[Federal Register Volume 63, Number 250 (Wednesday, December 30, 1998)]
[Notices]
[Pages 71984-71991]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-34513]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40826; File No. SR-NASD-98-80]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the National Association of 
Securities Dealers, Inc. Relating to the Issuance of Temporary Cease 
and Desist Orders

December 22, 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 28, 1998, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association''), 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 Association amended the proposal 
on December 15 and 16, 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\ The first amendment to the proposal included changes to the 
evidentiary standard and the tenure of a temporary cease and desist 
order. See Letter from Alden S. Adkins, Senior Vice President and 
General Counsel, NASD, to Katherine A. England, Assistant Director, 
Division of Market Regulation (``Division''), Commission, dated 
December 15, 1998. On December 16, 1998, the NASD made further non-
substantive changes to the proposed rule language at a meeting 
between Peter Geraghty, Assistant General Counsel, NASD Regulation, 
and Mandy S. Cohen, Special Counsel, and Anitra T. Cassas, Attorney, 
Division, Commission. See Memorandum entitled: Meeting with Staff of 
NASD regulation, dated December 17, 1998. The NASD also agreed to 
extend the public comment period to sixty days by letter dated 
December 21, 1998. See Letter from Alden S. Adkins, Senior Vice 
President and General Counsel, NASD, to Katherine A. England, 
Assistant Director, Divisions, Commission.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Association is proposing to create the Rule 9800 Series and to 
amend certain existing NASD Rules of the Association to establish 
procedures to enable the Association to issue temporary cease and 
desist orders. The proposed rule change also would grant the NASD 
authority to initiate non-summary proceedings when temporary or 
permanent cease and desist orders are violated. The text of the 
proposed rule change follows. Additions are italicized; deletions are 
[bracketed].\4\
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    \4\ Language in proposed rules IM-8310-2, 9360, 9500, 9510, 
9511, and 9513 includes changes proposed in File No. SR-NASD-98-56. 
See Securities Exchange Act Release No. 34-40378 (August 27, 1998), 
63 FR 47058 (September 3, 1998). Language in proposed rule 9120 
includes changes proposed in File No. SR-NASD-98-90. See Securities 
Exchange Act Release No. 34-40755 (December 7, 1998), 63 FR 68814 
(December 14, 1998). For purposes of this notice, the proposed rule 
language in File Nos. SR-NASD-98-56 and 98-90 is treated as 
approved.
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8300. Sanctions

8301. Sanctions for Violation of the Rules

    (a) Imposition of Sanctions
    After compliance with the Rule 9000 Series, the Association may 
impose one or more of the following sanctions on a member or person 
associated with a member for each violation of the federal 
securities laws, rules or regulations thereunder, the rules of the 
Municipal Securities Rulemaking Board, or Rules of the Association, 
or may impose one or more of the following sanctions on a member or 
person associated with a member for any neglect or refusal to comply 
with an order, direction, or decision issued under the Rules of the 
Association:
    (5) suspend or bar a member or person associated with a member 
from association with all members; [or]
    (6) [impose any other fitting sanction.]impose a temporary or 
permanent cease and desist order against a member or a person 
associated with a member; or
    (7) impose any other fitting sanction.
* * * * *

IM-8310-2. Release of Disciplinary Information

* * * * *
    (d)(1) The Association shall release to the public information 
with respect to any disciplinary decision issued pursuant to the 
Rule 9000 Series imposing a suspension, cancellation or expulsion of 
a member; or suspension or revocation of the registration of a 
person associated with a member; or barring of a member or person 
associated with a member from association with all members; or 
imposition of monetary sanctions of $10,000 or more upon a member or 
person associated with a member; or containing an allegation of a 
violation of a Designated Rule; and may also release such 
information with respect to any disciplinary decision or group of 
decisions that involve a significant policy or enforcement 
determination where the release of information is deemed by the 
President of NASD Regulation, Inc. to be in the public interest. The 
Association also may release to the public information with respect 
to any disciplinary decision issued pursuant to the Rule 8220 Series 
imposing a suspension or cancellation of the member or a suspension 
of the association of a person with a member, unless the National 
Adjudicatory Council determines otherwise. The National Adjudicatory 
Council may, in its discretion, determine to waive the requirement 
to release information with respect to a disciplinary decision under 
those extraordinary circumstances where the release of such 
information would violate fundamental notions of fairness or work an 
injustice. The Association also shall release to the public 
information with respect to any temporary cease and desist order 
issued pursuant to the Rule 9800 Series.
* * * * *
    (h) If a final decision of the Association is not appealed to 
the Commission, the sanctions specified in the decision (other than 
bars, [and] expulsions, permanent cease and desist orders, and 
temporary cease and desist orders) shall become effective on a date 
established by the Association but not before the expiration of 30 
days after the date of the decision. Bars, [and] expulsions, 
permanent cease and desist orders, and temporary cease and desist 
orders, however, shall become effective upon issuance of the 
decision, unless the decision specifies otherwise. An appeal to the 
Commission of a decision that imposes a permanent cease and desist 
order or a temporary cease and desist order shall not stay the 
effectiveness of such orders, unless the Commission specifies 
otherwise.

9000. CODE OF PROCEDURE

9100. Application and Purpose

* * * * *

9120. Definitions

* * * * *
    (x) ``Party''
    With respect to a particular proceeding, the term ``Party'' 
means:
    (1) in the Rule 9200 Series, [and] the Rule 9300 Series, and the 
Rule 9800 Series, the Department of Enforcement or a Respondent;
* * * * *

9200. DISCIPLINARY PROCEEDINGS

* * * * *

9240. Pre-Hearing Conference and Submission

9241. Pre-Hearing Conference

* * * * *
    (c) Subjects to be Discussed
    At a pre-hearing conference, the Hearing Officer shall schedule 
an expedited proceeding if required by Rule 9290, and may consider 
and take action with respect to any or all of the following:
* * * * *

[[Page 71985]]

9290. Expedited Disciplinary Proceedings

    For any disciplinary proceeding, the subject matter of which 
also is subject to a temporary cease and desist proceeding initiated 
pursuant to Rule 9810 or a temporary cease and desist order, 
hearings shall be held and decisions shall be rendered at the 
earliest possible time. An expedited hearing schedule shall be 
determined at a pre-hearing conference held in accordance with Rule 
9241.

