[Federal Register Volume 63, Number 141 (Thursday, July 23, 1998)]
[Notices]
[Pages 39619-39620]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19568]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40213; File No. SR-NASD-98-36]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Granting Approval to Proposed Rule Change and 
Amendment 1 Thereto Relating to At-Large Industry Members of the 
National Adjudicatory Council

July 15, 1998.

I. Introduction

    On May 12, 1998, the National Association of Securities Dealers, 
Inc., (``NASD'' or ``Association'') filed with the Securities and 
Exchange Commission (``SEC'' or ``Commission'') a proposed rule change 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder \2\ to amend the By-Laws of 
NASD Regulation, Inc. (``NASD Regulation'') to permit one or more 
Industry members of the National Adjudicatory Council (``NAC'')\3\ to 
serve as at-large Industry members of the NAC. By letter dated May 19, 
1998, the Association filed Amendment 1 to the proposed rule change.\4\ 
The proposed rule change and Amendment 1 were published for comment in 
the Federal Register on June 11, 1998.\5\ No comments were received. 
This order approves the proposal.
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    \1\ 15 U.S.C. 78s(b)(1) (1994).
    \2\ 17 CFR 240.19b-4 (1997).
    \3\ The functions of the NAC include hearing appeals and 
conducting reviews of disciplinary proceedings, statutory 
disqualification proceedings, and membership proceedings; reviewing 
offers of settlement; reviewing exemptions granted or denied by 
staff; and making recommendations to the Board on policy and rule 
changes relating to securities business and sales practices and 
enforcement policies, including policies with respect to fines and 
other sanctions. See Article V, Section 5.1 of the NASD Regulation 
By-Laws.
    \4\ See Letter from T. Grant Callery, General Counsel, NASD, to 
Katherine England, Assistant Director, SEC, dated May 19, 1998. 
Several additional non-substantive textual changes were also 
provided by telephone call on June 2, 1998. Telephone call between 
Alden Adkins, General Counsel, NASD Regulation, and Mandy Cohen, 
Attorney, SEC.
    \5\ Securities Exchange Act Release No. 40062 (June 3, 1998), 63 
FR 32033.
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II. Description of the Proposal

    Currently, the NASD Regulation By-Laws authorize the NASD 
Regulation Board to appoint a NAC of 12 to 14 members, and require that 
the number of Non-Industry members equal or exceed the number of 
Industry members.\6\ Thus, the NAC generally will consist of six or 
seven Industry members, depending on the size of the Board. The By-Laws 
also require that beginning in 1999 and thereafter, all Industry 
members represent a geographic region.\7\ Industry members must be 
nominated by a Regional Nominating Committee and may be challenged for 
the nomination.\8\ The Regional Nominating Committees then nominate 
their candidates to the National Nominating Committee, which makes the 
final determination as to the nominees who are presented to the NASD 
Regulation Board for appointment to the NAC.\9\
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    \6\ Article V, Section 5.2 of the NASD Regulation By-Laws.
    \7\ Id.
    \8\ Article VI of the NASD Regulation By-Laws.
    \9\ Article VII, Section 9 of the NASD By-Laws; Article VI, 
Section 6.25 of the NASD Regulation By-Laws.
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    The proposed rule change would permit the Board to designate up to 
two NAC Industry members who would not be subject to the regional 
nominating process; instead, these members would be designated as at-
large Industry members of the NAC. The number of at-large Industry 
members could vary from year-to-year depending on the total number of 
Industry seats on the NAC and the number of regions selected by the 
Board. For example, if the Board determined that there should be a 12- 
or 13-member NAC (which would include six Industry seats) and five 
regions, then the Board could designate one at-large Industry member. 
If the Board determined that there should be a 14-member NAC (which 
would include seven Industry seats) and five regions, then there could 
be two at-large Industry members. If the number of Industry seats and 
the number of regions were equal, then there would be no at-large 
Industry seats that year. Thus, given the limitation on the size of the 
NAC and the number of Industry seats, the proposed rule change would 
allow zero, one, or two at-large Industry members in any given year.

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of Section 15A(b)(6) of the Act,\10\ which 
provides, among other things, that the rules of a national securities 
association be designed to prevent fradulent and manipulative acts and 
practices, to promote just and equitable principles of trade, and in

[[Page 39620]]

general, to protect investors and the public interest.\11\ The 
Commission believes that the proposed rule change will provide NASD 
Regulation with greater flexibility in the nomination and appointment 
of Industry members to the NAC, which serves an important role in 
reviewing disciplinary, membership, and other matters for NASD 
Regulation. At the same time, NASD member involvement in nominating 
Industry members for the NAC will be preserved by requiring most 
Industry members of the NAC to represent regions.
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    \10\ 15 U.S.C. 78(b)(6).
    \11\ In approving this rule, the Commission notes that it has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
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    The Commission notes that the proposed rule change is consistent 
with the corporate reorganization approved by the Commission in SR-
NASD-97-71\12\ in that the number of regions that may be established by 
the Board is not specified in the NASD Regulation By-Laws so that the 
Board may retain flexibility in determining the appropriate number of 
regions. The proposed rule change also is consistent with the regional 
plan approved by the Board at its meeting on May 6, 1998, which 
proposes a 12-member NAC and five regions for 1999. The proposed rule 
change thus will permit five Industry members of the NAC to be 
nominated by the regions for consideration by the National Nominating 
Committee and one at-large Industry member of the NAC who would not be 
subject to the regional nominating requirements in Article VI of the 
NASD Regulation By-Laws. All six Industry members, along with six Non-
Industry members, would be nominated by the National Nominating 
Committee and appointed by the NASD Regulation Board.
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    \12\ Securities Exchange Act Release No. 39175 (Sept. 30, 1997), 
62 FR 53062 (Oct. 10, 1997).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-NASD-98-36) is approved.

    \13\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-19568 Filed 7-22-98; 8:45 am]
BILLING CODE 8010-01-M