[Federal Register Volume 66, Number 28 (Friday, February 9, 2001)]
[Notices]
[Pages 9737-9739]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-3361]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43928; File No. SR-NASD-00-77]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by National Association of Securities Dealers, Inc. Relating to 
Registration Requirements for Limited Principals-Financial and 
Operations and Limited Principals-Introducing Broker/Dealer Financial 
and Operations

February 5, 2001.
    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 December 20, 2000, the National Association of Securities Dealers, 
Inc. (``NASD''), through its subsidiary, NASD Regulation, Inc. (``NASD 
Regulation'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the 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 proposes to amend three rules: NASD Rule 1022(b) 
(Limited Principal-Financial and Operations (``FINOP'')), NASD Rule 
1022(c) (Limited Principal-Introducing Broker/Dealer Financial and 
Operations (``Introducing FINOP'')), and NASD Rule 9610 (Procedures for 
Exemptions). The proposed amendments to NASD Rules 1022(b) and 1022(c) 
would (1) clarify the applicability of NASD Rules 1022(b) and 1022(c) 
to members by making citations in these rules consistent with Exchange 
Rule 14c3-1 (the ``Net Capital Rule'') \3\; (2) eliminate the ability 
of a member that is subject to the Net Capital Rule to request an 
exemption from the requirement under NASD Rule 1022(b) to have a FINOP; 
and (3) exclude from the requirements of NASD Rules 1022(b) and 1022(c) 
those firms are exempt from or otherwise not subject to the Net Capital 
Rule. The proposed amendments to NASD Rule 9610(a) would eliminate NASD 
Rule 1022 from the list of rules from which a member may seek exemptive 
relief. The proposed amendments to NASD Rule 9610(a) also would make a 
technical change to clarify that the Rule 9600 Series merely sets forth 
procedures for seeking exemptive relief, and that the type of relief 
that may be requested, and the authority to grant such relief, is found 
in the rules listed in NASD Rule 9610(a).
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    \3\ 17 CFR 240.15c3-1.
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    Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in [brackets].
* * * * *
1020. Registration of Principals
* * * * *
1022. Categories of Principal Registration
    (a) No change
    (b) Limited Principal-Financial and Operations
    (1) Every member of the Association, [unless exempted by 
subparagraph (4),] that is operating pursuant to the provisions of SEC 
Rule 15c3-1 (a)(1)(ii), (a)(2)(i) or (a)(8), shall designate as Limited 
Principal-Financial and Operations those persons associated with it, at 
least one of whom shall be its chief financial officer, who performs 
the duties described in subparagraph [(b)](2) hereof. Each person 
associated with a member who performs such duties shall be required to 
register as a Limited Principal-Financial and Operations with the 
Association and shall pass an appropriate Qualification Examination 
before such registration may become effective.
    (2) and (3) No change.
    [(4) Pursuant to the Rule 9600 Series, the Association may exempt a 
member or an applicant for membership in the Association from the 
requirement to have a Limited Principal-Financial and Operations if:]
    [(A) it has been expressly exempted by the Commission from SEC Rule 
15c3-1(b)(1)(iii);]
    [(B) it is subject to the provisions of SEC Rule 15c3-1(a)(2) or to 
Section 402.2(c) of the rules of the Treasury Department.]

[[Page 9738]]

    [(5)] (4) A person registered solely as a Limited Principal-
Financial and Operations shall not be qualified to function in a 
principal capacity with responsibility over any area of business 
activity not described [prescribed] in subparagraph (2) hereof.
    (c) Limited Principal-Introducing Broker/Dealer Financial and 
Operations
    (1) Every member of the Association, [which is operating pursuant 
to the provisions of SEC Rule 15c3-(a)(2)(i) or (vi) and to the 
provisions of SEC Rule 15c3-3(k)(2)(ii),] that is subject to the 
requirements of SEC Rule 15c3-1, other than SEC Rule 15c3-1(a)(1)(ii), 
(a)(2)(i) or (a)(8), shall designate as Limited Principal-Introducing 
Broker/Dealer Financial and Operations those persons associated with 
it, at least one of whom shall be its chief financial officer, who 
perform the duties described in [paragraph] subparagraph (2)[,] hereof. 
Each person associated with a member who performs such duties shall be 
required to register as a Limited Principal-Introducing Broker/Dealer 
Financial and Operations with the Association and shall pass an 
appropriate Qualification Examination before such registration may 
become effective.
    (2) No change.
    (3) Except as provided in Rule 1021(c), a person designated 
pursuant to the provisions of subparagraph (1) hereof, shall not be 
required to take the Limited Principal-Introducing Broker/Dealer 
Financial and Operations Examination and shall be qualified for 
registration as a Limited Principal-Introducing Broker/Dealer Financial 
and Operations if such a person is qualified to be registered or is 
registered as a Limited Principal-Financial and Operations [as defined 
in paragraph 2 hereof.] pursuant to Rule 1022(b).
    (4) No change.
    (d) through (g) No change.
* * * * *
9600. PROCEDURES FOR EXEMPTIONS
9610. Application
    (a) Where to file
    A member seeking [an exemption from] exemptive relief provided in 
Rules 1021, [1022,]1070, 2210, 2320, 2340, 2520, 2710, 2720, 2810, 
2850, 2851, 2860, Interpretive Material 2860-1, 3010(b)(2), 3020, 3210, 
3230, 3350, 8211, 8212, 8213, 11870, or 11900, Interpretive Material 
2110-1, or Municipal Securities Rulemaking Board Rule G-37 shall file a 
written application with the appropriate department or staff of the 
Association and provide a copy of the application to the Office of 
General Counsel of NASD Regulation.
    (b) and (c) 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