9300. REVIEW OF DISCIPLINARY PROCEEDING BY NATIONAL ADJUDICATORY 
COUNCIL AND NASD BOARD; APPLICATION FOR COMMISSION REVIEW

9310. Appeal to or Review by National Adjudicatory Council

9311. Appeal by Any Party; Cross-Appeal

* * * * *
    (b) Effect
    An appeal to the national Adjudicatory Council from a decision 
issued pursuant to Rule 9268 or Rule 9269 shall operate as a stay of 
that decision until the National Adjudicatory Council issues a 
decision pursuant to Rule 9349 or, in cases called for discretionary 
review by the NASD Board, until a decision is issued pursuant to 
Rule 9351. Any such appeal, however, will not stay a decision, or 
that part of a decision, that imposes a permanent cease and desist 
order.
* * * * *

9312. Review Proceeding Initiated By National Adjudicatory Council

* * * * *
    (b) Effect
    Institution of review by a member of the National Adjudicatory 
Council on his or her own motion, a member of the Review 
Subcommittee on his or her own motion, or the General Counsel, on 
his or her own motion, shall operate as a stay of a final decision 
issued pursuant to Rule 9268 or Rule 9269 as to all Parties subject 
to the notice of review, until the National Adjudicatory Council 
issues a decision pursuant to Rule 9349, or, in cases called for 
discretionary review by the NASD Board, until a decision is issued 
pursuant to Rule 9351. Institution of any such review, however, will 
not stay a decision, or that part of a decision, that imposes a 
permanent cease and desist order.

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, or a 
permanent cease and desist order) specified in a decision 
constituting final disciplinary action of the Association for 
purposes of SEC Rule 19d-1(c)(1) shall become effective 30 days 
after the date of service of the decision constituting final 
disciplinary action. A bar, [or] an expulsion, or a permanent cease 
and desist order 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 a Respondent when the sanction is a bar or an 
expulsion.

9500. OTHER PROCEEDINGS

9510. Summary and Non-Summary Proceedings

9511. Purpose and Computation of Time

    (a) Purpose
    The Rule 9510 Series sets forth procedures for: (1) summary 
proceedings authorized by Section 15A(h)(3) of the Act; and (2) non-
summary proceedings to impose (A) a suspension or cancellation for 
failure to comply with an arbitration award or a settlement 
agreement related to an arbitration or mediation pursuant to Article 
VI, Section 3 of the NASD By-Laws; (B) a suspension or cancellation 
of a member, or a limitation or prohibition on any member, 
associated person, or other person with respect to access to 
services offered by the Association or a member thereof, if the 
Association determines that such member or person does not meet the 
qualification requirements or other prerequisites for such access or 
such member or person cannot be permitted to continue to have such 
access with safety to investors, creditors, members, or the 
Association; [or](C) an advertising pre-use filing requirement; or 
(D) a suspension or cancellation of the membership of a member or 
the registration of a person for failure to comply with a permanent 
cease and desist order entered pursuant to a decision issued under 
the Rule 9200 Series or Rule 9300 Series or a temporary cease and 
desist order entered pursuant to a decision issued under the Rule 
9800 Series.
* * * * *

9513. Initiation of Non-Summary Proceeding

    (a) Notice
    Association staff may initiate a proceeding authorized under 
Rule 9511(a)(2)(A) or (B), by issuing a written notice to the 
member, associated person, or other person. Association staff may 
initiate a proceeding authorized under Rule 9511(a)(2)(D), after 
receiving written authorization from the President or Chief 
Operating Officer of the Association, by issuing a written notice to 
the member or associated person. The notice shall specify the 
grounds for and effective date of the cancellation, suspension, bar, 
limitation, or prohibition and shall state that the member, 
associated person, or other person may file a written request for a 
hearing under Rule 9514. In addition, if the proceeding is 
authorized under Rule 9511(a)(2)(D), the notice shall specifically 
identify the provision of the permanent or temporary cease and 
desist order that is alleged to have been violated, and shall 
contain a statement of facts specifying the alleged violation. The 
notice shall be served by facsimile or overnight commercial courier.
    (b) Effective Date
    For any cancellation or suspension pursuant to Rule 
9511(a)(2)(A), the effective date shall be at least 15 days after 
service of the notice on the member or associated person. For any 
action taken pursuant to Rule 9511(a)(2)(B) or (D), the effective 
date shall be at least seven days after service of the notice on the 
member or person, except that the effective date for a notice of a 
limitation or prohibition on access to services offered by the 
Association or a member thereof with respect to services to which 
the member, associated person, or other person does not have access 
shall be upon receipt of the notice.

9800. TEMPORARY CEASE AND DESIST ORDERS

9810. Initiation of Proceeding

    (a) Department of Enforcement
    With the prior written authorization of the President or Chief 
Operating Officer of NASD Regulation, Inc., the Department of 
Enforcement may initiate a temporary cease and desist proceeding 
with respect to alleged violations of Section 10(b) of the 
Securities and Exchange Act of 1934 and SEC Rule 10b-5 thereunder; 
SEC Rules 15g-1 through 15g-9; NASD Rule 2110 (if the alleged 
violation is unauthorized trading, or misuse or conversion of 
customer assets, or based on violations of Section 17(a) of the 
Securities Act of 1933); NASD Rule 2120; or NASD Rule 2330 (if the 
alleged violation is misuse or conversion of customer assets). The 
Department of Enforcement shall initiate the proceeding by serving a 
notice on a member or associated person (hereinafter ``Respondent'') 
and filing a copy thereof with the Office of Hearing Officers. The 
Department of Enforcement shall serve the notice by personal 
service, overnight commercial courier, or facsimile. If service is 
made by facsimile, the Department of Enforcement shall send an 
additional copy of the notice by overnight commercial courier. The 
notice shall be effective upon service.
    (b) Contents of Notice
    The notice shall set forth the rule or statutory provision that 
the Respondent is alleged to have violated and that the Department 
of Enforcement is seeking to have the Respondent ordered to cease 
violating. The notice also shall state whether the Department of 
Enforcement is requesting the Respondent to be required to take 
action or to refrain from taking action. The notice shall be 
accompanied by:
    (1) a declaration of facts, signed by a person with knowledge of 
the facts contained therein, that specifies the acts or omissions 
that constitute the alleged violation; and
    (2) a proposed order that contains the required elements of a 
temporary cease and desist order (except the date and hour of the 
orders issuance), which are set forth in Rule 9840(b).
    (c) Filing of Underlying Complaint
    If the Department of Enforcement has not issued a complaint 
under Rule 9211 against the Respondent relating to the subject 
matter of the temporary cease and desist proceeding and alleging 
violations of the rule or statutory provision specified in the 
notice described in paragraph (b), the Department of Enforcement 
shall serve such a complaint with the notice initiating the 
temporary cease and desist proceeding.

