[Federal Register Volume 64, Number 4 (Thursday, January 7, 1999)]
[Notices]
[Pages 1050-1051]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-298]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40864; File No. SR-NASD-98-90]


Self-Regulatory Organizations; Order Granting Accelerated 
Approval to Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Relating to Proposed Amendments to the Code of 
Procedure to Provide for the Office of Disciplinary Affairs of NASD 
Regulation, Inc. to Authorize all Enforcement Actions

December 30, 1998.

I. Introduction

    On December 4, 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\ In its proposal, NASD 
Regulation seeks to amend the rules of the Association to permit the 
Office of Disciplinary Affairs to authorize enforcement actions. Notice 
of the proposal was published in the Federal Register on December 14, 
1998 (``Notice'').\3\ The Commission received no comment letters on the 
filing. This order approves the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 40755 (December 7, 
1998), 63 FR 68814 (December 14, 1998) (File No. SR-NASD-98-90)
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II. Description of the Proposal

    The Association proposes centralizing review and authorization of 
all disciplinary actions within a single department, the Office of 
Disciplinary Affairs of NASD Regulation. Currently, the Case 
Authorization Unit (``CAU''), located in the Department of Enforcement 
of NASD Regulation, authorizes all disciplinary actions. Review of 
these cases, however, can take place in a separate office. Known as the 
Office of Disciplinary Policy (``ODP''), this office is the primary 
reviewer of cases developed in the Washington, DC, office and cases 
involving ``quality-of-market'' issues. The ODP, which reports to the 
Office of the President of NASD Regulation, also reviews and comments 
on all cases involving policy issues.
    Because of the overlap between the CAU and the ODP, the Association 
wishes to consolidate their functions in a single place--the Office of 
Disciplinary Affairs (``ODA''). Under the proposed rule change, as 
approved hereby, all cases would be authorized by the ODA. Both the ODP 
and the CAU will cease to function following approval of these changes. 
According to NASD Regulation, the change will increase overall 
operating efficiency and maintain the consistency and independence of 
the case authorization function.

III. Discussion

    As discussed below, the Commission has determined to approve the 
Association's proposal centralizing the authorization of all 
enforcement actions within the ODA. 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 Section 15A of the Act \4\ and the rules and 
regulations thereunder that govern the NASD.\5\ In evaluating a given 
proposal, the Commission examines the record before it and all relevant 
factors and necessary information. In addition, Section 15A of the Act 
establishes specific standards for NASD rules against which the 
Commission must measure the proposal.\6\
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    \4\ 15 U.S.C. 78o-3.
    \5\ U.S.C. 78s(b).
    \6\ 15 U.S.C. 78o-3.
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    Specifically, the Commission finds that the proposed rule change is 
consistent with Sections 15A(b)(7) and (8) of the Act, which require 
that the rules of the Association provide a fair procedure for the 
disciplining of members and associated persons. According to NASD 
Regulation, centralizing the authorization of disciplinary actions 
within the ODA will help maintain the consistency of the case 
authorization process. The Commission agrees that consistency in the 
authorizing of disciplinary actions contributes to maintaining fair 
procedures for the disciplining of members.
    Additionally, NASD Regulation asserts that the proposed rule change 
will help maintain the independence of the case authorization function. 
Under the current rules, disciplinary actions were authorized by the 
CAU, which is located within the Department of Enforcement of NASD 
Regulation. Under the proposed rule, the ODA, which will authorize all 
enforcement actions, will report directly to Office of the President of 
NASD Regulation; thus separating it from the Department of Enforcement, 
who is a party to the proceeding. The Commission agrees that 
independence in the authorizing of disciplinary actions also 
contributes to maintaining fair procedures for the disciplining of 
members.
    NASD Regulation requested that the Commission find good cause 
pursuant to Section 19(b)(2) of the Act to approve the proposed rule 
change prior to the 30th day after its publication in the Federal 
Register. According to the NASD, accelerated approval is necessary to 
facilitate the orderly transfer of functions to the ODA, which will 
start operating on January 1, 1999. The Commission finds that this is 
an appropriate reason for accelerating approval, and notes this 
approval follows a notice and comment period of fifteen days that 
expired without receipt of comment.

IV. Conclusion

    The Commission believes that the proposed rule change is consistent 
with the Act, and, particularly, with Section 15A thereof.\7\ In 
approving the

[[Page 1051]]

proposed, the Commission has considered its impact on efficiency, 
competition, and capital formation.\8\
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    \7\ 15 U.S.C. 78o-3.
    \8\ 15 U.S.C. 78(c)f.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-NASD-98-90) relating to 
proposed amendments to the Rules of the Association to permit the 
Office of Disciplinary Affairs of NASD Regulation to authorize all 
enforcement actions, is approved.

    \9\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-298 Filed 1-6-99; 8:45 am]
BILLING CODE 8010-01-M