[Federal Register Volume 63, Number 11 (Friday, January 16, 1998)]
[Notices]
[Pages 2709-2711]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-1110]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39539; File No. SR-NASD-97-92]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by National Association of Securities Dealers, Inc. Relating to 
By-Law Amendment to Require Members To Update Firm Contact Information 
Electronically, To Maintain Electronic Mail Account, and for Other 
Purposes

January 12, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on December 19, 1997, the 
National Association of Securities Dealers, Inc. (``NASD'' or 
``Association'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the NASD. 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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Association is proposing the following changes to its by-laws, 
to require its members to update firm contact information 
electronically, to maintain an electronic mail (e-mail) address, and to 
make certain other technical changes:

By-Laws of the National Association of Securities Dealers, Inc.\2\

Article IV--Executive Representative

    Sec. 3. Each member shall appoint and certify to the Secretary of 
the NASD one ``executive representative'' who shall represent, vote, 
and act for the member in all the affairs of the NASD, except that 
other executives of a member may also hold office in the NASD, serve on 
the Board or committees appointed under Article IX, Section 1 or 
otherwise take part in the affairs of the NASD. A member may change its 
executive representative upon giving notice thereof via electronic 
process or such other process the 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. Not later 
than January 1, 1999, each executive representative shall maintain an 
Internet electronic mail account for communication with the NASD and 
shall update firm contact information via the NASD Regulation Web Site 
or such other means as prescribed by the NASD.
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    \2\ This version of the NASD By-Laws was approved by the 
Commission in Securities Exchange Act Release No. 39326 (Nov. 14, 
1997), 62 FR 62385 (Nov. 21, 1997). Additions are italicized, 
deletions are bracketed.
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* * * * *

Article VII--Board of Governors

* * * * *
    Sec. 9. (b) The National Nominating Committee shall consist of no 
fewer than six and no more than nine members. The number of [Industry] 
Non-Industry committee members shall equal or exceed the number of 
[Non-Industry] Industry committee members. If the National Nominating 
Committee consists of six members, at least two shall be Public 
committee members. If the National Nominating Committee consists of 
seven or more members, at least three shall be Public committee 
members. No officer or employee of the Association shall serve as a 
member of

[[Page 2710]]

the National Nominating Committee in any voting or non-voting capacity. 
No more than three of the National Nominating Committee members and no 
more than two of the Industry committee members shall be current 
members of the NASD Board.

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 IV 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
    (a) Amendment to Article IV, Section 3. On August 5, 1997, the 
Membership Committee of the NASD Regulation, Inc. (``NASD Regulation'') 
Board of Directors recommended the adoption of an amendment to the NASD 
By-Laws to require each executive representative, beginning not later 
than January 1, 1999, to maintain an Internet electronic mail account 
for communication with the NASD and to update firm contact information 
via the NASD Regulation Web Site. The NASD Regulation Board approved 
the recommendation at its September 23, 1997 meeting. The NASD Board of 
Governors approved the amendment at its December 11, 1997 meeting.
    The NASD has long wrestled with how to collect and administer in an 
effective manner the names of members, executive representatives and 
other individuals who hold positions of significant responsibility 
within member firms. This information is used by the NASD Corporate 
Secretary for member balloting. Member Regulation for compliance 
purposes, and Corporate Communications in identifying Key individuals 
for use in target mailings. The current method for acquiring this 
information is through the filing of an NASD form entitled ``NASD 
Member Firm Contact Questionnaire'' (NMFCQ).
    The data requested on the NMFCQ is not required on any other form 
filing (e.q., Form BD or U-4). The data is available in the Central 
Registration Depository (``CRD''), but in a text form that renders it 
nearly impossible to interface to another system. Thus, members are 
required to file the NMFCQ with the CRD, where the information is data 
captured into the Member Profile System, an adjunct to the existing CRD 
system. The data is then viewable throughout the organization via the 
Member Profile System and is interfaced to regulatory and finance 
systems as well as the existing corporate mailing system for use in 
distributing publications, reports, voting ballots, and mail.
    A new procedure for collecting NMFCQ information in the future is 
necessary for two reasons. First, the CRD modernization effort does not 
include rebuilding this function, so another alternative is required. 
Second, members are rarely updating these filings. Because the 
information solicited via the form is very important to support the 
NASD's business, the NASD must have a more efficient means for firms to 
update this information, thereby encouraging them to do so more 
regularly.
    The proposed By-Law change will improve the data collection process 
by requiring a firm to access its NMFCQ via the NASD Regulation Web 
Site and update it on a periodic basis. (A firm would be able to access 
only its own NMFCQ; the information would be password-protected to 
prevent any public access.) The information then would be interfaced to 
the internal NASD Regulation systems requiring this set of data. 
Further, the By-Law also would require each member to maintain an 
Internet electronic mail address on behalf of its executive 
representative. This electronic mail address would be used proactively 
to send messages reminding the member to review and update its contact 
information.
    There are other reasons the staff is interested in member Internet 
access and electronic mail. Once established, it opens up many options 
for timely communications with members and associated cost savings. It 
also can assist members with timely internal distribution of NASD 
information, notices, and publications. Other potential initiatives 
include eliminating or reducing printed publications, sending more 
timely announcements and notices, and providing value-added services to 
members.
    The NASD is proposing a one-year transition period to accommodate 
small firms that may not currently have Internet access or electronic 
mail accounts.
    (b) Technical Amendment to Article VII, Section 9(b). The NASD also 
proposes a technical amendment to Article VII, Section 9(b) of the NASD 
By-Laws. In Special Notice to Members 97-75, the NASD proposed a 
comprehensive revision to its By-Laws to provide for a more streamlined 
corporate structure. The membership approved these changes on November 
13, 1997, and the Securities and Exchange Commission (``Commission'') 
approved them on November 14, 1997.\3\ Article VII, Section 9(b) 
contained a typographical error that provided that the number of 
Industry committee members on the National Nominating Committee should 
equal or exceed the number of Non-Industry committee members. The terms 
``Industry'' and ``Non-Industry'' were transported. Section 9(b) should 
provide that the number of Non-Industry committee members should equal 
or exceed the number of Industry committee members. The National 
Nominating Committee is required to be composed in such a manner by the 
Undertakings agreed to by the NASD on August 8, 1996.\4\
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    \3\ See Securities Exchange Act Release No. 39326 (Nov. 14, 
1997), 62 FR 62385 (Nov. 21, 1997).
    \4\ Securities Exchange Act Release No. 37538 (Aug. 8, 1996) 
(SEC 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).
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2. Statutory Basis
    The NASD believes the proposed rule change is consistent with 
Section 15A(b)(2) in that the proposed rule change will assist the NASD 
in carrying out the purposes of the Act and to enforce compliance with 
the Act, the rules and regulations thereunder, and the Rules of the 
Association.

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

    Written comments were neither solicited nor received.

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

    Within 35 days of the date of 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

[[Page 2711]]

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 by order approve such proposed rule change, or 
institute proceedings to determine whether the proposed rule change 
should be disapproved.
    The NASD proposes to make the rule change effective upon Commission 
approval.

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. Sec. 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-97-92 and 
should be submitted by February 6, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-1110 Filed 1-15-98; 8:45 am]
BILLING CODE 8010-01-M