[Federal Register Volume 62, Number 99 (Thursday, May 22, 1997)]
[Notices]
[Pages 28088-28091]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13461]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38644; File No. SR-NASD-96-20, Amendment No. 5]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Temporary Accelerated Approval To Proposed Rule Change by 
National Association of Securities Dealers, Inc. Relating To Changes in 
the Structure of the NASD Board of Governors

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. 5 to the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the NASD.\1\ The

[[Page 28089]]

Commission is publishing this notice to solicit comments on the 
proposed rule change as further amended by Amendment No. 5 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 May 28, 1996. 
On June 5, 1996, the NASD filed Amendment No. 1 to the proposed rule 
change. Amendment No. 1 amended Article VI, Section 5 of the NASD 
By-Laws (``By-Laws'') to clarify that, in a contested election, the 
term of office of a candidate certified by the National Nominating 
Committee for inclusion on the ballot for the election of Governors 
pursuant to Article VI, Section 7(c) would be identical to the term 
of office of a candidate nominated by the National Nominating 
Committee pursuant to Article VI, Section 7(c). Amendment No. 1 also 
amended Article VI, Section 7(a) of the By-Laws to clarify that any 
person elected to the Board of Governors must be nominated or 
certified by the National Nominating Committee. See Letter from 
Suzanne E. Rothwell, Associate General Counsel, NASD to Katherine A. 
England, Assistant Director, Division of Market Regulation, 
Commission (dated June 4, 1996).
    On July 2, 1996, the NASD filed Amendment No. 2 to the proposed 
rule change. Amendment No. 2 provided the final report of the vote 
of the NASD membership with respect to the proposed rule change. 
2,227 valid ballots were received from NASD members. 2,101 voted to 
approve the proposed rule change, 117 voted to disapprove the 
proposed rule change and 9 did not vote.
    On July 10, 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 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. 4 to the 
proposed rule change. Amendment No. 4 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 (Securities Exchange Release No. 37282 (June 6, 1996), 61 FR 
29777 (June 12, 1996)) and granted accelerated approval to the 
proposed rule change for periods of 120 days and six months 
(Securities Exchange Act Release No. 37424 (July 11, 1996), 61 FR 
37515 (July 18, 1996) and Securities Exchange Act Release No. 37956 
(November 15, 1996), 61 FR 59265 (November 21, 1996), respectively).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    In 1995, the NASD Board of Governors (``Board'') appointed The 
Select Committee on Structure and Governance (``Select Committee'') to 
examine the corporate structure, governance, and functions of the NASD 
and to recommend changes and improvements to enable the NASD to meet 
its regulatory and business obligations. In September 1995, the Select 
Committee recommended, among other things, that the NASD establish two 
distinct subsidiaries; one to perform the regulatory functions of the 
NASD and the other to run The Nasdaq Stock Market, Inc. (``Nasdaq''). 
The Select Committee recommended that each subsidiary have an 
independent Board of Directors with at least 50% public representation 
and that the NASD remain as parent corporation overseeing the 
operations of both subsidiaries. The Select Committee recommended that 
the NASD Board of Governors be composed of a majority of public 
directors.
    In January 1996, the NASD created a new subsidiary, NASD 
Regulation, Inc. (``NASD Regulation'') to provide regulation and member 
and constituent services, with the NASD retaining responsibility for 
general oversight over the effectiveness of the self-regulatory and 
business operations of the NASD and its major subsidiaries, Nasdaq and 
NASD Regulation, and final policymaking authority for the association 
as a whole. The NASD also adopted Select Committee proposals to 
