appointment of Panelists to
Hearing Panel or Extended Hearing Panel
9214. Consolidation of Disciplinary Proceedings
9215. Answers to Complaints
9216. Acceptance, Waiver, and Consent; Plan Pursuant to SEC Rule
19d-1(c)(2)
IM-9216. Violations Appropriate For Disposition Under Plan Pursuant
to SEC Rule 19d-1(c)(2)
9220. Request for Hearing; Appointment of Hearing Panel or Extended
Hearing Panel; Extensions of Time, Postponements, Adjournments
9221. Request for Hearing
9222. Extensions of Time, Postponements, and Adjournments
9230. Appointment of Hearing Panel, Extending Hearing Panel
9231. Appointment By the Chief Hearing Officer of Hearing Panel or
Extended Hearing Panel
9232. Criteria for Selection of Panelists; Replacement Panelists
9233. Hearing Panel or Extended Hearing Panel: Recusal and
Disqualification of Hearing Officers
9234. Hearing Panel or Extended Hearing Panel: Recusal and
Disqualification of Panelists
9235. Hearing Officer Authority
9240. Pre-hearing Conferences and Submissions
9241. Pre-hearing Conferences
9242. Pre-hearing Submissions
9250. Discovery
9251. Inspection and Copying of Documents In Possession of Staff
9252. Requests for Information
9253. Production of Witness Statements
9260. Hearing and Decision
9261. Evidence and Procedure in Hearings
9262. Testimony
9263. Evidence: Admissibility
9264. Motion for Summary Disposition
9265. Record of Hearings
9266. Proposed Findings of Fact, Conclusions of Law, and Post-
Hearing Briefs
9267. Record; Supplemental Documents Attached to Record; Retention
of Record and Supplemental Documents Attached to Record; Copies
9268. Decision of the Hearing Panel or Extended Hearing Panel
9269. Failure to Appear at Hearings; Default
9270. Settlement Procedure
9280. Contemptuous Conduct
9300. Review of Disciplinary Proceedings by the National Business
Conduct Committee, NASD Regulation and NASD Boards, and Application for
SEC Review
9310. Appeal to or Review by National Business Conduct Committee
9311. Appeals By Any Party; Cross-Appeal Review Proceedings
Initiated By The National Business Conduct Committee
9320. Transmission of Record; Extensions of Time, Postponements,
Adjournments
9321. Transmission of Record
9322. Extensions of Time, Postponements, Adjournments
9330. Appointment of Subcommittee or Extended Proceeding Committee;
Disqualification and Recusal
9331. Appointment by National Business Conduct Committee of
Subcommittee or Extended Proceeding Committee
9332. Disqualification and Recusal
9340. Proceedings
9341. Oral Argument
9342. Failure to Appear at Oral Argument
9343. Disposition Without Oral Argument
9344. Failure to Participate Below; Abandonment of Appeal
9345. Subcommittee or Extended Proceeding Committee Recommendation
to National Business Conduct Committee
9346. Evidence in National Business Conduct Committee Proceedings
9347. Filing of Papers In National Business Conduct Committee
Proceedings
9348. Powers of the National Business Conduct Committee on Review
9349. National Business Conduct Committee Formal Consideration;
[[Page 25323]]
Decision
9350. Discretionary Review by Boards
9351. Discretionary Review by NASD Regulation Board
9352. Discretionary Review by NASD Board
9360. Effectiveness of Sanctions
9370. Application to Commission for Review
* * * * *
Rule 9000 Series
* * * * *
9000. Code of Procedure
9100. Application and Purpose
9110. Application
(a) Proceedings
The Rule 9000 Series is the Code of Procedure and includes
proceedings for disciplining a member or person associated with a
member; proceedings for regulating the activities of a member
experiencing financial or operational difficulties; proceedings for
approving or disapproving a change in business operations that will
result in a change in exemptive status under SEC Rule 15c3-3;
proceedings for summary suspension of a member or person associated
with a member; proceedings for the non-summary suspension, cancellation
or bar of a member or a person; and proceedings for obtaining relief
from the eligibility requirements of the NASD By-Laws and the Rules of
the Association. The Rule 9100 Series is of general applicability to
all proceedings set forth in Rule 9000 Series, except the proceedings
set forth in the Rule 9700 Series and the Rule 9800 Series, unless a
Rule in the Rule 9200 Series, the Rule 9300 Series, the Rule 9400
Series, or the Rule 9500 Series specifically provides otherwise.
(b) Rights, Duties and Obligations of Members and Associated
Persons
Unless otherwise specified, a person associated with a member shall
have the same rights as a member and shall be subject to the same
duties and obligations under the Code.
(c) Incorporation of Defined Terms and Cross References
Unless otherwise provided, terms used in the Rule 9000 Series shall
have the meaning as defined in Rule 0120 and Rule 9120. References
within the Rule 9000 Series to Association offices or departments refer
to offices so designated by the NASD, NASD Regulation or Nasdaq.
9120. Definitions
(a) ``Adjudicator''
The term ``Adjudicator'' means: (1) a body, board, committee, other
group, or natural person that presides over a proceeding and renders a
decision; (2) a body, board, committee, other group, or natural person
that presides over a proceeding and renders a recommended or proposed
decision which is acted upon by an Adjudicator described in (1); or (3)
a natural person who serves on a body, board, committee, or other group
described in (1) or (2). The term includes a Subcommittee as defined in
paragraph (z), an Extended Proceeding Committee as defined in paragraph
(k), and a Statutory Disqualification Committee as defined in paragraph
(y).
(b) ``Chief Hearing Officer''
The term ``Chief Hearing Officer'' means the Hearing Officer
designated by the President of NASD Regulation to manage the Office of
Hearing Officers, or his or her delegatee.
(c) ``Code''
The term ``Code'' refers to this Code of Procedure.
(d) ``Complainant''
The term ``Complainant'' means, in the Rule 9200 Series, a person
who files a complaint to initiate a disciplinary proceeding governed by
the Rule 9200 Series and, in the Rule 9300 Series, the person who
initiated the disciplinary proceeding.
(e) ``Director''
The term ``Director'' means a member of the Board of Directors of
NASD Regulation, excluding the Chief Executive Officer of the NASD.
(f) ``District Committee''
The term ``District Committee'' means a district committee elected
pursuant to Article VIII of the NASD Regulation By-Laws.
(g) ``Document''
The term ``Document'' means a writing, drawing, graph, chart,
photograph, recording, or any other data compilation, including data
stored by computer, from which information can be obtained.
(h) ``Extended Hearing''
The term ``Extended Hearing'' means a disciplinary proceeding
described in Rule 9231(c).
(i) ``Extended Hearing Panel''
The term ``Extended Hearing Panel'' means a decisional body that is
constituted under Rule 9231(c) to conduct a disciplinary proceeding
that is classified as an ``Extended Hearing'' and is governed by the
Rule 9200 Series.
(j) ``Extended Proceeding''
The term ``Extended Proceeding'' means a disciplinary proceeding
described in Rule 9331(a)(2).
(k) ``Extended Proceeding Committee''
The term ``Extended Proceeding Committee'' means an appellate body
that is appointed by the National Business Conduct Committee and
constituted under Rule 9331(a)(2) to participate in the National
Business Conduct Committee's consideration of a disciplinary proceeding
that is classified as an ``Extended Proceeding'' and governed by the
Rule 9300 Series.
(l) ``Governor''
The term ``Governor'' means a member of the Board of Governors of
the NASD.
(m) ``Head of Enforcement''
The term ``Head of Enforcement'' means the individual designated by
the President of NASD Regulation to manage the Department of
Enforcement, or his or her delegatee.
(n) ``Hearing Officer''
The term ``Hearing Officer'' means an employee of NASD Regulation
who is an attorney and who is appointed by the Chief Hearing Officer to
act in an adjudicative role and fulfill various adjudicative
responsibilities and duties described in the Rule 9200 Series regarding
disciplinary proceedings brought against members and associated
persons.
(o) ``Hearing Panel''
The term ``Hearing Panel'' means a decisional body that is
constituted under Rule 9231 to conduct a disciplinary proceeding
governed by the Rule 9200 Series or that is constituted under the Rule
9500 Series to conduct a proceeding.
(p) ``Interested Association Staff''
The term ``Interested Association Staff'' means, in the context of:
(1) a disciplinary proceeding under the Rule 9200 Series and the
Rule 9300 Series:
(A) the Head of Enforcement;
(B) a Department of Enforcement employee who reports, directly or
indirectly, to the Head of Enforcement;
(C) an Association employee who directly participated in the
authorization of the complaint; or
(D) an Association employee who directly participated in an
examination, investigation, prosecution, or litigation related to a
specific disciplinary proceeding, and a district director or department
head to whom such employee reports;
(2) a proceeding under the Rule 9400 Series or the Rule 9530
Series:
(A) the head of the Department of Member Regulation;
(B) a Department of Member Regulation employee who reports,
directly or indirectly, to the head of the Department of Member
Regulation;
(C) an Association employee who directly participated in the
authorization of or the initial decision in the proceeding; or
(D) an Association employee who directly participated in an
examination,
[[Page 25324]]
investigation, prosecution, or litigation related to a specific
proceeding, and a district director or department head to whom such
employee reports; or
(3) a proceeding under the Rule 9510 or 9520 Series:
(A) the head of the department or office that issues the notice;
(B) an Association employee who reports, directly or indirectly, to
such person;
(C) an Association employee who directly participated in the
initiation of the proceeding; or
(D) an Association employee who directly participated in an
examination, investigation, prosecution, or litigation related to a
specific proceeding, and a district director or department head to whom
such employee reports.
(q) ``Market Regulation Committee''
The term ``Market Regulation Committee'' means the committee of
NASD Regulation designated to consider the federal securities laws and
the rules and regulations adopted thereunder and various Rules of the
Association and policies relating to:
(1) the quotations of securities;
(2) the execution of transactions;
(3) the reporting of transactions; and
(4) trading practices, including rules prohibiting manipulation and
insider trading, and those Rules designated as Trading Rules (Rule 3300
Series), the Nasdaq Stock Market Rules (Rule 4000 Series), other Nasdaq
and NASD Market Rules (Rule 5000 Series), NASD Systems and Programs
Rules (Rule 6000 Series), and Charges for Services and Equipment Rules
(Rule 7000 Series).
(r) ``NASD Board''
The term ``NASD Board'' means the Board of Governors of the NASD.
(s) ``NASD Regulation Board''
The term ``NASD Regulation Board'' means the Board of Directors of
NASD Regulation.
(t) ``Panelist''
The term ``Panelist,'' as used in the Rule 9200 Series, means a
member of a Hearing Panel or Extended Hearing Panel who is not a
Hearing Officer. As used in the Rule 9300 Series, the term means a
current or former Director or a former Governor who is appointed to
serve on a Subcommittee or an Extended Proceeding Committee.
(u) ``Party''
With respect to a particular proceeding, the term ``Party'' means:
(1) a Complainant or a Respondent;
(2) in the Rule 9400 Series and the Rule 9530 Series, the
Department of Member Regulation and:
(A) a member that is the subject of a notice under Rule 9412;
(B) a member that submits an application under Rule 9422; or
(3) in the Rule 9510 Series and the Rule 9520 Series, the
department or office that issues the notice and:
(A) a member or person that is the subject of a notice under Rule
9512;
(B) a member or person that is the subject of a notice under Rule
9522; or
(C) a member that is the subject of a notice or files an
application under Rule 9532.
(v) ``Practicing Before the Association''
The term ``practicing before the Association'' means representing
one or more other persons in any proceeding incorporated in Rule 9110,
but shall not include appearing pro se.
(w) ``Primary District Committee''
The term ``Primary District Committee'' means, in a disciplinary
proceeding under the Rule 9200 Series, the District Committee
designated by the Chief Hearing Officer pursuant to Rule 9232 to
provide one or more of the Panelists to a Hearing Panel or, if
applicable, to an Extended Hearing Panel, for such disciplinary
proceeding.
(x) ``Respondent''
The term ``Respondent'' means, in a disciplinary proceeding
governed by the Rule 9200 Series and in an appeal or review governed by
the Rule 9300 Series, an NASD member or associated person against whom
a complaint is issued.
(y) ``Statutory Disqualification Committee''
The term ``Statutory Disqualification Committee'' means a
Subcommittee of the National Business Conduct Committee that is
composed of current members of the NASD Regulation Board that makes a
recommended decision to grant or deny an application for relief from
the eligibility requirements of the Association to the National
Business Conduct Committee pursuant to the Rule 9530 Series.
(z) ``Subcommittee''
The term ``Subcommittee'' means an appellate body that is appointed
by the National Business Conduct Committee:
(1) constituted by Rule 9331(a) to participate in the National
Business Conduct Committee's consideration of a disciplinary proceeding
pursuant to the Rule 9300 Series; or
(2) constituted under the Rule 9400 Series or the Rule 9500 Series
to conduct a review proceeding.
9130. Service; Filing of Papers
9131. Service of Complaint and Document Initiating a Proceeding
(a) Service on Each Party
A complaint shall be served on each Party by the Complainant or
Complainant's counsel or other person the Complainant designates to
represent him or her in a proceeding. A document initiating a
proceeding shall be served on each Party by the Party initiating such
proceeding or his or her counsel or representative.
(b) How Served
A complaint or document initiating a proceeding shall be served
pursuant to Rule 9134.
(c) Filing Requirement
A complaint that is served upon a Respondent and each document
initiating a proceeding that is served upon a Party, along with the
certificate of service executed in connection with the service upon
such Respondent or Party, shall be filed with the Association pursuant
to Rule 9135.
9132. Service of Orders, Notices and Decisions by Adjudicator
(a) Service on Each Party
An order, notice, or decision issued by a Hearing Officer, Hearing
Panel or Extended Hearing Panel under the Rule 9200 Series shall be
served on each Party, or each Party's counsel, or other person the
Party designates to represent him or her in a proceeding by the Office
of Hearing Officers. An order, notice, or decision issued by any other
Adjudicator shall be served by that Adjudicator.
(b) How Served
An order, notice, or decision shall be served pursuant to Rule
9134.
(c) Service Upon Counsel or Other Person Acting In Representative
Capacity
Whenever service is required to be made upon a person represented
by counsel or a representative who has filed a notice of appearance
pursuant to Rule 9141, service shall be made upon counsel or the
representative. The Adjudicator, at its discretion, may also order that
service be made upon the person.
9133. Service of Papers Other Than Complaints, Orders, Notices, or
Decisions
(a) Service on Each Party
Other than a complaint, order, notice, or decision, any paper,
including an answer and a motion, shall be served on each Party by the
Party on whose behalf such paper was prepared or by his or her counsel
or representative.
(b) How Served
The paper shall be served pursuant to Rule 9134.
(c) Filing Requirement
The paper that is served upon a Party, along with the certificate
of service executed in connection with the service upon such Party,
shall be filed with the Association pursuant to Rule 9135.
(d) Service upon Counsel or Other Person Acting in Representative
Capacity
Whenever service is required to be made upon a person represented
by
[[Page 25325]]
counsel or a representative who has filed a notice of appearance
pursuant to Rule 9141, service shall be made upon counsel or the
representative. The Adjudicator, at its discretion, may also order that
service be made upon the person.
9134. Methods of, Procedures for Service
(a) Methods
The following methods of service are permitted:
(1) Personal Service
Personal service may be accomplished by handing a copy of the
papers to the person required to be served; leaving a copy at the
person's office with an employee or other person in charge thereof; or
leaving a copy at the person's dwelling or usual place of abode with a
person of suitable age and discretion then residing therein;
(2) Service by Mail by U.S. Postal Service
Service by mail may be accomplished by mailing the papers through
the U.S. Postal Service by using first class mail, first class
certified mail, first class registered mail, or Express Mail, except
that a complaint shall be served upon a Respondent by U.S. Postal
Service first class certified mail or Express Mail; or
(3) Service by Commercial Courier
Service by commercial courier may be accomplished by sending the
papers through a commercial courier service that generates a written
confirmation of receipt or of attempts at delivery.
(b) Procedures
(1) Service on Natural Persons
Papers served on a natural person may be served at the natural
person's residential address, as reflected in the Central Registration
Depository, if applicable. When a Party or other person responsible for
serving such person has actual knowledge that the natural person's
Central Registration Depository address is out of date, duplicate
copies shall be served on the natural person at the natural person's
last known residential address and the business address in the Central
Registration Depository of the entity with which the natural person is
employed or affiliated. Papers may also be served at the business
address of the entity with which the natural person is employed or
affiliated, as reflected in the Central Registration Depository, or at
a business address, such as a branch office, at which the natural
person is employed, or at which the natural person is physically
present during a normal business day. If a natural person is
represented by counsel or a representative, papers served on the
natural person, excluding a complaint or a document initiating a
proceeding, shall be served on the counsel or representative.
(2) Service on Entities
Papers served on an entity shall be made by service on an officer,
partner of a partnership, managing or general agent, or any other agent
authorized by appointment or by law to accept service. Such papers
shall be served at the entity's business address as reflected in the
Central Registration Depository, if applicable; provided, however, that
when the Party or other person responsible for serving such entity has
actual knowledge that an entity's Central Registration Depository
address is out of date, duplicate copies shall be served at the
entity's last known address. If an entity is represented by counsel or
a representative, papers served on such entity, excluding a complaint
or document initiating a proceeding, shall be served on such counsel or
representative.
(3) When Service Is Complete
Personal service and service by commercial courier or express
delivery are complete upon delivery. Service by mail is complete upon
mailing.
9135. Filing of Papers with Adjudicator: Procedure
(a) When to File
Papers that are required to be filed with an Adjudicator within a
time limit specified by the Adjudicator or within a time limit
specified by the Rules shall be deemed timely if received within the
time limit specified, unless otherwise ordered by an Adjudicator. Other
papers that are required to be filed shall be deemed timely if, on the
same day such papers are served, they are also hand-delivered, mailed
via U.S. Postal service first class mail, or sent by courier to the
Association.
(b) Where to File
All papers required to be filed pursuant to the Rule 9200 Series
and any notice of appeal or review required to be filed pursuant to the
Rule 9300 Series shall be filed with the Office of Hearing Officers.
All other papers required to be filed pursuant to the Rule 9000 Series
shall be filed where specified in the Rule, or if not specified in the
Rule, with the Adjudicator, unless the Adjudicator orders otherwise.
(c) Certificate of Service
Papers filed with an Adjudicator or the Office of Hearing Officers
shall be accompanied by a certificate of service stating the name of
the person or persons served, the date on which service is made, the
method of service and, if service is not made in person, the address to
which service is made. Such certificate shall be executed by the person
who made the service. If the method of service on a Party is different
from the method of service on any other Party, the certificate shall
state why such different method was used.
9136. Filing of Papers: Form
(a) Specifications
Papers filed in connection with any proceeding under the Rule 9200
Series and the Rule 9300 Series shall:
(1) be on unglazed white paper measuring 8\1/2\ x 11 inches, but
to the extent that the reduction of a larger document would render it
illegible, such document may be filed on larger paper;
(2) be typewritten or printed in either 10 or 12 point typeface or
otherwise reproduced by a process that produces a permanent and plainly
legible copy;
(3) include at the head of the paper, or on a title page, the title
of the proceeding, the names of the Parties, the subject of the
particular paper or pleading, and the number assigned to the
proceeding;
(4) be paginated at the bottom of the page and with all margins at
least one inch wide;
(5) be double-spaced, with double-spaced footnotes and single-
spaced indented quotations; and
(6) be stapled, clipped, or otherwise fastened in the upper left
corner, but not bound.
(b) Signature Required
All papers shall be signed and dated pursuant to Rule 9137.
(c) Number of Copies
A signed original and three copies of all papers shall be filed
with the Adjudicator.
(d) Form of Briefs
A brief containing more than ten pages shall include a table of
contents, and an alphabetized table of cases, statutes, and other
authorities cited, with references to the pages of the brief wherein
they are cited.
(e) Scandalous or Impertinent Matter
Any scandalous or impertinent matter contained in any brief,
pleading, or other filing, or in connection with any oral presentation
in a proceeding may be stricken on order of an Adjudicator. Any matter
stricken by an Adjudicator by this Rule shall be marked ``Stricken''
and preserved. Matters stricken in a proceeding governed by the Rule
9200 Series shall be preserved under Rule 9267(b).
9137. Filing of Papers: Signature Requirement and Effect
(a) General Requirements
Following the issuance of a complaint in a disciplinary proceeding,
or the initiation of another proceeding, every filing of a Party
represented by counsel or a representative shall be signed by at
[[Page 25326]]
least one counsel or representative of record in his or her name and
shall state the business address and telephone number of such counsel
or representative. A Party who appears on his or her own behalf shall
sign his or her individual name and state his or her address and
telephone number on every filing.
(b) Effect of Signature
(1) The signature of a counsel, representative or Party shall
constitute a certification that:
(A) the person signing the filing has read the filing;
(B) to the best of his or her knowledge, information, and belief,
formed after reasonable inquiry, the filing is well grounded in fact
and is warranted by existing law or a good faith argument for the
extension, modification, or reversal of existing law; and
(C) the filing is not made for any improper purpose, such as to
harass, cause unnecessary delay, or needlessly to increase the cost of
adjudication.
(2) If a filing is not signed, an Adjudicator may strike the
filing, unless it is signed promptly after the omission is called to
the attention of the person making the filing.
9138. Computation of Time
(a) Calendar Day
In the Rule 9000 Series, ``day'' means calendar day.
(b) Formula
In computing any period of time, the day of the act, event, or
default from which the period of time designated in the Code begins to
run shall not be included. The last day of the period so computed shall
be included, unless it is a Saturday, Sunday, or Federal holiday, in
which event the period runs until the end of the next day that is not a
Saturday, Sunday, or Federal holiday. Intermediate Saturdays, Sundays,
and Federal holidays shall be excluded from the computation when the
period prescribed is ten days or less, not including any additional
time for service by mail allowed by paragraph (c).
(c) Additional Time For Service by Mail
If service is made by U.S. Postal Service first class, certified,
or registered mail, three days shall be added to the prescribed period
for response.
9140. Proceedings
9141. Appearance and Practice; Notice of Appearance
(a) Representing Oneself
In any proceeding, a person may appear on his or her own behalf.
When a person first makes any filing or otherwise appears on his or her
own behalf before an Adjudicator in a proceeding, he or she shall file
with the Adjudicator, or otherwise state on the record, and keep
current, an address at which any notice or other written communication
required to be served upon or furnished to him or her may be sent and a
telephone number where he or she may be reached during business hours.
(b) Representing Others
A person shall not be represented before an Adjudicator, except as
provided in this paragraph. Subject to the prohibitions of Rules 9150
and 9280, a person may be represented in any proceeding by an attorney
at law admitted to practice before the highest court of any state of
the United States, the District of Columbia, or any commonwealth,
territory, or possession of the United States. A member of a
partnership may represent the partnership; and a bona fide officer of a
corporation, trust, or association may represent the corporation,
trust, or association. When a person first makes any filing or
otherwise appears in a representative capacity before an Adjudicator in
a proceeding, that person shall file with the Adjudicator, and keep
current, a written notice stating the name of the proceeding; the
representative's name, business address, and telephone number; and the
name and address of the person or persons represented. Any individual
appearing or practicing in a representative capacity before an
Adjudicator may be required to file a power of attorney with the
Adjudicator showing his or her authority to act in such capacity.
9142. Withdrawal by Attorney or Representative
An attorney for a Party or other person authorized to represent
others by Rule 9141 shall withdraw by giving notice not later than 30
days before the date of withdrawal. The notice shall set forth the good
cause for withdrawal.
