[Federal Register Volume 64, Number 3 (Wednesday, January 6, 1999)]
[Notices]
[Pages 918-919]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-166]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40854; File No. SR-NASD-98-58]


Self-Regulatory Organization; Order Approving Proposed 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

December 28, 1998.
    On August 7, 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\ The filing was thereafter 
amended on August 18 and 20, 1998, October 29, 1998 and December 8 and 
21, 1998.\3\ The proposal seeks to eliminate the requirement contained 
in the Rules of the Association directing the NASD to use best efforts 
to personally serve a respondent who faces a bar or expulsion from NASD 
membership. Notice of the proposal was published in the Federal Regiser 
on September 3, 1998 (``Notice'').\4\ The Commission did not receive 
comment letters on the filing.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ CFR 240.19b-4.
    \3\ See Letter from Joan C. Conley, Secretary, NASD Regulation, 
to Katherine A. England, Assistant Director, Division of Market 
Regulation (``Division''), Commission, dated August 18, 1998; E-mail 
from Eric Moss, Office of General Counsel (``OGC''), NASD 
Regulation, to Mandy Cohen, Division, Commission, dated August 20, 
1998; letter from Eric Moss, OGC, NASD Regulation to Katherine A. 
England, Assistant Director, Division, Commission, dated September 
24, 1998; and letter from Eric Moss, OGC, NASD Regulation to 
Katherine A. England, Assistant Director, Division, Commission, 
dated December 8, 1998. The Association also consented to an 
extension until December 31, 1998 for Commission action. See letter 
from Eric Moss, OGC, NASD Regulation to Katherine A. England, 
Assistant Director, Division, Commission, dated December 8, 1998. 
Finally, the Association extended the effective date of the filing 
to thirty days after publication in a Notice to Members following 
Commission approval. See letter from Alden Adkins, General Counsel, 
NASD Regulation to Katherine A. England, Assistant Director, 
Division, Commission, dated December 8, 1998. All of the amendments 
filed after the Notice were technical in nature and therefore do not 
require publication for notice and comment.
    \4\ See Securities Exchange Act Release No. 40379 (August 27, 
1998), 63 FR 47058 (September 3, 1998)(File No. SR-NASD-98-58).
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I. Introduction and Background

    In its filing with the Commission, the NASD proposed amendment to 
the Rules of the Association to eliminate the current requirement that 
the Association make reasonable efforts to provide personal service of 
decisions in cases involving bars and expulsions.\5\ Originally, 
personal service was required because decisions imposing bars or 
expulsions become effective immediately. As discussed in greater detail 
below, the Association now argues that service by overnight courier, 
facsimile or other means is as effective as personal service, and 
equally likely to obtain prompt service. For this and other reasons, 
the Commission has decided to approve the Association's proposal.
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    \5\ See Rules 9269 and 9360.
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II. Description of the Proposal

    The proposed changes to Rules 9269 and 9360, as approved today, 
permit service of decisions in cases involving bars or expulsions from 
the NASD to be done by overnight courier, facsimile or other means 
likely to obtain prompt service. Rule 9360 currently requires that the 
chief Hearing Officer serve all final disciplinary decisions, and that 
reasonable efforts be made to personally serve (hand deliver) all final 
decisions imposing a bar or expulsion. The service provisions in Rule 
9269 are presented for the first time in this rule filing.\6\
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    \6\ NASD Regulation has also filed a related rule change with 
the Commission in Exchange Act Release No. 40378 (August 27, 
1998)(File No. SR-NASD-98-57). The text of the proposed rule change 
contained herein treats SR-NASD-98-57 as already approved.
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III. Discussion

    As discussed below, the Commission has determined at this time to 
approve the Association's proposal. The standard by which the 
Commission must evaluate a proposed rule change is set forth in Section 
19(b) of the Act. The Commission must approve a proposed NASD rule 
change if it finds that the proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
govern the NASD.\7\ In addition, Section 15A of the Act establishes 
specific standards for NASD rules against which the Commission must 
measure the proposal.\8\
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    \7\ 15 U.S.C. 78s(b).
    \8\ 15 U.S.C. 78o-3.
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    The proposed changes 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 service requirements. 
Rule 9360 currently requires that the Chief Hearing Officer serve all 
final disciplinary decisions, and that reasonable efforts be made to

[[Page 919]]

personally serve (hand deliver) 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 and personal service was believed to be the best 
means of achieving prompt service.
    The Association argues that the proposed rule change, eliminating 
the personal service requirement in the case of a bar or expulsion, is 
consistent with Section 15A(b)(7) in that it provides a reasonable 
means for notifying respondents of final disciplinary actions. In the 
proposal, the Association represented that other methods of prompt 
service, such as facsimile and commercial courier, are as effective in 
providing prompt service to a respondent as personal service. The NASD 
argues that reasonable efforts at personal service (hand delivery) in 
final default decisions imposing bars or expulsions are generally not 
successful. Moreover, with respect to litigated decisions, the most 
effective type of service is a commercial courier or facsimile, not 
personal service. In addition, the staff of NASD Regulation has told 
the Commission that these alternative types of service are less costly 
than personal service.\9\
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    \9\ Conversation between Eric Moss, Office of General Counsel, 
NASD Regulation and Mandy Cohen, Division of Market Regulation on 
November 24, 1998.
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    The Commission believes that personal service is the best means of 
ensuring actual service. Notwithstanding this, however, the Act 
requires reasonable means. Given the Association's representations 
concerning the costs and effectiveness of the different types of 
alternative service, the Commission has decided to approve the 
Association's proposal. Moreover, the protection afforded respondents 
against whom default decisions have been entered--specifically, the 
provisions permitting set aside of a default decision in Rule 9269(c)--
further supports use of the less costly methods of service. Finally, 
the Commission notes that all persons subject to bar or expulsion by 
the Association are NASD members, and as such, have agreed to such 
alternative service upon association with the NASD.\10\
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    \10\ See Uniform Application for Securities Industry 
Registration or Transfer (Form U-4), at page 4, paragraph 7 (version 
effective November 1995).
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IV. Conclusion

    The Commission believes that the proposed rule change is consistent 
with Act, and, particularly, with Section 15A thereof.\11\ In approving 
the proposal, the Commission has considered its impact on efficiency, 
competition, and capital formation.\12\
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    \11\ 15 U.S.C. Sec. 78o-3.
    \12\ 15 U.S.C. Sec. 78c(f).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-NASD-98-58), as amended, is 
approved.

    \13\ 15 U.S.C. Sec. 78(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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-166 Filed 1-5-99; 8:45 am]
BILLING CODE 8010-01-M