9820. Appointment of Hearing Officer and Hearing Panel

    (a) As soon as practicable after the Department of Enforcement 
files a copy of the notice initiating a temporary cease and

[[Page 71986]]

desist proceeding with the Office of Hearing Officers, the Chief 
Hearing Officer shall assign a Hearing Officer to preside over the 
temporary cease and desist proceeding. The Chief Hearing Officer 
shall appoint two Panelists to serve on a Hearing Panel with the 
Hearing Officer. The Panelists shall be current or former Governors, 
Directors, or National Adjudicatory Council members, and at least 
one Panelist shall be an associated person.
    (b) If at any time a Hearing Officer or Hearing Panelist 
determines that he or she has a conflict of interest or bias or 
circumstances otherwise exist where his or her fairness might 
reasonably be questioned, or if a Party files a motion to disqualify 
a Hearing Officer or Hearing Panelist, the recusal and 
disqualification proceeding shall be conducted in accordance with 
Rules 9233 and 9234, except that:
    (1) a motion seeking disqualification of a Hearing Officer or 
Hearing Panelist must be filed no later than 5 days after the later 
of the events described in paragraph (b) of Rules 9233 and 9234; and
    (2) the Chief Hearing Officer shall appoint a replacement 
Panelist using the criteria set forth in paragraph (a) of this Rule.

9830. Hearing

    (a) When Held
    The hearing shall be held not later than 15 days after service 
of the notice initiating the temporary cease and desist proceeding, 
unless a Hearing Officer or Hearing Panelist is recused or 
disqualified, in which case the hearing shall be held not later than 
five days after a replacement Hearing Officer or Hearing Panelist is 
appointed.
    (b) Service of Notice of Hearing
    The Hearing Officer shall serve a notice of date, time, and 
place of the hearing on the Department of Enforcement and the 
Respondent not later than four days before the hearing, unless 
otherwise ordered by the Hearing Officer. Service shall be made by 
personal service, overnight commercial courier, or facsimile. If 
service is made by facsimile, the Hearing Officer shall send an 
additional copy of the notice by overnight commercial courier. The 
notice shall be effective upon service.
    (c) Authority of Hearing Officer
    The Hearing Officer shall have authority to do all things 
necessary and appropriate to discharge his or her duties as set 
forth under Rule 9235.
    (d) Witnesses
    A person who is subject to the jurisdiction of the Association 
shall testify under oath or affirmation. The oath or affirmation 
shall be administered by a court reporter or a notary public.
    (e) Additional Information
    At any time during its consideration, the Hearing Panel may 
direct a Party to submit additional information. Any additional 
information submitted shall be provided to all Parties at least one 
day before the Hearing Panel renders its decisions.
    (f) Transcript
    The hearing shall be recorded by a court reporter and a written 
transcript thereof shall be prepared. A transcript of the hearing 
shall be available to the Parties for purchase from the court 
reporter as prescribed rates. A witness may purchase a copy of the 
transcript of his or her own testimony from the court reporter as 
prescribed rates. Proposed corrections to the transcript may be 
submitted by affidavit to the Hearing Panel within a reasonable time 
determined by the Hearing Panel. Upon notice to all the Parties to 
the proceeding, the Hearing Panel may order corrections to the 
transcript as requested or sua sponte.
    (g) Record and Evidence Not Admitted
    The record shall consist of the notice initiating the 
proceeding, the declaration, and the proposed order described in 
Rule 9810(b); the transcript of the hearing; and all evidence 
considered by the Hearing Panel. The Office of Hearing Officers 
shall be the custodian of the record. Proffered evidence that is not 
accepted into the record by the Hearing Panel shall be retained by 
the custodian of the record until the date when the Association's 
decision becomes final or, if applicable, upon the conclusion of any 
review by the Commission or the federal courts.
    (h) Failure to Appear at Hearing
    If a Respondent fails to appear at a hearing for which it has 
notice, the allegations in the notice and accompanying declaration 
may be deemed admitted, and the Hearing Panel may issue a temporary 
cease and desist order without further proceedings. If the 
Department of Enforcement fails to appear at a hearing for which it 
has notice, the Hearing Panel may order that the temporary cease and 
desist proceeding be dismissed.

