[Federal Register Volume 62, Number 94 (Thursday, May 15, 1997)]
[Notices]
[Pages 26843-26844]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12750]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38593; File No. SR-NASD-97-33]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by National Association of 
Securities Dealers, Inc. Relating to Rule 2210 of the Conduct Rules

May 9, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on May 1, 1997, the NASD 
Regulation Inc. (``NASD Regulation'') 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 NASD Regulation. NASD Regulation has designated this 
proposal as concerned solely with the administration of the National 
Association of Securities Dealers, Inc. (``NASD'' or ``Association'') 
pursuant to Section 19(b)(3)(A)(ii) of the Act \2\ and paragraph (e) of 
Rule 19b-4 \3\ thereunder, which renders the rule effective upon the 
Commission's receipt of this filing. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. Sec. 78s(b)(1)(1988).
    \2\ 15 U.S.C. Sec. 78s(b)(3)(A)(iii).
    \3\ 17 CFR 240.19b-4(e) (1991).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD Regulation is proposing to amend Rule 2210 of the Conduct 
Rules of the NASD, by merging into this rule, effective immediately, 
the provisions contained in Section 8(c)(1) (A) and (B) of the 
Government Securities Rules, which provisions were deleted on August 
20, 1996. Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in brackets.

CONDUCT RULES

2200. COMMUNICATIONS WITH CUSTOMERS AND THE PUBLIC
2210. Communications with the Public
* * * * *
    (c) Filing Requirements and Review Procedures
    (1) Advertisements and sales literature concerning registered 
investment companies (including mutual funds, variable contracts and 
unit investment trusts) not included within the requirements of 
paragraph (c)(2), and public direct participation programs (as defined 
in Rule 2810), and advertisements concerning government securities (as 
defined in Section 3(a)(42) of the Act) shall be filed with the 
Association's Advertising/Investment Companies Regulation Department 
(Department) within 10 days of first use or publication by any member. 
The member must provide with each filing the actual or anticipated date 
of first use. Filing in advance of use is recommended. Members are not 
required to file advertising and sales literature which have previously 
been filed and which are used without change. Any member filing any 
investment company advertisement or sales literature pursuant to this 
paragraph (c) that includes or incorporates rankings or comparisons of 
the investment company with other investment companies shall include a 
copy of the ranking or comparison used in the advertisement or sales 
literature.
    (2) Advertisements concerning collateralized mortgage obligations 
[registered under the Securities Act of 1933], and advertisements and 
sales literature concerning registered investment companies (including 
mutual funds, variable contracts and unit investment trusts) that 
include or incorporate ranking or comparisons of the investment company 
with other investment companies where the ranking or comparison 
category is not generally published or is the creation, either directly 
or indirectly, of the investment company, its underwriter or an 
affiliate, shall be filed with the Department for review at least 10 
days prior to use (or such shorter period as the Department may allow 
in particular circumstances) for approval and, if changed by the 
Association, shall be withheld from publication or circulation until 
any changes specified by the Association have been made or, if 
expressly disapproved, until the advertisement has been refiled for, 
and has received, Association approval. The member must provide with 
each filing the actual or anticipated date of first use. Any member 
filing any investment company advertisement or sales literature 
pursuant to this paragraph shall include a copy of the data, ranking or 
comparison on which the ranking or comparison is based.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NASD Regulation included 
statements concerning the purpose of, and basis for, the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. NASD Regulation has prepared summaries, set 
forth in 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

    (a) The Government Securities Act Amendments of 1993 (``Government 
Securities Amendments'') were signed into law on December 13, 1993, and 
eliminated the statutory limitation on the NASD's authority to regulate 
the sales practices of exempted securities, including government 
securities transactions, other than municipals.\4\
---------------------------------------------------------------------------

    \4\ The terms ``exempted securities'', ``government securities'' 
and ``municipal securities'' are defined in Sections 3(a)(12), 
3(a)(42) and 2(a)(29) of the Act, respectively.
---------------------------------------------------------------------------

