[Federal Register Volume 63, Number 76 (Tuesday, April 21, 1998)]
[Notices]
[Pages 19778-19780]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-10420]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39866; File No. SR-NASD-98-31]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the National Association of
Securities Dealers, Inc. To Implement the Effective Date of Recently-
Approved Amendments to Rules 3010 and 3110
April 14, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 7, 1998, the NASD Regulation, Inc. (``NASDR'') 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 the NASDR. The NASDR
[[Page 19779]]
has designated this proposal as one constituting a stated policy,
practice, or interpretation with respect to the meaning of an existing
rule under Section 19(b)(3)(A)(i) of the Act,\3\ 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(i).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The NASDR is proposing to implement the effective date of recently-
approved amendments to the National Association of Securities Dealers,
Inc. (``NASD'' or ``Association'') Rules 3010, ``Supervision,'' and
3110, ``Books and Records.''
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 NASDR 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 NASDR 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 proposed rule change to amend NASD Rules 3010 and 3110 was filed
with the Commission on April 11, 1997.\4\ The purpose of the amendments
was to allow firms to develop flexible procedures for the review of
correspondence with the public. In that filing, the NASDR stated that
it would make the proposed rule change effective within 45 days of
Commission approval. Amendment No. 1, containing a draft Notice to
Members to be issued following approval of the proposed rule change,
was filed with the Commission on December 1, 1997.\5\ The Notice to
Members described the new rules and provided guidance to NASD members
on the implementation of the new rules. The Commission approved the
proposed rule change and Amendment No. 1 to the proposed rule change on
December 31, 1997.\6\ Notice to Members 98-11 announced approval of the
proposed rule change and stated that the amendments to Rules 3010 and
3110 would be effective on February 15, 1998.
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\4\ The proposed rule change (SR-NASD-97-24) was published for
comment in the Federal Register on May 2, 1997. See Securities
Exchange Act Release No. 38548 (April 25, 1997) 62 FR 24147.
\5\ See Letter from Mary N. Revell, Associate General Counsel,
NASDR, to Katherine A. England, Assistant Director, Division of
Market Regulation, Commission, dated December 1, 1997 (``Amendment
No. 1'').
\6\ See Securities Exchange Act Release No. 39510 (December 31,
1997) 63 FR 1131 (January 8, 1998) (``Release No. 39510'').
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Subsequent to approval of the proposed rule change by the SEC,
several commenters filed letters with the SEC raising issues regarding
Amendment No. 1 to the proposed rule change and its accompanying Notice
to Members.\7\ The NASDR, believing that the letters raise important
issues that should be fully addressed before the effectiveness of the
rule change, filed a proposed rule change to postpone the effective
date of the amendments to Rules 3010 and 3110 approved in Release No.
39510.\8\
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\7\ See Letters from Carl B. Wilkerson, American Council of Life
Insurance, to Jonathan G. Katz, Secretary, SEC, dated January 9,
1998 and January 29, 1998; Beverly A. Byre, BenefitsCorp Equities,
Inc., to Jonathan G. Katz, Secretary, SEC, dated January 26, 1998;
Michael S. Martin, The Equitable Life Assurance Society of the
United States, to Jonathan G. Katz, SEC, dated January 29, 1998;
Janet G. McCallen, International Association for Financial Planning,
to Jonathan G. Katz, Secretary, SEC, dated February 13, 1998; W.
Thomas Boulter, Jefferson Pilot Financial, to Jonathan G. Katz,
Secretary, SEC, dated January 28, 1998; Leonard M. Bakal,
Metropolitan Life Insurance Company and MetLife Securities, Inc., to
Jonathan G. Katz, Secretary, SEC, dated January 28, 1998; Michael L.