9143. Ex Parte Communications
(a) Prohibited Communications
Unless on notice and opportunity for all Parties to participate, or
to the extent required for the disposition of ex parte matters as
authorized by the Rule 9000 Series:
(1) No Party, or counsel to or representative of a Party, or
Interested Association Staff shall make or knowingly cause to be made
an ex parte communication relevant to the merits of a proceeding to a
Governor, a Director, or an Adjudicator who is participating in a
decision with respect to that proceeding, or to an Association employee
who is participating or advising in the decision of a Governor, a
Director, or an Adjudicator with respect to that proceeding; and
(2) No Governor, Director, or Adjudicator who is participating in a
decision with respect to a proceeding, or no Association employee who
is participating or advising in the decision of a Governor, a Director,
or an Adjudicator with respect to a proceeding shall make or knowingly
cause to be made to a Party, a counsel or representative to a Party, or
Interested Association Staff an ex parte communication relevant to the
merits of that proceeding.
(b) Disclosure of Prohibited Communication
A Governor, a Director, or an Adjudicator who is participating in a
decision with respect to a proceeding, or an Association employee who
is participating or advising in the decision of a Governor, a Director,
or an Adjudicator, who receives, makes, or knowingly causes to be made
a communication prohibited by this Rule shall place in the record of
the proceeding:
(1) all such written communications;
(2) memoranda stating the substance of all such oral
communications; and
(3) all written responses and memoranda stating the substance of
all oral responses to all such communications.
(c) Remedies
Upon receipt of a communication made or knowingly caused to be made
by any Party, any counsel or representative to a Party, or any
Interested Association Staff in violation of subparagraphs (a)(1) or
(a)(2), the Association or an Adjudicator may, to the extent consistent
with the interests of justice, the policies underlying the Act, and the
Association's Rules, order the Party responsible for the communication,
or the Party who may benefit from the ex parte communication made, to
show cause why the Party's claim or interest in the proceeding should
not be dismissed, denied, disregarded, or otherwise adversely affected
by reason of such ex parte communication.
(d) Timing
In a disciplinary proceeding governed by the Rule 9200 Series and
the Rule 9300 Series, the prohibitions of this Rule shall apply
beginning with the authorization of a complaint as provided in Rule
9211, unless the person responsible for the communication has knowledge
that the complaint shall be authorized, in which case the prohibitions
shall apply beginning at the time of his or her acquisition of such
knowledge.
[[Page 25327]]
(e) Waiver of Ex Parte Prohibition
(1) Offer of Settlement
If a Respondent submits an offer of settlement under Rule 9270, the
submission constitutes a waiver by such Respondent of any claim that
the prohibitions against ex parte communications were violated by a
person or body in connection with such person's or body's participation
in discussions regarding the terms and conditions of the offer of
settlement and the order of acceptance, or other consideration of the
offer of settlement and order of acceptance, including acceptance or
rejection of such offer of settlement and order of acceptance.
(2) Letter of Acceptance, Waiver, and Consent
If a member or a person associated with a member submits an
executed letter of acceptance, waiver, and consent under Rule 9216(a),
the submission constitutes a waiver by such member or person associated
with a member of any claim that the prohibitions against ex parte
communications were violated by a person or body in connection with
such person's or body's participation in discussions regarding the
terms and conditions of the letter of acceptance, waiver, and consent,
or other consideration of the letter of acceptance, waiver, and
consent, including acceptance or rejection of such letter of
acceptance, waiver, and consent.
(3) Minor Rule Violation Plan Letter
If a member or a person associated with a member submits an
executed minor rule violation plan letter under Rule 9216(b), the
submission constitutes a waiver by such member or person associated
with a member of any claim that the prohibitions against ex parte
communications by a person or body in connection with such person's or
body's participation in discussions regarding the terms and conditions
of the minor rule violation plan letter, or other consideration of the
minor rule violation plan letter, including acceptance or rejection of
such minor rule plan violation letter.
9144. Separation of Functions
(a) Interested Association Staff
Except as counsel or a witness in a proceeding or as provided in
the Rule 9400 Series, Interested Association Staff is prohibited from
advising an Adjudicator regarding a decision or otherwise participating
in a decision of an Adjudicator. An Adjudicator is prohibited from
advising Interested Association Staff regarding a decision or otherwise
participating in a decision of Interested Association Staff, including
the decision to issue a complaint and a decision whether to appeal or
cross-appeal a disciplinary proceeding to the National Business Conduct
Committee.
(b) Separation of Adjudicators
A Hearing Officer, including the Chief Hearing Officer, or a
Panelist of a Hearing Panel or an Extended Hearing Panel, is prohibited
from participating in: a decision whether to issue a complaint pursuant
to Rule 9211; a decision whether to appeal a disciplinary proceeding,
or to file a cross-appeal with, the National Business Conduct Committee
pursuant to Rule 9311; and a discussion or decision relating to a call
for review, a review, or an appeal pursuant to the Rule 9300 Series. A
Director is prohibited from participating in a discussion or decision
relating to the above referenced acts with the Adjudicators referenced
above, or a Governor or the NASD Board. A Governor is prohibited from
participating in a discussion or a decision relating to the above
referenced acts with the Adjudicators referenced above, or a Director
or the NASD Regulation Board.
(c) Waiver of Prohibitions of Separation of Functions
(1) Offer of Settlement
If a Respondent submits an offer of settlement under Rule 9270, the
submission constitutes a waiver by such Respondent of any claim of
violation of paragraph (a) or (b) by a person or body in connection
with such person's or body's participation in discussions regarding the
terms and conditions of the offer of settlement and the order of
acceptance, or other consideration of the offer of settlement and order
of acceptance, including acceptance or rejection of such offer of
settlement and order of acceptance.
(2) Letter of Acceptance, Waiver, and Consent
If a member or a person associated with a member submits an
executed letter of acceptance, waiver, and consent under Rule 9216(a),
the submission constitutes a waiver by such member or person associated
with a member of any claim of violation of paragraph (a) or (b) by a
person or body in connection with such person's or body's participation
in discussions regarding the terms and conditions of the letter of
acceptance, waiver, and consent, or other consideration of the proposed
letter of acceptance, waiver, and consent, including acceptance or
rejection of such letter of acceptance, waiver, and consent.
(3) Minor Rule Violation Plan Letter
If a member or a person associated with a member submits an
executed minor rule violation plan letter under Rule 9216(b), the
submission constitutes a waiver by such member or person associated
with a member of any claim of violation of paragraph (a) or (b) by a
person or body in connection with such person's or body's participation
in discussions regarding the terms and conditions of the minor rule
violation plan letter or other consideration of the minor rule
violation plan letter, including acceptance or rejection of such minor
rule violation plan letter.
9145. Rules of Evidence; Official Notice
(a) Rules of Evidence
The formal rules of evidence shall not apply in a proceeding
brought under the Rule 9000 Series.
(b) Official Notice
In a proceeding governed by the Rule 9000 Series, an Adjudicator
may take official notice of such matters as might be judicially noticed
by a court, or of other matters within the specialized knowledge of the
Association as an expert body. Before an Adjudicator proposes to take
official notice of a matter, it shall permit a Party the opportunity to
oppose or otherwise comment upon the proposal to take official notice.
9146. Motions
(a) General Requirement for Motions
A Party may make a written or oral motion, subject to limitations
set forth below.
(b) Adjudicator May Require a Written Motion
If a Party makes an oral motion, an Adjudicator may order that such
motion be set forth in writing, after considering the facts and
circumstances, including whether:
(1) the hearing or conference in which the Party makes such motion
is being recorded; and
(2) the opposing Parties shall be fully informed and shall have
adequate notice and opportunity to respond to such motion.
(c) Specificity
All motions shall state the specific relief requested and the basis
therefor.
(d) Time For Filing Opposition or Other Response to Motion
Unless otherwise ordered by an Adjudicator, any Party may file an
opposition or other response to a written motion; the opposition or
response shall be filed within 14 days after service of the motion. If
no response is filed within the response period, the Party failing to
respond shall be deemed to have waived any objection to the granting of
the motion. A Party shall be afforded an opportunity to respond to an
oral motion at the time the oral motion is
[[Page 25328]]
made, unless the Adjudicator orders that the Party shall be granted
additional time to respond.
(e) Oral Argument
An Adjudicator may allow oral argument on motions. Oral argument
may take place in person or by telephone.
(f) Frivolous Motions
An Adjudicator may deny dilatory, repetitive, or frivolous motions
without awaiting a response.
(g) No Stay
Unless otherwise ordered by an Adjudicator, the filing of a motion
does not stay a proceeding.
(h) Reply
The moving Party shall have no right to reply to the opposition or
other response of the other Parties. An Adjudicator may permit a reply
to be filed. When permitted, a movant's reply submission shall be filed
within five days after service of the opposition or other response.
(i) Page Limit, Format Requirements
Unless otherwise ordered by an Adjudicator, submissions in support
of or in opposition to motions shall not exceed ten double-spaced
pages, including double-spaced footnotes, exclusive of pages containing
any table of contents, table of authorities, or addenda.
(j) Disposition of Procedural Motions; Disposition of Motions for
Summary Disposition
In the Rule 9200 Series, a motion on a procedural matter may be
decided by a Hearing Officer; a motion for summary disposition of a
cause of action set forth in a complaint shall be decided by a majority
vote of the Hearing Panel or, if applicable, the Extended Hearing
Panel. In the Rule 9300 Series, a motion on a procedural matter may be
decided by a Subcommittee, an Extended Proceeding Committee, or the
National Business Conduct Committee; a motion for summary disposition
of a cause of action shall be decided by the National Business Conduct
Committee. In the Rule 9400 Series and the Rule 9500 Series, a motion
shall be decided by an Adjudicator.
(k) General
All motions, oppositions or responses, replies, and any other
filings made by a Party in a proceeding shall comply with Rules 9133,
9134, 9135, 9136 and 9137.
9147. Rulings on Procedural Matters
The NASD Board, the NASD Regulation Board, the National Business
Conduct Committee, a Hearing Officer or any other Adjudicator shall
have full authority, except as otherwise provided by this Code, to rule
on a procedural motion and other procedural and administrative matters
arising during the course of a proceeding conducted pursuant to this
Code, subject to the rights of review or appeal provided by this Code.
9148. Interlocutory Review
Except as provided in Rule 9280, there shall be no interlocutory
review of a ruling or order issued by any Adjudicator in a proceeding
governed by this Code. If an Adjudicator grants interlocutory review of
a ruling or order, such review shall not stay a proceeding, except
under Rule 9280 or as otherwise ordered by the Adjudicator.
9150. Exclusion of Person from Rule 9000 Proceeding
(a) Exclusion
An Adjudicator may exclude an attorney for a Party or other person
authorized to represent others by Rule 9141 from acting as counsel,
acting in any representative capacity, or otherwise appearing in a
particular Rule 9000 Series proceeding for contemptuous conduct under
Rule 9280 or unethical or improper professional conduct in that
proceeding. A person excluded under Rule 9280 may seek review of such
exclusion under Rule 9280.
(b) Other Proceedings Not Precluded
Prohibiting an attorney or other person authorized to represent
others by Rule 9141 from practicing or appearing in an Association
proceeding shall not preclude the Association from initiating other
proceedings against such person.
9160. Recusal or Disqualification
No person shall participate as an Adjudicator in a matter governed
by this Code as to which he or she has a conflict of interest or bias,
or circumstances otherwise exist where his or her fairness might
reasonably be questioned. In any such case the person shall recuse
himself or herself, or shall be disqualified as follows:
(a) NASD Board
The Chair of the NASD Board shall have authority to order the
disqualification of a Governor or a member of a Hearing Panel appointed
under Rule 9513, and the Vice Chair of the NASD Board shall have
authority to order the disqualification of the Chair of the NASD Board;
(b) NASD Regulation Board
The Chair of the NASD Regulation Board shall have authority to
order the disqualification of a Director or a member of a Hearing Panel
appointed under Rule 9523, and the Vice Chair of the NASD Regulation
Board shall have authority to order the disqualification of the Chair
of the NASD Regulation Board;
(c) National Business Conduct Committee or Certain Subcommittees
The Chair of the National Business Conduct Committee shall have
authority to order the disqualification of a member of the National
Business Conduct Committee, a Subcommittee appointed pursuant to the
Rule 9400 Series, and the Statutory Disqualification Committee; and the
Vice Chair of the National Business Conduct Committee shall have
authority to order the disqualification of the Chair of the National
Business Conduct Committee;
(d) Rule 9331 Subcommittee or Extended Proceeding Committee
Disqualification of a Panelist of a Subcommittee or Extended
Proceeding Committee appointed pursuant to Rule 9331 shall be governed
by Rule 9332;
(e) Panelist of Hearing Panel or Extended Hearing Panel
Disqualification of a Panelist of a Hearing Panel or Extended
Hearing Panel shall be governed by Rule 9234;
(f) Hearing Officer
Disqualification of a Hearing Officer of a Hearing Panel or an
Extended Hearing Panel shall be governed by Rule 9233; and
(g) NASD Regulation Staff As Adjudicator
The President of NASD Regulation shall have authority to order the
disqualification of a member of the staff of the Department of Member
Regulation participating in a Rule 9400 Series decision.
9200. Disciplinary Proceedings
9210. Complaint and Answer
9211. Issuance of Complaints
(a) Complaints Initiated and Filed by Department of Enforcement
If the Department of Enforcement believes that any NASD member or
associated person is violating or has violated any rule, regulation, or
statutory provision, including the federal securities laws and the
regulations thereunder, which the Association has jurisdiction to
enforce, the Department of Enforcement may authorize and issue a
complaint as set forth in Rule 9212. At the time of authorization and
issuance of a complaint, the Department of Enforcement may propose: (1)
an appropriate location for the hearing; and (2) if the complaint
alleges at least one cause of action involving a violation of a statute
or a rule described in Rule 9120(q), that the Chief Hearing Officer
select as a Panelist for the Hearing Panel, a current or former member
of the Market Regulation Committee who is associated with a member of
the
[[Page 25329]]
Association, or, if applicable, select as a Panelist for an Extended
Hearing Panel, a current or former member of the Market Regulation
Committee who is or was associated with a member of the Association.
(b) Complaints Initiated by the NASD Regulation Board or the NASD
Board
The NASD Regulation Board and the NASD Board each shall have the
authority to direct the Department of Enforcement to issue a complaint
when, on the basis of information and belief, either of such boards is
of the opinion that any NASD member or associated person is violating
or has violated any rule, regulation, or statutory provision, including
the federal securities laws and the regulations thereunder, which the
Association has jurisdiction to enforce. The Department of Enforcement
shall authorize and issue the complaint as set forth in Rule 9212. At
the time of authorization and issuance of a complaint, the Department
of Enforcement may propose: (1) An appropriate location for the
hearing; and (2) if the complaint alleges at least one cause of action
involving a violation of a statute or a rule described in Rule 9120(q),
that the Chief Hearing Officer select as a Panelist for the Hearing
Panel, a current or former member of the Market Regulation Committee
who is associated with a member of the Association, or, if applicable,
select as a Panelist for an Extended Hearing Panel, a current or former
member of the Market Regulation Committee who is or was associated with
a member of the Association.
(c) Commencement of Disciplinary Proceeding
A disciplinary proceeding shall begin when the complaint is served
and filed.
9212. Complaints--Requirements, Service, Amendment, Withdrawal, and
Docketing
(a) Form, Content, Notice, Docketing, and Service
Each complaint shall be in writing and signed by a Complainant. The
complaint shall specify in reasonable detail the conduct alleged to
constitute the violative activity and the rule, regulation, or
statutory provision the Respondent is alleged to be violating or to
have violated. If the complaint consists of several causes of action,
each cause shall be stated separately. Complaints shall be served by
the Complainant on each Party pursuant to Rules 9131 and 9134, and
filed at the time of service with the Office of Hearing Officers
pursuant to Rules 9135, 9136, and 9137.
(b) Amendments to Complaints
Upon motion by a Complainant, the Hearing Officer may, at any time
after considering good cause shown by a Complainant and any unfair
prejudice to any Respondent, permit a Complainant to amend a complaint
to include new matters of fact or law.
(c) Withdrawal of Complaints
With prior leave of the Hearing Officer, a Complainant may withdraw
a complaint. If a Complainant withdraws the complaint before the
earlier of (1) The Hearing Panel's or, if applicable, the Extended
Hearing Panel's, issuance of a ruling on a motion for summary
disposition, or (2) the start of the hearing on the merits, the
Complainant's withdrawal of the complaint shall be without prejudice
and such Complainant shall be permitted to refile a case based on
allegations concerning the same facts and circumstances that are set
forth in the withdrawn complaint. If the Complainant filing the
complaint requests to withdraw such complaint after the occurrence of
either of the two events set forth in (1) and (2) in this paragraph,
the Hearing Panel or, if applicable, the Extended Hearing Panel, after
considering the facts and circumstances of the request, shall determine
whether the withdrawal shall be granted with prejudice.
(d) Disciplinary Proceeding Docket
The Office of Hearing Officers shall promptly record each complaint
filed with it in the Association's disciplinary proceeding docket, and
record in the disciplinary proceeding docket each event, filing, and
change in the status of a disciplinary proceeding.
9213. Assignment of Hearing Officer and Appointment of Panelists to
Hearing Panel or Extended Hearing Panel
(a) Assignment of Hearing Officer
As soon as practicable after a Complainant has filed his or her
complaint with the Office of Hearing Officers, the Chief Hearing
Officer shall assign a Hearing Officer to preside over the disciplinary
proceeding and shall serve the Parties with notice of the Hearing
Officer's assignment pursuant to Rule 9132.
(b) Appointment of Panelists
As soon as practicable after assigning a Hearing Officer to preside
over a disciplinary proceeding, the Chief Hearing Officer shall appoint
Panelists pursuant to Rules 9231 and 9232 to a Hearing Panel or, if the
Chief Hearing Officer determines that an Extended Hearing Panel should
be appointed, to an Extended Hearing Panel.
9214. Consolidation of Disciplinary Proceedings
(a) Initiated by Chief Hearing Officer
The Chief Hearing Officer may order the consolidation of two or
more disciplinary proceedings, upon his or her own motion, under
circumstances where such consolidation would further the efficiency of
the disciplinary process, and where the subject complaints involve
common questions of law or fact, or one or more of the same
Respondents. In determining whether to order the consolidation of such
disciplinary proceedings, the Chief Hearing Officer shall consider: (1)
Whether the same or similar evidence reasonably would be expected to be
offered at each of the hearings; (2) whether the proposed consolidation
would conserve the time and resources of the Parties; and (3) whether
any unfair prejudice would be suffered by one or more Parties as a
result of the consolidation. If the Chief Hearing Officer proposes to
consolidate two or more disciplinary proceedings, the Chief Hearing
Officer shall serve upon the Parties notice of the proposed
consolidation of disciplinary proceedings, together with a copy of each
relevant complaint and any answer that has been filed thereto, pursuant
to Rule 9132. The Parties shall have 14 days after service to file a
response, stating any arguments in favor of or opposition to
consolidation.
(b) Initiated by a Party
A Party may file a motion to request the consolidation of two or
more disciplinary proceedings if such consolidation would further the
efficiency of the disciplinary process, if the subject complaints
involve common questions of law or fact or one or more of the same
Respondents, or if one or more of the factors favoring consolidation
set forth in paragraph (a) exist. If a Party moves to consolidate two
or more disciplinary proceedings, the Party shall file such motion,
together with a copy of each relevant complaint and any answer thereto
that has been filed, with the Office of Hearing Officers, and shall
serve the same upon the Parties pursuant to Rule 9133. The Parties
shall have 14 days after service to file a response, stating any
arguments in favor of or opposition to consolidation.
(c) Impact on Hearing Panel or Extended Hearing Panel
If the Chief Hearing Officer issues an order to consolidate two or
more disciplinary proceedings for which Hearing Panels or, if
applicable, Extended Hearing Panels, have been appointed, the Chief
Hearing Officer's order shall specify which Hearing Panel or, if
applicable, Extended Hearing Panel, shall preside over the consolidated
disciplinary proceeding, or
[[Page 25330]]
shall appoint a new Hearing Panel or, if applicable, Extended Hearing
Panel, to preside, based on the criteria set forth in Rules 9231 and
9232.
9215. Answers to Complaints
(a) Form, Service, Notice
Each Respondent named in a complaint shall answer and serve an
answer to the complaint on all other Parties within 25 days after
service of the complaint on such Respondent pursuant to Rule 9133, and
at the time of service file such answer with the Office of Hearing
Officers pursuant to Rules 9135, 9136 and 9137. The Hearing Officer
assigned to a disciplinary proceeding pursuant to Rule 9213 may extend
such period for good cause. Upon the receipt of a Respondent's answer,
the Office of Hearing Officers shall promptly send written notice of
the receipt of such answer to all Parties.
(b) Content, Affirmative Defenses
Unless otherwise ordered by the Hearing Officer, an answer shall
specifically admit, deny, or state that the Respondent does not have
and is unable to obtain sufficient information to admit or deny, each
allegation in the complaint. When a Respondent intends to deny only
part of an allegation, the Respondent shall specify so much of it as is
admitted and deny only the remainder. A statement of lack of
information shall be deemed a denial. Any allegation not denied shall
be deemed admitted. Any affirmative defense shall be asserted in the
answer.
(c) Motion for More Definite Statement
A Respondent may file with an answer a motion for a more definite
statement of specified matters of fact or law to be considered or
determined. Such motion shall state why each such matter of fact or law
should be required to be made more definite. If the motion is granted,
the order granting such motion shall set the periods for filing such a
statement and any answer thereto.
(d) Amendments to Answer
Upon motion by a Respondent, the Hearing Officer may, after
considering good cause shown by the Respondent and any unfair prejudice
which may result to any other Party, permit an answer to be amended.
(e) Extension of Time to Answer Amended Complaint
If a complaint is amended pursuant to Rule 9212(b), the time for
filing an answer or amended answer shall be extended to 14 days after
service of the amended complaint. If any Respondent has already filed
an answer, such Respondent shall have 15 days after service of the
amended complaint, unless otherwise ordered by the Hearing Officer,
within which to file an amended answer.
(f) Failure to Answer, Default
If the Respondent does not file an answer with the Office of
Hearing Officers within the time required, the Hearing Officer shall
order the Department of Enforcement to send a second notice to such
Respondent requiring an answer within 14 days after service of the
second notice, or within such longer period as the Hearing Officer in
his or her discretion may order. The second notice shall state that
failure of the Respondent to reply within the period specified shall
allow the Hearing Officer, in the exercise of his or her discretion,
to: (1) treat as admitted by the Respondent the allegations in the
complaint; and (2) enter a default decision against the Respondent
pursuant to Rule 9269. If no answer is filed with the Office of Hearing
Officers within the time required by the second notice, the allegations
of the complaint may be considered admitted by such Respondent and a
default decision may be issued by the Hearing Officer. A Respondent
may, for good cause shown, move to set aside a default pursuant to Rule
9146.
9216. Acceptance, Waiver, and Consent; Plan Pursuant to SEC Rule 19d-
1(c)(2)
(a) Acceptance, Waiver, and Consent Procedures
(1) Notwithstanding Rule 9211, if the Department of Enforcement has
reason to believe a violation has occurred and the member or associated
person does not dispute the violation, the Department of Enforcement
may prepare and request that the member or associated person execute a
letter accepting a finding of violation, consenting to the imposition
of sanctions, and agreeing to waive such member's or associated
person's right to a hearing before a Hearing Panel or, if applicable,
an Extended Hearing Panel, and any right of appeal to the National
Business Conduct Committee, the Commission, and the courts, or to
otherwise challenge the validity of the letter, if the letter is
accepted. The letter shall describe the act or practice engaged in or
omitted, the rule, regulation, or statutory provision violated, and the
sanction or sanctions to be imposed.