9840. Issuance of Temporary Cease and Desist Order by Hearing Panel

    (a) Basis for Issuance
    The Hearing Panel shall issue a written decision stating whether 
a temporary cease and desist order shall be imposed. The Hearing 
Panel shall issue the decision not later than ten days after receipt 
of the hearing transcript. A temporary cease and desist order shall 
be imposed if the Hearing Panel finds:
    (1) by a preponderenace of the evidence that the alleged 
violation specified in the notice has occurred; and
    (2) that the violative conduct or continuation thereof is likely 
to result in significant dissipation or conversion of assets or 
other significant harm to investors prior to the completion of the 
underlying disciplinary proceeding under the Rule 9200 and 9300 
Series.
    (b) Content, Scope, and Form of Order
    A temporary cease and desist order shall:
    (1) be limited to ordering a Respondent to cease and desist from 
violating a specific rule or statutory provision, and, where 
applicable, to ordering a Respondent to cease and desist from 
dissipating or covering assets or causing other harm to investors;
    (2) set forth the alleged violation and the significant 
dissipation or conversion of assets or other significant harm to 
investors that is likely to result without the issuance of an order;
    (3) describe in reasonable detail the act or acts the 
Respondents is to take or refrain from taking; and
    (4) include the date and hour of its service.
    (c) Duration of Order
    A temporary cease and desist order shall remain effective and 
enforceable until the issuance of a decision under Rule 9268 or Rule 
9269.
    (d) Service
    The Hearing Officer shall serve the Hearing Panel's decision and 
any temporary cease and desist order by personal service, overnight 
commercial courier, or facsimile. If service is made by facsimile, 
the Hearing Officer shall send an additional copy of the Hearing 
Panel's decision and any temporary cease and desist order by 
overnight commercial courier. The temporary cease and desist order 
shall be effective upon service.

9850. Review by Hearing Panel

    At any time after the Hearing Officer serves the Respondent with 
a temporary cease and desist order, a Party may apply to the Hearing 
Panel to have the order modified, set aside, limited, or suspended. 
The application shall set forth with specificity the facts that 
support the request. The Hearing Panel shall respond to the request 
in writing within ten days after receipt of the request. The Hearing 
Panel's response shall be served on the Respondent via personal 
service, overnight commercial courier, or facsimile. If service is 
made by facsimile, the Hearing Officer shall send an additional copy 
of the temporary cease and desist order by overnight commercial 
courier. The filing of an application under this Rule shall not stay 
the effectiveness of the temporary cease and desist order.

9860. Violation of TCDO

    A Respondent who violates a temporary cease and desist order 
imposed under this Rule Series may have its association or 
membership suspended or canceled under the Rule 9510 Series. The 
President or Chief Operating Officer of NASD Regulation, Inc., must 
authorize the initiation of any such proceeding in writing.

9870. Application to Commission for Review

    Temporary cease and desist orders issued pursuant to this Rule 
Series constitute final and immediately effective disciplinary 
sanctions imposed by the Association. The right to have any action 
under this Rule Series reviewed by the Commission is governed by 
Section 19 of the Act. The filing of an application for review shall 
not stay the effectiveness of temporary cease and desist order, 
unless the Commission otherwise orders.
* * * * *

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 Association 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

[[Page 71987]]

Association 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
(i) Background
    In 1997, the Commission approved a proposed rule change filed by 
the Association that, among other things, removed from the NASD's rules 
the provision that granted the NASD the authority to conduct Expedited 
Remedial Proceedings.5 These rules were intended to provide 
the Association with a mechanism to take appropriate remedial action 
against an NASD member or an associated person if the member or 
associated person had engaged and there was a reasonable likelihood 
that the member or person would again engage in securities law 
violations.6 Unfortunately, the rules did not serve their 
intended purpose. In the proposed rule change removing these rules, the 
NASD stated that it would file a proposed rule change in the future 
that would propose a different approach to expedited remedial 
proceedings.7 This proposal contains the alternative 
approach.
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    \5\ See Securities Act Release No. 38908 (August 7, 1997), 62 FR 
43387 (August 13, 1997) (File No. SR-NASD-97-28).
    \6\ Under these rules, the NASD was authorized to suspend, 
limit, or condition a broker-dealer's membership or suspend, limit, 
or condition a person's association with a broker-dealer.
    \7\ See Release No. 34-38908.
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    The proposed rules are based upon and closely mirror the SEC rules 
pertaining to temporary cease and desist orders,8 but with 
increased procedural protections in some respects. For example, the SEC 
rules permit a temporary cease and desist order to be entered against a 
person without prior notice and an opportunity for a hearing. Such ex 
parte proceedings are not permitted under the rules proposed by the 
NASD. In addition, under the rules the NASD is proposing, a temporary 
cease and desist proceeding can be initiated only with respect to 
