[Federal Register Volume 66, Number 90 (Wednesday, May 9, 2001)]
[Notices]
[Pages 23750-23751]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-11640]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44251; File No. SR-NASD-2001-19]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to Reporting Requirements for Clearing Members

May 3, 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 March 21, 2001, the National Association of Securities Dealers, Inc. 
(``NASD'' or ``Association''), through its wholly owned 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 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 is proposing to adopt Rule 3150 to require all 
members that are clearing firms to report certain data to the NASD 
Regulation Department of Member Regulation (``Member Regulation'') on a 
daily basis.
    Proposed new language is in italics.

* * * * *

3100. BOOKS AND RECORDS, AND FINANCIAL CONDITION

* * * * *

3150. Reporting Requirements for Clearing Firms

    Each member that is a clearing firm shall be required to report 
to the Association on a daily basis and in such format as the 
Association may require, prescribed data pertaining to the member 
and any broker-dealer for which it clears. A clearing firm may enter 
into an agreement with a third party pursuant to which the third 
party agrees to fulfill the clearing firm's obligations

[[Page 23751]]

under this Rule. Notwithstanding the existence of such an agreement, 
each clearing firm remains responsible for complying with the 
requirements of this Rule.
* * * * *

I. 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 Member Regulation is developing a new business model regarding 
the surveillance and examination of NASD members. The new program's 
official title is Integrated National Surveillance and Information 
Technology Enhancements (commonly referred to as ``INSITE''). INSITE 
will allow NASD Regulation to concentrate its examinations on higher-
risk segments of the industry; focus the content of each examination on 
higher-risk topics; streamline the examination process for the 
examiners and members; better coordinate regulatory findings with other 
NASD Regulation departments; and provide specialized training to 
enhance and maintain examiners' competency levels.
    The surveillance component of the INSITE program will produce 
reports that identify member ``exceptions'' based on historical and 
current comparisons of member data. The exceptions will trigger follow-
up reviews and possible member examinations. In order for the 
surveillance component of INSITE to work, it is essential that members 
that are clearing firms (both those that are self-clearing and those 
that clear for other firms) provide certain data to NASD Regulation on 
a daily basis. Proposed Rule 3150 would establish the INSITE reporting 
requirements and would require members that are clearing firms to 
provide the necessary data directly to NASD Regulation.\3\ A clearing 
firm member may enter into an agreement with a third party pursuant to 
which the third party agrees to fulfill the clearing firm's obligations 
under proposed Rule 3150. Notwithstanding the existence of such an 
agreement, each member that is a clearing firm will be responsible for 
complying with the requirements of the proposed rule change.
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    \3\ The Association anticipates requesting members that are 
clearing firms to submit data electronically. Telephone 
conversations between Shirley H. Weiss, Office of General Counsel, 
NASD Regulation, and Heidi Pilpel, Special Counsel, and Lisa Jones, 
Attorney, Division of Market Regulation, Commission (May 2, 2001).
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    The text proposed Rule 3150 does not specify the data that must be 
reported to NASD Regulation. The data elements that NASD Regulation 
currently expects to require its members that are clearing firms to 
submit to the Association pursuant to proposed Rule 3150 include items 
such as trade cancellations (T+1 forward) and as-of-trades, aggregate 
net liquidating equity in each firms's proprietary accounts, and 
unsecured customer debits. The Association will continue to work with 
its clearing firm members and the SEC staff in identifying the data 
that is needed in order to operate the surveillance component of 
INSITE. The Association will also provide its clearing firms members 
with advance notice through the NASD Notice to Members process (or 
similar guidance) of any changes to the required data elements. 
Moreover, NASD Regulation will advise its clearing firm members of the 
format to be used in transmitting information pursuant to proposed rule 
3150, and the methodology by which NASD Regulation will require its 
clearing firm members to submit the following to the Association.
2. Statutory Basis
    NASD Regulation believes that the proposed rule change is 
consistent with the provisions of section 15A(b)(6) of the Act,\4\ 
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.
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    \4\ 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

    NASD Regulation has neither solicited nor received written comments 
on the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
and 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-2001-19 and should 
be submitted by May 30, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-2(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-11640 Filed 5-8-01; 8:45 am]
BILLING CODE 8010-01-M