(2) If a member or person associated with a member submits an
executed letter of acceptance, waiver, and consent, by the submission
such member or person associated with a member also waives:
(A) any right of such member or person associated with a member to
claim bias or prejudgment of the General Counsel of NASD Regulation, or
his or her delegatee, the National Business Conduct Committee, or any
member of the National Business Conduct Committee, in connection with
such person's or body's participation in discussions regarding the
terms and conditions of the letter of acceptance, waiver, and consent,
or other consideration of the letter of acceptance, waiver, and
consent, including acceptance or rejection of such letter of
acceptance, waiver, and consent; and
(B) any right of such member or person associated with a member to
claim that a person violated the ex parte prohibitions of Rule 9143 or
the separation of functions prohibitions of Rule 9144, in connection
with such person's or body's participation in discussions regarding the
terms and conditions of the letter of acceptance, waiver, and consent,
or other consideration of the letter of acceptance, waiver, and
consent, including acceptance or rejection of such letter of
acceptance, waiver, and consent.
If a letter of acceptance, waiver, and consent is rejected, the
member or associated person shall be bound by the waivers made under
subparagraphs (a)(1) and (2) for conduct by persons or bodies occurring
during the period beginning on the date the letter of acceptance,
waiver, and consent was executed and submitted and ending upon the
rejection of the letter of acceptance, waiver, and consent.
(3) If the member or associated person executes the letter of
acceptance, waiver, and consent, it shall be submitted to the National
Business Conduct Committee. The Chair and the Vice Chair of the
National Business Conduct Committee (or either one, acting alone, in
the event the other is recused or disqualified) or by the General
Counsel of NASD Regulation, or his or her delegatee, may accept such
letter or refer it to the National Business Conduct Committee for
acceptance or rejection by the National Business Conduct Committee. The
Chair and the Vice Chair of the National Business Conduct Committee (or
either one, acting alone, in the event the other is recused or
disqualified) may reject such letter or refer it to the National
Business Conduct Committee for acceptance or rejection by the National
Business Conduct Committee.
(4) If the letter is accepted by the National Business Conduct
Committee, the Chair and the Vice Chair of the National Business
Conduct Committee (or either one, acting alone, in the event the other
is recused or disqualified), or
[[Page 25331]]
the General Counsel of NASD Regulation, or his or her delegatee, it
shall be deemed final and shall constitute the complaint, answer, and
decision in the matter. If the letter is rejected by the Chair and Vice
Chair of the National Conduct Committee (or either one, acting alone,
in the event the other is recused or disqualified) or the National
Business Conduct Committee, NASD Regulation may take any other
appropriate disciplinary action with respect to the alleged violation
or violations. If the letter is rejected, the member or associated
person shall not be prejudiced by the execution of the letter of
acceptance, waiver, and consent under subparagraph (a)(1) and the
letter may not be introduced into evidence in connection with the
determination of the issues set forth in any complaint or in any other
proceeding.
(b) Procedure for Violation Under Plan Pursuant to SEC Rule 19d-
1(c)(2)
(1) Notwithstanding Rule 9211, NASD Regulation or the National
Business Conduct Committee may, subject to the requirements set forth
in subparagraphs (b)(2) through (b)(4) and in SEC Rule 19d-1(c)(2),
impose a fine (not to exceed $2,500) and/or a censure on any member or
associated person with respect to any rule listed in IM-9216. If the
Department of Enforcement has reason to believe a violation has
occurred and if the member or associated person does not dispute the
violation, the Department of Enforcement may prepare and request that
the member or associated person execute a minor rule violation plan
letter accepting a finding of violation, consenting to the imposition
of sanctions, and agreeing to waive such member's or associated
person's right to a hearing before a Hearing Panel or, if applicable,
an Extended Hearing Panel, and any right of appeal to the National
Business Conduct Committee, the Commission, and the courts, or to
otherwise challenge the validity of the letter, if the letter is
accepted. The letter shall describe the act or practice engaged in or
omitted, the rule, regulation, or statutory provision violated, and the
sanction or sanctions to be imposed.
(2) If a member or person associated with a member submits an
executed minor rule violation plan letter, by the submission such
member or person associated with a member also waives:
(A) any right of such member or person associated with a member to
claim bias or prejudgment of the General Counsel of NASD Regulation, or
his or her delegatee, the National Business Conduct Committee, or any
member of the National Business Conduct Committee, in connection with
such person's or body's participation in discussions regarding the
terms and conditions of the minor rule violation plan letter or other
consideration of the minor rule violation plan letter, including
acceptance or rejection of such minor rule violation plan letter; and
(B) any right of such member or person associated with a member to
claim that a person violated the ex parte prohibitions of Rule 9143 or
the separation of functions prohibitions of Rule 9144, in connection
with such person's or body's participation in discussions regarding the
terms and conditions of the minor rule violation plan letter or other
consideration of the minor rule violation plan letter, including
acceptance or rejection of such minor rule violation plan letter.
If a minor rule violation plan letter is rejected, the member or
person associated with a member shall be bound by the waivers made
under subparagraphs (b) (1) and (2) for conduct by persons or bodies
occurring during the period beginning on the date the minor rule
violation plan letter was executed and submitted and ending upon the
rejection of the minor rule violation plan letter.
(3) If the member or associated person executes the minor rule
violation plan letter, it shall be submitted to the National Business
Conduct Committee. The Chair and the Vice Chair of the National
Business Conduct Committee (or either one, acting alone, in the event
the other is recused or disqualified) or the General Counsel of NASD
Regulation, or his or her delegatee, may accept such letter or refer it
to the National Business Conduct Committee for acceptance or rejection
by the National Business Conduct Committee. The Chair and the Vice
Chair of the National Business Conduct Committee (or either one, acting
alone, in the event the other is recused or disqualified) may reject
such letter or refer it to the National Business Conduct Committee for
acceptance or rejection by the National Business Conduct Committee.
(4) If the letter is accepted by the National Business Conduct
Committee, the Chair and the Vice Chair of the National Business
Conduct Committee (or either one, acting alone, in the event the other
is recused or disqualified), or the General Counsel of NASD Regulation,
or his or her delegatee, it shall be deemed final and the Association
shall report the violation to the Commission as required by the
Commission pursuant to a plan approved under SEC Rule 19d-1(c)(2). If
the letter is rejected by the Chair and the Vice Chair of the National
Business Conduct Committee (or either one, acting alone, in the event
the other is recused or disqualified), or by the National Business
Conduct Committee, NASD Regulation may take any other appropriate
disciplinary action with respect to the alleged violation or
violations. If the letter is rejected, the member or associated person
shall not be prejudiced by the execution of the minor rule violation
plan letter under subparagraph (b)(1) and the letter may not be
introduced into evidence in connection with the determination of the
issues set forth in any complaint or in any other proceeding.
IM-9216. Violations Appropriate for Disposition Under Plan Pursuant to
SEC Rule 19d-1(c)(2)
Rule 2210 (b) and (c) and Rule 2220 (b) and (c)--Failure
to have advertisements and sales literature approved by a principal
prior to use; failure to maintain separate files of advertisements and
sales literature containing required information; and failure to file
advertisements with the Association within the required time limits.
Rule 3360--Failure to timely file reports of short
positions on Form NS-1.
Rule 3110--Failure to keep and preserve books, accounts,
records, memoranda, and correspondence in conformance with all
applicable laws, rules, regulations and statements of policy
promulgated thereunder, and with the Rules of the Association.
9220. Request for Hearing; Appointment of Hearing Panel or Extended
Hearing Panel; Extensions of Time, Postponements, Adjournments
9221. Request for Hearing
(a) Respondent Request for Hearing
With the filing of any Respondent's answer, such Respondent may:
(1) request a hearing; (2) propose an appropriate location for the
hearing; and (3) propose, if the complaint alleges at least one cause
of action involving a violation of a statute or rule described in Rule
9120(q), that the Chief Hearing Officer select as a Panelist for a
Hearing Panel a current or former member of the Market Regulation
Committee who is associated with a member of the Association or, if
applicable, select as a Panelist for an Extended Hearing Panel, a
current or former member of the Market Regulation Committee who is or
was associated with a member of the Association. If a Respondent
requests a hearing, a hearing shall be granted. A
[[Page 25332]]
Respondent who fails to request a hearing with the filing of his or her
answer waives the right to a hearing unless a Hearing Officer, Hearing
Panel, or, if applicable, an Extended Hearing Panel, grants, for good
cause shown, a later filed motion by such Respondent requesting a
hearing.
(b) Hearing Officer Order Requiring Hearing
In the absence of a request for a hearing from any Respondent, the
Hearing Officer may order any complaint set down for hearing.
(c) Authority of Hearing Panel, Extended Hearing Panel to Order
Hearing
If all Respondents waive a hearing, and the Hearing Officer does
not order a hearing on his or her own motion, the Hearing Panel or, if
applicable, the Extended Hearing Panel, may order a hearing or may
consider the matter on the record, as defined in Rule 9267. If fewer
than all Respondents waive a hearing, the Hearing Officer, the Hearing
Panel, or, if applicable, the Extended Hearing Panel, may, in the
exercise of its discretion, order that a hearing be held as to all
Respondents. Alternatively, the Hearing Officer, the Hearing Panel, or,
if applicable, the Extended Hearing Panel, may conduct a hearing as to
only those Respondents who requested a hearing and consider the matter
on the record as to those Respondents who waived a hearing.
(d) Notice of Hearing
The Hearing Officer shall issue a notice stating the date, time,
and place of the hearing, and whether the hearing shall be held before
a Hearing Panel or an Extended Hearing Panel, and shall serve such
notice on the Parties at least 28 days before the hearing, unless (1)
in the discretion of the Hearing Officer, he or she determines that
extraordinary circumstances require a shorter notice period, or (2) the
Parties waive the notice period.
9222. Extensions of Time, Postponements, and Adjournments
(a) Availability
At any time prior to the issuance of the decision of the Hearing
Panel or, if applicable, the Extended Hearing Panel, the Hearing
Officer may, for good cause shown, extend or shorten any time limits
prescribed by the Code for the filing of any papers and may, consistent
with paragraph (b), postpone or adjourn any hearing.
(b) Limitations on Postponements, Adjournments, and Extensions
A hearing shall begin at the time and place ordered, unless the
Hearing Officer, for good cause shown, changes the place of the
hearing, postpones the commencement of the hearing, or adjourns a
convened hearing for a reasonable period of time, subject to the
limitations in subparagraph (b)(2).
(1) Additional Considerations
In considering a motion for the postponement of the start of a
hearing or, adjournment once a hearing has begun, the Hearing Officer
shall consider:
(A) the length of the proceeding to date;
(B) the number of postponements, adjournments, or extensions
already granted;
(C) the stage of the proceedings at the time of the request;
(D) potential harm to the investing public if an extension of time,
adjournment, or postponement is granted; and
(E) such other matters as justice may require.
(2) Time Limit
Postponements, adjournments, or extensions of time for filing
papers shall not exceed 28 days unless the Hearing Officer states on
the record or provides by written order the reasons a longer period is
necessary.
9230. Appointment of Hearing Panel, Extending Hearing Panel
9231. Appointment by the Chief Hearing Officer of Hearing Panel or
Extended Hearing Panel
(a) Appointment
The Chief Hearing Officer shall appoint a Hearing Panel or an
Extended Hearing Panel to conduct the disciplinary proceeding and issue
a decision.
(b) Hearing Panel
The Hearing Panel shall be composed of a Hearing Officer and two
Panelists, except as provided in Rule 9234 (a), (c), (d), or (e). The
Hearing Officer will serve as the chair of the Hearing Panel. Each
Panelist shall be associated with a member of the Association.
(1) Except as provided in (2), a person shall be eligible to be
selected as a Panelist only if the person is:
(A) a current member of a District Committee;
(B) a person who previously served on a disciplinary hearing panel;
(C) a former member of the National Business Conduct Committee;
(D) a person who previously served on a disciplinary subcommittee
of the National Business Conduct Committee, including a Subcommittee,
an Extended Proceeding Committee, or their predecessor subcommittees;
or,
(E) a person who previously was a Director, a member of the Nasdaq
Board of Directors, or a Governor, but does not sit currently on any of
the boards.
(2) If the complaint alleges at least one cause of action involving
a violation of a statute or a rule described in Rule 9120(q), the Chief
Hearing Officer may select as a Panelist a current member of the Market
Regulation Committee or a former member of the Market Regulation
Committee who previously served on a disciplinary hearing panel.
(c) Extended Hearing Panel
Upon consideration of the complexity of the issues involved, the
probable length of the hearing, or other factors that the Chief Hearing
Officer deems material, the Chief Hearing Officer may determine that a
matter shall be designated an Extended Hearing, and that such matter
shall be considered by an Extended Hearing Panel. The Extended Hearing
Panel shall be composed of a Hearing Officer and two Panelists, except
as provided in Rule 9234 (a), (c), (d), or (e). The Hearing Officer
will serve as the chair of the Extended Hearing Panel. The Panelists
shall be associated with a member of the Association, or retired
therefrom. A person retired from employment with a member of the
Association shall have retired from such employment not earlier than
four years before the date the complaint was filed. The Chief Hearing
Officer shall have discretion to compensate any or all Panelists of an
Extended Hearing Panel at the rate then in effect for arbitrators
appointed under the Rule 10000 Series.
(1) Except as provided in (2), a person shall be eligible to be
selected as a Panelist only if the person is:
(A) a current member of a District Committee;
(B) a person who previously served on a disciplinary hearing panel;
(C) a former member of the National Business Conduct Committee;
(D) a person who previously served on a disciplinary subcommittee
of the National Business Conduct Committee, including a Subcommittee,
an Extended Proceeding Committee, or their predecessor subcommittees;
or,
(E) a person who previously was a Director, a member of the Nasdaq
Board of Directors, or a Governor, but does not sit currently on any of
the boards.
(2) If the complaint alleges at least one cause of action involving
a violation of a statute or a rule described in Rule 9120(q), the Chief
Hearing Officer may select as a Panelist a current member of the Market
Regulation Committee, or a former member of the Market Regulation
Committee, who, at the time of his or her membership on the Market
Regulation Committee, was associated with a member of the Association.
In order to be eligible to sit as a Panelist on an Extended Hearing
Panel, a former
[[Page 25333]]
member of the Market Regulation Committee shall have served previously
on a disciplinary hearing panel.
9232. Criteria for Selection of Panelists and Replacement Panelists
(a) Chief Hearing Officer Selection Alternatives
Following a determination of whether a Hearing Panel or an Extended
Hearing Panel should be appointed, the Chief Hearing Officer shall
determine:
(1) which District Committee shall be the Primary District
Committee from which Panelists may be selected; and
(2) whether one of the Panelists may be selected from the Market
Regulation Committee.
(b) Criteria for Selection of Panelist from Market Regulation
Committee
The Chief Hearing Officer may select a Panelist from the Market
Regulation Committee, as provided in Rule 9231, to serve in a
disciplinary proceeding if the complaint alleges at least one cause of
action involving a violation of a statute or a rule described in Rule
9120(q).
(c) Criteria for Designation of Primary District Committee
The Chief Hearing Officer shall designate a District Committee as
the Primary District Committee based upon relevant facts and
circumstances of the case, including but not limited to:
(1) the location of a Respondent's principal office if the
Respondent is or was a member firm;
(2) the location of a Respondent's office at the time of the
alleged misconduct if the Respondent is or was an associated person;
(3) the location of the office of a member or an associated person,
or a former member or associated person, where the alleged misconduct
occurred;
(4) the location of witnesses at the time of the filing of the
complaint, especially the location of witnesses who are or were
customers of a Respondent;
(5) the location, at the time of the alleged misconduct, of the
main, branch, or other office in which supervisory personnel, who are
or were responsible for the supervision of a Respondent, were employed;
and
(6) the location, at the time of the alleged misconduct, of the
main, branch, or other office in which supervisory personnel, who are
or were responsible for the supervision of the office, division,
function, or segment of the member where the alleged misconduct
occurred, were employed.
(d) Criteria for Appointment of a Panelist
After the Chief Hearing Officer designates the Primary District
Committee, the Chief Hearing Officer shall select Panelists from the
current members of the Primary District Committee, the other categories
of persons eligible to serve as Panelists as set forth in Rule
9231(b)(1) (A) through (E) or, if applicable, in Rule 9231(c)(1) (A)
through (E), who are located in the same geographic area as the Primary
District Committee, and, if applicable, from the current or former
members of the Market Regulation Committee, based upon the following
criteria:
(1) expertise;
(2) the absence of any conflict of interest or bias, and any
appearance thereof;
(3) availability; and,
(4) the frequency with which a person has served as a Panelist on
Hearing Panels or Extended Hearing Panels during the past two years.
(e) Appointment of Panelists from Other than Primary District
Committee.
Designation of the Primary District Committee does not preclude the
Chief Hearing Officer from selecting one or more Panelists from other
categories of eligible Panelists if the Chief Hearing Officer
determines that one or more persons from other categories of eligible
Panelists more clearly meet the criteria of paragraph (d) (1) through
(4) and the public interest or the administration of NASD Regulation's
regulatory and enforcement program would be enhanced by the selection
of one or more Panelists from other categories of eligible Panelists
other than Panelists from the Primary District Committee.
9233. Hearing Panel or Extended Hearing Panel: Recusal and
Disqualification of Hearing Officers
(a) Recusal, Withdrawal of Hearing Officer
If at any time a Hearing Officer determines that he or she has a
conflict of interest or bias or circumstances otherwise exist where his
or her fairness might reasonably be questioned, the Hearing Officer
shall notify the Chief Hearing Officer and the Chief Hearing Officer
shall issue and serve on the Parties a notice stating that the Hearing
Officer has withdrawn from the matter. In the event that a Hearing
Officer withdraws, is incapacitated, or otherwise is unable to continue
service after being appointed, the Chief Hearing Officer shall appoint
a replacement Hearing Officer.
(b) Motion for Disqualification
A Party may move for the disqualification of a Hearing Officer. A
motion shall be based upon a reasonable, good faith belief that a
conflict of interest or bias exists or circumstances otherwise exist
where the Hearing Officer's fairness might reasonably be questioned,
and shall be accompanied by an affidavit setting forth in detail the
facts alleged to constitute grounds for disqualification, and the dates
on which the Party learned of those facts. Such motions shall be filed
not later than 15 days after the later of:
(1) when the Party learned of the facts believed to constitute the
disqualification; or
(2) when the Party was notified of the assignment of the Hearing
Officer.
(c) Disposition of Disqualification Motion
A motion for disqualification of a Hearing Officer shall be decided
by the Chief Hearing Officer who shall promptly investigate whether
disqualification is required and issue a written ruling on the motion.
In the event of a disqualification of the Hearing Officer, the Chief
Hearing Officer shall appoint a replacement Hearing Officer.
9234. Hearing Panel or Extended Hearing Panel: Recusal and
Disqualification of Panelists
(a) Recusal, Withdrawal of Panelist
If at any time a Panelist of a Hearing Panel or an Extended Hearing
Panel determines that he or she has a conflict of interest or bias or
circumstances otherwise exist where his or her fairness might
reasonably be questioned, the Panelist shall notify the Hearing Officer
and the Hearing Officer shall issue and serve on the Parties a notice
stating that the Panelist has withdrawn from the matter. In the event
that a Panelist withdraws, is incapacitated, or otherwise is unable to
continue service after being appointed, the Chief Hearing Officer may,
in the exercise of discretion, determine whether to appoint a
replacement Panelist. In the event that both Panelists withdraw, are
incapacitated, or otherwise are unable to continue service after being
appointed, the Chief Hearing Officer shall appoint two replacement
Panelists.
(b) Disqualification: Motion of Party; Order of Chief Hearing
Officer
(1) A Party may file a motion to disqualify a Panelist of a Hearing
Panel or an Extended Hearing Panel. A motion shall be based upon a
reasonable, good faith belief that a conflict of interest or bias
exists or circumstances otherwise exist where the Panelist's fairness
might reasonably be questioned, and shall be accompanied by an
affidavit setting forth in detail the facts alleged to constitute
grounds for disqualification, and (2) the dates on which the Party
learned of those facts.
(2) Such motions shall be filed not later than 15 days after the
later of:
[[Page 25334]]
(A) when the Party learned of the facts believed to constitute the
disqualification; or
(B) when the Party was notified of the appointment of the Panelist.
(3) The Chief Hearing Officer may order the disqualification of a
Panelist of a Hearing Panel or an Extended Hearing Panel if the Chief
Hearing Officer determines that a conflict of interest or bias or
circumstances otherwise exist where the Panelist's fairness might
reasonably be questioned, and shall state the facts constituting the
grounds for disqualification.
(c) Disposition of Disqualification Motion: Challenge to Single
Member of Hearing Panel
If a Party files a motion to disqualify a Panelist of a Hearing
Panel or an Extended Hearing Panel, the Hearing Officer shall promptly
investigate whether disqualification is required and shall issue a
written ruling on the motion. In the event a Panelist is disqualified,
the Chief Hearing Officer may, in the exercise of discretion, appoint a
replacement Panelist.
(d) Disposition of Disqualification Motion: Challenge to Both
Panelists of Hearing Panel or Extended Hearing Panel
If a Party files a motion to disqualify both Panelists of a Hearing
Panel or an Extended Hearing Panel, the Hearing Officer shall promptly
investigate whether disqualification is required and shall issue a
written ruling on the motion. In the event one Panelist is
disqualified, the Chief Hearing Officer may, in the exercise of
discretion, appoint a replacement Panelist. In the event both Panelists
are disqualified, the Chief Hearing Officer shall promptly appoint two
persons as replacement Panelists.
(e) Disposition of Disqualification Motion: Challenge to Both
Panelists of Hearing Panel or Extended Hearing Panel and Hearing
Officer
If a Party files a motion to disqualify both Panelists of a Hearing
Panel or an Extended Hearing Panel, and the Hearing Officer, the Chief
Hearing Officer shall promptly investigate whether disqualification is
required and shall issue a written ruling on the motion. In the event a
Panelist is disqualified, the Chief Hearing Officer may, in the
exercise of discretion, appoint a replacement Panelist. In the event
both Panelists are disqualified, the Chief Hearing Officer shall
promptly appoint two persons as replacement Panelists. In the event a
Hearing Officer and a Panelist are disqualified, the Chief Hearing
Officer shall promptly appoint a Hearing Officer. In the event both
Panelists and the Hearing Officer are disqualified, the Chief Hearing
Officer shall promptly appoint a Hearing Officer and two persons as
replacement Panelists.
(f) Criteria for Replacement Panelist
If the Chief Hearing Officer appoints a replacement Panelist by
operation of this Rule, the Chief Hearing Officer shall do so using the
criteria set forth in Rule 9232.