restructure and reduce the size of the NASD Board and to implement 
policies to ensure a balance of non-industry and industry 
representation on the Nasdaq and NASD Regulation Boards.
    On April 11, 1996, the Commission granted temporary approval for a 
period of 90 days to: (i) amendments to Article VII of the NASD By-Laws 
to create a national nominating committee to nominate persons to serve 
on the Board of Governors and reconstitute the Board as a majority non-
industry Board; \2\ (ii) NASD Rule 130 providing for the delegation of 
authority to act on behalf of the NASD to NASD Regulation and Nasdaq 
pursuant to the ``Plan of Allocation and Delegation of Functions by 
NASD to Subsidiaries'' (``Delegation Plan''); and (iii) the Delegation 
Plan.\3\ The Delegation Plan sets forth certain purposes, functions and 
governance procedures of the three corporations working together.
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    \2\ Securities Exchange Act Release No. 37106 (April 11, 1996), 
61 FR 16944 (April 18, 1996) (``Release 34-37106'').
    \3\ Securities Exchange Act Release No. 37107 (April 11, 1996), 
61 FR 16948 (April 18, 1996) (``Release 34-37107'').
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    On June 11, 1996, the Commission approved the instant proposed rule 
change for a period of 120 days. The rule change amended the By-Laws to 
conform them to the Delegation Plan. The rule change provided for the 
creation of a national nominating committee to identify and nominate 
for election industry and non-industry persons to serve on the Board; 
deleted references to the District and local administration, because 
responsibility for the local administration of regulatory affairs under 
the Delegation Plan has been assigned to NASD Regulation; conformed 
terms and rule citations to those used in the reorganized NASD Manual 
and made miscellaneous clarifying corrections to the By-Laws; and 
replaced all references to the NASD ``Certificate of Incorporation'' 
with references to the ``Restated Certificate of Incorporation'' to 
reflect that the Certificate of Incorporation has been amended to be 
consistent with the changes previously adopted and proposed herein to 
the By-Laws. On November 15, 1996, the Commission extended temporary 
approval of the instant proposed rule change for an additional six 
months.\4\
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    \4\ The Commission separately approved SR-NASD-96-29, amending 
the Delegation Plan, for periods of 120 days and six months. See 
Securities Exchange Act Release No. 37425 (July 11, 1996), 61 FR 
37518 (July 18, 1996) and Securities Exchange Act Release No. 37957 
(November 15, 1996), 61 FR 59267 (November 21, 1996), respectively.
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    The NASD hereby files this Amendment No. 5, pursuant to Section 
19(b)(1) of the Act and Rule 19b-4 thereunder, to obtain authorization 
for an interim extension of the amendments to the By-Laws for a period 
for six months.\5\ During this interval, there will be no further 
amendments to the By-Laws, absent Commission approval of a 
corresponding Rule 19b-4 filing.\6\
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    \5\ The NASD also filed Amendment No. 4 to SR-NASD-96-29, 
requesting an extension of the Commission's temporary approval of 
the Delegation Plan for a period of six months. The Commission is 
separately approving that rule change as further amended by 
Amendment No. 4. See Securities Exchange Act Release No. 38645, May 
15, 1997).
    \6\ The NASD filed SR-NASD-97-28, to propose 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; the 
filing contains proposed amendments to the NASD By-Laws. The comment 
period for this rule filing expires on June 6, 1997. See Securities 
Exchange Act Release No. 34-38545 (April 24, 1997, 62 FR 25226 (May 
8, 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 Amendment No. 5 is to ensure continued effectiveness 
of the amended NASD By-Laws while the Commission considers whether to 
grant permanent approval to the instant NASD rule filing. Amendment No. 
5 is intended to ensure that the NASD continues to possess the 
requisite

