[Federal Register Volume 62, Number 99 (Thursday, May 22, 1997)]
[Notices]
[Pages 28086-28088]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13458]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38645; File No. SR-NASD-96-29; Amendment No. 4]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Temporary Accelerated Approval of Proposed Rule Change by 
National Association of Securities Dealers, Inc. Relating to the 
Allocation and Delegation of Authority and Responsibilities by the 
National Association of Securities Dealers, Inc., to NASD Regulation, 
Inc., and The Nasdaq Stock Market, Inc.

May 15, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on May 14, 
1997, the National Association of Securities Dealers, Inc. (``NASD'') 
filed with the Securities and Exchange Commission (``Commission'') 
Amendment No. 4 to the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the NASD.\1\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change as further amended by Amendment No. 4 from 
interested persons and is simultaneously granting accelerated approval 
to the proposed rule change for a period of six months.
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    \1\ The NASD originally filed the rule change on July 2, 1996. 
On July 8, 1996, the NASD filed Amendment No. 1 to the proposed rule 
change. Amendment No. 1 amended the language of proposed new 
Subsections II.C.4. and III.C.3 of the Delegation Plan to clarify 
that it is proposed that the NASD Board of Governors have authority 
to determine to both call for review or not call for review a matter 
of the subsidiary Board during the 15-day period provided for 
consideration by the NASD Board.
    On July 10, 1996, the NASD filed Amendment No. 2 to the proposed 
rule change. Amendment No. 2 requests temporary approval of the 
proposed rule change for a period of 120 days. See Letter from T. 
Grant Callery, Senior Vice President and General Counsel, NASD to 
Katherine A. England, Assistant Director, Division of Market 
Regulation, Commission (dated July 10, 1996).
    On November 12, 1996, the NASD filed Amendment No. 3 to the 
proposed rule change. Amendment No. 3 requested temporary approval 
of the proposed rule change for a period of six months. See Letter 
from T. Grant Callery, Senior Vice President and General Counsel, 
NASD to Katherine A. England, Assistant Director, Division of Market 
Regulation, Commission (dated November 12, 1996). The Commission 
previously published notice of the proposed rule change and granted 
accelerated approval to the proposed rule change for periods of 120 
days and six months (Securities Exchange Act Release No. 37425 (July 
11, 1996), 61 FR 37518 (July 18, 1996) (``Release 34-37425'') and 
Securities Exchange Act Release No. 37957 (November 15, 1996), 61 FR 
59267 (November 21, 1997) (``Release 34-37957'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NASD is proposing to extend the effectiveness of: (1) Rule 0130 
to the NASD's rules delegating to the subsidiaries of the NASD, NASD 
Regulation, Inc. (``NASDR'') and The Nasdaq Stock Market, Inc. 
(``Nasdaq''), the authority to act on behalf of the Association as set 
forth in a Plan of Allocation and Delegation adopted by the NASD Board 
of Governors and approved by the Commission pursuant to its authority 
under the Act; and (2) adopt a Plan of Allocation and Delegation of 
Functions by NASD to Subsidiaries (``Delegation Plan'') setting forth 
the purpose, function, governance, procedures and responsibilities of 
the NASD, NASDR and Nasdaq, following the reorganization of the NASD.
    Rule 0130 and the Delegation Plan originally were filed with the 
Commission in SR-NASD-96-16 and were simultaneously published for 
comment and approved by the Commission on a temporary basis for a 
period of 90 days.\2\ Release 34-37107 contained the full text of Rule 
0130 and the Delegation Plan with the exception of three changes 
thereto. On July 11, 1996, the Commission issued a release publishing 
for comment the three changes to the Delegation Plan and further 
approving Rule 0130 and the Delegation Plan as amended for a period of 
120 days.\3\ Release 34-37107 and

[[Page 28087]]