9235. Hearing Officer Authority
(a) Hearing Officer Authority
The Hearing Officer shall be selected by the Chief Hearing Officer
and shall have authority to do all things necessary and appropriate to
discharge his or her duties. In addition to the powers exercised by all
members of the Hearing Panel or, if applicable, the Extended Hearing
Panel, the powers of the Hearing Officer include, but are not limited
to:
(1) holding pre-hearing and other conferences and requiring the
attendance at any such conference of at least one representative of
each Party who has authority to negotiate the resolution of issues in
controversy;
(2) regulating the course of the hearing;
(3) ordering the Parties to present oral arguments at any stage of
the disciplinary proceeding;
(4) resolving any and all procedural and evidentiary matters,
discovery requests, and other non-dispositive motions, subject to any
limitations set forth elsewhere in this Code;
(5) reopening any hearing, upon notice to all Parties, prior to the
issuance of the decision of the Hearing Panel or, if applicable, the
Extended Hearing Panel;
(6) creating and maintaining the official record of the
disciplinary proceeding; and
(7) drafting a decision that represents the views of the majority
of the Hearing Panel or, if applicable, the Extended Hearing Panel.
9240. Pre-hearing Conferences and Submissions
9241. Pre-hearing Conferences
(a) Purposes of Conferences
The purposes of pre-hearing conferences include, but are not
limited to:
(1) expediting the disposition of the proceeding;
(2) establishing procedures to manage the proceeding efficiently;
and
(3) improving the quality of the hearing through more thorough
preparation.
(b) Procedure
On his or her own motion or at the request of a Party, the Hearing
Officer may, in his or her discretion, order counsel or any Party to
meet for a pre-hearing conference. Such conferences also may be held
with one or more persons participating by telephone or other remote
means.
(c) Subjects to be Discussed
At a pre-hearing conference, the Hearing Officer may consider and
take action with respect to any or all of the following:
(1) simplification and clarification of the issues;
(2) exchange of witness and exhibit lists and copies of exhibits;
(3) stipulations, admissions of fact, and stipulations concerning
the contents, authenticity, or admissibility into evidence of
documents;
(4) matters of which official notice may be taken;
(5) the schedule for exchanging pre-hearing motions or briefs, if
any;
(6) the method of service and filing of papers by the Parties;
(7) determination of hearing dates;
(8) amendments to the complaint or answers thereto;
(9) production of documents as set forth in Rule 9251; and
(10) such other matters as may aid in the orderly and expeditious
disposition of the proceeding.
(d) Scheduling of Pre-hearing Conferences
An initial pre-hearing conference, unless determined by the Hearing
Officer to be unnecessary or premature, shall be held within 21 days
after service of an answer, or after the expiration of the second
period provided for filing an answer as set forth in Rule 9215(f). When
a complaint names multiple Respondents, the 21-day period shall
commence from the later of (i) the date on which the last timely answer
was filed, or (ii) if one or more Respondents have failed to answer,
from the expiration of the second period provided for filing an answer
under Rule 9215(f).
(e) Pre-hearing Orders
At or following the conclusion of any conference held pursuant to
this Rule, the Hearing Officer shall enter a ruling or order that
recites any agreements reached and any procedural determinations made
by the Hearing Officer.
(f) Failure to Appear: Default
A Party who fails to appear, in person or through counsel or a
representative, at a pre-hearing conference of which he or she has been
duly notified, may be deemed in default pursuant to Rule 9269. A Party
may, for good cause shown, file a motion to set aside the default.
[[Page 25335]]
9242. Pre-hearing Submissions
(a) Requirement to Furnish Information
Prior to a hearing before a Hearing Panel or, if applicable, an
Extended Hearing Panel, the Hearing Officer, in the exercise of his or
her discretion, may order Parties to furnish such information as deemed
appropriate, including any or all of the following:
(1) an outline or narrative summary of their case or defense;
(2) the legal theories upon which they shall rely;
(3) a list and copies of documents that they intend to introduce at
the hearing;
(4) a list of witnesses who shall testify on their behalf,
including the witnesses' names, occupations, addresses, and a brief
summary of their expected testimony; and,
(5) if a witness shall be called to testify as an expert, a
statement of the expert's qualifications, a listing of other
proceedings in which the expert has given expert testimony, a list of
the expert's publications, and copies of those publications that are
not readily available to the other Parties and the Hearing Panel or, if
applicable, the Extended Hearing Panel.
9250. Discovery
9251. Inspection and Copying of Documents in Possession of Staff
(a) Documents to be Available for Inspection and Copying
(1) Unless otherwise provided by this Rule, or by order of the
Hearing Officer, the Department of Enforcement shall make available for
inspection and copying by any Respondent Documents prepared or obtained
by Interested Association Staff in connection with the investigation
that led to the institution of proceedings. Such Documents include but
are not limited to:
(A) requests for information issued pursuant to Rule 8210;
(B) every other written request directed to persons not employed by
the Association to provide documents or to be interviewed;
(C) the Documents provided in response to any such requests
described in (A) and (B) above;
(D) all transcripts and transcript exhibits; and
(E) all other Documents obtained from persons not employed by the
Association.
(2) The Department of Enforcement shall promptly inform the Hearing
Officer and each other Party if, after the issuance of a complaint,
requests for information under Rule 8210 are issued under the same
investigative file number under which the investigation leading to the
institution of disciplinary proceedings was conducted. If Interested
Association Staff receives Documents pursuant to a request for
information under Rule 8210 after Documents have been made available to
a Respondent for inspection and copying as set forth in paragraph (a),
and if such Documents are material and relevant to the disciplinary
proceeding in which such Respondent is a Party, the additional
Documents shall be made available to the Respondent not later than 14
days after the Interested Association Staff receives such Documents. If
a hearing on the merits is scheduled to begin, Interested Association
Staff shall make the additional Documents available to the Respondent
not less than ten days before the hearing. If Interested Association
Staff receives such Documents ten or fewer days before a hearing on the
merits is scheduled to begin or after such hearing begins, Interested
Association Staff shall make the additional Documents available
immediately to the Respondent.
(3) Nothing in subparagraph (a)(1) shall limit the discretion of
the Department of Enforcement to make available any other Document or
the authority of the Hearing Officer to order the production of any
other Document.
(b) Documents That May Be Withheld
(1) The Department of Enforcement may withhold a Document if:
(A) the Document is privileged or constitutes attorney work
product;
(B) the Document is an examination or inspection report, an
internal memorandum, or other note or writing prepared by an
Association employee that shall not be offered in evidence;
(C) the Document would disclose the identity of a confidential
source or Association examination or investigatory techniques; or
(D) the Hearing Officer grants leave to withhold a Document or
category of Documents as not relevant to the subject matter of the
proceeding, or for other good cause shown.
(2) Nothing in subparagraph (b)(1) authorizes the Department of
Enforcement to withhold a Document, or a part thereof, that contains
material exculpatory evidence.
(c) Withheld Document List
The Hearing Officer may require the Department of Enforcement to
submit to the Hearing Officer a list of Documents withheld pursuant to
subparagraphs (b)(1)(A) through (b)(1)(D) or to submit to the Hearing
Officer any Document withheld. Upon review, the Hearing Officer may
order the Department of Enforcement to make the list or any Document
withheld available to the other Parties for inspection and copying.
(d) Timing of Inspection and Copying
The Hearing Officer shall determine the schedule of production of
documents pursuant to this Rule. Unless otherwise ordered by the
Hearing Officer, the Department of Enforcement shall commence making
Documents available to a Respondent for inspection and copying pursuant
to this Rule not later than 21 days after service of the Respondent's
answer or, if there are multiple Respondents, not later than 21 days
after the last timely answer is filed. If a Respondent in a multi-
Respondent case fails to answer, the Department of Enforcement shall
make Documents available to all other Respondents not later than the
later of:
(1) 21 days after the filing date of the last timely answer, or
(2) the expiration of the second period provided for filing an
answer as set forth in Rule 9215(f).
(e) Place and Time of Inspection and Copying
Documents subject to inspection and copying pursuant to this Rule
shall be made available to the Respondent for inspection and copying at
the Association office where they are ordinarily maintained, or at such
other Association office as the Hearing Officer, in his or her
discretion, shall designate, or as the Parties otherwise agree. A
Respondent shall be given access to the Documents at the Association's
offices during normal business hours. A Respondent shall not be given
custody of the Documents or be permitted to remove the Documents from
the Association's offices.
(f) Copying Costs
A Respondent may obtain a photocopy of all Documents made available
for inspection. A Respondent shall be responsible for the cost of
photocopying. Unless otherwise ordered, charges for copies made at the
request of a Respondent shall be at a rate to be established by the
NASD Regulation Board.
(g) Failure to Make Documents Available--Harmless Error
In the event that a Document required to be made available to a
Respondent pursuant to this Rule is not made available by the
Department of Enforcement, no rehearing or amended decision of a
proceeding already heard or decided shall be required unless the
Respondent establishes that the failure to make the Document available
was not harmless error. The Hearing Officer shall determine whether the
failure to make the document available was not harmless error, applying
applicable Association, Commission, and federal judicial precedent.
[[Page 25336]]
9252. Requests for Information
(a) Content and Timing of Requests
A Respondent who requests that the Association invoke Rule 8210 to
compel the production of Documents or testimony at the hearing shall do
so in writing and serve copies on all Parties. Such request shall: be
submitted to the Hearing Officer no later than 21 days before the
scheduled hearing date; describe with specificity the Documents, the
category or type of Documents, or the testimony sought; state why the
Documents, the category or type of Documents, or the testimony are
material; describe the requesting Party's previous efforts to obtain
the Documents, the category or type of Documents, or the testimony
through other means; and state whether the custodian of each Document,
or the custodian of the category or type of Documents, or each proposed
witness is subject to the Association's jurisdiction.
(b) Standards for Issuance
A request that the Association compel the production of Documents
or testimony shall be granted only upon a showing that: the information
sought is relevant, material, and non-cumulative; the requesting Party
has previously attempted in good faith to obtain the desired Documents
and testimony through other means but has been unsuccessful in such
efforts; and each of the persons from whom the Documents and testimony
are sought is subject to the Association's jurisdiction. In addition,
the Hearing Officer shall consider whether the request is unreasonable,
oppressive, excessive in scope, or unduly burdensome, and whether the
request should be denied, limited, or modified.
(c) Limitations on Requests
If, after consideration of all the circumstances, the Hearing
Officer determines that a request submitted pursuant to this Rule is
unreasonable, oppressive, excessive in scope, or unduly burdensome, he
or she shall deny the request, or grant it only upon such conditions as
fairness requires. In making the foregoing determination, the Hearing
Officer may inquire of the other Parties whether they shall stipulate
to the facts sought to be proved by the Documents or testimony sought.
If the Hearing Officer grants the request, the Hearing Officer shall
order that requested Documents be produced to all Parties not less than
ten days before the hearing, and order that witnesses whose testimony
was requested appear and testify at the hearing. If the Hearing Officer
grants the request ten or fewer days before a hearing on the merits is
scheduled to begin or after such hearing begins, the Documents or
testimony shall be produced immediately to all Parties.
9253. Production of Witness Statements
(a) Availability
A Respondent in a disciplinary proceeding may file a motion
requesting that the Department of Enforcement produce for inspection
and copying a statement of any person called or to be called as a
witness by the Department of Enforcement that pertains, or is expected
to pertain, to his or her direct testimony, including statements that
would be required to be produced pursuant to the Jencks Act, 18 U.S.C.
3500. The production shall be made at a time and place fixed by the
Hearing Officer and shall be made available to all Parties. Such
production shall be made under conditions intended to preserve the
items to be inspected or copied.
(b) Failure to Produce--Harmless Error
In the event that a statement required to be made available for
inspection and copying by a Respondent is not provided by the
Department of Enforcement, there shall be no rehearing of a proceeding
already heard, or issuance of an amended decision in a proceeding
already decided, unless the Respondent establishes that the failure to
provide the statement was not harmless error. The Hearing Officer shall
determine whether the failure to provide any statement was not harmless
error, applying applicable Association, Commission, and federal
judicial precedent.
9260. Hearing and Decision
9261. Evidence and Procedure in Hearings
(a) Submission of Documentary Evidence and List of Witnesses Before
Hearing
No later than ten days before the hearing, or at such earlier date
as may be specified by the Hearing Officer, each Party shall submit to
all other Parties and to the Hearing Officer copies of documentary
evidence and the names of the witnesses each Party intends to present
at the hearing.
(b) Party's Right to Be Heard
If a hearing is held, a Party shall be entitled to be heard in
person, by counsel, or by the Party's representative.
(c) Request to Submit Additional Evidence
Notwithstanding paragraph (a), a Party, for good cause shown, may
seek to submit any additional evidence at the hearing as the Hearing
Officer, in his or her discretion, determines may be relevant and
necessary for a complete record.
9262. Testimony
A person who is subject to the jurisdiction of the Association
shall testify under oath or affirmation. The oath or affirmation shall
be administered by a court reporter or a notary public.
9263. Evidence: Admissibility
(a) Criteria for Receiving and Excluding Evidence
A Hearing Officer shall receive relevant evidence, and may exclude
all evidence that is irrelevant, immaterial, unduly repetitious, or
unduly prejudicial.
(b) Objections
Objections to the admission or exclusion of evidence shall be made
on the record and shall succinctly state the grounds relied upon.
Excluded material shall be deemed a supplemental document, which shall
be attached to the record and retained under Rule 9267.
9264. Motion for Summary Disposition
(a) Pre-hearing
After a Respondent's answer has been filed and Documents have been
made available to that Respondent for inspection and copying pursuant
to Rule 9251, the Respondent or the Complainant, without leave of the
Hearing Officer, may make a motion for summary disposition of any or
all the causes of action in the complaint with respect to that
Respondent. All pre-hearing motions for summary disposition and
supporting papers shall be filed at least 21 days before the time set
for the hearing, or at such earlier time as ordered by the Hearing
Officer. Notwithstanding the provisions of Rule 9146(d), any opposition
or response to a pre-hearing motion for summary disposition shall be
filed at least seven days before the time set for the hearing.
(b) After Commencement of Hearing on Merits
After the Complainant has completed presentation of its case in
chief as to a Respondent, that Respondent or the Complainant, without
leave of the Hearing Officer, may make a motion for summary disposition
as to any or all of the causes of action in the complaint with respect
to that Respondent. If the Complainant has not completed its case in
chief, the Complainant or Respondent may move for summary disposition
only with leave of the Hearing Officer.
(c) Form of Papers
A motion for summary disposition pursuant to paragraph (a) shall be
accompanied by the following: a statement of undisputed facts; a
[[Page 25337]]
supporting memorandum of points and authorities; and affidavits or
declarations that set forth such facts as would be admissible at the
hearing and show affirmatively that the affiant is competent to testify
to the matters stated therein. A memorandum of points and authorities
in support or opposition shall not exceed 35 pages.
(d) Rulings on Motion
Pursuant to Rule 9146, the Hearing Panel or, if applicable, the
Extended Hearing Panel, shall promptly grant or deny the motion for
summary disposition or shall defer decision on the motion. The Hearing
Panel or, if applicable, the Extended Hearing Panel, may grant the
motion for summary disposition if there is no genuine issue with regard
to any material fact and the Party making the motion is entitled to
summary disposition as a matter of law. With respect to motions
pursuant to paragraph (a), the facts alleged in the pleadings against
whom the motion is made shall be taken as true, except as modified by
stipulations or admissions made by the non-moving Party, uncontested
affidavits or declarations, or facts officially noticed pursuant to
Rule 9145. If a Party opposing a motion for summary disposition made
pursuant to paragraph (a) cannot present, for reasons stated in that
Party's affidavit or declaration before hearing, facts essential to
justify that Party's opposition, the Hearing Panel or, if applicable,
the Extended Hearing Panel, may deny the motion for summary disposition
or defer the decision on the motion.
9265. Record of Hearings
(a) Recordation
A hearing shall be recorded by a court reporter and a transcript
shall be prepared. Unless otherwise ordered by a Hearing Officer, a
pre-hearing conference shall be recorded by a court reporter and a
transcript shall be prepared.
(b) Availability of a Transcript
A transcript of a pre-hearing conference and a transcript of a
hearing shall be available to a Party for purchase from the court
reporter at prescribed rates. A witness may purchase from the court
reporter a transcript of his or her own testimony.
(c) Transcript Correction
Prior to the filing of post-hearing briefs or proposed findings and
conclusions, or within such earlier time as ordered by the Hearing
Officer, a Party or witness may seek to correct his or her transcript.
A proposed correction of the transcript shall be submitted to the
Hearing Officer by affidavit. Upon notice to all Parties to the
disciplinary proceeding, the Hearing Officer may order the correction
to the transcript as requested or sua sponte.
9266. Proposed Findings of Fact, Conclusions of Law, and Post-Hearing
Briefs
(a) Discretion of Hearing Officer to Require Proposed Findings of
Fact, Conclusions of Law, and Post-Hearing Briefs
At the discretion of the Hearing Officer, the Parties may be
ordered to file proposed findings of facts and conclusions of law, or
post-hearing briefs, or both. The Hearing Officer may order that such
proposed findings and conclusions be filed together with, or as part
of, post-hearing briefs.
(b) Reference to Record Required
Proposed findings of fact or other statements of fact in briefs
shall be supported by specific references to the record.
(c) Period for Filing
In any case in which the Hearing Officer ordered the filing of
proposed findings or conclusions of law, or post-hearing briefs, the
Hearing Officer shall, after consultation with the Parties, prescribe
the period within which proposed findings and conclusions of law and
post-hearing briefs are to be filed. Such period shall be reasonable
under all the circumstances but the total period allowed for the filing
of post-hearing submissions shall not exceed 60 days after the
conclusion of the hearing unless the Hearing Officer, for good cause
shown, permits a different period and sets forth in an order the
reasons why a longer period is necessary.
(d) Form, Length of Papers
Unless the Hearing Officer orders otherwise, each post-hearing
submission shall not exceed 25 pages, exclusive of cover sheets, tables
of contents, and tables of authorities.
9267. Record; Supplemental Documents Attached to Record; Retention of
Record and Supplement Documents Attached To Record; Copies
(a) Contents of the Record, Retention Of
The record shall consist of:
(1) the complaint, answers, each notice of hearing, pre-hearing
order, and any amendments thereto;
(2) each application, motion, submission, and other paper, and any
amendments, motions, objections, and exceptions to or regarding them;
(3) each transcript of a pre-hearing conference and of a hearing,
and each stipulation, transcript of testimony, Document, and other item
admitted into evidence;
(4) each written communication accepted at the discretion of the
Hearing Officer;
(5) with respect to a motion to disqualify a Hearing Officer under
Rule 9233 or a Panelist under Rule 9234, each affidavit or transcript
of testimony taken and the ruling made in connection with the request;
(6) all proposed findings and conclusions;
(7) each written ruling, order, and decision issued by the Chief
Hearing Officer, Hearing Officer, Hearing Panel or, if applicable,
Extended Hearing Panel; and
(8) any other document or item accepted into the record by the
Hearing Officer, Hearing Panel or, if applicable, Extended Hearing
Panel.
(b) Supplemental Documents Attached To Record; Retention Of
A supplemental Document attached to the record shall be a Document
not admitted by the Hearing Officer, Hearing Panel or, if applicable,
the Extended Hearing Panel, and any matter stricken from any filing or
stricken during an oral presentation, including any matter stricken
from any filing or stricken during any oral presentation because the
Adjudicator determined it was scandalous or impertinent as provided in
Rule 9136(e). Such Documents shall not constitute part of the record,
but shall be retained until the date upon which the Association's
decision becomes final disciplinary action or, if applicable, upon the
conclusion of any review by the Commission or the federal courts.
(c) Substitution of Copies
Parties may submit to the Hearing Officer for substitution a true
copy of a Document in the record.
9268. Decision of the Hearing Panel or Extended Hearing Panel
(a) Majority Decision
Within 60 days after the final date allowed for filing findings of
fact, conclusions of law, and post-hearing briefs, or by a date
established at the discretion of the Chief Hearing Officer, the Hearing
Officer shall prepare a written decision that reflects the views of the
Hearing Panel or, if applicable, the Extended Hearing Panel, as
determined by majority vote.
(b) Contents of Decision; Signature
Each member of the Hearing Panel or, if applicable, the Extended
Hearing Panel, shall sign the decision. Members of the Hearing Panel
or, if applicable, the Extended Hearing Panel, may indicate next to
their signatures whether they dissent from the decision. The decision
shall include:
(1) a statement describing the investigative or other origin of the
disciplinary proceeding;
[[Page 25338]]
(2) the specific statutory or rule provisions that were alleged to
have been violated;
(3) a statement setting forth the findings of fact with respect to
any act or practice the Respondent was alleged to have committed or
omitted;
(4) the conclusions of the Hearing Panel, or Extended Hearing
Panel, as to whether the Respondent violated any provision alleged in
the complaint;
(5) a statement of the Hearing Panel, or the Extended Hearing
Panel, in support of the disposition of the principal issues raised in
the proceeding; and
(6) a statement describing any sanction imposed, the reasons
therefor, and the date upon which such sanction shall become effective.
(c) Dissenting Opinion
Within 65 days after the final date allowed for filing findings of
fact and conclusions of law, and post-hearings briefs, or by a date
established at the discretion of the Chief Hearing Officer, the Hearing
Officer or any Panelist may prepare a written dissenting opinion.
(d) Service, Notice, And Dissemination Requirements
The Office of Hearing Officers shall promptly serve the decision of
the Hearing Panel, or the Extended Hearing Panel, and any dissenting
opinion on the Parties; publish notice of the decision and any
dissenting opinion in the Central Registration Depository; and provide
a copy of the decision and any dissenting opinion to each member of the
Association with which a Respondent is associated.
(e) Appeal or Review
If not timely appealed pursuant to Rule 9311 or timely called for
review pursuant to Rule 9312, the majority decision shall constitute
final disciplinary action of the Association for purposes of SEC Rule
19d-1(c)(1).
9269. Failure to Appear at Hearings; Default
(a) Failure to Appear May Result in Default Decision
A Party who fails to appear at a hearing of which he or she has
been duly notified may be deemed to be in default. As a consequence of
the default, the allegations against a non-appearing Respondent may be
deemed admitted and a default decision entered by the Hearing Officer.
If the non-appearing Party is the Department of Enforcement, the
Hearing Officer may order that the complaint be dismissed with
prejudice. In addition, the Hearing Officer may order that the non-
appearing Party pay the costs incurred by other Parties in connection
with their appearance at the hearing.
(b) Request to Set Aside Default
A Party may, for good cause shown, file a motion to set aside a
default, dismissal, and the imposition of costs.
9270. Settlement Procedure
(a) When Offer Allowed; No Stay of Proceeding
A Respondent who is notified that a proceeding has been instituted
against him or her, or a Respondent to a proceeding already instituted,
may propose in writing an offer of settlement at any time. If a
Respondent proposes an offer of settlement 30 or fewer days before the
hearing on the merits is scheduled to begin, or after the hearing on
the merits has begun, the making of an offer of settlement shall not
stay the proceeding, unless otherwise decided by the Hearing Panel or,
if applicable, the Extended Hearing Panel.
(b) Settlement Offer Shall Conform to Rule
A Respondent who makes an offer of settlement shall do so in
conformity with the provisions of this Rule and shall not make such an
offer of settlement frivolously or propose a sanction inconsistent with
the seriousness of the violations to be found.
(c) Content and Signature Requirements
An offer of settlement shall be in writing and signed by the person
making the offer, and, if the person is represented by counsel or a
representative, signed also by the counsel or representative. The offer
of settlement shall contain in reasonable detail:
(1) a statement describing the investigative or other origin of the
disciplinary action;
(2) the specific statutory or rule provisions that the member or
associated person is alleged to have violated;
(3) a statement containing the acts or practices which the member
or associated person is alleged to have engaged in or omitted;
(4) a statement consenting to findings of fact and violations
consistent with the statements contained in the offer of settlement
required by subparagraphs (c)( 2) and (c)(3); and,
(5) a proposed sanction to be imposed that is consistent with the
Association's then current sanction guidelines or, if inconsistent with
the sanction guidelines, a detailed statement supporting the proposed
sanction.
