[Federal Register Volume 63, Number 223 (Thursday, November 19, 1998)]
[Notices]
[Pages 64303-64304]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-30890]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40676; File No. SR-NASD-98-81]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to Application of the Corporate Financing Rule to Certain Offerings by 
Charitable Organizations

November 12, 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 October 29, 1998, NASD Regulation, Inc. (``NASD Regulation'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
a proposed rule change as described in Items I, II, and III below, 
which Items have been prepared by NASD Regulation. 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.
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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 Rule 2710 of the National 
Association of Securities Dealers, Inc. (``NASD'' of ``Association'') 
to exempt certain offerings by charitable organizations from the pre-
offering review requirements of the Corporate Financing Rule. Below is 
the text of the proposed rule change. Proposed new language is in 
italics; proposed deletions are in brackets.
* * * * *

2710. Corporate Financing Rule--Underwriting Terms and Arrangements

    (a) No change.
    (b) Filing Requirements
    (1)-(6) No change.
    (7) Offerings Exempt from Filing
    Notwithstanding the provisions of subparagraph (1) above, documents 
and information related to the following public offerings need not be 
filed with the Association for review, unless subject to the provisions 
of Rule 2720. However, it shall be deemed a violation of this Rule or 
Rule 2810, for a member to participate in any way in such public 
offerings if the underwriting or other arrangements in connection with 
the offering are not in compliance with this Rule or Rule 2810, as 
applicable:
    (A)-(C) No change.
    (D) securities offered pursuant to a redemption standby ``firm 
commitment'' underwriting arrangement registered with the Commission on 
Forms S-3, F-3 or F-10 (only with respect to Canadian issuers); [and]
    (E) financing instrument-backed securities which are rated by a 
nationally recognized statistical rating organization in one of its 
four (4) highest generic rating categories; and
    (F) offerings of securities by a church or other charitable 
institution that is exempt from SEC registration pursuant to Section 
3(a)(4) of the Securities Act.
    (8) No change.
    (9) Offerings Required to be Filed
    Documents and information relating to all other public offerings 
including, but not limited to, the following must be filed with the 
Association for review:
    (A)-(E) No change.
    (F) securities offered by a bank, savings and loan association, 
[church or other charitable institution,] or common carrier even though 
such offering may be exempt from registration with the Commission;
    (G)-(H) No change.
* * * * *

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, 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

(a) Purpose
    When the Act was amended in the early 1980s to require that most 
SEC-registered broker/dealers be members of the NASD, the NASD 
regulated for the

[[Page 64304]]

first time broker/dealers that assist churches and other non-profit 
charitable organizations that raise money through the issuance of 
securities. Certain church bond and similar offerings by religious and 
charitable organizations are exempt from SEC registration under Section 
3(a)(4) of the Securities Act of 1933 (``Securities Act''),\3\ but 
generally are subject to review by state regulatory authorities. NASD 
Rule 2710 (the ``Corporate Financing Rule'') subjects ``church bond'' 
offerings to a filing requirement with the Corporate Financing 
Department of NASD Regulation (``Department'') so that the Department 
has an opportunity to determine whether compensation terms and 
arrangements are fair and reasonable for purposes of the rule.
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    \3\ 15 U.S.C. 77c(a)(4). The Commission notes that in order for 
the proposed exemption to apply the offering must qualify under 
Section 3(a)(4) of the Securities Act, which requires that the 
offering not be for pecuniary profit, and no part of the net 
earnings can inure to the benefit of any person, private 
stockholder, or individual.
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    Department staff have found that the aggregate underwriting 
compensation received by church bond broker/dealers has been 
significantly below the maximum amount of underwriting compensation 
that is permitted under Rule 2710. Although initially there was an 
issue in some cases of appropriate compliance with SEC Rule 15c2-
4,4 the staff has not recently identified any problems in 
this area.
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    \4\ 17 CFR 240,15c2-4. Rule 15c2-4 under the Act requires that 
investor funds forwarded to a broker/dealer in a contingent offering 
be held in an escrow or special account, depending on whether the 
broker/dealer can carry customer funds or accounts, until the 
contingency is reached before the funds can be released to the 
issuer.
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    In order to more appropriately focus the review efforts of 
Department staff on the types of offerings that present significant 
regulatory issues, NASD Regulation proposes to amend the Corporate 
Financing Rule to exempt certain church bond offerings from the filing 
requirements, but not the substantive requirements, of the Corporate 
Financing Rule. NASD Regulation proposes to implement the proposed rule 
change on the date of SEC approval.
    (b) Basis
    NASD Regulation believes that the proposed rule change is 
consistent with the provisions of Section 15A(b)(6) 5 of the 
Act, 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 elimination 
of the requirement in Rule 2710 to file certain church bond offerings 
will allow NASD Regulation to better allocate its Department staff 
resources.
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    \5\ 15 U.S.C. 78o-3(b)(6).
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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 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 longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Association 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, Security 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 No. SR-NASD-98-81 and should 
be submitted by December 10, 1998.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.6
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-30890 Filed 11-18-98; 8:45 am]
BILLING CODE 8010-01-M