[Federal Register Volume 66, Number 234 (Wednesday, December 5, 2001)]
[Notices]
[Pages 63271-63275]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-30138]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45109; File No. SR-NASD-2001-19]


Self-Regulataory Organizations; Order Approving a Proposed Rule 
Change and Amendment Nos. 1 and 2 Thereto by the National Association 
of Securities Dealers, Inc., Relating to Reporting Requirements for 
Clearing Members

November 27, 2001.
    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''), 
pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'')\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change 
relating to reporting requirements for members that are clearing firms. 
The proposed rule change was published for comment in the Federal 
Register on May 9, 2001.\3\ The Commission received five comment 
letters on the proposed rule change.\4\ On June 6, 2001, NASD 
Regulation filed Amendment No. 1 to the proposed rule change.\5\ On 
November 1, 2001, NASD Regulation filed Amendment No. 2 to the proposed 
rule change.\6\ This order approves the proposed rule change as 
amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 44251 (May 3, 2001), 
66 FR 23750 (SR-NASD-2001-19)
    \4\ See Letters to Jonathan G. Katz, Secretary, Commission, from 
D. Stuart Bowers, Senior Vice President, Legg Mason Wood Walker, 
Inc., John H. Haynie, Managing Director, Wachovia Securities, Inc., 
Thomas F. Grabowski, Vice President, BNY Clearing Services, LLC, 
Douglas W. Noll, First Vice President, Stifel, Nicolaus & Company, 
Incorporated, Michael D. Duffy, Director of Operations, U.S. Bancorp 
Piper Jaffray, and Ken Cameranesi, Senior Vice President, Wells 
Fargo Investments, dated May 17, 2001 (``The Firms'; Letter''); 
Harry D. Frisch, Esq., Senior Vice President, iClearing LLC, dated 
June 7, 2001 (``iClearing Letter''); Gregory P. Vitt, Senior Vice 
President, A.G. Edwards & Sons, Inc., dated June 28, 2001 (``A.G. 
Edwards Letter''); and W. Leo McBlain, Chairman and Cindy Foster, 
Chair, FIF Service Bureau Committee, Financial Information Forum, 
dated June 28, 2001 (``FIF Letter'').
    \5\ See Letter from Shirely H. Weiss, Office of General Counsel, 
NASD Regulation, Inc., to Jonathan G. Katz, Secretary, Commission 
(June 4, 2001) (``Amendment No. 1''). Amendment No. 1 responds to 
the Firms' letter by reiterating the commitment of NASD Regulation 
to work with its member firms to facilitate reporting requirements 
under proposed Rule 3150. Further, NASD Regulation represented that 
it conducted and would continue to conduct a series of meetings with 
the service bureaus and member clearing firms to explain and modify 
data element requirements. Moreover, NASD Regulation amended the 
proposed rule text to include both clearing and self-clearing member 
firms.
    \6\ See Letter from Patrice M. Gliniecki, Vice President and 
Deputy General Counsel, NASD Regulation, Inc., to Jonathan G. Katz, 
Secretary, Commission (November 1, 2001) (``Amendment No. 2''). 
Amendment No. 2 responds to comment letters received by the 
Commission, as well as comment letters received by NASD Regulation 
from Harris Schwartz, Nordea Securities, Inc., dated June 8, 2001 
(``Nordea Letter''); Bonnie K. Wachtel, CEO and Wendie L. Wachtel, 
COO, Wachtel & Co., Inc., dated June 29, 2001 (``Wachtel Letter''); 
and Michael Viviano, Chairman, Operations Committee, Chrstopher R. 
Franke, Chairman, Self-Regulatory and Supervisory Practices 
Committee, and Gerard McGraw, Chairman, Clearing Firms Committee, 
Securities Industry Association, dated July 19, 2001 (``SIA 
Letter''). In particular, Amendment No. 2 clarifies that only 
clearing and self-clearing firms that are members (not non-members) 
will be required to report the prescribed data. Amendment No. 2 
provides additional information on the data element requirements, 
and proposes a phase-in schedule for the implementation of reporting 
requirements. Last, Amendment No. 2 amends the rule text to include 
an exemptive provision from the reporting requirements, pursuant to 
the Rule 9600 Series.
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I. Description of the Proposed Rule Change

