[Federal Register Volume 66, Number 193 (Thursday, October 4, 2001)]
[Notices]
[Pages 50699-50701]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-24808]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44867; File No. SR-NASD-2001-58]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Amending NASD Code of Procedure Rule 9216 and 
NASD Code of Procedure Rule 9270 To Substitute the Office of 
Disciplinary Affairs for the Office of General Counsel for Review of 
Proposed Acceptance, Waivers and Consents, Proposed Minor Rule 
Violation Letters, and Offers of Settlement

September 27, 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 24, 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 (``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.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Commission made various typographical and formatting 
changes and one change to the rule language of NASD Code of 
procedure Rule 9270(e)(3) at the request of the NASD. The changes 
are reflected in this notice. Telephone discussion between Shirley 
H. Weiss, Office of General Counsel, NASD Regulation, and 
Christopher B. Stone, Attorney Advisor, Division of Market 
Regulation, Commission (Sept. 25, 2001).
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1. Self-Regulatory Organizations' Statement of the Terms of 
Substance of the Proposed Rule Change

    NASD Regulation proposes to amend NASD Code of Procedure Rule 9216 
and NASD Code of Procedure Rule 9270. The proposed amendments would 
substitute review by the Office of General Counsel (``OGC'') of 
proposed Acceptance, Waivers and consents (``AWCs''), proposed 
violation letters under the minor rule violation plan pursuant to NASD 
Code of Procedure Rule 9216 and Offers of Settlement pursuant to NASD 
Code of Procedure Rule 9270 (hereinafter referred to collectively as 
``settlements'') with review by the Office of Disciplinary Affairs 
(``ODA'').
    Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *
    9200. Disciplinary Proceedings
* * * * *
    9216. Acceptance, Waiver, and Consent; Plan Pursuant to SEC Rule 
19d-1(c)(2)
    (a) Acceptance, Waiver, and Consent Procedures
    (1) No change
    (2) No change
    (3) If the member or associated person executes the letter of 
acceptance, waiver, and consent, it shall be submitted to the National 
Adjudicatory Council. The Review Subcommittee or the [General Counsel] 
Office of Disciplinary Affairs may accept such letter or refer it to 
the National Adjudicatory Council. The Review Subcommittee may reject 
such letter or refer it to the National Adjudicatory Council for 
acceptance or rejection by the National Adjudicatory Council.
    (4) If the letter is accepted by the National Adjudicatory Council, 
the Review Subcommittee, or the [General Counsel] Office of 
Disciplinary Affairs, it shall be deemed final and shall constitute the 
complaint, answer, and decision in the matter. If the letter is 
rejected by the Review Subcommittee or the National Adjudicatory 
Council, NASD Regulation may take any other appropriate disciplinary 
action with

[[Page 50700]]

