[Federal Register Volume 66, Number 185 (Monday, September 24, 2001)]
[Notices]
[Pages 48896-48897]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-23742]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44813; File No. SR-NASD-2001-57]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. To Conform NASD Regulation, Inc.'s By-Laws to 
the NASD By-Laws, and Increase the Maximum Size of the NASD Regulation 
Board

September 18, 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 September 12, 2001, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by the NASD. The Association filed the proposal pursuant to Section 
19(b)(3)(A) of the Act,\3\ and Rule 19b-4(f)(3) thereunder \4\ as being 
concerned solely with the administration of the self-regulatory 
organization, which renders the proposal effective upon filing with the 
Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(3).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The NASD proposes to amend the By-Laws of its subsidiary, NASD 
Regulation, Inc. (``NASD Regulation''). The text of the proposed rule 
change is below. Proposed new language is in italics; proposed 
deletions are in brackets.

BY-LAWS OF NASD REGULATION, INC.

ARTICLE I
 DEFINITIONS
* * * * *
    (i) ``Director'' means a member of the Board[, excluding the Chief 
Executive Officer of the NASD];
* * * * *
    (q) ``Industry Director'' or ``Industry member'' means a Director 
(excluding the President of NASD Regulation and the Chief Executive 
Officer of NASD) or a National Adjudicatory Council or committee member 
who (1) Iis or has served in the prior three years as an officer, 
director, or employee of a broker or dealer, excluding an outside 
director or a director not engaged in the day-to-day management of a 
broker or dealer; (2) is an officer, director (excluding an outside 
director), or employee of an entity that owns more than ten percent of 
the equity of a broker or dealer, and the broker or dealer accounts for 
more than five percent of the gross revenues received by the 
consolidated entity; (3) owns more than five percent of the equity 
securities of any broker or dealer, whose investments in brokers or 
dealers exceed ten percent of his or her net worth, or whose ownership 
interest otherwise permits him or her to be engaged in the day-to-day 
management of a broker or dealer; (4) provides professional services to 
brokers or dealers, and such services constitute 20 percent or more of 
the professional revenues received by the Director or member or 20 
percent or more of the gross revenues received by the Director's or 
member's firm or partnership; (5) provides professional services to a 
director, officer, or employee of a broker, dealer, or corporation that 
owns 50 percent or more of the voting stock of a broker or dealer, and 
such services relate to the director's, officer's, or employee's 
professional capacity and constitute 20 percent or more of the 
professional revenues received by the Director or member or 20 percent 
or more of the gross revenues received by the Director's or member's 
firm or partnership; or (6) has a consulting or employment relationship 
with or provides professional services to the NASD, NASD Regulation, 
Nasdaq, NASD Dispute Resolution, or Amex (and any predecessor), or has 
had any such relationship or provided any such services at any time 
within the prior three years;
* * * * *
    (y) ``Non-Industry Director'' or ``Non-Industry member'' means a 
Director (excluding the President of NASD Regulation and the Chief 
Executive Officer of NASD) or a National Adjudicatory Council or 
committee member who is (1) a Public Director or Public member; (2) an 
officer or employee of an issuer of securities listed on Nasdaq or 
Amex, or traded in the over-the-counter market; or (3) any other 
individual who would not be an Industry Director or Industry member;
* * * * *
Number of Directors
    Sec. 4.2  The Board shall consist of no fewer than five and no more 
than [ten ]fifteen Directors, the exact number to be determined by 
resolution adopted by the stockholder of NASD Regulation from time to 
time. Any new Director position created as a result of an increase in 
the size of the Board shall be filled pursuant to Section 4.4.
Qualifications
    Sec. 4.3(a) Directors need not be stockholders of NASD Regulation. 
Only Governors of the NASD Board shall be eligible for election to the 
Board. The number of Non-Industry Directors shall equal or exceed the 
number of Industry Directors [plus the President]. The Board shall 
include the President and the National Adjudicatory Council Chair, 
representatives of an issuer of investment company shares or an

[[Page 48897]]

affiliate of such an issuer, and an insurance company or an affiliated 
NASD member. If the Board consists of 5-7 Directors, it shall include 
at least one Public Director. If the Board consists of eight to nine 
Directors, at least two Directors shall be Public Directors.[and I] If 
the Board consists of ten to twelve Directors, at least three Directors 
shall be Public Directors, and if the Board consists of thirteen to 
fifteen Directors, at least four shall be Public Directors. The Chief 
Executive Officer of the NASD shall be an ex-officio non-voting member 
of the Board.
* * * * *
Committees
    Sec. 4.13(f)  The Board may appoint an Executive Committee, which 
shall, to the fullest extent permitted by Delaware law and other 
applicable law, have and be permitted to exercise all the powers and 
authority of the Board in the management of the business and affairs of 
NASD Regulation between meetings of the Board, and which may authorize 
the seal of NASD Regulation to be affixed to all papers that may 
require it. The Executive Committee shall consist of three or four 
Directors, including at least one Public Director. The President of 
NASD Regulation shall be a member of the Executive Committee. The 
number of Non-Industry committee members shall equal or exceed the 
number of Industry committee members [plus the President]. An Executive 
Committee member shall hold office for a term of one year. At all 
meetings of the Executive Committee, a quorum for the transaction of 
business shall consist of a majority of the Executive Committee, 
including not less than 50 percent of the Non-Industry committee 
members. In the absence of a quorum, a majority of the committee 
members present may adjourn the meeting until a quorum is present.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the NASD 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. The Association 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
    On May 8, 2001, the Commission approved certain amendments to the 
NASD By-Laws.\5\ The NASD By-Laws were amended to reclassify the NASD 
Chief Executive Officer and President of NASD Regulation Governor 
positions as neutral Governors; that is, neither Industry nor Non-
Industry Governors. The reclassification of those Governor positions 
was consistent with the neutrality classification other self-regulatory 
organizations assign to their staff Board members and allow the two 
Industry seats the staff occupied before the reclassification to be 
available to Industry candidates elected by the NASD membership. The 
proposed conforming changes to the NASD Regulation By-Laws will 
similarly reclassify the NASD Chief Executive Officer and President of 
NASD Regulation Director positions as neutral Director positions.
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    \5\ See Securities Exchange Act Release No. 44280 (May 8, 2001), 
66 FR 26892 (May 15, 2001) SR-NASD-2001-06).
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    Additionally, the proposed NASD Regulation By-Law amendment 
increasing the maximum size of the Board will allow the NASD more 
flexibility in determining the size of the NASD Regulation Board.
2. Statutory Basis
    The NASD believes the proposed rule change is consistent with 
Section 15A(b)(4) of the Act,\6\ which requires, among other things, 
that the Association's rules be designed to assure a fair 
representation of its members in the administration of its affairs. The 
NASD believes that the proposed rule change enhances the Association's 
ability to assure fair representation on the NASD Regulation Board.
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    \6\ 15 U.S.C. 78o-3(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The NASD 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, as amended.

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

    The proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \7\ and subparagraph (f)(3) of Rule 19b-4 
thereunder,\8\ because it is concerned solely with the administration 
of the Association. At any time within 60 days of the filing of 
proposed rule change, the Commission nat summarily abrogate such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(3).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposal 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 Association. All 
submissions should refer to file number SR-NASD-2001-57 and should be 
submitted by October 15, 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. 01-23742 Filed 9-21-01; 8:45 am]
BILLING CODE 8010-01-M