    In order to implement the expanded sales practice authority granted 
to the NASD pursuant to the Government Securities Amendments, the NASD 
filed a rule change on September 15, 1995, to merge the rules which has 
governed the conduct of members with respect to transactions in 
government securities (``Government Securities Filing''), where 
applicable, into the Rules of Fair Practice (``Conduct Rules'') and to 
make other related changes.\5\ Section 8(c)(1) (A) and (B) of the 
Government Securities Rules, were intended to be merged into the 
Conduct Rules, but were inadvertently omitted in the Government 
Securities Filing. This filing is intended to clarify the intent of the 
Government Securities Filing by merging old Section 8(c)(1) (A) and (B) 
of the Government Securities Rules into

[[Page 26844]]

the Conduct Rules, effective immediately.\6\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 36383 (October 17, 
1995), 60 FR 54530 (October 24, 1995) [File No. SR-NASD-95-39].
    \6\ See Securities Exchange Act Release No. 37588 (August 20, 
1996), 61 FR 44100 (August 27, 1996) [File No. SR-NASD-95-39].
---------------------------------------------------------------------------

    Section 8(c)(1)(A) of the Government Securities Rules required 
members to file for review with the Association's Advertising 
Department all advertisements concerning government securities (as 
defined in Section 3(a)(42) of the Act) other than collateralized 
mortgage obligations (``CMOs'') within 10 days of first use or 
publication. Section 8(c)(1)(B) of the Government Securities Rules 
required members to file for review with the Association's Advertising 
Department all advertisements concerning CMOs at least 10 days prior to 
use (or such shorter period as the Advertising Department allowed in 
particular circumstances). Section 8(c)(1)(B) also provided that, if 
the advertisements were changed or expressly disapproved by the 
Association, such advertisements would be withheld from publication or 
circulation until any changes specified by the Association had been 
made, or in the event of disapproval, until the advertisement had been 
refiled for, and had received, Association approval.
    In order to merge the member obligations that were contained in 
Section 8(c)(1)(A) of the Government Securities Rules, NASD Regulation 
proposes inserting a similar provision into Rule 2210(c)(1) of the 
Conduct Rules. In Order to merge the member obligations that were 
contained in Section 8(c)(1)(B) of the Government Securities Rules, 
NASD Regulation proposes deleting the phrase ``registered under the 
Securities Act of 1933'' in Rule 2210(c)(2) of the Conduct Rules. This 
deletion would expand member obligations concerning registered CMOs in 
Rule 2210(c)(2) to all CMOs, which was the broader security product 
addressed in Section 8(c)(1)(B) of the Government Securities Rules.
    NASD Regulation is proposing that the rule change be effective upon 
filing pursuant to Section 19(b)(3)(A)(iii) of the Act \7\ and 
paragraph (e) of Rule 19b-4 \8\ thereunder as concerned solely with the 
administration of the NASD because it is correcting the inadvertent 
omission of provisions from an earlier rule filing.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \8\ 17 CFR 240.19b-4(e).
---------------------------------------------------------------------------

    (b) NASD Regulation believes that the proposed rule change is 
consistent with the provisions of Section 15A(b)(6) of the Act,\9\ 
which requires that the rules of the Association be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest in that the 
proposed rule change will implement the Association's expanded sales 
practice authority over exempted securities, except for municipals, by 
adding certain member obligations concerning the advertising of 
government securities and CMOs, which were contained in Section 8(c)(1) 
(A) and (B) of the Government Securities Rules, to Rule 2210 of the 
Conduct Rules.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD Regulation does not believe that 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

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective on May 1, 1997, the 
date of receipt of this filing by the Commission, pursuant to Section 
19(b)(3)(A)(iii) of the Act \10\ and paragraph (e) of Rule 19b-4 \11\ 
thereunder, because it is concerned solely with the administration of 
the NASD in that it is correcting the inadvertent omission of 
provisions from an earlier rule filing.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. Sec. 78s(b)(3)(A)(iii).
    \11\ 17 CFR 240.19b-4(e).
---------------------------------------------------------------------------

    At any time within sixty days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change it if 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
NASD. All submissions should refer to File No. NASD-97-33 and should be 
submitted by June 5, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A)(iii).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-12750 Filed 5-14-97; 8:45 am]
BILLING CODE 8010-01-M