[Federal Register Volume 66, Number 210 (Tuesday, October 30, 2001)]
[Notices]
[Pages 54794-54796]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-27308]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44973; File No. SR-NASD-2001-74]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Relating to a Change in the Length of the Term 
of Office of National Adjudicatory Council Members

October 23, 2001.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and rule 19b-4 \2\ thereunder, notice is hereby given 
that on October 18, 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 (the ``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared by the NASD. 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

    Pursuant to Rule 19b-4 under the Act, NASD Regulation is herewith 
filing a proposed rule change to change the term of office of its 
National Adjudicatory Council (``NAC'') members from two years to three 
years.
    The text of the proposed rule change appears below. New text is in 
italics; deletions are in brackets.
* * * * *

By-Laws of NASD Regulation, Inc.

Article V
National Adjudicatory Council
Term of Office
    Sec. 5.4
    (a) Except as otherwise provided in this Article, each National 
Adjudicatory Council member shall hold office for a term of [two] three 
years or until a successor is duly appointed and qualified, except in 
the event of earlier termination from office by reason of death, 
resignation, removal, disqualification, or other reason.
    (b) [In 1998, each National Adjudicatory Council member shall hold 
office for a term of one year or until a successor is duly appointed 
and qualified, except in the event of earlier termination from office 
by reason of death, resignation, removal, disqualification, or other 
reason.
    (c) [Beginning in January [1999] 2002 [and thereafter], the 
National Adjudicatory Council shall be divided into [two] three 
classes. The term of office of those of the first class shall expire in 
January [2000] 2003, [and] the term of office of those of the second 
class shall expire [one year thereafter] in January 2004, and the term 
of office of those of the third class shall expire in January 2005. 
Beginning in January [2000] 2003, members shall be appointed for a term 
of [two] three years to replace those whose terms expire.
    [(d](c) Beginning in [2000] 2002, no member may serve [more than 
two] consecutive terms, except that if a member is appointed to fill a 
term of less than one year, such member may serve [up to two 
consecutive] a single three year term[s] following the expiration of 
such member's initial term.
* * * * *
Article VI
National Adjudicatory Council Regional Nominations for Industry Members
Notice to Chair
    Sec. 6.8 [On or before August 1, 1998, the Secretary of NASD 
Regulation shall send a written notice to the Chair of each Regional 
Nominating Committee to initiate the process for nominating an 
individual to represent the region on the National Adjudicatory Council 
for a term of office of one or two years, as determined by the Board, 
beginning in 1999.] On or before August 1, 1999, and annually 
thereafter, the Secretary of NASD Regulation shall send a written 
notice to the Chair of a Regional Nominating Committee if the term of 
Office of the National Adjudicatory Council member representing the 
region shall expire in the next calendar year. The notice shall 
describe the nomination procedures for filling the office.
* * * * *

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 NASD 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 Association states that the NAC is a balanced committee of the 
NASD consisting of 14 members--seven industry members and seven non-
industry members. Two industry members are at-large, and five are 
nominated to represent one of the NASD's five geographic regions. All 
members must be nominated by the NASD's National Nominating Committee 
and must be appointed by the NASD Regulation Board.
    The NAC hears appeals and calls for review of disciplinary matters; 
acts on

[[Page 54795]]