(d) Waiver
If a Respondent submits an offer of settlement, by the submission
such Respondent waives:
(1) any right of such Respondent to a hearing before a Hearing
Panel or, if applicable, an Extended Hearing Panel, and any right of
appeal to the National Business Conduct Committee, the Commission, and
the courts, or any right otherwise to challenge or contest the validity
of the order issued, if the offer of settlement and order of acceptance
are accepted;
(2) any right of such Respondent to claim bias or prejudgment of
the Chief Hearing Officer, Hearing Officer, a Hearing Panel or, if
applicable, an Extended Hearing Panel, a Panelist on a Hearing Panel,
or, if applicable, an Extended Hearing Panel, the General Counsel of
NASD Regulation, or his or her delegatee, the National Business Conduct
Committee, or any member of the National Business Conduct Committee, in
connection with such person's or body's participation in discussions
regarding the terms and conditions of the offer of settlement and the
order of acceptance, or other consideration of the offer of settlement
and order of acceptance, including acceptance, or rejection of such
offer of settlement and order of acceptance; and
(3) any right of such Respondent to claim that a person or body
violated the ex parte prohibitions of Rule 9143 or the separation of
functions prohibitions of Rule 9144, in connection with such person's
or body's participation in discussion regarding the terms and
conditions of the offer of settlement and the order of acceptance, or
other consideration of the offer of settlement and order of settlement,
including acceptance or rejection of such offer of settlement and order
of acceptance.
If an offer of settlement and an order of acceptance are rejected,
the Respondent shall be bound by the waivers made in this paragraph (d)
for conduct by persons or bodies occurring during the period beginning
from date the offer of settlement was submitted and ending upon the
rejection of the offer of settlement and order of acceptance.
(e) Uncontested Offers of Settlement
If a Respondent makes an offer of settlement and the Department of
Enforcement does not oppose it, the offer of settlement is uncontested.
If an offer of settlement is determined to be uncontested by the
Department of Enforcement before a hearing on the merits has begun, the
Department of Enforcement shall transmit the uncontested offer of
settlement and a proposed order of acceptance to the National Business
Conduct Committee with its recommendation. If an offer of settlement is
determined to be uncontested by the Department of Enforcement after a
hearing on the merits has begun, the Department of
[[Page 25339]]
Enforcement shall transmit the offer of settlement and a proposed order
of acceptance to the Hearing Panel or, if applicable, the Extended
Hearing Panel for acceptance or rejection. If accepted by the Hearing
Panel or, if applicable, Extended Hearing Panel, the offer of
settlement and the order of acceptance shall be forwarded to the
National Business Conduct Committee to accept or reject.
(1) A proposed order of acceptance shall make findings of fact,
including a statement of the rule, regulation, or statutory provision
violated, and impose sanctions consistent with the terms of the offer
of settlement.
(2) Before an offer of settlement and an order of acceptance shall
become effective, they shall be submitted to and accepted by the
National Business Conduct Committee. The Chair and the Vice Chair of
the National Business Conduct Committee (or either one, acting alone,
in the event the other is recused or disqualified) or the General
Counsel of NASD Regulation, or his or her delegatee, may accept such
offer of settlement and order of acceptance or refer them to the
National Business Conduct Committee for acceptance or rejection by the
National Business Conduct Committee. The Chair and the Vice Chair of
the National Business Conduct Committee (or either one, acting alone,
in the event the other is recused or disqualified) may reject such
offer of settlement and order of acceptance or refer them to the
National Business Conduct Committee for acceptance or rejection by the
National Business Conduct Committee.
(3) If the offer of settlement and order of acceptance are accepted
by the National Business Conduct Committee, the Chair and the Vice
Chair of the National Business Conduct Committee (or either one, acting
alone, in the event the other is recused or disqualified), or the
General Counsel of NASD Regulation, or his or her delegatee, they shall
become final and the National Business Conduct Committee, the Chair and
the Vice Chair of the National Business Conduct Committee (or either
one, acting alone, in the event the other is recused or disqualified),
or the General Counsel of NASD Regulation, or his or her delegatee,
shall communicate the acceptance to the Hearing Officer who shall
thereafter issue the order.
(f) Contested Offers of Settlement
If a Respondent makes an offer of settlement and the Department of
Enforcement opposes it, the offer of settlement is contested. When the
Department of Enforcement opposes an offer of settlement, the
Respondent's written offer and the Department of Enforcement's written
opposition shall be submitted to a Hearing Panel or, if applicable, an
Extended Hearing Panel. The Hearing Panel or, if applicable, the
Extended Hearing Panel, may order the Department of Enforcement and the
Respondent to attend a settlement conference.
(1) If a contested offer of settlement is approved by the Hearing
Panel or, if applicable, Extended Hearing Panel, the Hearing Officer
shall draft an order of acceptance of the offer of settlement. The
order of acceptance shall make findings of fact, including a statement
of the rule, regulation, or statutory provision violated, and impose
sanctions consistent with the terms of the offer of settlement. The
offer of settlement, any written opposition thereto, and the order of
acceptance shall be forwarded to the National Business Conduct
Committee to accept or reject.
(2) Before an offer of settlement and order of acceptance shall
become effective, they shall be submitted to, and accepted by, the
National Business Conduct Committee. The Chair and the Vice Chair of
the National Business Conduct Committee (or either one, acting alone,
in the event the other is recused or disqualified) may accept or reject
such offer of settlement and order of acceptance or refer them to the
National Business Conduct Committee for acceptance or rejection by the
National Business Conduct Committee.
(3) If the offer of settlement and order of acceptance are accepted
by the National Business Conduct Committee or the Chair and the Vice
Chair of the National Business Conduct Committee (or either one, acting
alone, in the event the other is recused or disqualified), the National
Business Conduct Committee or the Chair or the Vice Chair of the
National Business Conduct Committee (or either one, acting alone, in
the event the other is recused or disqualified) shall communicate the
acceptance to the Hearing Officer who shall thereafter issue the order.
(g) Final Disciplinary Action of Association
The proceeding shall conclude as of the date the order of
acceptance is issued. The order of acceptance shall constitute final
disciplinary action of the Association. The sanction shall take effect
as set forth in the order.
(h) Rejection of Offer of Settlement
If an uncontested offer of settlement or an order of acceptance is
rejected by the Hearing Panel or, if applicable, the Extended Hearing
Panel, the Chair and Vice Chair of the National Business Conduct
Committee (or either one, acting alone, in the event the other is
recused or disqualified), or the National Business Conduct Committee,
the Respondent shall be notified in writing and the offer of settlement
and proposed order of acceptance shall be deemed withdrawn. If a
contested offer of settlement or an order of acceptance is rejected by
the Hearing Panel or, if applicable, the Extended Hearing Panel, the
Chair and Vice Chair of the National Business Conduct Committee (or
either one, acting alone, in the event the other is recused or
disqualified), or the National Business Conduct Committee, the
Respondent shall be notified in writing and the offer of settlement and
proposed order of acceptance shall be deemed withdrawn. The rejected
offer and proposed order of acceptance shall not constitute a part of
the record in any proceeding against the Respondent making the offer.
(i) Disciplinary Proceeding With Multiple Respondents
When a disciplinary proceeding names multiple Respondents,
settlement offers may be accepted or rejected as to any one or all of
the Respondents submitting offers. The proceedings shall thereafter be
terminated as to those Respondents whose offers of settlement are
accepted, but such Respondents may be required to participate in any
hearing conducted as to those Respondents that did not submit offers of
settlement or whose offers of settlement were rejected.
(j) No Prejudice from Rejected Offer of Settlement
If an offer of settlement is rejected by a Hearing Panel or, if
applicable, an Extended Hearing Panel, the Chair and the Vice Chair of
the National Business Conduct Committee (or either one, acting alone,
in the event the other is recused or disqualified), or the National
Business Conduct Committee, the Respondent shall not be prejudiced by
the offer, which may not be introduced into evidence in connection with
the determination of the issues involved in the pending complaint or in
any other proceeding.
9280. Contemptuous Conduct
(a) Persons Subject to Sanctions
If a Party, attorney for a Party, or other person authorized to
represent others by Rule 9141, engages in conduct in violation of an
order of a Hearing Officer, a Hearing Panel or, if applicable, an
Extended Hearing Panel, or other contemptuous conduct during a
proceeding, a Hearing Officer, Hearing Panel or, if applicable, an
Extended Hearing Panel, may:
(1) subject the Party, attorney for a Party, or other person
authorized to represent others by Rule 9141, to the
[[Page 25340]]
sanctions set forth in paragraph (b); and,
(2) exclude an attorney for a Party, or other person authorized to
represent others by Rule 9141, under Rule 9150.
(b) Sanctions Other Than Exclusion
A Hearing Officer, Hearing Panel or, if applicable, an Extended
Hearing Panel, may make such orders as are just in regard to a Party,
an attorney for a Party, or other person authorized to represent others
by Rule 9141.
(1) Such orders may include:
(A) an order providing that the matters on which the order is made
or any other designated facts shall be taken to be established for the
purposes of the disciplinary proceeding in accordance with the claim of
the Party obtaining the order;
(B) an order providing that the disobedient Party may not support
or oppose designated claims or defenses, or may not introduce
designated matters in evidence;
(C) an order providing that pleadings or a specified part of the
pleading shall be stricken, or an order providing that the proceeding
shall be stayed until the Party subject to the order obeys it;
(D) in lieu of any of the foregoing orders or in addition thereto,
an order providing that contemptuous conduct includes the failure to
obey any order; and
(E) an order as provided in subparagraphs (A), (B), and (C) where a
Party has failed to comply with an order to produce a person for
examination, unless the Party failing to comply shows that such Party
is unable to produce such person for examination.
(2) A Party that without substantial justification fails to
disclose information required by the Rule 9250 Series or otherwise
required by order of the Hearing Officer, Hearing Panel or, if
applicable, the Extended Hearing Panel, shall not, unless such failure
is harmless, be permitted to use as evidence at a hearing, in a motion
or in any other filing of papers, or in oral argument, any witness or
information not so disclosed. In addition to, or in lieu of this
sanction, the Hearing Officer, Hearing Panel or, if applicable, the
Extended Hearing Panel, on motion and after affording an opportunity to
be heard, may impose other appropriate sanctions. These sanctions may
include any of the sanctions provided for in subparagraphs (A), (B),
and (C) of subparagraph (b)(1).
(c) National Business Conduct Committee Review of Exclusions
If an attorney for a Party, or other person authorized to represent
others by Rule 9141, is excluded from a disciplinary hearing or
conference, or any portion thereof, such attorney or other person may
seek review of the exclusion by filing a motion to vacate with the
National Business Conduct Committee. Such motion to vacate shall be
filed and served on all Parties within five days after service of the
exclusion order. Any response shall be filed with the National Business
Conduct Committee and served on all Parties within five days after the
service of the motion to vacate. The National Business Conduct
Committee shall consider such motion on an expedited basis and promptly
issue a written decision The filing of a motion to vacate shall stay
all aspects of the disciplinary proceeding until at least seven days
after service of the decision of the National Business Conduct
Committee. The National Business Conduct Committee review proceedings
shall be conducted on the basis of the written record without oral
argument.
(d) Adjournment
The hearing, conferences, or other activities relating to the
disciplinary proceeding shall be stayed pending the National Business
Conduct Committee's review of an exclusion order in paragraph (c). In
the event that the National Business Conduct Committee upholds an
exclusion of an attorney or other person authorized to represent others
by Rule 9141, the Hearing Officer may, upon motion by a Party
represented by an attorney or other person subject to an order of
exclusion, grant an adjournment to allow the retention of new counsel
or selection of a new representative. In determining whether to grant
an adjournment or the length of an adjournment, the Hearing Officer
shall consider whether there are other counsel or representatives of
record on behalf of the Party, the availability of other counsel or
other members of an excluded attorney's firm, or the availability of
other representatives for the Party, and any other relevant factors.
9300. Review of Disciplinary Proceedings by the National Business
Conduct Committee, NASD Regulation and NASD Boards, and Application for
SEC review
9310. Appeal to or Review by National Business Conduct Committee
9311. Appeal by Any Party; Cross-Appeal
(a) Time to File Notice of Appeal
A Respondent or Complainant may file a written notice of appeal
within 15 days after service of a decision issued pursuant to Rule 9268
or Rule 9269.
(b) Effect
An appeal to the National Business Conduct Committee from a
decision issued pursuant to Rule 9268 or Rule 9269 shall operate as a
stay of that decision until the National Business Conduct Committee
issues a decision pursuant to Rule 9349 or, in cases called for
discretionary review by the NASD Regulation or NASD Boards, until a
decision is issued pursuant to Rule 9351 or Rule 9352.
(c) Notice of Appeal Content and Signature Requirements
A Party appealing pursuant to this Rule shall file a written notice
of appeal with the Office of Hearing Officers and serve the notice on
the Parties. The notice of appeal shall be signed by the appealing
Party, or his or her counsel or representative, and shall contain:
(1) the name of the disciplinary proceeding;
(2) the disciplinary proceeding docket number;
(3) the name of the Party on whose behalf the appeal is made;
(4) a statement on whether oral argument before the National
Business Conduct Committee is requested; and,
(5) a brief statement of the findings, conclusions, or sanctions as
to which exceptions are taken.
(d) Notice of Cross-Appeal
A Party who is served with a notice of appeal may file a written
notice of cross-appeal and serve the notice of cross-appeal on the
Parties. The notice of cross-appeal shall be filed within five days
after service of the notice of appeal. The notice of cross-appeal shall
be signed by the Party cross-appealing, or his or her counsel, and
shall contain the information set forth in subparagraphs (c)(1)-(2) and
(c)(4)-(5), and the name of the Party on whose behalf the cross-appeal
is made.
(e) Waiver of Issues Not Raised
The National Business Conduct Committee may, in its discretion,
deem waived any issue not raised in the notice of appeal or cross-
appeal.
(f) Withdrawal of Notice of Appeal or Cross-Appeal
A Party may withdraw a notice of appeal or a notice of cross-appeal
filed by him or her at any time by filing a written notice of
withdrawal of appeal or cross-appeal with the Office of Hearing
Officers and serving notice thereof on the Parties. The notice of
withdrawal of appeal or cross-appeal shall contain: the name of the
disciplinary proceeding; the disciplinary proceeding docket number; and
the name of the Party on whose behalf the notice of appeal or cross-
appeal was filed previously. The notice of withdrawal of appeal or
cross-appeal shall be signed by the Party, or his or her counsel or
representative. Upon the withdrawal of a notice of appeal, any
outstanding cross-appeal shall be
[[Page 25341]]
treated as an appeal unless it is withdrawn.
9312. Review Proceedings Initiated by the National Business Conduct
Committee
(a) Call for Review
(1) Rule 9268 Decision
A decision issued pursuant to Rule 9268 may be subject to a call
for review by any member of the National Business Conduct Committee or,
pursuant to authority delegated from the National Business Conduct
Committee, by any member of the Review Subcommittee of the National
Business Conduct Committee. The Review Subcommittee shall be composed
of two to four persons who are current members of the National Business
Conduct Committee. At least 50 percent of the persons making up the
Review Subcommittee shall be Non-Industry Directors, as defined in
Article I of the NASD Regulation By-Laws. A decision issued pursuant to
Rule 9268 shall be subject to a call for review within 45 days after
the date of service of the decision. If called for review, such
decision shall be reviewed by the National Business Conduct Committee.
(2) Rule 9269 Decision
A default decision issued pursuant to Rule 9269 shall be subject to
a call for review by the General Counsel of NASD Regulation, or his or
her delegatee, on his or her own motion within 45 days after the date
of service of the decision. If called for review, such decision shall
be reviewed by the National Business Conduct Committee.
(b) Effect
Institution of review by a member of the National Business Conduct
Committee on his or her own motion, a member of the Review Subcommittee
on his or her own motion, or the General Counsel of NASD Regulation, or
his or her delegatee, on his or her own motion shall operate as a stay
of a final decision issued pursuant to Rule 9268 or Rule 9269 as to all
Parties subject to the notice of review, until the National Business
Conduct Committee issues a decision pursuant to Rule 9349, or, in cases
called for discretionary review by the NASD Regulation or NASD Boards,
until a decision is issued pursuant to Rule 9351 or Rule 9352.
(c) Requirements
If a member of the National Business Conduct Committee, a member of
the Review Subcommittee, or the General Counsel of NASD Regulation, or
his or her delegatee, determines to call a case for review, a written
notice of review shall be served promptly on each Party to the
proceeding and filed with the Office of Hearing Officers. Such notice
of review shall contain:
(1) the name of the disciplinary proceeding;
(2) the disciplinary proceeding docket number; and,
(3) a brief statement of the findings, conclusions, or sanctions
with respect to which the National Business Conduct Committee, the
Review Subcommittee, or the General Counsel of NASD Regulation, or his
or her delegatee, determined that a call for review was necessary.
The statement contained in the notice of review shall not limit the
scope of the National Business Conduct Committee's authority under Rule
9346 to review any issues raised in the decision rendered pursuant to
Rule 9268 or Rule 9269. The National Business Conduct Committee shall
provide the Parties with notice of, and an opportunity to submit briefs
on, any issue not set forth in the notice of review that shall be
considered by the National Business Conduct Committee.
(d) Effect of Withdrawal of Notice of Appeal, Cross-Appeal
If the review of a disciplinary proceeding by the National Business
Conduct Committee is terminated before the National Business Conduct
Committee issues a decision on the merits because all appealing Parties
file a notice of withdrawal of appeal and no Party previously filed a
notice of cross-appeal, or all Parties who previously filed a notice of
cross-appeal file a notice of withdrawal of cross-appeal:
(1) a member of the National Business Conduct Committee or of the
Review Subcommittee shall have the right to call for review a decision
issued pursuant to Rule 9268 in accordance with Rule 9312(a)(1), except
that the 45 day period during which a call for review may be made shall
begin on the day the Association receives the last filed notice of
withdrawal of appeal or, if applicable, the last filed notice of
withdrawal of cross-appeal; and,
2) the General Counsel of NASD Regulation, or his or her delegatee,
shall have the right to call for review a decision issued pursuant to
Rule 9269 in accordance with Rule 9312(a)(2), except that the 45 day
period during which a call for review may be made shall begin on the
day the Association receives the last filed notice of withdrawal of
appeal or, if applicable, the last filed notice of withdrawal of cross-
appeal.
9320. Transmission of Record; Extensions of Time, Postponements,
Adjournments
9321. Transmission of Record
Within 21 days after the filing of a notice of appeal or notice of
review, or at such later time as the National Business Conduct
Committee may designate, the Office of Hearing Officers shall assemble
and prepare an index to the record, transmit the record and the index
to the National Business Conduct Committee, and serve copies of the
index upon all Parties. The Hearing Officer who participated in the
disciplinary proceeding, or the Chief Hearing Officer, shall certify
that the record transmitted to the National Business Conduct Committee
is complete.
9322. Extensions of Time, Postponements, and Adjournments
(a) Availability
At any time prior to the issuance of a decision pursuant to Rule
9349, the National Business Conduct Committee may, for good cause
shown, extend or shorten any time limits prescribed by the Code for the
filing of any papers and may, consistent with paragraph (b), postpone
or adjourn any hearing.
(b) Limitations on Postponements, Adjournments, and Extensions
Oral argument shall begin at the time and place ordered, unless the
National Business Conduct Committee, for good cause shown, postpones or
changes the location of the oral argument, subject to the limitations
in paragraph (b)(2).
(1) Additional Considerations
In considering a motion for postponement of oral argument, the
National Business Conduct Committee shall consider, in addition to any
other relevant factors:
(A) the length of time the disciplinary proceeding has been pending
to date;
(B) the number of postponements, adjournments, or extensions
already granted;
(C) the stage of the proceedings at the time of the request; and
(D) potential harm to the investing public if an extension of time,
adjournment, or postponement is granted; and
(E) any other such matters that justice may require.
(2) Time Limit
Postponements, adjournments, or extensions of time for filing
papers shall not exceed 28 days, unless the National Business Conduct
Committee determines otherwise.
9330. Appointment of Subcommittee or Extended Proceeding Committee;
Disqualification and Recusal
9331. Appointment by National Business Conduct Committee of
Subcommittee or Extended Proceeding Committee
(a) Appointment by National Business Conduct Committee
Following the filing of a notice of appeal pursuant to Rule 9311 or
a
[[Page 25342]]
notice of review pursuant to Rule 9312, the National Business Conduct
Committee shall designate a Subcommittee or an Extended Proceeding
Committee to participate, subject to Rule 9345, in a disciplinary
proceeding appealed or called for review.
(1) Subcommittee
Except as provided in subparagraph (2), for each disciplinary
proceeding appealed or called for review, the National Business Conduct
Committee shall appoint a Subcommittee to participate, subject to Rule
9345, in the appeal or review. A Subcommittee shall be composed of two
or more persons who shall be current or former Directors, or former
Governors.
(2) Extended Proceeding Committee
Upon consideration of the volume and complexity of the certified
record, or other factors the National Business Conduct Committee deems
material, the National Business Conduct Committee may determine that a
disciplinary proceeding appealed or called for review shall be
designated an Extended Proceeding and shall appoint an Extended
Proceeding Committee to participate, subject to Rule 9345, in the
appeal or review. The Extended Proceeding Committee shall be composed
of two or more persons who shall be current or former Directors, or
former Governors. The Chair of the National Business Conduct Committee
shall have discretion to compensate any or all Panelists of an Extended
Proceeding Committee at the rate then in effect for arbitrators
appointed under the Rule 10000 Series.
(b) Function
If a hearing is held, the Subcommittee or, if applicable, the
Extended Proceeding Committee, shall hear oral arguments and consider,
if allowed, any new evidence. Based on the hearing and the record on
appeal or review, the Subcommittee or, if applicable, the Extended
Hearing Committee, shall make a recommendation to the National Business
Conduct Committee regarding the disposition of all matters on appeal,
cross-appeal, or review. The recommendation shall be in the form of a
written recommended decision.
9332. Disqualification and Recusal
(a) Recusal, Withdrawal of Member or Panelist
If at any time a member of the National Business Conduct Committee,
or a Panelist of a Subcommittee or an Extended Proceeding Committee,
determines that he or she has a conflict of interest or bias or
circumstances otherwise exist where his or her fairness might
reasonably be questioned, the member or the Panelist shall notify the
Chair or the Vice-Chair of the National Business Conduct Committee, and
the Chair or the Vice-Chair of the National Business Conduct Committee
shall issue and serve on the Parties a notice stating that the member
or Panelist has withdrawn from the matter. In the event that a Panelist
withdraws, is incapacitated, or is otherwise unable to continue his or
her service after a hearing has been convened, the Chair or Vice-Chair
of the National Business Conduct Committee shall appoint a replacement
Panelist.
(b) Motion for Disqualification
A Party may move for the disqualification of a member of the
National Business Conduct Committee, or a Panelist of a Subcommittee or
an Extended Proceeding Committee. All such motions shall be based upon
a reasonable, good faith belief that a conflict of interest or bias
exists, or circumstances otherwise exist where his or her fairness
might reasonably be questioned, and shall be accompanied by an
affidavit setting forth in detail the facts alleged to constitute
grounds for disqualification, and the dates on which the Party learned
of those facts. Such motions shall be filed not later than 15 days
after the later of:
(1) when the Party learned of the facts believed to constitute the
disqualification; or
(2) when the Party was notified of the composition of the
Subcommittee or, if applicable, the Extended Proceeding Committee.