alleged violations of certain sections of the securities laws and 
certain NASD rules. The SEC rules have no such limitation.
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    \8\ See 17 CFR 201.500-201.514.
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(ii) NASD Notice to Members 98-42
    The NASD issued a Notice to Members in June 1998 to solicit comment 
on proposed temporary cease and desist rules that differed in a number 
of respects from the proposal contained in this filing.\9\ The comment 
period closed on July 31, 1998. The Association received 13 comment 
letters in response.\10\ While three commentators expressed support for 
the Association's overall goal of effective regulation of the 
securities markets, none of the commentators voiced support for the 
proposal. The commentators generally stated that the Association has 
not justified the need for the rules and, if adopted, the rules lacked 
sufficient procedural protections for proposed respondents (hereinafter 
referred to as ``Respondents''). One commentator questioned whether the 
Act provides self-regulatory organizations with the authority to issue 
temporary cease and desist orders. As discussed in greater detail 
later, the Association believes that the Act does provide it with the 
authority, and that the proposed rules are both necessary and fair. The 
staff has carefully reviewed all comments and, as a result, modified 
the proposal in many significant respects. These changes will:
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    \9\ See NASD Notice to Members 98-42 (June 1998) (``NTM-98-
42'').
    \10\ See Letters from PIM Financial Services, Inc. (June 18, 
1998); Choice Investments (June 19, 1998); Dan Jamieson (June 19, 
1998); Cunner & Company (June 24, 1998); Wulff, Hansen & Co. (June 
22, 1998); Combined Research & Trading, Inc. (June 22, 1998); A.G. 
Edwards & Sons, Inc. (June 26, 1998); Dortch Securities & 
Investments, Inc. (July 10, 1998); Whale Securities Co., L.P. (July 
17, 1998); Orrick, Herrington & Sutcliffe LLP (July 17, 1998); 
Securities Industry Association, Compliance and Legal Division 
(August 5, 1998); Securities Industry Association, Federal 
Regulation Committee and Self-Regulation and Supervisory Practices 
Committee (August 17, 1998); and American Bar Association, Section 
of Litigation and Business Law (August 18, 1998).
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     Limit markup violations for which temporary cease and 
desist orders can be pursued to those violations involving fraudulent 
markups;
     Require that a hearing panel find by a preponderance of 
the evidence that a violation occurred;
     Require that the disciplinary action underlying a 
temporary cease and desist order be conducted on an expedited basis;
     Limit the duration of a temporary cease and desist order;
     Require that a member or associated person being charged 
with violating a temporary or permanent cease and desist order be 
notified of the specific provision of the order alleged to have been 
violated and that the notification be accompanied by specific facts 
supporting the alleged violation; and
     Specify that temporary cease and desist orders are final 
and immediately effective decisions of the NASD that can be appealed to 
the SEC under Section 19 of the Exchange Act.
(iii) Need for Temporary Cease and Desist Authority
    The Association believes there is a clear need for an additional 
tool to stop members' or associated persons' misconduct that causes 
significant dissipation of or conversion of assets or other significant 
harm to investors while a disciplinary action is pending. While NASD 
Regulation litigates disciplinary actions involving limited 
capitalization, or microcap, securities, for example, investors may 
continue to lose substantial sums.\11\ Without a temporary cease and 
desist rule, the Association has no immediate means to order cessation 
of egregious, ongoing violative conduct.
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    \11\ While the need for temporary cease and desist authority is 
often expressed in the context of microcap fraud, it is not 
necessarily so limited. Temporary cease and desist orders could be 
used to address fraudulent conduct in many contexts.
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    Several commentators believe that the Association's regular 
disciplinary proceedings provide sufficient measures to combat the 
violative conduct that concerns the NASD. The Association disagrees. 
Temporary cease and desist orders would be pursued in cases where the 
Association believes significant dissipation or conversion of assets or 
other significant harm to investors is likely to occur before a 
disciplinary proceeding under the Rules of the Association is 
concluded. In addition, under the NASD's current rules, it takes a 
minimum of four months to complete a disciplinary proceeding. This 
scenario assumes that the action is not settled and that each aspect of 
the proceeding occurs without delay. The Association's experience with 
microcap fraud is that investor losses tend to occur quickly, over very 
short periods of time.
    One commentator suggested that the Association could use its 
summary suspension authority to address egregious cases of fraud, while 
another commentator suggested that the NASD could use its non-summary 
suspension authority in such circumstances. The NASD believes that it, 
and any other self-regulatory organization, can summarily suspend a 
member or associated person only in the limited situations that are 
described in Section 15A(h)(3) of the Act, which do not include the 
types of situations the Association is attempting to address with the 
temporary cease and desist rules. The NASD's non-summary suspension 
rules \12\ also can be used only in limited situations that do not 
include the types of situations that the

