[Federal Register Volume 63, Number 171 (Thursday, September 3, 1998)]
[Notices]
[Pages 47058-47059]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23762]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40379; File No. SR-NASD-98-58]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by National Association of Securities Dealers, Inc. Relating to 
the Elimination of the Requirement for Personal Service of Decisions in 
Cases Involving Bars and Expulsions

August 27, 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 August 7, 1998, the National Association of Securities Dealers, Inc. 
(``NASD''), through its regulatory subsidiary, NASD Regulation, Inc. 
(``NASD Regulation''), 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 NASD Regulation. The filing was subsequently amended on August 18, 
1998 and August 20, 1998.\3\ The Commission is publishing this notice 
to solicit comments on the proposed rule change, as amended, from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from Joan C. Conley, Secretary, NASD Regulation, 
to Katherine A. England, Assistant Director, Division of Market 
Regulation, Commission, dated August 18, 1998 and E-mail from Eric 
Moss, Office of General Counsel, NASD Regulation, to Mandy Cohen, 
Division of Market Regulation, Commission, dated August 20, 1998. 
All amendments are included in this Notice.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    NASD Regulation is proposing to amend Rules 9269 and 9360 of the 
Code of Procedure of the NASD, to eliminate the requirement for 
personal service of decisions in cases involving bars and 
expulsions.\4\ The text of the proposed rule change is set forth below. 
Proposed new language is in italics; proposed deletions are in 
brackets.
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    \4\ NASD Regulation has also filed a related rule change with 
the Commission in Exchange Act Release No. 40378 (August 7, 1998) 
(File No. SR-NASD-98-57). The text of the proposed rule change 
contained herein treats SR-NASD-98-57 as already having been 
approved.
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* * * * *
9000. Code of Procedure
9200. Disciplinary Proceedings
9269. Default Decisions
    (a) through (c).
    No change.
    (d) Final Disciplinary Action of the Association; Effectiveness of 
Sanctions.
    If a default decision is not appealed pursuant to Rule 9311 or 
called for review pursuant to Rule 9312 within 25 days after the date 
the Office of Hearing Officers serves it on the Parties, the default 
decision shall become the final disciplinary action of the Association 
for purposes of SEC Rule 19d-1(c)(1). Unless otherwise provided in the 
default decision, the sanctions shall become effective 30 days after 
the default decision becomes the final disciplinary action of the 
Association, except that a bar or expulsion shall become effective 
immediately upon the default decision becoming the final disciplinary 
action of the Association. The Association shall serve the decision on 
a Respondent by overnight courier, facsimile or other means likely to 
obtain prompt service when the sanction is a bar or an expulsion.
* * * * *
9360. Effectiveness of Sanctions
    Unless otherwise provided in the decision issued under Rule 9349 or 
Rule 9351, a sanction (other than a bar or an expulsion) specified in a 
decision constituting final disciplinary action of the Association for 
purposes of SEC Rule 19d-1(c)(1) shall become effective [on a date 
established by the Chief Hearing Officer, which shall not be earlier 
than] 30 days after the date of service of the decision constituting 
final disciplinary action. A bar or an expulsion shall become effective 
upon service of the decision constituting final disciplinary action of 
the Association for purposes of SEC Rule 19d-1(c)(1), unless otherwise 
specified therein. The Association shall [take reasonable steps to 
obtain personal service of] serve the decision on a Respondent by 
overnight courier, facsimile or other means reasonably likely to obtain 
prompt service when the sanction is a bar or an expulsion.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NASD Regulation 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. NASD Regulation has prepared summaries, set 
forth in Sections A, B,

[[Page 47059]]

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 proposed change to Rules 9269 and 9360 would establish that in 
cases involving bars or expulsions, service of decisions should be done 
by overnight courier, facsimile or other means likely to obtain prompt 
service. Rule 9269 does not presently contain language addressing the 
means by which service of default decisions in cases involving bars and 
expulsions should be accomplished. Rule 9360 currently requires that 
the Chief Hearing Officer serve all final disciplinary decisions, and 
that reasonable efforts be made to personally serve (hand delivery) all 
final decisions imposing a bar or expulsion. Rule 9360's personal 
service provision for final decisions imposing bars or expulsions was 
created because these decisions become effective immediately.
    The Association believes that with respect to final default 
decisions imposing bars or expulsions, reasonable efforts at personal 
service (hand delivery) generally would not be successful. Default 
decisions are often entered because respondents cannot be located. If 
and when such respondents become aware that a default has been entered 
against them, Rule 9269(c) provides an expeditious means for such 
respondents to move to set aside the default decision.
2. Statutory Basis
    NASD Regulation believes that the proposed rule change is 
consistent with the provisions of Section 15A(b)(6) of the Act, which 
requires, among other things, that the Association's rules 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 the proposed 
rule change is consistent with Section 15A(b)(7) in that it provides 
for reasonable means to notify parties of default decisions. The rule 
change is consistent with Section 15A(b)(8) in that it furthers the 
statutory goals of providing a fair procedure for disciplining members 
and persons associated with members.

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD Regulation 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.

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

    Within thirty-five 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 ninety days of such date if it finds 
such 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:
    (A) by order approve such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 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 the file number SR-NASD-97-58 and 
should be submitted by September 24, 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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Jonathan G. Katz,
Secretary.
[FR Doc. 98-23762 Filed 9-2-98; 8:45 am]
BILLING CODE 8010-01-M