(c) Disposition of Disqualification Motions: Challenges to Single
Member of National Business Conduct Committee or Single Panelist of
Subcommittee or Extended Hearing Committee
Motions for disqualification of a member of the National Business
Conduct Committee, or a Panelist of a Subcommittee or an Extended
Proceeding Committee shall be decided by the Chair or Vice-Chair of the
National Business Conduct Committee, who shall promptly determine
whether disqualification is required, and issue a written ruling on the
motion. If a Panelist is disqualified, the Chair or the Vice-Chair of
the National Business Conduct Committee shall appoint a replacement
Panelist.
(d) Disposition of Disqualification Motions: Challenges to Multiple
Panelists
(1) National Business Conduct Committee
If a Party files a motion to disqualify more than one member of the
National Business Conduct Committee, the Chair or the Vice-Chair of the
National Business Conduct Committee shall promptly determine whether
disqualification is required, and shall issue a written ruling on the
matter. In the event of such disqualification, the remaining members of
the National Business Conduct Committee shall consider the review or
appeal of the disciplinary matter.
(2) Subcommittee; Extended Proceeding Committee
If a Party files a motion to disqualify more than one Panelist of a
Subcommittee or an Extended Proceeding Committee, the Chair or the
Vice-Chair of the National Business Conduct Committee shall promptly
determine whether disqualification is required, and shall issue a
written ruling on the motion. If multiple Panelists are disqualified,
the Chair or the Vice-Chair of the National Business Conduct Committee
shall appoint replacement Panelists.
9340. Proceedings
9341. Oral Argument
(a) Request for Oral Argument
A Party may request oral argument before the Subcommittee or, if
applicable, the Extended Proceeding Committee. Oral argument shall be
requested in writing either in the Party's notice of appeal or cross-
appeal, or within 15 days after service of the National Business
Conduct Committee's notice of review. Subject to the limitations of
Rules 9342 and 9344, oral argument shall be granted if timely
requested. The right to oral argument set forth in this Rule is
unaffected by a Party's waiver of, or failure to request, a hearing
pursuant to the Rule 9200 Series.
(b) Discretion to Proceed With or Without Oral Argument
In the absence of a request for oral argument, the Subcommittee or,
if applicable, the Extended Proceeding Committee, in its discretion,
may order that a matter be set down for oral argument, or may consider
the matter on the basis of the record.
(c) Notice Regarding Oral Argument
If oral argument is held, a notice stating the date, time, and
place of the argument shall be served on the Parties at least 21 days
before the hearing. The Parties may agree in writing to waive the
notice period or, in extraordinary circumstances, the Subcommittee or,
if applicable, the Extended Proceeding Committee, may provide for a
shorter notice period.
(d) Attendance Required
The Parties shall make oral arguments before the Subcommittee or,
if applicable, the Extended Proceeding Committee. Unless otherwise
agreed to by all of the Parties, all Panelists comprising the
Subcommittee or, if
[[Page 25343]]
applicable, the Extended Proceeding Committee, shall be present for the
oral argument.
(e) Time Limits
Unless the Subcommittee or, if applicable, the Extended Proceeding
Committee, orders otherwise for good cause shown, each Party's oral
argument before the Subcommittee or, if applicable, the Extended
Proceeding Committee, shall be limited to a total of 30 minutes.
(f) Recordation; Transcript Correction
Oral arguments shall be recorded and a written transcript prepared
by a court reporter. Parties may purchase copies of the transcript from
the court reporter. Any corrections that a Party believes necessary to
a transcript shall be submitted by motion to the Subcommittee or, if
applicable, the Extended Proceeding Committee, within 21 days after the
hearing date or within five days after receipt of the transcript,
whichever date is later.
9342. Failure to Appear at Oral Argument
A Party who requests oral argument but fails to appear after being
duly notified, shall be deemed to have waived any opportunity for oral
argument provided under the Rule 9300 Series. The Subcommittee or, if
applicable, the Extended Proceeding Committee, shall permit argument to
go forward as to those Parties who appear. The Subcommittee or, if
applicable, the Extended Proceeding Committee, in the exercise of its
discretion, may consider the matter on the basis of the record without
oral argument as to those Parties who failed to appear.
9343. Disposition Without Oral Argument
If an oral argument is not held, the matter shall be considered by
a Subcommittee or, if applicable, an Extended Proceeding Committee, on
the basis of the record, as defined in Rule 9267, and supplemented by
any written materials submitted to or issued by the Subcommittee or, if
applicable, the Extended Proceeding Committee, or the National Business
Conduct Committee in connection with the appeal, cross-appeal, or call
for review.
9344. Failure to Participate Below; Abandonment of Appeal
(a) Failure to Participate Below
When an appealing Party did not participate in the disciplinary
proceeding before a Hearing Officer, Hearing Panel or, if applicable,
Extended Hearing Panel, but shows good cause for the failure to
participate, the National Business Conduct Committee may dismiss the
appeal and remand the matter for further proceedings, or may hear
evidence and consider the matter. If the appealing Party did not
participate in the disciplinary proceeding before a Hearing Officer,
Hearing Panel or, if applicable, Extended Hearing Panel, and fails to
show good cause for the failure to participate, the matter shall be
considered by the Subcommittee or, if applicable, Extended Proceeding
Committee, and the National Business Conduct Committee on the basis of
the record and other documents, as provided in Rules 9346 and 9347. For
purposes of this paragraph, failure to participate shall include
failure to file an answer or otherwise respond to a complaint, or
failure to appear at a scheduled hearing, but shall not include failure
to request a hearing pursuant to Rule 9221.
(b) Abandonment of Appeal
If an appealing Party fails to advise the National Business Conduct
Committee of the basis for seeking review, or otherwise fails to
provide information or submit a written brief in response to a request
pursuant to Rules 9346 and 9347, the National Business Conduct
Committee may dismiss the appeal as abandoned, and the decision of the
Hearing Officer, Hearing Panel or, if applicable, Extended Hearing
Panel, shall become the final disciplinary action of the Association.
If a cross-appealing Party fails to advise the National Business
Conduct Committee of the basis for seeking review, or otherwise fails
to provide information or submit a written brief in response to a
request pursuant to Rules 9346 and 9347, the National Business Conduct
Committee may dismiss the cross-appeal as abandoned. Upon a showing of
good cause, the National Business Conduct Committee may withdraw any
dismissal entered pursuant to this Rule.
9345. Subcommittee or Extended Proceeding Committee Recommendation to
National Business Conduct Committee
A Subcommittee or, if applicable, an Extended Proceeding Committee,
shall present a recommended decision in writing to the National
Business Conduct Committee and all other Directors not later than seven
days before the meeting of the National Business Conduct Committee at
which the disciplinary proceeding shall be considered.
9346. Evidence in National Business Conduct Committee Proceedings
(a) Scope of Review
Except as otherwise set forth in this paragraph, the National
Business Conduct Committee's review shall be limited to consideration
of: (i) the record, as defined in Rule 9267, supplemented by briefs and
other papers submitted to the Subcommittee or, if applicable, the
Extended Proceeding Committee, and the National Business Conduct
Committee; and (ii) any oral argument permitted under this Code. A
Party may introduce additional evidence only with prior approval of the
Subcommittee or, if applicable, the Extended Proceeding Committee, or
the National Business Conduct Committee, upon a showing that
extraordinary circumstances exist under paragraph (b). If an appealing
Party shows good cause for failure to participate in the disciplinary
proceeding below, the National Business Conduct Committee may hear
evidence and consider the disciplinary proceeding pursuant to Rule
9344(a).
(b) Leave to Introduce Additional Evidence
A Party may apply to the Subcommittee or, if applicable, the
Extended Proceeding Committee, or the National Business Conduct
Committee for leave to introduce additional evidence by motion filed
not later than 30 days after service of such Party's notice of appeal
or cross-appeal, or not later than 35 days after service upon the Party
by the National Business Conduct Committee of a notice of review. The
motion shall describe each item of proposed new evidence, demonstrate
that there was good cause for failing to introduce it below, and
demonstrate why the evidence is material to the proceeding, and be
filed and served. By a motion filed in accordance with Rule 9146, a
Party may request an extension of the period during which a Party may
file a motion for leave to introduce additional evidence. A Party shall
demonstrate that there was good cause for failing to file the motion
for leave to introduce additional evidence during the period
prescribed.
(c) Motion In Opposition; Motion to Introduce Rebuttal Evidence
A Party may file an opposition to a motion, as provided in Rule
9146(d), for leave to introduce new evidence, and may move for leave to
introduce rebuttal evidence in response to the proposed new evidence. A
Party who moves to introduce rebuttal evidence in response to the
proposed new evidence of another Party shall describe each item of
proposed rebuttal evidence and explain why the evidence is material to
the proceeding, and shall file and serve such motion.
(d) Discretion Regarding Review of Additional Evidence
Upon consideration of any motion to introduce additional evidence
and any opposition thereto, the Subcommittee
[[Page 25344]]
or, if applicable, the Extended Proceeding Committee, or the National
Business Conduct Committee may permit the evidence to be introduced
into the record on review, or the National Business Conduct Committee
may remand the disciplinary proceeding for further proceedings
consistent with its ruling or for further fact finding.
(e) Requirements for Submitting Additional Documentary Evidence
A Party that is permitted to introduce additional documentary
evidence before the Subcommittee or, if applicable, the Extended
Proceeding Committee, or the National Business Conduct Committee
pursuant to paragraph (d) shall make copies of the evidence available
to the Subcommittee or, if applicable, the Extended Proceeding
Committee, or the National Business Conduct Committee, and to all
Parties at such time as the Subcommittee or, if applicable, the
Extended Proceeding Committee, or the National Business Conduct
Committee may specify.
(f) Subcommittee or Extended Proceeding Committee Order Requiring
Additional Evidence
On its own motion, the Subcommittee or, if applicable, the Extended
Proceeding Committee, or the National Business Conduct Committee may
order that the record be supplemented with such additional evidence as
it may deem relevant. Among other things, the Subcommittee, or if
applicable, the Extended Proceeding Committee, or the National Business
Conduct Committee may order a Respondent who asserts his or her
inability to pay a monetary sanction to file a sworn financial
statement and to keep such statement current as ordered by the
Subcommittee or, if applicable, the Extended Proceeding Committee, or
the National Business Conduct Committee.
(g) Rules of Evidence Not Applicable
Formal rules of evidence shall not apply.
(h) Testimony
A person who is subject to the jurisdiction of the Association
shall testify under oath or affirmation. The oath or affirmation shall
be administered by a court reporter or a notary public.
9347. Filing of Papers in National Business Conduct Committee
Proceedings
(a) Briefs; Reply Briefs; Requirements
Parties may file briefs in connection with proceedings governed by
the Rule 9300 Series. Briefs shall be confined to the particular
matters at issue. An exception to findings, conclusions, or sanctions
shall be supported by citation to the relevant portions of the record,
including references to specific pages relied upon, and by concise
argument, including citation of such statutes, decisions, and other
authorities as may be relevant. If an exception relates to the
admission or exclusion of evidence, the substance of the evidence
admitted or excluded shall be set forth in the brief, an appendix
thereto, or by citation to the record. Parties may file reply briefs.
If a Party files a reply brief, such brief shall be limited to matters
in reply. All briefs shall conform to the requirements of the Rule 9130
Series, and, except with advance leave of the Subcommittee or, if
applicable, the Extended Proceeding Committee, or the National Business
Conduct Committee, exclusive of pages containing tables of contents or
tables of authorities, a brief other than a reply brief shall not
exceed 25 double-spaced pages, and a reply brief shall not exceed 12
double-spaced pages.
(b) Timely Filing of Briefs
Briefs shall be due upon dates established by the Subcommittee or,
if applicable, the Extended Proceeding Committee, or the National
Business Conduct Committee in a scheduling order. Unless the
Subcommittee or, if applicable, the Extended Proceeding Committee, or
the National Business Conduct Committee specifies otherwise, opening
briefs shall be submitted not less than 21 days from the date of the
scheduling order, and answering briefs shall be submitted 21 days
thereafter. When reply briefs are submitted, such briefs shall be filed
not later than ten days after service of the answering brief.
9348. Powers of the National Business Conduct Committee on Review
In any appeal or review proceeding pursuant to the Rule 9300
Series, the National Business Conduct Committee may affirm, dismiss,
modify, or reverse with respect to each finding, or remand the
disciplinary proceeding with instructions. The National Business
Conduct Committee may affirm, modify, reverse, increase, or reduce any
sanction, or impose any other fitting sanction.
9349. National Business Conduct Committee Formal Consideration;
Decision
(a) Decision of National Business Conduct Committee, Including
Remand
In an appeal or review of a disciplinary proceeding governed by the
Rule 9300 Series that is not withdrawn or dismissed prior to a decision
on the merits, the National Business Conduct Committee, after
considering all matters presented in the appeal or review, and the
written recommended decision of the Subcommittee or, if applicable, the
Extended Proceeding Committee, may affirm, dismiss, modify or reverse
the decision of the Hearing Panel or, if applicable, Extended Hearing
Panel, with respect to each Respondent who has appealed or cross-
appealed or is subject to a call for review. The National Business
Conduct Committee may affirm, modify, reverse, increase, or reduce any
sanction, or impose any other fitting sanction. Alternatively, the
National Business Conduct Committee may remand the disciplinary
proceeding with instructions. The National Business Conduct Committee
shall prepare a proposed written decision pursuant to paragraph (b).
(b) Contents of Decision
The decision shall include:
(1) a statement describing the investigative or other origin of the
disciplinary proceeding;
(2) the specific statutory or rule provisions that were alleged to
have been violated;
(3) a statement setting forth the findings of fact with respect to
any act or practice the Respondent was alleged to have committed or
omitted;
(4) the conclusions as to whether the Respondent violated any
provision alleged in the complaint;
(5) a statement in support of the disposition of the principal
issues raised in the proceeding; and
(6) a statement describing any sanction imposed, the reasons
therefor, and, pursuant to Rule 9360, the date upon which such sanction
shall become effective.
(c) Issuance of Decision After Expiration of Call for Review Period
The National Business Conduct Committee shall provide its proposed
written decision to the NASD Regulation Board, and, if the disciplinary
proceeding is not called for review by the NASD Regulation Board, to
the NASD Board. The NASD Regulation Board may call the disciplinary
proceeding for review pursuant to Rule 9351. The NASD Board may call
the disciplinary proceeding for review pursuant to Rule 9352. If
neither the NASD Regulation Board nor the NASD Board calls the
disciplinary proceeding for review, the proposed written decision of
the National Business Conduct Committee shall become final, and the
National Business Conduct Committee shall serve its written decision on
the Parties and provide a copy to each member of the Association with
which a Respondent is associated. The decision shall constitute the
final disciplinary action of the Association for purposes of SEC Rule
19-1(c)(1), unless the National Business Conduct Committee remands the
proceeding.
[[Page 25345]]
9350. Discretionary Review by Boards
9351. Discretionary Review by the NASD Regulation Board
(a) Call for Review by Director
A Director may call a disciplinary proceeding for review by the
NASD Regulation Board, if the call for review is made within the period
prescribed in paragraph (b).
(b) Seven Day Period; Waiver
After receiving the proposed written decision of the National
Business Conduct Committee pursuant to Rule 9349, a Director shall have
not less than seven days to determine if the disciplinary proceeding
should be called for review. A Director shall call a disciplinary
proceeding for review by notifying the General Counsel of NASD
Regulation. By a unanimous vote of the NASD Regulation Board, the NASD
Regulation Board may shorten the period to less than seven days. By an
affirmative vote of the majority of the NASD Regulation Board then in
office, the NASD Regulation Board may, during the seven day period,
vote to extend the period to more than seven days.
(c) Review at Next Meeting
If a Director calls a disciplinary proceeding for review within the
period prescribed in paragraph (b), the NASD Regulation Board shall
review the disciplinary proceeding not later than the next meeting of
the NASD Regulation Board. The NASD Regulation Board may order the
Parties (excluding any Respondent who did not appeal or cross-appeal,
or as to whom the issues appealed or called for review do not apply),
to file briefs in connection with the NASD Regulation Board review
proceedings pursuant to this Rule.
(d) Decision of NASD Regulation Board, Including Remand
After review, the NASD Regulation Board may affirm, modify, or
reverse the proposed written decision of the National Business Conduct
Committee. The NASD Regulation Board may affirm, modify, reverse,
increase, or reduce any sanction, or impose any other fitting sanction.
Alternatively, the NASD Regulation Board may remand the disciplinary
proceeding with instructions. The NASD Regulation Board shall prepare a
proposed written decision that includes all of the elements described
in Rule 9349(b) (1)-(6).
(e) Issuance of Decision After Expiration of Call for Review Period
The NASD Regulation Board shall provide its proposed written
decision to the NASD Board. The NASD Board may call the disciplinary
proceeding for review pursuant to Rule 9352. If the NASD Board does not
call the disciplinary proceeding for review, the proposed written
decision of the NASD Regulation Board shall become final, and the NASD
Regulation Board shall serve its written decision on the Parties and
provide a copy to each member of the Association with which a
Respondent is associated. The decision shall constitute the final
disciplinary action of the Association for purposes of SEC Rule 19d-
1(c)(1), unless the NASD Regulation Board remands the proceeding.
9352. Discretionary Review by the NASD Board
(a) Call for Review by Governor
A Governor may call a disciplinary proceeding for review by the
NASD Board if the call for review is made within the period prescribed
in paragraph (b).
(b) Seven Day Period; Waiver
(1) Disciplinary Proceeding Called for Review by NASD Regulation
Board
If the NASD Regulation Board reviewed the disciplinary proceeding
under Rule 9351, a Governor shall make his or her call for review not
later than the next meeting of the NASD Board that is at least seven
days after the date on which the NASD Board receives the proposed
written decision of the NASD Regulation Board.
(2) Disciplinary Proceeding Not Called for Review by NASD
Regulation Board
If no Director of the NASD Regulation Board called the disciplinary
proceeding for review under Rule 9351, a Governor shall make his or her
call for review not later than the next meeting of the NASD Board that
is at least seven days after the date on which the NASD Board receives
the proposed written decision of the National Business Conduct
Committee.
(3) Waiver
By a unanimous vote of the NASD Board, the NASD Board may shorten
the period in subparagraph (1) or (2) to less than seven days. By an
affirmative vote of the majority of the NASD Board then in office, the
NASD Board may, during the seven day period in subparagraph (1) or (2),
vote to extend the period in subparagraph (1) or (2) to more than seven
days.
(c) Review at Next Meeting
If a Governor calls a disciplinary proceeding for review within the
period prescribed in paragraph (b), the NASD Board shall review the
disciplinary proceeding not later than the next meeting of the NASD
Board. The NASD Board may order the Parties (excluding any Respondent
who did not appeal, cross-appeal, or as to whom the issues appealed or
called for review do not apply) to file briefs in connection with
review proceedings pursuant to this Rule.
(d) Decision of NASD Board, Including Remand
After review, the NASD Board may affirm, modify, or reverse: (1)
the proposed written decision of the NASD Regulation Board; or (2) if
the NASD Regulation Board did not call a disciplinary proceeding for
review under Rule 9351, the proposed written decision of the National
Business Conduct Committee. The NASD Board may affirm, modify, reverse,
increase, or reduce any sanction, or impose any other fitting sanction.
Alternatively, the NASD Board may remand the disciplinary proceeding
with instructions. The NASD Board shall prepare a written decision that
includes all of the elements described in Rule 9349(b)(1)-(6).
(e) Issuance of Decision
The NASD Board shall issue and serve its written decision on the
Parties and provide a copy to each member of the Association with which
a Respondent is associated. The decision shall constitute the final
disciplinary action of the Association for purposes of SEC Rule 19d-
1(c)(1), unless the NASD Board remands the proceeding.
9360. Effectiveness of Sanctions
A sanction (other than a bar or an expulsion) specified in a
decision constituting final disciplinary action of the Association for
purposes of SEC Rule 19d-1(c)(1) shall become effective on a date
established by the Chief Hearing Officer, which shall not be earlier
than 30 days after the date of service of the decision constituting
final disciplinary action. A bar or an expulsion shall become effective
upon service of the decision constituting final disciplinary action of
the Association for purposes of SEC Rule 19d-1(c)(1), unless otherwise
specified therein.
9370. Application to Commission for Review
(a) Appeal to Commission; Effect
A person aggrieved by final disciplinary action pursuant to the
Rule 9300 Series may apply for review by the Commission pursuant to
Section 19(d)(2) of the Act. The filing with the Commission of an
application for review by the Commission shall stay the effectiveness
of any sanction, other than a bar or an expulsion, imposed in a
decision constituting final disciplinary action of the Association for
purposes of SEC Rule 19d-1(c)(1).
(b) Association Notification to Member
The Association shall promptly notify any Association member with
which a Respondent is associated if the
[[Page 25346]]
Respondent files an application for review to the Commission.
9400. Limitation and Approval Procedures Under Rules 3130, 3131 and
3140
9410. Procedures for Regulating Activities of Members Experiencing
Financial or Operating Difficulties
9411. Purpose
9412. Notice of Limitations
9413. Department Consideration
9414. National Business Conduct Committee Review
9415. Discretionary Review by NASD Regulation Board
9416. Discretionary Review by NASD Board
9417. Enforcement of Sanctions
9418. Additional Limitations, Modification or Removal of
Limitations
9419. Application to Commission for Review, Other Action Not
Foreclosed
9420. Approval of Change in Business Operations that Will Result in
a Change in Exemptive Status under SEC Rule 15c3-3
9421. Purpose
9422. Department of Member Regulation Consideration
9423. National Business Conduct Committee Review
9424. Discretionary Review by NASD Regulation Board
9425. Discretionary Review by NASD Board
9426. Enforcement of Sanctions
9427. Application to Commission for Review
9500. Suspension, Cancellation, Bar, and Eligibility Procedures
9510. Procedures for Summary Suspension by NASD
9511. Purpose
9512. Notice
9513. Hearing and Decision
9514. Discretionary Review by NASD Board
9515. Application to Commission for Review
9516. Other Action Not Foreclosed
9520. Non-Summary Suspension, Cancellation, and Bar Procedures
9521. Purpose
9522. Initiation of Proceeding
9523. Hearing Panel Consideration
9524. Discretionary Review by NASD Board
9525. Application to Commission for Review
9526. Other Action not Foreclosed
9530. Eligibility Proceedings
9531. Purpose
9532. Initiation of Eligibility Proceedings
9533. National Business Conduct Committee Consideration
9534. Discretionary Review by NASD Regulation Board
9535. Discretionary Review by NASD Board
9536. Application to Commission for Review
9400. Limitations and Approval Procedures Under Rules 3130, 3131, and
3140
9410. Procedures for Regulating Activities of a Member Experiencing
Financial or Operational Difficulties
9411. Purpose
The Rule 9410 Series sets forth procedures for regulating the
activities of a member that is experiencing the financial or
operational difficulties specified in Rule 3130 or 3131.
9412. Notice of Limitations
The Department of Member Regulation (hereinafter ``Department'' in
the Rule 9410 Series) may issue a notice directing a member to limit
its business activities if the Department has reason to believe that
any condition specified in Rule 3130 or 3131 exists. The notice shall
specify the grounds on which action is being taken, the nature of the
limitations to be imposed, the effective date of the limitations, and a
fitting sanction that will be imposed if the member fails to comply
with the limitations set forth in the notice. The effective date of the
limitations shall be at least seven days after the date of service of
the notice. The notice also shall inform the member that it may request
a hearing before the Department under Rule 9413. The Department shall
serve the notice pursuant to Rules 9131 and 9134.