    NASD 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 the 
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 examiner's competency levels.
    According to NASD Regulation, the surveillance component of the 
INSITE program will produce reports that identify member ``exceptions'' 
based on historical and current comparisons of member data. Further, 
the exceptions will trigger follow-up reviews and possible member 
examinations. To facilitate the surveillance component of INSITE, NASD 
Regulation proposed to adopt Rule 3150 to require all members that are 
clearing firms (both those that are self-clearing and those that clear 
for other firms) to report certain data (i.e., data elements) to the 
NASD Regulation Department of Member regulation (``Member 
Regulation'').\7\ Under the NASD's proposal, 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, NASD 
Regulation proposed that each member that is a clearing firm would be 
responsible for complying with the requirements of the proposed rule 
change.
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    \7\ The Association anticipates requesting members that are 
clearing firms to submit data electronically. Telephone conversation 
between Shirley W. 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 of proposed Rule 3150 does not specify the data that must 
be reported to NASD Regulation. Initially, the data elements that NASD 
Regulation will require its members that are clearing firms to submit 
to the Association pursuant to proposed Rule 3150 included items such 
as trade cancellations (T+1 forward) and as-of trades, aggregate net 
liquidating equity in each firm's correspondents' proprietary accounts, 
and unsecured customer debits. NASD Regulation represented that it 
would continue to work its clearing firm members and the SEC staff in 
identifying the data that is needed in order to operate the 
surveillance component of INSITE. NASD Regulation would also provide 
its clearing firm members with advance notice through the NASD Notice 
to Members process (or similar guidance) of any changes to the required 
data

[[Page 63272]]

elements. Moreover, NASD Regulation would 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 information to the 
Association.