applications in statutory disqualification and membership proceedings; 
acts on certain disciplinary settlement proposals; exercises exemptive 
authority; and acts in other proceedings as set forth in the NASD Code 
of Procedure. The NAC also advises NASD Regulation staff and the Board 
on enforcement policy and proposed rules relating to the business and 
sales practices of NASD members and associated persons.
    Currently, NAC members serve terms of two years, with no member 
allowed to serve more than two consecutive two-year terms. In 2000, the 
outgoing NAC Chair requested staff to consider the feasibility of 
extending the term of NAC members to three years. During 2001, 
Association staff solicited input from several District Committees, the 
NASD Advisory Council (the Chairs of all NASD District Committees and 
the Market Regulation Committee), and the NAC, all of which favored 
making the change. Association staff developed a proposal, which was 
reviewed and supported by the NASD Small Firm Advisory Board. On 
September 20, 2001, the NASD Board of Governors voted unanimously in 
favor of the change.
    The Association states that the purpose for extending the NAC term 
from two to three years is to provide for greater continuity and to 
make better use of the experience and expertise of NAC members with 
respect to the specialized work of the NAC, particularly industry 
members. Increasingly, incumbent NAC members eligible for a second 
consecutive two-year term have not been renominated by their Regional 
Nominating Committees, thus capping their service on the NAC at two 
years. The Association staff believes that a three-year term would 
enable members to make more effective contributions to the work of the 
NAC, and it would make the term of service of NAC members consistent 
with the terms of members of NASD District Committees and the NASD 
Regulation Board. To assure appropriate turnover, NAC members would be 
restricted from serving consecutive terms.
    The Association further states that the transition from two-year to 
three-year NAC terms will be implemented by the NASD National 
Nominating Committee and the NASD Regulation Board beginning in January 
2002. The current NAC membership will be divided into three classes, as 
nearly equal in number and as evenly divided between industry and non-
industry seats as possible. Class 1 NAC members will serve until 
January 2003; Class II members will serve until January 2004; and Class 
III members will serve until January 2005. Commencing in January 2003, 
newly elected members will assume three-year terms. The Association 
states that the designation of current NAC members into these three 
classes is designed to assure an orderly transition by (a) providing 
appropriate continuity in the composition of the NAC (both industry and 
non-industry members) during the transition period; and (b) minimizing, 
to the greatest possible extent, the number of current NAC members 
whose terms would be reduced by the transition.
(2) Statutory Basis
    The Association believes that the proposed rule change is 
consistent with section 15A(b)(4) \3\ of the Act, which requires, among 
other things, that the Association's rules must 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 NAC and the 
NASD Board of Governors.
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    \3\ 15 U.S.C. 78o-3(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Association 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.\4\
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    \4\ This proposed By-Law change was not published for comment by 
the NASD through its Notice to Members process, but as noted above 
was endorsed by several NASD District Committees, the NASD Advisory 
Council, the Small Firm Advisory Board, and the NAC.
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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) of the Act \5\ and subparagraph (f)(6) of rule 19b-4 \6\ 
thereunder because it does not (i) significantly affect the protection 
of investors or the public interest; (ii) impose any significant burden 
on competition; (iii) become operative for 30 days from the date on 
which it was filed, or such shorter time as the Commission may 
designate; and the Association gave the Commission written notice of 
its intention to file the proposed rule change at least five business 
days before filing. 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.
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    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(6).
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    The Commission notes that under rule 19b-4(f)(6)(iii),\7\ the 
proposal does not become operative for 30 days after the date of its 
filing, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest. In 
accordance with rule 19b-4(f)(6)(iii),\8\ before the filing date, NASD 
Regulation submitted written notice of its intent to file the proposed 
rule change along with a brief description and text of the proposed 
rule change. In that notice, NASD Regulation requested that the 
Commission waive the requirement that the rule change, by its terms, 
not become operative for 30 days after the date of the filing, as 
consistent with the protection of investors and the public interest. 
The NASD has stated that the NASD National Nominating Committee will 
meet on October 26, 2001 to nominate a slate of NAC candidates for 
appointment by the NASD Regulation Board. The NASD Regulation Board 
will consider the nominations to the NAC on December 5, 2001. The NASD 
states that it is thus necessary for the rule change to be both 
effective and operative on filing in order to meet this timetable.
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    \7\ 17 CFR 240.19b-4(f)(6)(iii).
    \8\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission finds that accelerating the operative date of the 
rule change as proposed will aid the NASD in meeting the above 
timetable for nominations to the NAC and is consistent with the 
protection of investors and the public interest, and thus designates 
the date hereof as the operative date.

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

[[Page 54796]]

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 the filing will also be 
available for inspection and copying at the principal office of the 
Association. All submissions should refer to File No. SR-NASD-2001-74 
and should be submitted by November 20, 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. 01-27308 Filed 10-29-01; 8:45 am]
BILLING CODE 8010-01-M