9413. Department Consideration
(a) Request for Hearing
A member aggrieved by a notice issued under Rule 9412 may file a
written request for a hearing before the Department. The request shall
state the specific grounds for withdrawing or modifying the limitations
specified in the notice. The request shall be filed pursuant to Rules
9135, 9136, and 9137 within five days after service of the notice under
Rule 9412.
(b) Hearing
If a member requests a hearing under paragraph (a), the Department
shall conduct a hearing within 14 days after service of the notice
under Rule 9412. The member shall be entitled to be heard in person, to
be represented by an attorney, and to submit any relevant evidence. The
hearing shall be recorded and a transcript prepared by a court
reporter. The member may purchase a copy of the transcript from the
court reporter. Any corrections to the transcript shall be submitted
within three days after the hearing or within three days after receipt
of the transcript, whichever is later.
(c) Decision
Within seven days after the hearing, the Department shall issue a
decision approving, modifying, or withdrawing the limitations specified
in the notice. If the decision imposes limitations, the decision shall
provide for a fitting sanction to be imposed under Rule 9417 if the
member fails to comply with the limitations. The Department shall
promptly serve the decision pursuant to Rules 9132 and 9134. The
decision shall become effective upon service.
(d) Failure to Request Hearing
If a member does not request a hearing under paragraph (a), the
limitations specified in the notice shall become effective on the date
specified in the notice. Unless the National Business Conduct Committee
calls the notice for review under Rule 9414, the limitations specified
in the notice shall remain in effect until the Department removes or
modifies the limitations pursuant to Rule 9418.
9414. National Business Conduct Committee Review
(a) Initiation of a Review
(1) Application by Member
A member aggrieved by a decision issued under Rule 9413 may file a
written application for review by the National Business Conduct
Committee. The application shall state the specific grounds for the
review and whether oral argument is requested. The application shall be
filed pursuant to Rules 9135, 9136, and 9137 within seven days after
service of the decision. The member may withdraw its application for
review at any time by filing a written notice with the National
Business Conduct Committee pursuant to Rules 9135, 9136, and 9137.
(2) Motion of National Business Conduct Committee
A decision issued under Rule 9413 shall be subject to a call for
review by any member of the National Business Conduct Committee or the
Review Subcommittee described in Rule 9312(a)(1) within 30 days after
service of the decision. If a member that receives a notice under Rule
9412 does not request a hearing under Rule 9413, the notice shall be
subject to a call for review by any member of the National Business
Conduct Committee or the Review Subcommittee, within 30 days after the
effective date of the notice. If the National Business Conduct
Committee or the Review Subcommittee calls a decision or notice for
review, a
[[Page 25347]]
written notice of review shall be served promptly on the member
pursuant to Rules 9132 and 9134. The notice of review shall state the
specific grounds for the review and whether an oral argument is
ordered. If a decision is called for review by a member of the National
Business Conduct Committee or the Review Subcommittee, the decision
shall be reviewed by the National Business Conduct Committee.
(3) Stay
Unless otherwise ordered by the National Business Conduct
Committee, the initiation of a review under this paragraph shall stay
the decision of the Department or an uncontested notice until a
decision constituting final action of the Association is issued.
(4) Ex Parte Communications
The prohibitions against ex parte communications in Rule 9143 shall
become effective under the Rule 9410 Series when Association staff has
knowledge that a member intends to file a written application for
review or that the National Business Conduct Committee intends to
review a decision on its own motion under this Rule.
(b) Subcommittee Consideration
(1) Appointment of Subcommittee
The National Business Conduct Committee shall appoint a
Subcommittee to participate in the review. The Subcommittee shall be
composed of two or more members. One member shall be a member of the
National Business Conduct Committee, and the remaining member or
members shall be current or former Directors of the NASD Regulation
Board or former Governors of the NASD Board.
(2) Oral Argument
If oral argument is requested by the member, oral argument shall be
held before the Subcommittee within 14 days after service of the
decision under Rule 9413. If oral argument is ordered by the
Subcommittee, oral argument shall be held before the Subcommittee
within seven days after service of the order. The member shall be
entitled to be represented by an attorney. The oral argument shall be
recorded and a transcript prepared by a court reporter. The member may
purchase a copy of the transcript from the court reporter. Any
corrections to the transcript shall be submitted within three days
after the oral argument or within three days after receipt of the
transcript, whichever is later.
(3) Review on Record
If oral argument is not requested or ordered, the Subcommittee
shall conduct its review on the basis of the record and any written
submissions by the Parties.
(4) Additional Evidence
The Subcommittee may consider additional evidence if the member
shows good cause for not previously submitting such evidence.
(5) Recommendation
The Subcommittee shall present a recommended decision in writing to
the National Business Conduct Committee and all other Directors not
later than seven days before the meeting of the National Business
Conduct Committee at which the proceeding shall be considered.
(c) Decision
(1) Decision of National Business Conduct Committee, Including
Remand
After considering all matters presented in the review and the
written recommended decision of the Subcommittee, the National Business
Conduct Committee may affirm, modify, or reverse the Department's
decision or remand the proceeding with instructions. The National
Business Conduct Committee shall prepare a proposed written decision
pursuant to subparagraph (2).
(2) Contents of Decision
The decision shall include:
(A) a description of the Department's decision, including its
rationale;
(B) a description of the principal issues regarding the imposition
of limitations raised in the review and a statement supporting the
disposition of such issues;
(C) a summary of the evidence on each issue;
(D) a statement of whether the Department's decision is affirmed,
modified, or reversed, and a rationale therefor; and
(E) if any limitations are imposed, a description of the
limitations and a statement describing a fitting sanction that will be
imposed under Rule 9417 if the member fails to comply with any of the
limitations.
(3) Issuance of Decision After Expiration of Call for Review Period
The National Business Conduct Committee shall provide its proposed
written decision to the NASD Regulation Board, and, if the proceeding
is not called for review by the NASD Regulation Board, to the NASD
Board. The NASD Regulation Board may call the proceeding for review
pursuant to Rule 9415. The NASD Board may call the proceeding for
review pursuant to Rule 9416. If neither the NASD Regulation Board nor
the NASD Board calls the proceeding for review, the proposed written
decision of the National Business Conduct Committee shall become final,
and the National Business Conduct Committee shall serve its written
decision pursuant to Rules 9132 and 9134. The decision shall constitute
the final action of the Association, unless the National Business
Conduct Committee remands the proceeding.
9415. Discretionary Review by the NASD Regulation Board
(a) Call for Review by Director
A Director may call a proceeding for review by the NASD Regulation
Board if the call for review is made within the period prescribed in
paragraph (b).
(b) Seven Day Period; Waiver
After receiving the proposed written decision of the National
Business Conduct Committee pursuant to Rule 9414, a Director shall have
not less than seven days to determine if the proceeding should be
called for review. A Director shall call a proceeding for review by
notifying the General Counsel of NASD Regulation. By a unanimous vote
of the NASD Regulation Board, the NASD Regulation Board may shorten the
period to less than seven days. By an affirmative vote of the majority
of the NASD Regulation Board then in office, the NASD Regulation Board
may, during the seven day period, vote to extend the period to more
than seven days.
(c) Review at Next Meeting
If a Director calls a proceeding for review within the period
prescribed by paragraph (b), the NASD Regulation Board shall review the
proceeding not later than the next meeting of the NASD Regulation
Board. The NASD Regulation Board may order the filing of briefs in
connection with its review proceedings pursuant to this Rule.
(d) Decision of NASD Regulation Board, Including Remand
After review, the NASD Regulation Board may affirm, modify, or
reverse the proposed written decision of the National Business Conduct
Committee or remand the proceeding with instructions. The NASD
Regulation Board shall prepare a proposed written decision that
includes all of the elements described in Rule 9414(c)(2).
(e) Issuance of Decision After Expiration of Call for Review Period
The NASD Regulation Board shall provide its proposed written
decision to the NASD Board. The NASD Board may call the proceeding for
review pursuant to Rule 9416. If the NASD Board does not call the
proceeding for review, the proposed written decision of the NASD
Regulation Board shall become final, and the NASD Regulation Board
shall serve its written decision pursuant to Rules 9132 and 9134. The
decision shall constitute the final action of the Association, unless
the NASD Regulation Board remands the proceeding.
[[Page 25348]]
9416. Discretionary Review by the NASD Board
(a) Call for Review by Governor
A Governor may call a proceeding for review by the NASD Board if
the call for review is made within the period prescribed in paragraph
(b).
(b) Seven Day Period; Waiver
(1) Proceeding Called for Review by NASD Regulation Board
If the NASD Regulation Board reviewed the proceeding under Rule
9415, a Governor shall make his or her call for review not later than
the next meeting of the NASD Board that is at least seven days after
the date on which the NASD Board receives the proposed written decision
of the NASD Regulation Board.
(2) Proceeding Not Called for Review by NASD Regulation Board
If no Director of the NASD Regulation Board called the proceeding
for review under Rule 9415, a Governor shall make his or her call for
review not later than the next meeting of the NASD Board that is at
least seven days after the date on which the NASD Board receives the
proposed written decision of the National Business Conduct Committee.
(3) Waiver
By a unanimous vote of the NASD Board, the NASD Board may shorten
the period in subparagraph (1) or (2) to less than seven days. By an
affirmative vote of the majority of the NASD Board then in office, the
NASD Board may, during the seven day period in subparagraph (1) or (2),
vote to extend the period in subparagraph (1) or (2) to more than seven
days.
(c) Review at Next Meeting
If a Governor calls a proceeding for review within the period
prescribed in paragraph (b), the NASD Board shall review the proceeding
not later than the next meeting of the NASD Board. The NASD Board may
order the filing of briefs in connection with its review proceedings
pursuant to this Rule.
(d) Decision of NASD Board, Including Remand
After review, the NASD Board may affirm, modify, or reverse: (1)
the proposed written decision of the NASD Regulation Board, or (2) if
the NASD Regulation Board did not call a proceeding for review under
Rule 9415, the proposed written decision of the National Business
Conduct Committee. Alternatively, the NASD Board may remand the
proceeding with instructions. The NASD Board shall prepare a written
decision that includes all of the elements described in Rule
9414(c)(2).
(e) Issuance of Decision
The NASD Board shall issue and serve its written decision pursuant
to Rules 9132 and 9134. The decision shall constitute the final action
of the Association, unless the NASD Board remands the proceeding.
9417. Enforcement of Sanctions
(a) Order
If the Department determines that a member has failed to comply
with any limitations imposed by a decision under Rule 9413, 9414, 9415,
or 9416, or an effective notice under Rule 9413(d), the Department
shall issue an order to be served pursuant to Rules 9132 and 9134
imposing the sanctions set forth in the decision or notice and
specifying the effective date and time of such sanctions.
(b) Hearing
A member aggrieved by an order issued under paragraph (a) may file
a written request for a hearing before the Department. The request
shall be filed pursuant to Rules 9135, 9136, and 9137 within four days
after service of the order. The member shall be entitled to be heard in
person, to be represented by an attorney, and to submit any relevant
evidence. The hearing shall be recorded and a transcript prepared by a
court reporter. The member may purchase a copy of the transcript from
the court reporter. Any corrections to the transcript shall be
submitted within two days after the hearing or within two days after
receipt of the transcript, whichever is later.
(c) Decision
Within four days after the hearing, the Department shall affirm,
modify, or reverse the order issued under paragraph (a). The Department
shall serve the decision on the member pursuant to Rules 9132 and 9134.
The decision shall become effective upon service and shall constitute
final action of the Association.
9418. Additional Limitations; Modification or Removal of Limitations
(a) Additional Limitations
If a member continues to experience financial or operational
difficulty specified in Rule 3130 or 3131, notwithstanding an effective
notice or decision under the Rule 9410 Series, the Department may
impose additional limitations by issuing a notice under Rule 9412.
(b) Modification of Limitations
If the Department determines that any limitations previously
imposed under the Rule 9410 Series should be modified or removed, the
Department shall serve a written notice on the member pursuant to Rules
9132 and 9134.
9419. Application to Commission for Review; Other Action Not Foreclosed
(a) Any person aggrieved by final action pursuant to the Rule 9410
Series may apply for review by the Commission under Section 19 of the
Act. The filing of an application for review shall not stay the
effectiveness of final action by the Association, unless the Commission
otherwise orders.
(b) Action by the Association under the Rule 9410 Series shall not
foreclose action by the Association under any other Rule.
9420. Approval of Change in Business Operations That Will Result in a
Change in Exemptive Status under SEC Rule 15c3-3
9421. Purpose
The Rule 9420 Series sets forth procedures for Rule 3140, which
requires the Association's approval of a change in a member's business
activities that will result in a change in the member's exemptive
status under SEC Rule 15c3-3.
9422. Department of Member Regulation Consideration
(a) Application
A member shall apply for approval of a change in its business
operation that will result in a change in its exemptive status under
SEC Rule 15c3-3 by filing a written application with the Department of
Member Regulation (hereinafter ``Department'' in the 9420 Rule Series)
at the district office in the district in which it has its principal
place of business. The application shall address the criteria set forth
in Rule 3140 and shall be filed pursuant to Rules 9135, 9136, and 9137.
(b) Decision
Within 21 days after receipt of the application, the Department
shall issue a decision approving or denying the application in whole or
in part. If the decision denies the application in whole or in part,
the decision shall set forth the specific grounds for such action. The
decision shall provide a fitting sanction to be imposed in accordance
with Rule 9426 if the member fails to comply with any limitations
imposed. The Department shall serve the decision pursuant to Rules 9132
and 9134.
9423. National Business Conduct Committee Review
(a) Initiation of Review
(1) Application by Member
A member aggrieved by a decision issued under Rule 9422 may file a
written application for review by the National Business Conduct
Committee. The application shall state the specific grounds for the
review and whether oral
[[Page 25349]]
argument is requested. The application shall be filed pursuant to Rules
9135, 9136, and 9137 within seven days after service of the decision.
The member may withdraw its application at any time by filing a written
notice with the National Business Conduct Committee pursuant to Rules
9135, 9136, and 9137.
(2) Motion of National Business Conduct Committee
A decision issued under Rule 9422 shall be subject to a call for
review by any member of the National Business Conduct Committee or the
Review Subcommittee described in Rule 9312(a)(1) within 30 days after
service of the decision. If the National Business Conduct Committee or
the Review Subcommittee calls a decision for review, a written notice
of review shall be served promptly on the member pursuant to Rules 9132
and 9134. The written notice of review shall state the specific grounds
for the review and whether oral argument is ordered. If a decision is
called for review by any member of the National Business Conduct
Committee or the Review Subcommittee, the decision shall be reviewed by
the National Business Conduct Committee.
(3) No Stay of Action
Unless otherwise ordered by the National Business Conduct
Committee, the initiation of a review under this paragraph shall not
stay the decision of the Department.
(4) Ex Parte Communications
The prohibitions against ex parte communications in Rule 9143 shall
become effective under the Rule 9420 Series when Association staff has
knowledge that a member intends to file a written application for
review or that the National Business Conduct Committee intends to
review a decision on its own motion under this Rule.
(b) Subcommittee Consideration
(1) Appointment of Subcommittee
The National Business Conduct Committee shall appoint a
Subcommittee to participate in the review. The Subcommittee shall be
composed of two or more members. One member shall be a member of the
National Business Conduct Committee, and the remaining member or
members shall be current or former Directors of the NASD Regulation
Board or former Governors of the NASD Board.
(2) Oral Argument
If oral argument is requested by the member, oral argument shall be
held before the Subcommittee within 14 days after service of the
decision under Rule 9422. If oral argument is ordered by the
Subcommittee, oral argument shall be held before the Subcommittee
within seven days after service of the order. The oral argument shall
be recorded and a transcript prepared by a court reporter. The member
may purchase a copy of the transcript from the court reporter. Any
corrections to the transcript shall be submitted within three days
after the oral argument or within three days after receipt of the
transcript, whichever is later.
(3) Review on Record
If oral argument is not requested or ordered, the Subcommittee
shall conduct its review on the basis of the record and any written
submissions by the Parties.
(4) Additional Evidence
The Subcommittee may consider additional evidence if the member
shows good cause for not previously submitting such evidence.
(5) Recommendation
The Subcommittee shall present a recommended decision in writing to
the National Business Conduct Committee and all other Directors not
later than seven days before the meeting of the National Business
Conduct Committee at which the proceeding shall be considered.
(c) Decision
(1) Decision of National Business Conduct Committee, Including
Remand
After considering all matters presented in the review and the
written recommended decision of the Subcommittee, the National Business
Conduct Committee may affirm, modify, or reverse the Department's
decision or remand the proceeding with instructions. The National
Business Conduct Committee shall prepare a proposed written decision
pursuant to subparagraph (2).
(2) Contents of Decision
The decision shall include:
(A) a description of the Department's decision, including its
rationale;
(B) a description of the principal issues regarding the change in
the member's exemptive status raised in the review and a statement
supporting the disposition of such issues;
(C) a summary of the evidence on each issue;
(D) a statement of whether the Department's decision is affirmed,
modified, or reversed, and a rationale therefore; and
(E) if any limitations are imposed, a description of the
limitations and a statement describing a fitting sanction that will be
imposed under Rule 9426 if the member fails to comply with any of the
limitations.
(3) Issuance of Decision After Expiration of Call for Review Period
The National Business Conduct Committee shall provide its proposed
written decision to the NASD Regulation Board, and, if the proceeding
is not called for review by the NASD Regulation Board, to the NASD
Board. The NASD Regulation Board may call the proceeding for review
pursuant to Rule 9424. The NASD Board may call the proceeding for
review pursuant to Rule 9425. If neither the NASD Regulation Board nor
the NASD Board calls the proceeding for review, the proposed written
decision of the National Business Conduct Committee shall become final,
and the National Business Conduct Committee shall serve its written
decision pursuant to Rules 9132 and 9134. The decision shall constitute
the final action of the Association, unless the National Business
Conduct Committee remands the proceeding.
9424. Discretionary Review by the NASD Regulation Board
(a) Call for Review by Director
A Director may call a proceeding for review by the NASD Regulation
Board if the call for review is made within the period prescribed in
paragraph (b).
(b) Seven Day Period; Waiver
After receiving the proposed written decision of the National
Business Conduct Committee pursuant to Rule 9423, a Director shall have
not less than seven days to determine if the proceeding should be
called for review. A Director shall call a proceeding for review by
notifying the General Counsel of NASD Regulation. By a unanimous vote
of the NASD Regulation Board, the NASD Regulation Board may shorten the
period to less than seven days. By an affirmative vote of the majority
of the NASD Regulation Board then in office, the NASD Regulation Board
may, during the seven day period, vote to extend the period to more
than seven days.
(c) Review at Next Meeting
If a Director calls a proceeding for review within the period
prescribed by paragraph (b), the NASD Regulation Board shall review the
proceeding not later than the next meeting of the NASD Regulation
Board. The NASD Regulation Board may order the filing of briefs in
connection with its review proceedings pursuant to this Rule.
(d) Decision of NASD Regulation Board, Including Remand
After review, the NASD Regulation Board may affirm, modify, or
reverse the proposed written decision of the National Business Conduct
Committee or remand the proceeding with instructions. The NASD
Regulation Board shall prepare a proposed written decision that
includes all of the elements described in Rule 9423(c)(2).
[[Page 25350]]
(e) Issuance of Decision After Expiration of Call for Review Period
The NASD Regulation Board shall provide its proposed written
decision to the NASD Board. The NASD Board may call the proceeding for
review pursuant to Rule 9425. If the NASD Board does not call the
proceeding for review, the proposed written decision of the NASD
Regulation Board shall become final, and the NASD Regulation Board
shall serve its written decision pursuant to Rules 9132 and 9134. The
decision shall constitute the final action of the Association, unless
the NASD Regulation Board remands the proceeding.
9425. Discretionary Review by NASD Board
(a) Call for Review by Governor
A Governor may call a proceeding for review by the NASD Board if
the call for review is made within the period prescribed in paragraph
(b).
(b) Seven Day Period; Waiver
(1) Proceeding Called for Review by NASD Regulation Board
If the NASD Regulation Board reviewed the proceeding under Rule
9424, a Governor shall make his or her call for review not later than
the next meeting of the NASD Board that is at least seven days after
the date on which the NASD Board receives the proposed written decision
of the NASD Regulation Board.
(2) Proceeding Not Called for Review by NASD Regulation Board
If no Director of the NASD Regulation Board called the proceeding
for review under Rule 9424, a Governor shall make his or her call for
review not later than the next meeting of the NASD Board that is at
least seven days after the date on which the NASD Board receives the
proposed written decision of the National Business Conduct Committee.
(3) Waiver
By a unanimous vote of the NASD Board, the NASD Board may shorten
the period in subparagraph (1) or (2) to less than seven days. By an
affirmative vote of the majority of the NASD Board then in office, the
NASD Board may, during the seven day period in subparagraph (1) or (2),
vote to extend the period in subparagraph (1) or (2) to more than seven
days.
(c) Review at Next Meeting
If a Governor calls a proceeding for review within the period
prescribed in paragraph (b), the NASD Board shall review the proceeding
not later than the next meeting of the NASD Board. The NASD Board may
order the filing of briefs in connection with its review proceedings
pursuant to this Rule.
(d) Decision of NASD Board, Including Remand
After review, the NASD Board may affirm, modify, or reverse: (1)
the proposed written decision of the NASD Regulation Board, or (2) if
the NASD Regulation Board did not call a proceeding for review under
Rule 9424, the proposed written decision of the National Business
Conduct Committee. Alternatively, the NASD Board may remand the
proceeding with instructions. The NASD Board shall prepare a written
decision that includes all of the elements described in Rule
9423(c)(2).
(e) Issuance of Decision
The NASD Board shall issue and serve its written decision pursuant
to Rules 9132 and 9134. The decision shall constitute the final action
of the Association, unless the NASD Board remands the proceeding.
9426. Enforcement of Sanctions
(a) Order
If the Department determines that a member has failed to comply
with limitations imposed by a decision under Rule 9422, 9423, 9424, or
9425, the Department shall issue an order to be served pursuant to
Rules 9132 and 9134 imposing the sanctions set forth in the decision
and specifying the effective date and time of such sanctions.
(b) Hearing
A member aggrieved by an order issued under paragraph (a) may file
a written request for a hearing before the Department. The request
shall be filed pursuant to Rule 9135, 9136, and 9137 within four days
after service of the order. The member shall be entitled to be heard in
person, to be represented by an attorney, and to submit any relevant
evidence. The hearing shall be recorded and a transcript prepared by a
court reporter. The member may purchase a copy of the transcript from
the court reporter. Any corrections to the transcript shall be
submitted within two days after the hearing or within two days after
receipt of the transcript, whichever is later.
(c) Decision
Within four days after the hearing, the Department shall affirm,
modify, or reverse the order issued under paragraph (a). The Department
shall serve the decision on the member pursuant to Rule 9132 and 9134.
The decision shall become effective upon service and shall constitute
final action of the Association.
9427. Application to Commission for Review
Any person aggrieved by final action pursuant to the Rule 9420
Series may apply for review by the Commission under Section 19 of the
Act. The filing of an application for review shall not stay the
effectiveness of final action by the Association, unless the Commission
otherwise orders.