[[Page 71988]]

Association is attempting to address. For example, the NASD, after 
notice and opportunity for a hearing, may suspend or cancel the 
membership of a member or the registration of a person for failure to 
pay fees, dues, assessments or other charges, or for failure to comply 
with an arbitration award or settlement agreement. In addition, the 
non-summary suspension rules and temporary cease and desist rules are 
designed for different purposes. Non-summary suspension proceedings are 
designed to limit or stop a member's or associated person's ability to 
conduct business, whereas temporary cease and desist orders are 
designed to stop ongoing, violative conduct while an underlying 
disciplinary proceeding is being litigated.
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    \12\ NASD Rules 9511(a)(2) and 9513.
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    In addition, some commentators believe that the NASD could refer 
cases to the SEC or a state regulatory authority for prosecution where 
an emergency exists. The Association's experience demonstrates that 
this is not a viable alternative to the proposed rule. Even though the 
NASD, the SEC and other regulators have made great strides in 
coordinating their respective enforcement efforts, this is not a 
substitute for temporary cease and desist authority. There are 
situations where the Association is in the best position to take 
immediate action, based on its preexisting investigation and access to 
case-specific information. In such situations, the need to refer the 
case to another regulatory authority might result in unacceptable delay 
and would not be an efficient use of the Association's or other 
regulators' resources.
(iv) Authority for Issuing Temporary Cease and Desist Orders
    The Association believes that relevant provisions of the Act 
provide self regulatory organizations with the authority to issue 
temporary cease and desist orders. Section 15A(b)(2) of the Act, among 
other things, requires that an association of brokers and dealers have 
the capacity to be able to carry out the purposes of the Act and to 
enforce compliance by its members and persons associated with its 
members with the Act, the rules and regulations thereunder, and the 
rules of the Association. In addition, Section 15A(b)(6) requires that 
the rules of an association 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. Section 15A(b)(7) permits an association to sanction 
its members and persons associated with members in many different ways, 
including through the imposition of any ``fitting sanction,'' and 
Section 15A(b)(8), among other things, requires that the rules of an 
association, in general, provide a fair procedure for disciplining 
members and persons associated with members. The proposed rules are 
consistent with the Association's obligations under Sections 15A(b)(2), 
(6), (7), and (8) because temporary cease and desist orders are fitting 
sanctions designed to stop violative conduct that is likely to cause 
significant dissipation or conversion of assets or other significant 
harm to investors, subject to the specific procedures contained in the 
rules.
(v) Due Process Protections
    The Association recognizes that temporary cease and desist orders 
are powerful measures that should be used very cautiously. 
Consequently, the rules have been designed to ensure that the 
proceedings are used to address only the most serious types of 
misconduct and that the interests of Respondents are protected. For 
example, to ensure that temporary cease and desist proceedings are used 
appropriately and that he decision to initiate a proceeding is made 
only at the highest staff levels, the proposed rules require the 
President or Chief Operating Officer of NASD Regulation to issue 
written authorization before NASD Regulation's Department of 
Enforcement can institute a temporary cease and desist proceeding. Two 
commentators stated that the President or Chief Operating Officer 
should be required to follow specific guidelines or meet a specific 
standard before authorizing temporary cease and desist proceeding. The 
Association believes that such guidelines or standards already exist. 
The Association believes it is implicit that the President or Chief 
Operating Officer must be convinced by a preponderance of the evidence 
that the alleged violation has occurred, and the violative conduct or 
the continuation thereof is likely to result in significant dissipation 
or conversion of assets or other significant harm to investors prior to 
completion of the disciplinary proceeding under the Rule 9200 and 9300 
Series. This is the same standard that guides the hearing panel in 
determining whether to issue a temporary cease and desist order.
    In addition, the NASD proposes limiting use of this tool to only 
the most serious offenses. A temporary cease and desist proceeding can 
be initiated only with respect to alleged violations of certain 
sections of the securities laws and certain NASD rules.\13\ In 
addition, the alleged violations of NASD rules for which a temporary 
cease and desist proceeding can be initiated are further limited to 
circumstances involving fraud, unauthorized trading, misuse or 
conversion of customer assets, or markups.
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    \13\ The sections and rules are specified in proposed NASD Rule 
9810(a) and are limited to alleged violations of Section 10(b) of 
the Act and Rule 10b-5 thereunder, Rules 15g-1 through 15g-9 under 
the Act and NASD Rules 2110, 2120, or 2330. The alleged violations 
of NASD rules for which a temporary cease and desist proceeding can 
be initiated are further limited. For NASD Rule 2110, which governs 
standards of commercial honor and principles of trade, the alleged 
violations are limited to circumstances involving alleged violations 
of Section 17(a) of Securities Act of 1933, or circumstances 
involving unauthorized trading or misuse or conversion of customer 
assets. For Rule 2330, which governs members' use of customers' 
securities or funds, the alleged violations for which a temporary 
cease and desist proceeding can be initiated are limited to 
circumstances involving misuse or conversion of customer assets.
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    In the NTM-98-42, the Association proposed pursuing temporary cease 
and desist orders in cases in which the Department of Enforcement 
alleged that the markups were excessive and in violation of Rule 2110. 
Two commentators believed it would be inappropriate to pursue a 
temporary cease and desist order for excessive markups because of the 
degree of uncertainty involved in determining appropriate markups. In 
response to the comments, the Association has modified the proposal to 
permit temporary cease and desist orders only in cases in which it is 
alleged that the markups are fraudulent under Section 10(b) of the 
Exchange Act, SEC Rule 10b-5 thereunder, or NASD Rule 2120.
    The proposed rules are based upon the rules that govern NASD 
disciplinary proceedings, with certain modifications made to reflect 
that temporary cease and desist proceedings are expedited proceedings. 
The proposed rules therefore provide Respondents with many procedural 
protections.
    In addition, once the President or Chief Operating Officer of NASD 
Regulation has provided written authorization to initiate a temporary 
cease and desist proceeding, the Department of Enforcement must file a 
notice with the Office of Hearing Officers and serve the Respondent 
with a copy of the notice. The notice must set forth the rule or 
statutory provision the Respondent is alleged to have violated, include 
a declaration of facts that specifies the acts or omissions that 
constitute the alleged violation,\14\ and