Kerley, MML Investors Services, Inc. to Secretary, SEC, dated
January 26, 1998; Mark D. Johnson, The National Association of Life
Underwriters, to Jonathan G. Katz, Secretary, SEC, dated February 5,
1998; Theodore Mathas, NYLIFE Securities, to Jonathan G. Katz,
Secretary, SEC, dated January 16, 1998 and January 29, 1998; Beverly
A. Byrne, One Orchard Equities, Inc., to Jonathan G. Katz,
Secretary, SEC, dated January 26, 1998; Dodie Kent, Pruco Securities
Corporation, to Jonathan G. Katz, Secretary, SEC, dated January 29,
1998; and James T. Bruce, Wiley, Rein & Fielding, on behalf of the
Electronic Messaging Association, to Jonathan G. Katz, Secretary,
SEC, dated January 30, 1998.
\8\ The proposed rule change (SR-NASD-98-10) became effective on
filing. See Securities Exchange Act Release No. 39665 (February 13,
1998) 63 FR 9032 (February 23, 1998).
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The concerns raised by the commenters include issues concerning the
effect of the rules on the review of incoming correspondence and the
scope of the obligation of member firms to control the use of
electronic communications systems that registered persons use to
communicate with their customers. After considering these issues, the
NASDR proposes to implement the amendments to Rules 3010 and 3110
approved in Release No. 39510 immediately, including the requirements
set forth in Notice to Members 98-11, with the exception of the
provision in the Notice stating that members must review ``all incoming
correspondence received in non-electronic format directed to registered
representatives and related to a member's investment banking or
securities business.'' The NASDR proposes to delay the effective date
of this provision until July 7, 1998. Extension of the effective date
for this provision will allow the NASDR a further opportunity to
consider comments on this issue. Prior to this effective date, however,
members will be required to review and report customer complaints as
required by Rule 3070(a)(2); keep and preserve all written customer
complaints as required by Rule 3110(d); and establish procedures for
the review of incoming and outgoing written and electronic
correspondence consistent with new Rules 3010(d)(1) and (2).
Among other things, the NASDR proposes to make effective
immediately that portion of the Notice of Members that states that
members' supervisory policies and procedures must:
prohibit registered representatives and other employees' use of
electronic correspondence to the public unless such communications
are subject to supervisory and review procedures developed by the
firm. For example, NASDR would expect members to prohibit
correspondence with customers from employees' home computers or
through third party systems unless the firm is capable of monitoring
such communications.
In response to comments received regarding this provision in the
Notice, the NASDR wishes to point out that the Notice to Members does
not establish any new obligation that is not already encompassed by
Rule 3010's requirement that firms supervise the activities of their
associated persons and registered representatives to ensure compliance
with applicable securities laws and regulations and NASD rules and
merely provides guidance to members on how they can comply with Rule
3010. Furthermore, the Notice to Members does not prohibit the use of
such systems or dictate the use of a particular system. The Notice only
points out that firms should prohibit correspondence with customers
through electronic communication systems unless the firm is capable of
supervising the communications. In developing procedures for the review
of correspondence, each firm must determine how it will review
different types of correspondence, including electronic correspondence.
If the firm determines that it can subject correspondence to customers
through
[[Page 19780]]
electronic communication systems to appropriate supervision and review,
the firm can allow employees to correspond with customers through such
systems.
2. Statutory Basis
The NASDR believes the proposed rule change is consistent with
Section 15A(b)(6) of the Act,\9\ which requires, among other things,
that the Association's rules must be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. The NASD believes that implementing the effective date
of the new rules with the exception of the requirement to review all
incoming non-electronic correspondence is consistent with these
requirements.
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\9\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
NASDR does not believe that the proposed rule change will impose a
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, Participation 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 constitutes a stated policy, practice, or
interpretation with respect to the meaning, administration or
enforcement of an existing rule of the Association and, therefore, has
become effective pursuant to Section 19(b)(3)(A) of the Act \10\ and
subparagraph (e) of rule 19b-4 thereunder.\11\
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 19b-4(e).
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At any time within 60 days of the filing of such rule change, the
Commission may summarily abrogate such rule change if it 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, including whether the proposed rule
change is consistent with the Act. Persons making written submission
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, 450 Fifth Street, N.W., Washington,
D.C. Copies of such filing also will be available for inspection and
copying at the NASD. All submissions should refer to File No. SR-NASD-
98-31 and should be submitted by May 12, 1998.
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. 98-10420 Filed 4-20-98; 8:45 am]
BILLING CODE 8010-01-M