9500. Suspension, Cancellation, Bar, and Eligibility Procedures
9510. Procedures for Summary Suspension by NASD
9511. Purpose
Section 15A(h)(3) of the Act authorizes a registered securities
association to summarily (1) suspend a member or person associated with
a member who has been and is expelled or suspended from any self-
regulatory organization or barred or suspended from being associated
with a member of any self-regulatory organization, (2) suspend a member
who is in such financial or operating difficulty that the association
determines and so notifies the Commission that the member cannot be
permitted to continue to do business as a member with safety to
investors, creditors, other members, or the association, or (3) limit
or prohibit any person with respect to access to services offered by
the association if (1) or (2) applies to such person or, in the case of
a person who is not a member, if the association determines that such
person does not meet the qualification requirements or other
prerequisites for such access and such person cannot be permitted to
continue to have such access with safety to investors, creditors,
members, or the association.
Summary suspension procedures for the grounds listed in Section
15A(h)(3) of the Act are set forth in the Rule 9510 Series. Other
procedures for suspending the membership of a member, suspending the
registration of an associated person, or suspending a person from
association with any member are found in Rules 8220, 8320, and 9520.
9512. Notice
(a) Authorization
The NASD Board may authorize the President of NASD Regulation or
Nasdaq to issue a written notice that:
(1) summarily suspends a member or person associated with a member
who has been and is expelled or suspended from any self-regulatory
organization or barred or suspended from being associated with a member
of any self-regulatory organization;
(2) summarily suspends a member who is in such financial or
operating difficulty that the Association determines and so notifies
the Commission that the member cannot be permitted to continue to do
business as a member with safety to investors,
[[Page 25351]]
creditors, other members, or the Association; or
(3) limits or prohibits any person with respect to access to
services offered by the Association if subparagraph (1) or (2) applies
to such person or, in the case of a person who is not a member, if the
NASD Board determines that such person does not meet the qualification
requirements or other prerequisites for such access and such person
cannot be permitted to continue to have such access with safety to
investors, creditors, members, or the Association.
(b) Contents and Service of Notice
A notice issued under this Rule shall state the specific grounds
for the summary suspension and state that the member or associated
person may file a written request for a hearing under Rule 9513. The
notice shall be served by facsimile or pursuant to Rules 9131 and 9134.
A copy of a notice served on a person who is associated with a member
shall be served on such member pursuant to Rule 9134.
(c) Effective Date
A summary suspension shall be effective on the date and time
specified in the notice.
9513. Hearing and Decision
(a) Request
(1) Request by Member or Associated Person
A member or associated person subject to a summary suspension may
file a written request for a hearing with the NASD Board. The request
shall state the specific grounds for reversing the summary suspension.
The request shall be filed pursuant to Rules 9135, 9136, and 9137
within ten days after service of the notice under Rule 9512. The member
or associated person may withdraw its request for a hearing by filing a
written notice with the NASD Board pursuant to Rules 9135, 9136, and
9137.
(2) Failure to File Request
If the member or associated person subject to a summary suspension
does not file a written request for a hearing under subparagraph (1),
the notice of summary suspension shall constitute final action by the
Association.
(3) No Stay of Summary Suspension
A request for a hearing shall not stay the effectiveness of a
summary suspension under Rule 9512.
(b) Hearing Panel Consideration
(1) Appointment of Hearing Panel
If a member or associated person subject to a summary suspension
files a written request for a hearing, a hearing shall be held before a
Hearing Panel within 15 days after service of the notice under Rule
9512. The Hearing Panel shall be composed of two or more members. One
member shall be a Governor of the NASD Board, and the remaining member
or members shall be current or former members of the NASD Regulation
Board, the Nasdaq Board, or the NASD Board.
(2) Rights of Member or Associated Person
A member or associated person subject to a summary suspension shall
be entitled to be heard in person, to be represented by an attorney,
and to submit any relevant evidence.
(3) Witnesses
A person who is subject to the jurisdiction of the Association
shall testify under oath or affirmation. The oath or affirmation shall
be administered by a court reporter.
(4) Recordation of Hearing
The hearing shall be recorded and a transcript prepared by a court
reporter. The member or associated person may purchase a copy of the
transcript from the court reporter. Any corrections to the transcript
shall be submitted within three days after the hearing or within three
days after receipt of the transcript, whichever is later.
(c) Decision
(1) Decision of the Hearing Panel
The Hearing Panel shall affirm, modify, or reverse the summary
suspension. The Hearing Panel shall prepare a proposed written decision
pursuant to subparagraph (2).
(2) Contents of Decision
The decision shall include a statement describing the investigative
or other origin of the proceeding, the grounds for issuing the notice
under Rule 9512, and a rationale for the disposition of the proceeding,
and, if a suspension continues to be imposed, the specific grounds for
imposing such sanction and the terms of the suspension.
(3) Issuance of Decision After Expiration of Call for Review Period
The Hearing Panel shall provide its proposed written decision to
the NASD Board. The NASD Board may call the proceeding for review
pursuant to Rule 9514. If the NASD Board does not call the proceeding
for review, the proposed written decision of the Hearing Panel shall
become final, and the Hearing Panel shall serve its written decision
pursuant to Rules 9132 and 9134. The decision shall constitute final
action of the Association.
9514. Discretionary Review by the NASD Board
(a) Call for Review by Governor
A Governor may call a proceeding for review by the NASD Board if
the call for review is made within the period prescribed by paragraph
(b).
(b) Seven Day Period; Waiver
After receiving the proposed written decision of the Hearing Panel
pursuant to Rule 9513, a Governor shall have not less than seven days
to determine if the decision should be called for review. A Governor
shall call the proceeding for review by notifying the General Counsel
of the NASD. By a unanimous vote of the NASD Board, the NASD Board may
shorten the period to less than seven days. By an affirmative vote of
the majority of the NASD Board then in office, the NASD Board may,
during the seven day period, vote to extend the period in to more than
seven days.
(c) Review at Next Meeting
If a Governor calls a proceeding for review within the period
prescribed by paragraph (b), the NASD Board shall review the decision
not later than the next meeting of the NASD Board. The NASD Board may
order the filing of briefs in connection with its review proceedings
pursuant to this Rule.
(d) Decision of the NASD Board, Including Remand
After review, the NASD Board may affirm, modify, or reverse the
proposed written decision of the Hearing Panel. Alternatively, the NASD
Board may remand the proceeding with instructions. The NASD Board shall
prepare a written decision that includes all of the elements of Rule
9513(c)(2).
(e) Issuance of Decision
The NASD Board shall issue and serve its decision pursuant to Rules
9132 and 9134. The decision shall constitute the final action of the
Association, unless the NASD Board remands the proceeding.
9515. Application to Commission for Review
Any person aggrieved by final action pursuant to the Rule 9510
Series may apply for review by the Commission under Section 19 of the
Act. The filing of an application for review by the Commission shall
not stay the effectiveness of final action by the Association, unless
the Commission otherwise orders.
9516. Other Action Not Foreclosed
Action by the Association under the Rule 9510 Series shall not
foreclose action by the Association under any other Rule.
9520. Non-Summary Suspension, Cancellation, and Bar Procedures
9521. Purpose
(a) The Rule 9520 Series sets forth procedures for the Association
to:
(1) cancel the membership of a member that becomes ineligible for
continuance in membership, or that continues to be associated with an
ineligible person, or suspend or bar a
[[Page 25352]]
person from continuing to be associated with a member because such
person is or becomes ineligible for association under Article III,
Section 3 of the NASD By-Laws;
(2) suspend or cancel the membership of a member or the
registration of a person for failure to pay fees, dues, assessments, or
other charges; failure to submit a required report or information
related to such payment; or failure to comply with an arbitration award
or a settlement agreement related to an arbitration or mediation under
Article VI, Section 3 of the NASD By-Laws; and
(3) cancel the membership of a member for failure to file or submit
on request any report, document, or other information required to be
filed with or requested by the Association under Article VII, Section 2
of the NASD By-Laws.
(b) Procedures for summarily suspending a member or associated
person on grounds set forth in Section 15A(h)(2) of the Act are found
in the Rule 9510 Series. Other procedures for suspending a member or
associated person for failure to submit required information or failure
to pay fines, monetary sanctions, or costs are found in Rules 8220 and
8320, respectively.
9522. Initiation of Proceeding
(a) Notice
Association staff shall initiate a proceeding authorized under
Section 3 of Article III, Section 3 of Article VI, or Section 2 of
Article VII of the NASD By-Laws by sending a written notice to the
member or associated person. The notice shall specify the grounds for
and effective date of the cancellation, suspension, or bar and shall
state that the member or associated person may file a written request
for a hearing. The notice shall be served by facsimile or pursuant to
Rule 9131 and 9134.
(b) Copy of Notice to Member
A copy of a notice served on a person associated with a member
shall be served on such member pursuant to Rule 9134.
(c) Effective Date
For any cancellation, suspension, or bar under Section 3 of Article
III of the NASD By-Laws, the effective date shall be at least seven
days after service of the notice on the member or associated person.
For any cancellation or suspension under Section 3 of Article VI or
Section 2 of Article VII of the NASD By-Laws, the effective date shall
be at least 15 days after service of the notice on the member or
associated person.
9523. Hearing Panel Consideration
(a) Request for Hearing
A member or associated person who receives a notice under Rule
9522(a) may file a written request for a hearing with the NASD
Regulation Board. The request shall be filed pursuant to Rules 9135,
9136, and 9137 before the effective date set forth in the notice. The
request shall state the grounds for opposing the cancellation,
suspension, or bar. The member or associated person may withdraw its
request at any time by filing a written notice with the NASD Regulation
Board pursuant to Rules 9135, 9136, and 9137.
(b) Stay of Action
Unless otherwise ordered by the NASD Regulation Board, a request
for a hearing under paragraph (a) shall stay the notice issued under
Rule 9522.
(c) Appointment of Hearing Panel
If a member or associated person files a request for a hearing, the
NASD Regulation Board shall appoint a Hearing Panel to conduct a
hearing. The Hearing Panel shall be composed of two or more current or
former Directors of the NASD Regulation Board.
(d) Rights of Member
The member or associated person shall be entitled to be heard in
person, to be represented by an attorney, and to submit any relevant
evidence.
(e) Witnesses
A person who is subject to the jurisdiction of the Association
shall testify under oath or affirmation. The oath or affirmation shall
be administered by a court reporter.
(f) Recordation of Hearing
The hearing shall be recorded and a transcript prepared by a court
reporter. The member or associated person may purchase a copy of the
transcript from the court reporter. Any corrections to the transcript
shall be submitted within three days after the hearing or within three
days after receipt of the transcript, whichever is later.
(g) Decision
(1) Decision of Hearing Panel
The Hearing Panel shall decide whether a cancellation, suspension,
or bar shall be imposed. The Hearing Panel shall prepare a proposed
written decision pursuant to subparagraph (2).
(2) Contents of Decision
The decision shall include:
(A) an identification of the article of the NASD By-Laws that
authorizes the proceeding;
(B) a statement describing the origin of the proceeding;
(C) a statement of the nature of the ineligibility or the failure
to take action that is at issue;
(D) a statement of findings of fact and conclusions as to any
violations of the By-Laws;
(E) a rationale for the disposition of the proceeding; and, F) if a
suspension, cancellation, or bar is imposed, the effective date and
time and the terms of the sanction.
(3) Issuance of Decision After Expiration of Call for Review Period
The Hearing Panel shall provide its proposed written decision to
the NASD Board. The NASD Board may call the proceeding for review
pursuant to Rule 9524. If the NASD Board does not call the proceeding
for review, the proposed written decision of the Hearing Panel shall
become final, and the Hearing Panel shall serve its written decision
pursuant to Rules 9132 and 9134. The decision shall constitute final
action of the Association.
9524. Discretionary Review by NASD Board
(a) Call for Review by Governor
A Governor may call a proceeding for review by the NASD Board if
the call for review is made within the period prescribed by paragraph
(b).
(b) Seven Day Period; Waiver
After receiving the proposed written decision of the Hearing Panel
pursuant to Rule 9523, a Governor shall have not less than seven days
to determine if the decision should be called for review. A Governor
shall call a proceeding for review by notifying the General Counsel of
the NASD. By a unanimous vote of the NASD Board, the NASD Board may
shorten the period to less than seven days. By an affirmative vote of
the majority of the NASD Board then in office, the NASD Board may,
during the seven day period, vote to extend the period to more than
seven days.
(c) Review at Next Meeting
If a Governor calls a proceeding for review within the period
prescribed by paragraph (b), the NASD Board shall review the proceeding
not later than the next meeting of the NASD Board. The NASD Board may
order the filing of briefs in connection with its review proceedings
pursuant to this Rule.
(d) Decision and Final Action of the Association
After review, the NASD Board may affirm, modify, or reverse the
decision of the Hearing Panel or remand the proceeding with
instructions. The NASD Board shall prepare a written decision that
includes all of the elements of Rule 9523(g)(2).
(e) Issuance of Decision After Expiration of Call for Review Period
The NASD Board shall issue and serve its decision pursuant to Rules
9132 and 9134. The decision shall constitute final action of the
Association, unless the NASD Board remands the proceeding.
9525. Application to Commission for Review
Any person aggrieved by final action pursuant to the Rule 9520
Series may
[[Page 25353]]
apply for review by the Commission under Section 19 of the Act. The
filing of an application for review shall not stay the effectiveness of
final action by the Association, unless the Commission otherwise
orders.
9526. Other Action Not Foreclosed
Action by the Association under the Rule 9520 Series shall not
foreclose action by the Association under any other Rule.
9530. Eligibility Proceedings
9531. Purpose
The Rule 9530 Series sets forth procedures for a person to become
associated with a member, notwithstanding the existence of a statutory
disqualification as defined in Section 3(a)(39) of the Act and for a
current member or person associated with any member to obtain relief
from the eligibility or qualification requirements of the NASD By-Laws
and the Rules of the Association. Such actions hereinafter are referred
to as ``eligibility proceedings.''
9532. Initiation of Eligibility Proceedings
(a) Notice of Disqualification or Ineligibility
(1) Issuance
If the Department of Member Regulation (hereinafter ``Department''
in the Rule 9530 Series) has reason to believe that a statutory
disqualification exists or that a member or person associated with a
member otherwise fails to meet the eligibility requirements of the
Association, the Department shall issue a written notice to the member
or associated person. The notice shall specify the grounds for such
disqualification or ineligibility.
(2) Notice to Member
A notice issued to a member that is subject to a statutory
disqualification or is otherwise ineligible for membership shall state
that the member may apply for relief by filing a written application
for relief with the Department within seven days after service of the
notice.
(3) Notice to Associated Person
A notice issued to an associated person who is subject to a
statutory disqualification or is otherwise ineligible for association
shall state that the member with which the person is or may become
associated may apply for relief on behalf of itself and such person by
filing a written application for relief with the Department within
seven days after service of the notice.
(4) Service
A notice issued under this section shall be served by facsimile or
pursuant to Rules 9131 and 9134.
(b) Application by Member
A member shall file a written application for relief from the
eligibility requirements of the Association with the Department if the
member:
(1) determines that it is subject to a statutory disqualification
or otherwise is no longer eligible for membership;
(2) determines that a person associated with it is subject to a
statutory disqualification or otherwise is no longer eligible for
association with the member; or
(3) wishes to sponsor the association of a person who is subject to
a statutory disqualification or otherwise is ineligible for association
with a member.
(c) Form of Application for Relief
A written application for relief shall be submitted on Form MC400
and shall include a detailed statement demonstrating why the requested
relief should be granted.
(d) Withdrawal of Application
A member may withdraw its application for relief at any time by
filing a written notice with the Department pursuant to Rules 9135,
9136, and 9137.
(e) Ex Parte Communications
The prohibitions against ex parte communications set forth in Rule
9143 shall become effective under the Rule 9530 Series when the
Department of Member Regulation has initiated the eligibility
proceeding and Association staff has knowledge that a member intends to
file written application for relief with the Department.
9533. National Business Conduct Committee Consideration
(a) Hearing Panel Consideration
(1) Appointment of Hearing Panel
If a member files an application for relief, the National Business
Conduct Committee shall appoint a Hearing Panel composed of two or more
members, who shall be current or former Directors of the NASD
Regulation Board or former Governors of the NASD Board. The Hearing
Panel shall conduct a hearing and recommend a decision on the request
for relief.
(2) Rights of Member
The member and its current or prospective associated person, as
applicable, shall be entitled to be heard in person, to be represented
by an attorney, and to submit any relevant evidence.
(3) Recordation of Hearing
The hearing shall be recorded and a transcript prepared by a court
reporter. The member may purchase a copy of the transcript from the
court reporter. Any corrections to the transcript shall be submitted
within three days after the hearing or within three days after receipt
of the transcript, whichever is later.
(4) Recommendation
The Hearing Panel shall present a recommended decision in writing
on the request for relief to the Statutory Disqualification Committee.
After considering the recommendation of the Hearing Panel, the
Statutory Disqualification Committee shall present its recommended
decision in writing to the National Business Conduct Committee and all
other Directors not later than seven days before the meeting of the
National Business Conduct Committee at which the eligibility proceeding
shall be considered.
(b) Decision
(1) Decision of the National Business Conduct Committee.
After considering all matters presented in the request for relief,
the Statutory Disqualification Committee's recommended decision, the
public interest, and the protection of investors, the National Business
Conduct Committee may grant or deny the request for relief, and, if
relief is granted, impose conditions on the matter and its current or
prospective associated person. Alternatively, the National Business
Conduct Committee may remand the eligibility proceeding. The National
Business Conduct Committee shall prepare a proposed written decision
pursuant to subparagraph (2).
(2) Contents of Decision
The decision shall include:
(A) a decription of the origin of the eligibility proceeding and
the nature of disqualification;
(B) a description of the prospective business or employment
requested to be engaged in; and
(C) a statement in support of the disposition of the request for
relief, which, if granted, includes any of the applicable elements
under SEC Rule 19h-1(e) and a description of any conditions that are
imposed on the member and current or prospective associated person.
(3) Issuance of Decision After Expiration of Call for Review Period
The National Business Conduct Committee shall provide its proposed
written decision to the NASD Regulation Board, and, if the eligibility
proceeding is not called for review by the NASD Regulation Board, to
the NASD Board. The NASD Regulation Board may call the eligibility
proceeding for review pursuant to Rule 9534. The NASD Board may call
the eligibility proceeding for review pursuant to Rule 9535. If neither
the NASD Regulation Board nor the NASD Board calls the eligibility
proceeding for review, the proposed written decision of the National
[[Page 25354]]
Business Conduct Committee shall become final, and the National
Business Conduct Committee shall serve its written decision pursuant to
Rules 9132 and 9134. The decision shall constitute final action of the
Association, unless the National Business Conduct Committee remands the
eligibility proceeding.
9534. Discretionary Review by the NASD Regulation Board
(a) Call for Review by Director
A Director may call an eligibility proceeding for review by the
NASD Regulation Board, if the call for review is made within the period
prescribed in paragraph (b).
(b) Seven Day Period; Waiver
After receiving the proposed written decision of the National
Business Conduct Committee pursuant to Rule 9533, a Director shall have
not less than seven days to determine if the eligibility proceeding
should be called for review. A Director shall call an eligibility
proceeding for review by notifying the General Counsel of NASD
Regulation. By a unanimous vote of the NASD Regulation Board, the NASD
Regulation Board may shorten the period to less than seven days. By an
affirmative vote of the majority of the NASD Regulation Board then in
office, the NASD Regulation Board may, during the seven day period,
vote to extend the period to more than seven days.
(c) Review at Next Meeting
If a Director calls the eligibility proceeding for review within
the period prescribed by paragraph (b), the NASD Regulation Board shall
review the eligibility proceeding not later than the next meeting of
the NASD Regulation Board. The NASD Regulation Board may order the
filing of briefs in connection with its review proceedings pursuant to
this Rule.
(d) Decision of NASD Regulation Board, Including Remand
After review, the NASD Regulation Board may affirm, modify, or
reverse the proposed written decision of the National Business Conduct
Committee. Alternatively, the NASD Regulation Board may remand the
eligibility proceeding with instructions. The NASD Regulation Board
shall prepare a proposed written decision that includes all of the
elements described in Rule 9533(b)(2).
(e) Issuance of Decision After Expiration of Call for Review Period
The NASD Regulation Board shall provide its proposed written
decision to the NASD Board. The NASD Board may call the eligibility
proceeding for review pursuant to Rule 9535. If the NASD Board does not
call the eligibility proceeding for review, the proposed written
decision of the NASD Regulation Board shall become final, and the NASD
Regulation Board shall serve its written decision pursuant to Rules
9132 and 9134. The decision shall constitute the final action of the
Association, unless the NASD Regulation Board remands the eligibility
proceeding.
9535. Discretionary Review by the NASD Board
(a) Call for Review by Governor
A Governor may call an eligibility proceeding for review by the
NASD Board if the call for review is made within the period prescribed
in paragraph (b).
(b) Seven Day Period; Waiver
(1) Eligibility Proceeding Called for Review by NASD Regulation
Board
If the NASD Regulation Board reviewed the eligibility proceeding
under Rule 9534, a Governor shall make his or her call for review not
later than the next meeting of the NASD Board that is at least seven
days after the date on which the NASD Board receives the proposed
written decision of the NASD Regulation Board.
(2) Eligibility Proceeding Not Called for Review by NASD Regulation
Board
If no Director of the NASD Regulation Board called the eligibility
proceeding for review under Rule 9534, a Governor shall make his or her
call for review not later than the next meeting of the NASD Board that
is at least seven days after the date on which the NASD Board receives
the proposed written decision of the National Business Conduct
Committee.
(3) Waiver
By a unanimous vote of the NASD Board, the NASD Board may shorten
the period in subparagraph (1) or (2) to less than seven days. By an
affirmative vote of the majority of the NASD Board then in office, the
NASD Board may, during the seven day period in subparagraph (1) or (2),
vote to extend the period in subparagraph (1) or (2) to more than seven
days.
(c) Review at Next Meeting
If a Governor calls a eligibility proceeding for review within the
period prescribed in paragraph (b), the NASD Board shall review the
eligibility proceeding not later than the next meeting of the NASD
Board. The NASD Board may order the filing of briefs in connection with
its review proceedings pursuant to this Rule.
(d) Decision of NASD Board, Including Remand
After review, the NASD Board may affirm, modify, or reverse: (1)
the proposed written decision of the NASD Regulation Board, or (2) if
the NASD Regulation Board did not call an eligibility proceeding for
review under Rule 9534, the proposed written decision of the National
Business Conduct Committee. Alternatively, the NASD Board may remand
the eligibility proceeding with instructions. The NASD Board shall
prepare a written decision that includes all of the elements described
in Rule 9533(b)(2).
(e) Issuance of Decision
The NASD Board shall issue and serve its written decision pursuant
to Rules 9132 and 9134. The decision shall constitute the final action
of the Association, unless the NASD Board remands the proceeding.
9536. Application to Commission for Review
Any person aggrieved by final action pursuant to the Rule 9530
Series may apply for review by the Commission under Section 19 of the
Act. The filing of an application for review shall not stay the
effectiveness of final action by the Association, unless the Commission
otherwise orders.
9600. [Reserved]
9700. PROCEDURES ON GRIEVANCES CONCERNING THE AUTOMATED SYSTEMS
[No change.]
9800. CORPORATE FINANCING AND DIRECT PARTICIPATION PROGRAM MATTERS
[No change.]
[FR Doc. 97-11600 Filed 5-7-97; 8:45 am]
BILLING CODE 8010-01-P