[[Page 71989]]

must contain a proposed order that contains the required elements of a 
temporary cease and desist order.\15\ In addition, if the Department of 
Enforcement has not already issued a complaint under Rule 9211 against 
the Respondent relating to the subject matter of the temporary cease 
and desist proceeding and alleging violations of the rule or statutory 
provisions specified in the notice initiating the temporary cease and 
desist proceeding, the Department must serve such a complaint with the 
notice initiating the temporary cease and desist proceeding.
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    \14\ The declaration of facts must be signed by a person with 
knowledge of the facts contained in the declaration. Such persons 
may include the Association staff.
    \15\ The required elements of a temporary cease and desist order 
are set forth in proposed Rule 9840(b).
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    Further, a hearing to determine whether a temporary cease and 
desist order should be issued must be held within 15 days after service 
of the notice (unless a Hearing Officer or Hearing Panelist is recused 
or disqualified),\16\ and the Respondent must be served with notice of 
the date, time, and location of the hearing not later than four days 
before the hearing,\17\ unless the Hearing Officer orders otherwise. 
One commentator believes that requiring the hearing to be held within 
15 days after service of the notice does not provide a Respondent with 
sufficient time to prepare for the hearing and, by way of comparison, 
notes that the Securities Act of 1933 and the Act require that hearings 
in SEC temporary cease and desist proceedings be held no earlier than 
30 days nor later than 60 days after service of the notice. The 
Association believes that conducting the hearing within 15 days after 
service of the notice is appropriate because its rules would require 
the notice initiating the proceeding to have sufficient detail of the 
alleged violation.\18\ In addition, these proceedings are designed to 
occur on an expedited basis so as to stop ongoing violative conduct 
that is likely to cause significant dissipation or conversion of assets 
or other significant harm to investors before the underlying 
disciplinary proceeding is concluded.
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    \16\ See proposed Rule 9830(a).
    \17\ The Association believes that a four day notice requirement 
should provide the Respondent with sufficient notice prior to the 
initiation of a hearing.
    \18\ See proposed Rule 9810(b).
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    Each hearing panel would be appointed by the Chief Hearing Officer 
of the NASD's Office of Hearing Officers, and would be comprised of a 
hearing officer and two panelists. The two panelists would be selected 
from a roster of candidates that is comprised of current or former 
members of the National Adjudicatory Council, NASD Board of Governors, 
or the Association Board of Directors, and at least one panelist would 
have to be an associated person. A hearing officer, who is an attorney 
and an employee of the Association, would preside over each proceeding 
and would have the authority to do all things necessary and appropriate 
to discharge his or her own duties as set forth in Rule 9235.
    One commentator suggested that the same hearing panel that issued 
the temporary cease and desist order be assigned to hear the 
disciplinary proceeding. The Association agrees that this is desirable 
whenever possible. The class of persons eligible to serve on a 
temporary cease and desist hearing panel, however, is more limited than 
the class eligible to serve on disciplinary hearing panels, so such 
dual service may not be possible in all situations. The Association 
would attempt to use the same panels whenever possible.
    The proposed rules also set a specific standard that must be met 
before a hearing panel can issue such a temporary cease and desist 
order. A hearing panel must find by a preponderance of the evidence 
that the alleged violation has occurred, which is the same evidentiary 
standard used in the underlying disciplinary proceeding. The hearing 
panel also must find that the violative conduct or the continuation 
thereof is likely to result in significant dissipation or conversion of 
assets or other significant harm to investors prior to completion of 
the disciplinary proceeding under the Rule 9200 and 9300 Series. This 
standard is designed to ensure that a temporary cease and desist order 
cannot be issued for technical violations of rules, but can be issued 
only if the violative conduct or the continuation thereof is likely to 
result in significant dissipation or conversion of assets or other 
significant harm to investors before completion of the underlying 
disciplinary proceeding.
    Several commentators believe that the hearing panels should be 
required to find a likelihood of success on the merits and irreparable 
harm to investors, and should explicitly consider the effect of the 
order on the Respondent. While the Association believes that the 
``likelihood of success'' standard is inappropriate in the context of 
the other required showings, it does agree that there should be an 
express evidentiary standard in the rule. Thus, in response to the 
commentators' concerns, the proposed rules require that there be a 
preponderance of evidence of a violation of one of the specified rules 
before an order can be issued. The preponderance of evidence test would 
be in addition to the requirement that the alleged violative conduct or 
the continuation thereof be likely to result in significant dissipation 
or conversion of assets or other significant harm to investors.
    The Association believes that an irreparable harm standard would 
frustrate its attempt to stop ongoing fraudulent activity. Under such a 
standard, as long as a member could show that it is solvent and at the 
time could pay any potential arbitration or mediation awards while the 
disciplinary action is proceeding, the Association would be unable to 
stop the ongoing fraudulent activity until the completion of the 
regular disciplinary proceeding. Too often, the member's financial 
condition significantly changes after the conclusion of the 
disciplinary proceeding. Indeed, in a number of recent cases, the 
member firm filed for bankruptcy or went into the Securities Industry 
Protection Corporation, known as SIPC, liquidation during or 
immediately after the completion of a NASD disciplinary action. 
Finally, the Association believes that once it has been shown that the 
violative conduct or the continuation thereof is likely to result in 
significant dissipation or conversion of assets or other significant 
harm to investors, the potential harm to the Respondent if an order is 
issued is overshadowed by the harm that is likely to occur to investors 
if the order is not issued.
    A hearing panel must issue a written decision within ten days of 
receiving the transcript of the hearing. If a hearing panel decides 
that a temporary cease and desist order should be issued, the order 
must direct the Respondent to cease and desist from violating specific 
rule or statutory provisions and, where applicable, to cease and desist 
from dissipating or converting assets or causing other harm to 
investors. The order also must set forth the alleged violation and the 
significant dissipation or conversion of assets or other significant 
harm to investors that is likely to result without the issuance of the 
order, and it must describe in reasonable detail the act or acts the 
Respondent is to take or refrain from taking.\19\ A temporary cease and 
desist order issued to stop unauthorized trading, for example, would 
order a Respondent to cease and desist from violating NASD Rule 2110 by 
directing the Respondent to stop the practice of executing unauthorized 
trades for customers' accounts. The order would not instruct the 
Respondent to cease and desist from conducting business with customers.
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    \19\ The order also must include the date and hour of its 
issuance.