Release 34-37425 published the complete text of the rule change. On 
November 15, 1996, the Commission extended temporary approval of the 
instant proposed rule change for a six month period.\4\
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    \2\ Securities Exchange Act Release No. 37107 (April 11, 1996), 
61 FR 16948 (April 18, 1996) (``Release 34-37107'').
    \3\ Release 34-37425.
    \4\ Release 34-37957.
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    The NASD hereby files this Amendment No. 4, pursuant to Section 
19(b)(1) of the Act and Rule 19b-4 thereunder, to obtain authorization 
for an interim extension of the Delegation Plan as amended for an 
additional period of six months.\5\ During this interval, there will be 
no further amendments to the Delegation Plan, absent Commission 
approval of a corresponding Rule 19b-4 filing.\6\
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    \5\ The NASD also filed Amendment No. 5 to SR-NASD-96-20, 
requesting an extension of the Commission's temporary approval of 
the amended NASD By-Laws for a period of six months. The Commission 
is separately approving that rule change as further amended by 
Amendment No. 5. See Securities Exchange Act Release No. 38644 (May 
15, 1997).
    \6\ The NASD filed SR-NASD-97-28, the 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, which 
contains proposed amendments to the Delegation Plan. The comment 
period for this rule filing expires on June 6, 1997.
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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 NASD 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 V below. The NASD 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
    The purpose of this Amendment No. 4 is to ensure continued 
effectiveness of the Delegation Plan while the Commission considers 
whether to grant permanent approval to the instant NASD rule filing.
Description of Delegation Plan
    The Delegation Plan is organized in three principal parts, one for 
each of the three major entities that will constitute the reorganized 
NASD: the parent corporation, National Association of Securities 
Dealers, Inc.; the regulatory subsidiary, NASD Regulation, Inc.; and 
the stock market operating subsidiary, The Nasdaq Stock Market, Inc.\7\ 
The Delegation Plan, the contents of which are self-explanatory, 
describes the purposes, functions, governance, procedures and 
responsibilities of each entity.
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    \7\ The Delegation Plan does not discuss other wholly owned 
subsidiary corporations of the NASD, such as, the Securities Dealers 
Risk Purchasing Group, Inc. and Securities Dealers Insurance Co., 
Ltd. These and any other wholly owned subsidiaries of the NASD not 
described in the Delegation Plan do not perform any of the 
Association's regulatory functions or the operating functions 
related to the operation of The Nasdaq Stock Market. In addition, 
the Delegation Plan does not address the NASD's ownership role in 
corporations such as the National Securities Clearing Corporation or 
the Depository Trust Company.
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    The first part of the Delegation Plan describes the parent 
corporation, National Association of Securities Dealers, Inc. The 
Delegation Plan sets forth the purpose and function of the NASD; the 
composition of the Board of Governors, including provisions relating to 
the qualifications for Governors, election procedures, creation of a 
National Nominating Committee,\8\ term of office, vacancies and removal 
from office; the function, composition and reporting structure of the 
Audit Committee and the Office of Internal Review; the function and 
composition of the Management Composition Committee; and the 
Commission's access to and status of officers, directors, employees, 
books, records and premises of the subsidiaries.
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    \8\ The National Nominating Committee is composed of at least 
six and not more than nine members equally balanced between Industry 
and Non-Industry Committee Members (including at least two Public 
Committee Members). Two members of the National Nominating Committee 
are selected by each of the Subsidiaries and the NASD, of which it 
is anticipated that at least three will be Non-Industry Members.
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    The second part of the Delegation Plan describes the regulatory 
subsidiary, NASD Regulation, Inc. The Delegation Plan sets forth the 
delegation of authority to NASDR by the NASD; the purpose, function and 
authority of NASDR; the composition of and qualifications for members 
of the Board of Directors from 1997 forward, including provisions 
relating to election procedures; the function and composition of the 
National Business Conduct Committee; the Board's procedures for 
reviewing disciplinary actions, statutory disqualification decisions 
and proposed rule change recommendations; and the Board's procedures 
for initiating actions.
    The third part of the Delegation Plan describes the stock market 
operating subsidiary, The Nasdaq Stock Market, Inc. The Delegation Plan 
sets forth the delegation of authority to Nasdaq; the purpose and 
function of Nasdaq; the composition of and qualifications for members 
of the Board of Directors, including, provisions relating to election 
procedures and the authority of the Board; the Board's procedures for 
reviewing listing/delisting decisions, and rule change recommendations; 
the Board's procedures for initiating actions; the functions and 
composition of the Quality of Markets Committee; and functions of the 
Stockwatch Department.
2. Statutory Basis for the Proposed Rule Change
    The NASD believes that the proposed rule change as further amended 
by Amendment No. 4 is consistent with the provisions of Section 
15A(b)(2) of the Act \9\ in that the terms of the Delegation Plan will 
provide for the organization of the Association in a manner that will 
permit the Association, through its operating subsidiaries, to carry 
out the purposes of the Act, to comply with the Act, and to enforce 
compliance by Association members and persons associated with members 
with the Act, the rules and regulations thereunder, the rules of the 
Association and the federal securities laws.
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    \9\ 15 U.S.C. Sec. 78o-3.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The NASD does not believe that the proposed rule change as further 
amended by Amendment No. 4 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. However, in 
connection with the publication for member vote of proposed amendments 
to the By-Laws to implement the Delegation Plan in Notice to Members 
95-101 (December 11, 1995), attached as Exhibit 2 to proposed rule 
change SR-NASD-96-02, the NASD received three comments which were 
attached as Exhibit 4 to that proposed rule change. The NASD's 
statement on the comments received with respect to Notice to