II. Summary of Comments

    The Commission received five comment letters on the proposal.\8\ In 
addition, NASD Regulation received three comment letters regarding the 
proposal.\9\ There were several issues raised by commenters.
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    \8\ See note 4, supra.
    \9\ See note 6, supra.
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    First, commenters requested that NASD Regulation give further 
details on the data elements that were to be collected.\10\ Further, 
commenters questioned the usefulness of the required data elements, 
since the requirements tend to duplicate information already provided 
by clearing and self-clearing firms through Financial and Operational 
Combined Uniform Single (``FOCUS'') Reports, the NASD's Automated 
Confirmation Transaction Service (``ACT'') and Order Audit Trail System 
(``OATS'').\11\
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    \10\ See The Firms Letter; iClearing Letter; SIA Letter
    \11\ See A.G. Edwards Letter; SIA Letter.
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    In response to the commenters' request for clarification of the 
required data elements, the NASD Regulation has created an INSITE Web 
site from which firms may obtain information.\12\ Members may review 
the proposed Firm Data Filing Technical Specifications that will be 
required under Rule 3150 and a bullet point presentation of the INSITE 
Exam Program, which describes the INSITE program in detail. The Web 
site will also feature questions asked by clearing and self-clearing 
firms and NASD Regulation's answers to their questions. NASD Regulation 
has also represented that it will continue to report modifications or 
clarifications of the reporting requirements on the INSITE Web 
site.\13\
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    \12\ Currently, NASD members may review the Firm Data Elements 
on NASD Regulation's Web site, http://www.nasdr.com/insite.htm, at 
ages 16-18. In the initial implementation of the INSITE program, 
NASD Regulation represents that no new data elements will be added, 
and some data elements may be eliminated. NASD Regulation does not 
anticipate materially expanding the data element requirements.
    \13\ See Amendment No. 2, p. 3.
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    In addition, starting in June 2001, NASD Regulation conducted a 
series of workshops with clearing and self-clearing firms around the 
country. According to NASD Regulation, the purpose of these workshops 
was, among other things, to explain the data elements that firms would 
be required to report under proposed Rule 3150, to answer the firms' 
questions about the reporting process, and to gather additional 
information about the firms' capability to report required 
information.\14\ NASD Regulation stated that it would continue to 
modify the reporting requirements as necessary based on the information 
it has received, and continues to receive, from its member firms and 
service bureaus.\15\ Moreover, as suggested by the SIA,\16\ NASD 
Regulation is currently meeting with a specially formed committee 
(``SIA Committee'') comprised of technology, compliance, operations, 
and legal professionals to discuss such issues as the data elements, 
the implementation schedule for firm filings, and reports to member 
firms. NASD Regulation staff expects to have an on-going relationship 
with the Committee as a means of obtaining industry input.\17\
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    \14\ See id.
    \15\ Id.
    \16\ See SIA Letter.
    \17\ See note 13, supra.
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    In response to the commenters' concerns of the duplication of 
reporting information through FOCUS reports, ACT, and OATS, NASD 
Regulation has represented that data reported through OATS will not be 
duplicated, since that data pertains to orders, and the INSITE data 
would pertain to transaction and account data. Similarly, information 
reported through ACT does not provide the detail required by the INSITE 
program regarding cancellations and rebills.\18\
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    \18\ Id.
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    In addition, NASD Regulation noted that some of the required data 
duplicates information required to be reported in FOCUS Reports.\19\ 
According to NASD Regulation, the difference is the frequency with 
which INSITE information would be reported. INSITE information, which 
can change very rapidly and which can have a significant impact on a 
firm's capital, would be reported on a daily basis,\20\ giving NASD 
Regulation the opportunity to discover capital problems almost as they 
occur, whereas FOCUS Reports are filed on a monthly and quarterly 
basis.\21\ Furthermore, NASD Regulation believes that the data elements 
also provide valuable insights into potential sales practice issues as 
they arise.
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    \19\ Id.
    \20\ NASD Regulation represents that the INSITE program may, in 
the future, require firms to report certain data elements less 
frequently. NASD Regulation will publish any change in the daily 
reporting requirements well in advance of the date on which that 
change will occur.
    \21\ See note 13, supra.
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    Second, commenters were concerned that they would not be able to 
submit the data elements requested in the suggested format due to 
technical flaws and inconsistencies.\22\ In addition, commenters wanted 
more details and results of the testing completed by the three pilot 
member firms.\23\
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    \22\ See The Firms Letter; iClearing Letter; A. G. Edwards 
Letter.
    \23\ See The Firms Letter; iClearing Letter.
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    In response to the commenters' concerns, NASD Regulation 
represented that it is in the process of conducting a pilot program 
with three clearing firms (Bear, Stearns & Co. Inc., Pershing, a 
division of Donaldson, Lufkin & Jenrette Securities Corporation, and 
Wexford Clearing Services Incorporated, a division of Prudential 
Securities Incorporated). These pilot firms are electronically 
reporting on a daily basis a portion of the firm data elements, and the 
pilot firms have not reported any significant problems in collecting 
and reporting this data. According to NASD Regulation, the pilot 
program has helped NASD Regulation to identify and resolve any 
technical problems experienced by these firms.\24\ NASD Regulation 
expects, as with any new program or technology, that systems failures 
may arise. When that happens, firms will be expected to report these 
failures to NASD Regulation, correct them as expeditiously as possible, 
and restart the reporting process.\25\ Generally, NASD Regulation 
represents that a system failure that has happened in the normal course 
of doing business, and which a firm is attempting to correct, will not 
be viewed as a disciplinary matter.\26\
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    \24\ See Amendment No. 2, p. 4.
    \25\ Id.
    \26\ Id.
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    The proposed reporting program has been designed to require firms 
to provide summaries of information that they already collect, 
including, among other things, aggregate net liquidating equity, 
exchange and non-exchange transactions, options transactions, debt 
transactions, customer accounts, short interest, unsecured customer 
debits, trade cancellations and as-of trades summaries and detail. NASD 
Regulation is specifying the file formats. Firms may report this data 
via NASD Regulation's Form Filing Web site or, for firms with 
connectivity to the NASD OATS private network, through that file 
transfer protocol.\27\ NASD Regulation recognizes that firms may have 
to make some