1. Purpose
    NASD Rules 1022(b) and 1022(c) set forth the registration 
requirements for FINOPs and Introducing FINOPs. FINOPs are required to 
take and pass the Series 27 Principal Examination. Introducing FINOPs 
are required to take and pass the Series 28 Principal Examination. The 
proposed amendments to NASD Rule 1022(b) would clarify that every 
broker or dealer that is operating pursuant to the provisions of 
Exchange Act Rule 15c3-1(a)(1)(ii) or (a)(2)(i) \4\ (both of which 
subject brokers or dealers to a minimum net capital requirement of 
$250,000), or (a)(8) \5\ (which subjects municipal securities brokers' 
brokers to a minimum $150,000 net capital requirement) must have a 
FINOP. The proposed amendments to NASD rule 1022(c) would clarify that 
every broker or dealer that is subject to the requirements of the Net 
Capital Rule, and is not required to employ a FINOP pursuant to NASD 
Rule 1022(b), is required to have at least one associated person who 
has registered as an Introducing FINOP. The proposed amendments to NASD 
Rule 1022(c) also would clarify that a person qualified as a Series 27 
FINOP is not required to take the Series 28 Examination if he or she is 
employed as an Introducing FINOP.
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    \4\ 17 CFR 240.15c3-1(a)(1)(ii), and (a)(2)(i).
    \5\ 17 CFR 240.15c3-1(a)(8).
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    In addition, the proposed amendments to NASD Rule 1022(b) would 
eliminate the provisions that allow a broker or dealer that is subject 
to the Net Capital Rule to seek an exemption from the requirement to 
have a FINOP. As a procedural matter, NASD Regulation proposes to amend 
NASD Rule 9610(a) to eliminate NASD Rule 1022 from the list of rules 
for which a member may file an application to seek exemptive relief. 
NASD Regulation believes that firms that are subject to the Net Capital 
Rule should not be exempted from the requirement to employ a FINOP or 
Introducing FINOP. In the rare instance that a firm believes that a 
particular individual should not be required to take and pass the 
Series 27 or Series 28 Examination based on that individual's 
experience and qualifications, the firm may seek an exam waiver for 
that individual pursuant to NASD Rule 1070(e).
    The proposed amendments to NASD 1022(b) also would eliminate the 
ability, as well as the need, for members that are exempt from the Net 
Capital Rule to seek exemptive relief from the FINOP or Introducing 
FINOP requirements. As noted above, the proposed changes to both NASD 
Rule 1022(b) and 1022(c) would make clear that the requirements to have 
a FINOP or Introducing FINOP apply only to firms that are subject to 
the requirements of the Net Capital Rule. Members that are exempt from 
or otherwise not subject to the Net Capital Rule would no longer be 
subject to the requirements of either NASD Rule 1022(b) or NASD Rule 
1022(c). Therefore, under the proposed amendments, it would no longer 
be necessary for such members to seek exemptive relief from the 
requirements of those rules.
    The proposed amendments would have no effect on individuals who are 
currently grandfathered for the Series 27 or Series 28 Examination, 
because these persons are considered to possess the license for which 
they were grandfathered.\6\ In addition, NASD Regulation represents 
that firms currently the subject of a FINOP waiver would not be subject 
to the proposed rule amendments.\7\
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    \6\ Only individuals who qualified as ``Financial Principals'' 
before the establishment of the Series 27 examination were 
grandfathered as FINOPs and were not required to take either the 
Series 27 or Series 28 examination.
    \7\ Telephone conversation between Shirley Weiss, Attorney, NASD 
Regulation, and Andrew Shipe, Attorney, Division of Market 
Regulation, Commission, on January 11, 2001.
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    Finally, the proposed amendments to NASD Rule 9610(a) would make a 
technical change to clarify that the Rule 9600 Series merely sets forth 
procedures for seeking exemptive relief, and that the type of relief 
that may be requested, and the authority to grant such relief, is

[[Page 9739]]

found in the rules listed in NASD Rule 9610(a).
2. Statutory Basis
    NASD Regulation believes that the proposed rule change is 
consistent with the provisions of section 15A(b)(6) of the Act,\8\ 
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. NASD Regulation believes 
that the proposed rule change is designed to accomplish these ends by 
clarifying the applicability of NASD Rule 1022(b) and (c) to members by 
making the citations in the rules consistent with the Net Capital Rule 
and by eliminating the ability of brokers or dealers that are subject 
to the Net Capital Rule from operating without a FINOP or Introducing 
FINOP. The proposed rule change also would help members by clarifying 
the circumstances under which a FINOP must have taken and passed either 
Series 27 or Series 28 Examination.
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    \8\ 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.

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 self-regulatory organization 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, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 
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-00-77 and should 
be submitted by March 2, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-3361 Filed 2-8-01; 8:45 am]
BILLING CODE 8010-01-M