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[[Page 71990]]

(vi) Publicizing Issuance of a Temporary Cease and Desist Order
    If a hearing panel issues a temporary cease and desist order, the 
Association would publicize the issuance of the order, just as it 
publicizes the issuance of other final decisions in disciplinary 
proceedings that result in significant sanctions. Accordingly, the 
proposed rule change modifies IM-8310-2 to permit the release of this 
information. When issuance of a temporary cease and desist order is 
made public, if applicable, a statement would accompany the public 
release indicating that the decision could still be appealed to the 
Commission or that the appeal is pending.
(vii) Duration of Temporary Cease and Desist Orders
    Once a temporary cease and desist order has been issued, it will 
remain in effect until a decision is issued in the underlying 
disciplinary proceeding.\20\ Two commentators suggested that, in any 
disciplinary proceeding for which a temporary cease and desist order 
has been issued, the disciplinary proceeding should be conducted on an 
expedited basis. The NASD agrees with this suggestion and has proposed 
Rule 9290, which would require that in any disciplinary proceeding for 
which a temporary cease and desist order has been issued, every hearing 
shall be held and every decision shall be rendered at the earliest 
possible time.
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    \20\ The hearing panel issuing the decision in the underlying 
disciplinary proceeding, however, may issue a permanent cease and 
desist order as part of the sanctions, if any, imposed pursuant to 
the underlying disciplinary proceeding. The effectiveness of a 
permanent cease and desist order would not be stayed if the 
Respondent appeals the decision in the underlying disciplinary 
proceeding.
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    In addition, a Respondent is provided the opportunity to challenge 
a temporary cease and desist order, pursuant to Rule 9850, if it 
believes the underlying disciplinary proceeding is not being conducted 
on an expedited basis. If a Respondent can prove by a preponderance of 
the evidence that the underlying disciplinary proceeding is not being 
conducted on an expedited basis due to bad faith conduct by the 
Association, the hearing panel that issued the temporary cease and 
desist order can modify, set aside, limit, or suspend the order as it 
believes is appropriate. If a challenge on such a basis is pursued by a 
Respondent, the hearing panel's consideration would be limited to 
determining whether the underlying disciplinary proceeding was not 
being conducted on an expedited basis due to the bad faith conduct of 
the Association.
    The proposed rules provide Respondents with several opportunities 
to challenge a temporary cease and desist order. A Respondent may apply 
to the hearing panel, pursuant to proposed Rule 9850, to have the order 
modified, set aside, limited, or suspended, or the Respondent may 
challenge the order by filing an application for review with the SEC 
pursuant to Section 19 of the Exchange Act.\21\ A Respondent 
challenging an order, however, will not stay the effectiveness of the 
order, unless otherwise ordered by the Commission.
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    \21\ Section 19 of the Exchange Act provides for the appeal of 
final disciplinary sanctions imposed by self-regulatory 
organizations.
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    Two commentators raised a concern about the ability of a Respondent 
to appeal decisions issuing temporary cease and desist orders to the 
SEC because it was unclear whether temporary cease and desist orders 
are final disciplinary decisions of the NASD. The Association believes 
temporary cease and desist orders should be considered final and 
immediately effective decisions of the NASD and therefore appealable to 
the SEC as soon as the orders are issued. A temporary cease and desist 
order is issued after notice and an opportunity for a hearing and upon 
a finding by a preponderance of the evidence that a violation of a 
statutory provision or rule has occurred. The temporary cease and 
desist order is an ``other fitting sanction'' under Section 15A(b)(7) 
of the Act because the order directs a Respondent to cease from 
violating a rule, to cease specified violative conduct and, as 
appropriate, to cease and desist from dissipating or converting assets. 
Further, a temporary cease and desist order is immediately effective 
and enforceable, and a Respondent that violates the terms of a 
temporary cease and desist order can have its membership or 
registration suspended or canceled.
(viii) Enforcement of Cease and Desist Orders
    In order for temporary cease and desist orders, or permanent cease 
and desist orders issued pursuant to disciplinary proceedings conducted 
under Rule 9200 Series or Rule 9300 Series, to have their full effect 
it is necessary to have a mechanism to enforce such orders and to be 
able to sanction members or associated persons that violate the orders. 
Consequently, the proposed rule change seeks to provide the Association 
with the authority to suspend or cancel a Respondent's membership or 
association if it is found, after a proceeding pursuant to Rule 9510 
Series,\22\ that a Respondent violated a temporary cease and desist 
order or a permanent cease and desist order. The proposed rule change 
provides that a proceeding to suspend or cancel a Respondent's 
association or membership for violating an order cannot be initiated 
unless it is authorized in writing by the President or Chief Operating 
Officer of NASD Regulation.\23\ This provision ensures that decisions 
that can have a significant impact on a Respondent are made only at the 
highest staff level.
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    \22\ The Rule 9510 Series sets forth the procedures for summary 
and non-summary suspension, cancellation, bar, limitation, or 
prohibition. Pursuant to the proposed amendment Rule 9511, the 
sanctions for a violation of a temporary or permanent cease and 
desist order are limited to suspension of cancellation of the 
membership of a member of the registration of a person.
    \23\ See proposed Rule 9860.
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    In addition, under the proposed rules, in any proceeding initiated 
pursuant to the Rule 9510 Series to sanction a member or associated 
person for violating a temporary or permanent cease and desist order, 
NASD Regulation would be required to specifically identify in the 
notice initiating the proceeding the provision of the temporary or 
permanent cease and desist or der that is alleged to have been 
violated, and the notice must contain a statement of facts specifying 
the alleged violation. These provisions were included in response to a 
suggestion by a commentator.
(ix) Report to Board of Directors
    The Association recognizes that temporary cease and desist orders 
are new and powerful enforcement tools. Therefore, the Association 
staff is required to report to the Board of Directors of the 
Association (``Board''), within two years after the effective date of 
the rules (if the rules are approved by the SEC), on the staff's 
experience with the rules and obtain the Board's authorization to 
continue to exercise authority under the rules. This report will enable 
the Board to assess whether the authority is being exercised as it had 
envisioned.
2. Statutory Basis
    The Association believes that the proposed rule change is 
consistent with the provisions of Section 15A(b)(2) of the Act, which 
requires, among other things, that an association of brokers and 
dealers have the capacity to be able to carry out the purposes of the 
Act and to enforce compliance by its members and persons associated 
with its

[[Page 71991]]

members with the Act, the rules and regulations thereunder, and the 
rules of the Association. In addition, the Association believes the 
proposed rule change is consistent with the provisions of Section 
15A(b)(6), which require that the rules of an association 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 also believes the proposal 
is consistent with the provisions of Sections 15A(b)(7) and (8). 
Paragraph (b)(7) permits the sanctioning of members and associated 
persons by several means, including by imposing fitting sanctions, and 
paragraph (b)(8) requires that the rules of an association, in general, 
provide a fair procedure for disciplining members and persons 
associated with members. The Association believes that the relevant 
provisions of the Act provide it with authority to issue temporary 
cease and desist orders. NASD also believes the proposed rules are 
consistent with the Association's obligations under Sections 15A(b)(2), 
(6), (7), and (8) because temporary cease and desist orders are fitting 
sanctions designed to stop violative conduct that is likely to cause 
significant dissipation or conversion of assets or other significant 
harm to investors, subject to the specific procedures contained in the 
rules.

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

    The Association does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The proposed rule change was published for comment in NASD Notice 
to Members 98-42. Thirteen comments were received in response to NTM-
98-48. While three comment letters expressed support for the 
Association's overall goal of effective regulation of the securities 
markets, none of the comment letters voiced support for the proposed 
rule change.
    The Board of Directors of NASD Regulation and the National 
Adjudicatory Council reviewed the Notice of Members and approved its 
publication. In addition, the Small Firm Advisory Board supported 
issuing NTM 98-42, although it took no formal position. Finally, a 
subcommittee of the Legal Advisory Board reviewed and unanimously 
supported issuing it as well.

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

    Within 35 days of the 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 NASD consents, the Commission will:
    (A) By order approve the 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 proposal is 
consistent with the Act. In particular, the Commission solicits 
comments on (A) whether the scope of possible violations should be 
narrowed; (B) what impact, if any, the issuance of an NASD temporary 
cease and desist order will have on other laws (i.e., other than the 
federal securities laws); and (C) whether the NASD has sufficiently 
justified the need for temporary cease and desist powers. 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. 552, will be 
available for inspection and copying at 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. Comments 
also may be submitted electronically at the following E-mail address: 
[email protected]. File Number SR-NASD-98-80 should be included on 
the subject line if E-mail is used to submit a comment letter. 
Electronically submitted comment letters will be posted on the 
Commission's Internet web site (http://www.sec.gov). All submission 
should refer to File No. SR-NASD-98-80 and should be submitted by March 
1, 1999.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-34513 Filed 12-29-98; 8:45 am]
BILLING CODE 8010-01-M