[Federal Register Volume 62, Number 94 (Thursday, May 15, 1997)]
[Notices]
[Pages 26840-26841]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12700]
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SECURITIES AND EXCHANGES COMMISSION
[Release No. 34-38585; File No. SR-NASD-97-05]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Order Granting Approval to Proposed Rule Change Relating
to the Transfer of Limited Partnership Securities
May 8, 1997.
I. Introduction
On January 29, 1997, the National Association of Securities
Dealers, Inc. (``NASD'' or ``Association'') submitted to the Securities
and Exchange Commission (``Commission''), pursuant to Section 19(b)(1)
of the Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to expand the current exemptions
concerning the use of the Limited Partnership Transfer Forms and to
require that these forms be utilized by members when transferring
customer accounts containing limited partnership securities.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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The proposed rule change was published for comment in the Federal
Register on March 24, 1997.\3\ No comments were received on the
proposal. This order approves the proposal.
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\3\ Securities Exchange Act Release No. 38398 (Mar. 13, 1997),
62 FR 13921 (Mar. 24, 1997).
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II. Description
On January 29, 1996, the Commission approved new NASD Rule 11580 to
the NASD's Uniform Practice Code.\4\ It requires members to use the
Standardized Transfer Forms (``Forms'') when transferring limited
partnership securities. NASD Regulation is proposing two amendments
related to the use of the Forms. The first is an amendment to NASD Rule
11580 to expand the current exceptions to include limited partnerships
that trade in the non-Nasdaq over-the-counter (``OTC'') market that are
in a depository. The second is an amendment to NASD Rule 11870 to
require members to use the Standardized Transfer Forms when
transferring customer accounts that contain limited partnerships.
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\4\ Securities Exchange Act Release No. 36783 (Jan. 29, 1996),
61 FR 3955 (Feb. 2, 1996).
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A. Amendment to NASD Rule 11580
Limited partnership securities that are listed on an national
securities exchange or the Nasdaq Stock Market are not required to use
the Forms. NASD
[[Page 26841]]
Regulation is proposing to broaden this exception to cover those
limited partnership securities that are quoted on the OTC Bulletin
Board that trade with such frequency that use of the Forms would not be
appropriate. To qualify for this exemption, the limited partnership
securities must be in a depository and must settle regular way.\5\ The
Association believes these criteria identify that group of non-Nasdaq
OTC limited partnership securities that would not benefit from using
the Standardized Transfer Forms. The Forms were specifically adopted to
address problems associated with the settlement of limited partnership
interests that are generally liquid and where the transfer requirements
contained in the General Partnership Agreement vary widely as to the
type of information and documents necessary for a valid transfer of a
interest.
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\5\ The securities must be physically present in a depository to
qualify for this exception. Simply being ``eligible for deposit'' in
a depository is not enough.
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B. Amendment to Rule NASD 11870
Since the adoption of NASD Rule 11580, members have inquired as to
whether the Forms can be used to accomplish account transfers under
NASD Rule 11870. In order to clarify this issue, NASD Regulation is
proposing to amend Rule 11870 to provide that, in the case of limited
partnership securities, members must use the Standardized Transfer
Forms unless exempted by that rule.
III. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities association and, in
particular, with the requirements of Section 15A.\6\ Specifically, the
Commission believes the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act \7\ because it is designed
to foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities and, in general, to protect
investors and the public interest.\8\
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\6\ 15 U.S.C. 78o-3.
\7\ 15 U.S.C. 78o-3(b)(6).
\8\ In approving this rule, the Commission notes that it has
considered the proposal's impact on efficiency, competition, and
capital formation, consistent with Section 3 of the Act. 15 U.S.C.
78c(f).
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Historically, limited partnership securities were not structured to
be transferred freely in secondary market transactions, unless the
issuer listed the securities on an exchange or qualified them for
inclusion on Nasdaq. OTC markets now exist, however, for many limited
partnership securities, and trading volumes reportedly have increased.
As a result, quick, and accurate processing of the transfer of limited
partnership securities has become more critical. To help address this
situation, the NASD, after consulting the Investment Program
Association \9\ and various transfer agents, developed a set of
standardized transfer forms for these securities and required that
members use them in lieu of their own in-house forms.\10\ The use and
recognition of standardized forms should bring greater consistency and
certainty in transactions involving limited partnership securities. In
addition, the use of the Forms should significantly reduce the time and
effort required by member firms to process the transfer of limited
partnership securities. The Commission believes the proposed amendments
to NASD Rule 11580 and NASD Rule 11870 further promote these benefits.
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\9\ The Investment Program Association is a trade organization
for the partnership industry.
\10\ Use of the standardized forms became mandatory for NASD
members on May 15, 1996.
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A. Amendment to Rule 11580
The Commission believes it is appropriate to expand the exemption
currently contained in Rule 11580(a) to include non-Nasdaq OTC limited
partnership securities that are physically present in a depository and
settle regular way. The use of the Standardized Transfer Forms
facilitates the transfer process. Nevertheless, the Forms need to meet
the legitimate needs of issuers and transfer agents to be effective. In
this regard, the Commission believes it is appropriate to exempt the
OTC limited partnership securities identified by the NASD from
utilizing the Forms. The criteria chosen by the Association are
reasonable choices to identify that group of non-Nasdaq OTC limited
partnerships that trade with such frequency that use of the Forms would
not improve the transfer process. Indeed, it is possible that mandating
that members utilize the Forms for these limited partnership securities
could disrupt currently existing processes that are functioning
efficiently.
B. Amendment to Rule 11870
The Commission believes it is appropriate to require members to
utilize the Forms when transferring a customer's account. Limited
partnership securities generally are not held in the beneficial owner's
name. Rather, the beneficial owner's broker-dealer is listed on the
partnership's books as the owner. As a result, broker-dealers must
transfer ``ownership'' of the limited partnership securities whenever a
customer whose account contains these securities decides to transfer
that account to a different broker-dealer. This requires the customer's
current broker-dealer to submit the appropriate paperwork to the
general partner to transfer ``ownership'' of the securities to that
customer's new broker-dealer. Although this transfer does not involve a
sale of the securities, the process and paperwork is essentially the
same. Therefore, many of the same efficiencies associated with the use
of the Forms in connection with the sale of a limited partnership
security can be realized when a broker-dealer is transferring a
customer's account that contains these securities.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\11\ that the proposed rule change (SR-NASD-97-05) is approved.
\11\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-12700 Filed 5-14-97; 8:45 am]
BILLING CODE 8010-01-M