[[Page 63273]]

programming changes in order to create the daily summaries required by 
the INSITE program. The information required to establish these 
programs is currently being made available on the INSITE Web site, and 
firms subject to proposed Rule 3150 should have ample time to prepare 
for their participation in the program.\28\ Further, members are 
advised on the INSITE Web site that NASD Business and Technology 
Support Services is the primary source of information about INSITE, and 
that it can be used as a source for answers to questions about 
reporting responsibilities, technical specifications for reporting to 
the NASD, deadlines, and more.\29\
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    \27\ Id.
    \28\ Id.
    \29\ Id.
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    Moreover, as suggested by the SIA, NASD Regulation has represented 
that it is committed to developing a system on its Web site that will 
permit members to review the information that has been reported by 
firms, directly or on their behalf by clearing firms or service 
bureaus. NASD Regulation will work with its member firms to develop a 
useful format. NASD Regulation expects this system to be fully 
functional in the latter part of 2002.\30\
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    \30\ Id.
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    Third, commenters were concerned that the time frame of 
implementing proposed Rule 3150 would be unrealistic.\31\ In response 
to the commenters concerns, NASD Regulation has stated that its goal is 
to implement reporting requirements under proposed Rule 3150 in as 
reasonable a manner as possible in order to give clearing firms, self-
clearing firms, and service bureaus sufficient time to prepare. NASD 
Regulation plans to begin requiring reporting under proposed Rule 3150 
as of December 10, 2001. The three member firms that have been 
participating in the pilot program will be phased in first. All three 
firms will be reporting the published Firm Data Elements under proposed 
Rule 3150 by mid-January 2002.
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    \31\ See The Firms Letter; iClearing Letter; FIF Letter.
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    NASD Regulation represents that it will phase in all other members 
in several stages. NASD Regulation is currently working with the SIA 
Committee and FIF to establish these dates. NASD Regulation will 
publish the schedule of phase-ins as soon as it has been established, 
but in no event will NASD Regulation give member firms less than six-
months notice of their start-up date. NASD Regulation also represents 
that it will take into account broker-dealers' relationships with 
service bureaus in establishing the phase-in schedules. NASD Regulation 
expects Rule 3150 to be fully implemented by the end of 2002.\32\
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    \32\ Telephone conversation between Shirley H. Weiss, Office of 
General Counsel, NASD Regulation and Florence Harmon, Senior Special 
Counsel, Division of Market Regulation, Commission (Nov. 27, 2001).
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    NASD Regulation also proposed to amend proposed Rule 3150 to 
eliminate the requirement that all data be reported on a daily basis, 
in order to give NASD Regulation the flexibility it needs to require 
that certain data elements be reported less frequently.\33\ As with the 
current data elements, NASD Regulation would announce any change in the 
reporting requirements well in advance of their implementation.\34\
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    \33\ See Amendment No. 2, p. 5.
    \34\ Id.
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    Fourth, commenters suggested that the Association include a 
provision for exemptive relief from the reporting requirements of 
proposed Rule 3150.\35\ These commenters suggested that such relief 
might be based on the nature of a firm's activities, its risk factors, 
and the size of its capital reserves.\36\
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    \35\ See Nordea Letter; Wachtel Letter.
    \36\ Id.
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    In response to these commenters, NASD Regulation has decided to 
include a provision in proposed Rule 3150 that would permit broker-
dealers to request an exemption from the reporting requirements of 
proposed Rule 3150 pursuant to the Rule 9600 Series.\37\ As stated in 
proposed Rule 3150(b), exemptions from any or all of the Rule 3150 
reporting requirements will be granted only under exceptional and 
unusual circumstances. According to NASD Regulation, the size of a firm 
will not be the determinative factor in deciding whether to grant such 
exemptions, since wholesale exemptions based solely on the size of a 
firm could jeopardize the strength of the INSITE program.
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    \37\ NASD Regulation is also proposing a rule change to Rule 
9610 that will add Rule 3150 to the rules under which members can 
seek exemptive relief.
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    NASD Regulation also proposed additional clarifications to proposed 
Rule 3150.\38\ NASD Regulation proposed to amend the rule language to 
explicitly refer to both clearing firms and self-clearing firms.\39\ In 
addition, NASD Regulation proposed to amend the rule language to 
clarify that the Association will only require its member clearing and 
self-clearing firms to report prescribed data pertaining to the member 
and any member broker-dealer for which it clears.\40\ This should 
exclude from the parameters of proposed Rule 3150 any broker-dealer 
that is not registered with the NASD.
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    \38\ See Amendment No. 2, p. 6.
    \39\ Id.
    \40\ When a clearing firm files data for its own business, NASD 
Regulation will treat it as a self-clearing firm for purposes of 
INSITE reporting requirements. In any event, a clearing firm (or a 
self-clearing firm) is not required to report is own aggregate net 
liquidating equity; instead, a clearing firm must report the 
aggregate net liquidating equity of its correspondent firms. (See 
page 16 of the INSITE Firm Data Technical Specifications, which 
states that a self-clearing firm may report its aggregate net 
liquidating equity as NULL, or no value.)
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III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
association.\41\ In particular, the Commission finds the proposal is 
consistent with section 15A(b)(6) of the Act,\42\ 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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    \41\ In approving this rule, the Commission has considered its 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78o-3(b)(9). The Commission finds that Rule 3150 appropriately 
balances the need of NASD Regulation for regulatory information with 
the need to provide clearing firms flexibility in reporting such 
information in a manner that is not unduly burdensome. For example, 
NASD Regulation has tailored the data elements, committed to provide 
six-months of notice of implementation, worked closely with the 
industry on implementation of Rule 3150, and provided alternative 
methods for reporting, such as service bureaus.
    \42\ 15 U.S.C. 78o-3(b)(6).
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    The Commission believes that the Association's proposal to enhance 
the surveillance and examination of NASD members via the INSITE program 
should help to prevent fraudulent and manipulative acts and practices 
and promote just and equitable principles of trade because it 
authorizes the Association to require clearing and self-clearing 
members to report certain data to be analyzed for indications of sales 
practice violations. In addition, the data elements reported pursuant 
to NASD Rule 3150 and NYSE Rule 416 \43\ will assist regulators in 
addressing concerns about microcap fraud.\44\
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    \43\ See Securities Exchange Act Release No. 44135 (March 30, 
2001), 66 FR 18334 (April 6, 2001) (order approving SR-NYSE-00-60).
    \44\ NASD Regulation reiterates its commitment that it is 
collecting the data pursuant to Rule 3150 solely for regulatory 
purposes. Telephone conversation between Shirley H. Weiss, Office of 
General Counsel, NASD Regulation and Florence Harmon, Senior Special 
Counsel, Division of Market Regulation, Commission (Nov. 26, 2001).