respect to the alleged violation or violations. If the letter is 
rejected, the member or associated person shall not be prejudiced by 
the execution of the letter of acceptance, waiver,and consent under 
subparagraph (a)(1) and the letter may not be introduced into evidence 
in connection with the determination of the issues set forth in any 
complaint or in any other proceeding.
    (b) Procedure for Violation Under Plan Pursuant to SEC Rule 19d-
1(c)(2)
    (1) No change
    (2) No change
    (3) If the member or associated person executes the minor rule 
violation plan letter, it shall be submitted to the National 
Adjudicatory Council. The Review Subcommittee or the [General Counsel] 
Office of Disciplinary Affairs may accept such letter or refer it to 
the National Adjudicatory Council for acceptance or rejection by the 
National Adjudicatory Council. The Review Subcommittee may reject such 
letter or refer it to the National Adjudicatory Council for acceptance 
or rejection by the National Adjudicatory Council.
    (4) If the letter is accepted by the National Adjudicatory council, 
the Review Subcommittee, or the [General Counsel] Office of 
Disciplinary Affairs, it shall be deemed final and the Association 
shall report the violation to the Commission as required by the 
Commission pursuant to a plan approved under SEC Rule 19d-1(c)(2). If 
the letter is rejected by the Review Subcommittee or the National 
Adjudicatory council, NASD Regulation may take any other appropriate 
disciplinary action with respect to the alleged violation or 
violations. If the letter is rejected, the member or associated person 
shall not be prejudiced by the execution of the minor rule violation 
plan letter under subparagraph (b)(1) and the letter may not be 
introduced into evidence in connection with the determination of the 
issues set forth in any complaint or in any other proceeding.
* * * * *
    9270. Settlement Procedure
    (a) through (d) No change
    (e) Uncontested Offers of Settlement
    No change
    (1) No change
    (2) Before an offer of settlement and an order of acceptance shall 
become effective, they shall be submitted to and accepted by the 
National Adjudicatory Council. The Review Subcommittee of the [General 
Counsel] Office of Disciplinary Affairs may accept such offer of 
settlement and order of acceptance or refer them to the National 
Adjudicatory Council for acceptance or rejection by the National 
Adjudicatory Council. The Review Subcommittee may reject such offer of 
settlement and order of acceptance or refer them to the National 
Adjudicatory Council for acceptance or rejection by the National 
Adjudicatory Council.
    (3) If the offer of settlement and order of acceptance are accepted 
by the National Adjudicatory Council, the Review Subcommittee, or the 
[General Counsel] Office of Disciplinary Affairs, they shall become 
final and the [General Counsel] Director of the Office of Disciplinary 
Affairs shall issue the order and notify the Office of Hearing 
Officers.
    (f) through (j) 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 Regulations included 
statements concerning the purpose of and the 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
    The purpose of the proposed rule change is to substitute OGS review 
of settlements with ODA review of settlements. This change in 
administrative practice would reduce certain duplications of effort in 
part of staff of ODA and OGC in the settlement review process, and it 
would also shorten the time that it generally takes to accept or reject 
a settlement. The proposed rule change would give ODA the sole 
responsibility for reviewing and approving proposed settlements and for 
referring selected proposed settlements to the National Adjudicatory 
Council (``NAC''), via the Review Subcommittee (``RSC''). Pursuant to 
Article V, Section 5.11 of the NASD Regulation By-Laws, the RSC is 
appointed by the NAC to determine whether disciplinary and membership 
proceedings decisions should be called for review by the NAC under the 
Rules of the Association and to perform any other function authorized 
by the Rules of the Association. The RSC is composed of no fewer than 
two and no more than four members of the NAC, and the number of non-
industry members equals or exceeds the number of industry members. OGC 
will continue to act in its role as counsel to the NAC and the RSC.
    Currently, all proposed settlements receive at least two layers of 
independent staff review in addition to the internal supervisory 
processes of the Departments of Enforcement and Market Regulation. ODA 
conducts the first review. ODA (formerly called the Office of 
Disciplinary Policy) was established in 1997 within the Office of the 
President. Its purpose is to participate in the case authorization 
process as an independent reviewer of complaints and settlements 
developed by the Departments of Enforcement and Market Regulation.\4\ 
ODA currently has the authority either to (1) authorize a proposed 
settlement, in which case it is forwarded to the NAC (via OGC) for 
acceptance under NASD Code of Procedure Rule 9216 or NASD Code of 
Procedure Rule 9270, or (2) refuse to authorize a proposed settlement, 
in which case the matter is sent back to Enforcement or Market 
Regulation for further consideration.\5\
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    \4\ In 1997 and 1998, ODA reviewed all complaints and proposed 
settlements for policy issues but formal authorization was handled 
by a Case Authorization Unit in the Department of Enforcement. The 
policy review and authorization functions were consolidated within 
ODA in January 1999. Securities Exchange Act Release No. 40864 (Dec. 
30, 1998), 64 FR 1050 (Jan. 7, 1999) (File No. SR-NASD-98-90).
    \5\ In practice, the NAC generally does not review settlements, 
leaving that functions to OGC and the RSC.
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    OGC serves as counsel to the NAC (via the RSC) in its review of 
proposed settlements authorized by ODA. NASD Code of Procedure Rule 
9216 and NASD Code of Procedure Rule 9270 provide that OGC (on behalf 
of the NASD Regulation General Counsel) may accept settlements on 
behalf of the NAC or refer them to the RSC for acceptance or rejection, 
and the RSC may accept or reject settlement on behalf of the NAC.
    The proposed rule change will revise the Code of Procedure to 
substitute ODA for OGC in the settlement process and give ODA the 
authority to accept, but not reject, settlements. If ODA determines not 
to accept a settlement, the Departments of Enforcement and Market 
Regulation will have the option either to renegotiate the settlement 
based on ODA's input or to submit the proposed settlement to the RSC. 
When matters are presented to the RSC, ODA and Enforcement and Market 
Regulation attorneys will present their positions to the RSC (in 
writing and orally), and

[[Page 50701]]

OGC staff will act as advisor to the RSC. As is the case under the 
current system, the RSC will either accept or reject. ODA will also 
refer matters to the RSC that raise significant policy issues.
    Pursuant to the proposal, OGC will continue to serve as counsel to 
the NAC and RSC on all adjudicative matters. OGC will advise the NAC 
and/or RSC on particular settlements as necessary, and it will bring 
significant policy issues to the NAC as required. OGC will also meet 
with ODA and Enforcement and Market Regulation management on a regular 
basis to discuss these significant issues. OGC will review all accepted 
settlements and identify trends, issues, and evidentiary and legal 
problems for the NAC.
2. Statutory Basis
    NASD Regulation believes that the proposed rule change is 
consistent with the provisions of Section 15A(b)(6) \6\ of the Act, 
which requires, among other things, that the NASD'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 will reduce the current duplication of 
effort by ODA and OGC and shorten the time that it generally takes to 
accept or reject a settlement.
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    \6\ 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, 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 foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) \7\ of the Act and Rule 19b-4(f)(3) thereunder \8\ as being 
concerned solely with the administration of the NASD. At any time 
within 60 days of the filing of such proposed rule change, the 
Commission may 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.\9\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(3).
    \9\ See Section 19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C).
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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 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-2001-58 and 
should be submitted by October 25, 2001.

    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. 01-24808 Filed 10-3-01; 8:45 am]
BILLING CODE 8010-01-M