[[Page 28088]]

Members 95-101 is set forth in SR-NASD-96-02 and was published by the 
Commission in Securities Exchange Act Release No. 37106 (April 11, 
1996), 61 FR 16944 (April 18, 1996). SR-NASD-96-02 proposed certain of 
the By-Law amendments issued for member vote in Notice to Members 95-
101 (December 11, 1995) in order to permit the reorganization of its 
Board of Governors consistent with the Delegation Plan submitted in SR-
NASD-96-16.

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

    The NASD has requested that the Commission find good cause pursuant 
to Section 19(b)(2) for approving the proposed rule change as further 
amended by Amendment No. 4 prior to the 30th day after publication in 
the Federal Register.

IV. Discussion

    The Commission finds that the proposed rule change as further 
amended by Amendment No. 4 is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to the NASD 
and, in particular, the requirements of Section 15A of the Act and the 
rules and regulations thereunder. The Commission believes that the 
proposed rule change will allow the NASD to carry out the purposes of 
the Act to comply with, and enforce compliance by its members and 
associated persons with, the provisions of the Act, the rules and 
regulations thereunder, and the rules of the NASD. Furthermore, the 
amendments are designed (with amendments to the NASD By-Laws 
simultaneously approved in SR-NASD-96-20, as set forth below) to assure 
a fair representation of the NASD's members, in the selection of its 
directors and administration of its affairs as well as comply with the 
public and non-industry participant requirements of the Act. It is 
envisioned that these rules and any subsequent changes that may be 
implemented from time-to-time will enable the NASD to better comply 
with the requirements of Section 15A(b)(2) in particular and the Act in 
general.
    The Commission finds good cause for approving the proposed rule 
change prior to the 30th day after the date of publication of notice of 
filing thereof in that accelerated approval will enhance the NASD's 
ability to carry out its regulatory obligations under the Act. The 
Commission believes that the proposed rule change is intended to 
accomplish certain allocations and delegations of authority necessary 
to reorganize the NASD, and establish as separate subsidiaries the 
NASDR and Nasdaq in accordance with the September 1995 recommendations 
of The Select Committee on Structure and Governance in order to enable 
the NASD to meet its regulatory and business obligations. The 
Delegation Plan, which is part of this proposed rule change, sets forth 
the purpose, functions, governance, procedures, and responsibilities of 
the NASD, the NASDR and Nasdaq following the reorganization of the 
NASD. The NASD's Board of Governors, which has been reorganized to be 
consistent with the proposed rule change, has held meetings to carry 
out the business of the Association. The subsidiaries also have held 
meetings of the Board of Directors of NASDR and Nasdaq in order to 
carry out the business of the subsidiaries during the period in which 
the Delegation Plan has been effective.
    The instant proposed rule change was previously published for 
comment and approved by the Commission on a temporary basis for periods 
of 120 days and six months.\10\ The six month approval period is 
scheduled to expire by May 15, 1997. No comment letters concerning the 
instant proposed rule change were received by the Commission. The 
reorganization of the NASD Board of Governors is also reflected in rule 
changes to the NASD By-Laws submitted in rule filing SR-NASD-96-20, 
which also was previously granted temporary approval for six 
months.\11\ The Commission is also extending its temporary approval of 
that proposed rule change.\12\
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    \10\ Release Nos. 34-37425 and 34-37957, respectively.
    \11\ Securities Exchange Act Release No. 37956 (November 15, 
1996), 61 FR 59265 (November 21, 1996).
    \12\ See Securities Exchange Act Release No. 38644 (May 15, 
1997).
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    Accordingly, the Commission believes that accelerating the approval 
of the proposed rule change as further amended by Amendment No. 4 will 
benefit members and the public interest by fully implementing the 
reorganization of the NASD and its subsidiaries.

V. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
NASD. All submissions should refer to the file number in the caption 
above and should be submitted by June 12, 1997.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change SR-NASD-29, as amended by Amendment No. 
4, be, and hereby is, approved through November 15, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 97-13458 Filed 5-21-97; 8:45 am]
BILLING CODE 8010-01-M