[Federal Register Volume 64, Number 206 (Tuesday, October 26, 1999)]
[Notices]
[Pages 57678-57679]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27889]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-42036; File No. SR-NASD-99-35]
Self Regulatory Organizations; National Association of Securities
Dealers, Inc.; Order Approving Proposed Rule Change Relating to the
Definition of ``Person Associated With a Member''
October 19, 1999.
I. Introduction
On August 3, 1999, the National Association of Securities Dealers,
Inc. (``NASD'' or ``Association'') filed with the Securities and
Exchange Commission (``Commission'' or ``SEC''), pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule
19b-4 thereunder,\2\ a proposed rule change to amend the definition of
``person associated with a member'' in the By-Laws of the NASD, NASD
Regulation, Inc. (```NASD Regulation''), and The Nasdaq Stock Market,
Inc. (``Nasdaq''). Notice of the proposed rule change was published in
the Federal Register on September 10, 1999.\3\ The commission received
no comments on the proposal. This order approves the proposed rule
change.
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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. 41820 (September 1,
1999), 64 FR 49261.
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II. Description of the Proposal
The proposed rule change comprises two amendments to the definition
of ``person associated with a member'' in Article I of the NASD By-Laws
and conforming amendments to the NASD Regulation and Nasdaq By-Laws.\4\
It also includes a minor textual change to the definition to clarify an
ambiguity.
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\4\ The By-Laws of the NASD, NASD Regulation, and Nasdaq are
herein collectively referred to as ``By-Laws.''
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The first amendment expands the definition to apply to certain
owners of NASD members (``members'') not currently included in its
scope, specifically for purposes of NASD Rule 8210, entitled
``Provision of Information and Testimony and Inspection and Copying of
Books.'' \5\ Currently, the definition of ``person associated with a
member'' includes only owners who are natural persons engaged in the
member's investment banking or securities business and who have a
direct or indirect ``control'' relationship with the member.\6\ The
amendment expands the definition to give the staff authority to require
the provision of information and testimony under NASD Rule 8210 from
any person--including a natural person or corporate or other entity--
who holds a five percent or greater interest in a member firm,
regardless of whether they ``control'' the member firm or are actively
engaged in its securities or investment banking business. Such persons
are listed in Schedule A of Form BD of a member.
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\5\ NASD Rule 8210 authorizes the staff of the NASD, for the
purpose of an investigation, complaint, examination, or proceeding
authorized by the NASD By-Laws or rules, to require a member or
associated person to provide information or testimony. The rule also
authorizes the staff to inspect and copy the books, records, and
accounts of such member or person with respect to any matter
involved in the investigation, complaint, examination, or
proceeding.
\6\ The By-Laws do not define the term ``control.'' Form BD
defines ``control'' as the ``power, directly or indirectly, to
direct the management or policies of a company, whether through
ownership of securities, by contract, or otherwise. Any person that
* * * directly or indirectly has the right to vote 25% or more of a
class of voting securities or has the power to sell or direct the
sale of 25% or more of a class of voting securities; or * * * in the
case of a partnership, has the right to receive upon dissolution, or
has contributed 25% or more of the capital, is presumed to control
that company.''
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The second proposed provision resolves an anomaly between the
current By-Law definition of the term ``person associated with a
member'' and Form U-4, which is the application form for registration
that must be signed by prospective registrants. Form U-4 states that by
signing the Form, the applicant is subject to the jurisdiction of the
NASD and any state in which he is applying for registration. However,
the current definition of ``associated person'' in the By-Laws does not
address applicants for registration. The proposed rule change makes the
By-Laws consistent with Form U-4 in this respect by including in the
definition a person who has applied for registration.
Finally, the word ``other'' is inserted into subsection 2 of the
definition of ``person associated with a member'' to clarify that the
subsection describes only natural persons.
The NASD proposes to make the rule change effective for all members
within 45 days after Commission approval. The effective date will be
announced at least 15 days in advance in a Notice To Members.
III. Discussion
After careful review, the Commission finds that the proposed rule
change is consistent with the Act and the rules and regulations under
the Act, and, in particular, the requirements of section 15A \7\ of the
Act applicable to a registered securities association.\8\ Specifically,
the Commission finds that approval of the proposed rule change is
consistent with Section 15A(b)(6) \9\ 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 Commission finds that the proposed rule
change will promote the objectives of Section 15A(b)(6) of the Act by
helping the NASD obtain necessary information to conduct its regulatory
[[Page 57679]]
investigations and proceedings and clarifying its jurisdiction over
applicants for registration.
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\7\ 15 U.S.C. 78o-3.
\8\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
\9\ 15 U.S.C. 78o-3(b)(6)
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IV. Conclusion
For the above reasons, the Commission finds that the proposed rule
change is consistent with the provisions of the Act, and in particular
with Section 15A(b)(6).
It is therefore ordered, pursuant to Section 19(b)(2) \10\ of the
Act, that the proposed rule change (SR-NASD-99-35) is hereby approved.
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\10\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-27889 Filed 10-25-99; 8:45 am]
BILLING CODE 8010-01-M