[[Page 28090]]

corporate authority to continue the restructuring necessary to 
implement the principles articulated in the report of the Select 
Committee.
2. Statutory Basis
    The NASD believes that the proposed rule change as further amended 
by Amendment No. 5 is consistent with the provisions of Sections 15A(b) 
(2), (4), and (6) of the Act \7\ in that the restructured organization 
will: (1) 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; (2) provide for the 
fair representation of members, issuers and investors on the Board of 
Governors and in the administration of the NASD's affairs; and (3) 
enhance the NASD's ability to protect investors and the public interest 
in furtherance of the purposes of the Act.
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    \7\ 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 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 of certain parts of the proposed rule 
change for member vote in Notice to Members 95-101, attached as Exhibit 
2 to rule filing SR-NASD-96-02, the NASD received three comments, which 
were attached as Exhibit 4 to SR-NASD-96-02. The NASD's statement on 
the comments received with respect to Notice to Members 95-101 is set 
forth in rule filing SR-NASD-96-02 and was published by the Commission 
in Release 34-37106.

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

    The NASD requests that the Commission find good cause, pursuant to 
Section 19(b)(2) of the Act, for approving the proposed rule change 
prior to the 30th day after its publication in the Federal Register to 
avoid any interruption of the effectiveness of the amended By-Laws. The 
current authorization is scheduled to expire by May 15, 1997. Hence it 
is imperative that the Commission approve the instant filing on or 
before that date. Otherwise, the NASD will be required to suspend 
operation of the self-regulatory organization functions currently 
assumed by NASD Regulation and Nasdaq pending Commission action on the 
proposed extension.

IV. Discussion

    The Commission finds that the proposed rule change as further 
amended by Amendment No. 5 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-96-29 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 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 in Releases 34-37424 and 34-37956, 
respectively. 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 
Delegation Plan submitted in rule filing SR-NASD-96-29, which also was 
previously granted temporary approval for periods of 120 days and six 
months.\8\ The Commission is also extending its temporary approval of 
that proposed rule change.\9\
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    \8\ See Securities Exchange Act Release No. 37425 (July 11, 
1996), 61 FR 37518 (July 18, 1996) and Securities Exchange Act 
Release No. 37957 (November 15, 1996), 61 FR 59267 (November 21, 
1996), respectively.
    \9\ Securities Exchange Act Release No. 38645 (May 15, 1997).
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    The Commission finds good cause for approving the instant 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 NASD 
Regulation 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.
    Accordingly, the Commission believes that accelerating the approval 
of the proposed rule change as further amended by Amendment No. 5 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, 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. 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 number SR-NASD-96-20, 
Amendment No. 5 and should be submitted by June 12, 1997.

VI. Commission's Findings and Order Granting Accelerated Approval

    The Commission finds that the proposed rule change is consistent 
with the provisions of Sections 15A(b)(2), (4),

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and (6) of the Act \10\ in that the restructured organization will: (1) 
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 NASD members and persons associated with members with the 
Act, the rules and regulations thereunder, the rules of the Association 
and the federal securities laws; (2) provide for the fair 
representation of members, issuers and investors on the Board of 
Governors and in the administration of the NASD's affairs; and (3) 
enhance the NASD's ability to protect investors and the public interest 
in furtherance of the purposes of the Act.
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    \10\ 15 U.S.C. Sec. 78o-3.
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    The NASD has requested that the Commission approve the proposed 
rule change on or before May 15, 1997, which is prior to the 30th day 
following publication of notice of the filing of the proposed rule 
change in the Federal Register, in order to permit the uninterrupted 
authorization of those corporate actions necessary to effectuate the 
Delegation Plan.
    Pursuant to Section 19(b)(2) of the Act,\11\ the Commission finds 
good cause for approving the proposed rule change, as further amended 
by Amendment No. 5, prior to the 30th day after publication in the 
Federal Register. The proposed rule change will permit the NASD to 
continue to carry out the functions and organize itself in the manner 
contemplated by the Delegation Plan, which is intended to enable the 
NASD to meet its regulatory and business obligations. Because the 
Commission believes that the proposed rule change facilitates the 
ability of the NASD to manage its affairs in a manner that enhances its 
ability to carry out the purposes of the Act and enforce compliance by 
NASD members and their associated persons with the provisions of the 
Act, the Commission believes that the rule filing should be approved 
without delay, for a six-month period.
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    \11\ 15 U.S.C. 78s(b)(2).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that SR-NASD-96-20, as further amended by Amendment No. 5, be, and 
hereby is, approved effective through November 15, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Jonathan G. Katz,
Secretary.
[FR Doc. 97-13461 Filed 5-21-97; 8:45 am]
BILLING CODE 8010-01-M