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[[Page 63274]]

    The Commission finds that the data elements that NASD Regulation 
initially will require its clearing and self-clearing members to 
provide pursuant to proposed Rule 3150, including items such as trade 
cancellations (T+1 forward) and as-of trades, aggregate net liquidating 
equity in each firm's proprietary accounts, and unsecured customer 
debits, have been sufficiently identified by NASD Regulation as core 
data that is needed in order to operate the surveillance component of 
INSITE.\45\ Further, the Association has represented that in the 
initial implementation of the INSITE program, no new data elements will 
be added, and some data elements may be eliminated. Moreover, the 
Association noted that it does not anticipate materially expanding the 
data element requirements.
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    \45\ See Firm Data Filing Technical Specifications under Rule 
3150, available at pp. 16-18 at www.nasdr.com/insite.htm.
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    After careful consideration of the commenters' concerns about the 
intricacies and usefulness of the data elements required pursuant to 
proposed Rule 3150, the Commission believes that NASD Regulation's 
INSITE Web site should help to keep NASD members informed of all 
modifications and clarifications of the reporting requirements. In 
addition, the Commission finds that NASD Regulation has been and will 
continue to be committed towards modifying the reporting requirements 
as necessary based on the information that it receives from member 
firms and service bureaus, thus promoting just and equitable principles 
of trade consistent with the Act.
    The Commission has also carefully considered the commenters' 
concerns about the duplication of reporting information through FOCUS 
reports, ACT and OATS. The Commission finds that although some of the 
required data duplicates information required to be reported in FOCUS 
reports, the required data pursuant to proposed Rule 3150 will be 
reported on a daily basis, at least initially, which would give NASD 
Regulation the opportunity to discover capital problems almost as they 
occur. Further, NASD Regulation has represented that INSITE data would 
pertain to transaction and account data. Therefore, the Commission 
believes that the data elements should provide valuable insights into 
potential sales practice issues as they arise, consistent with section 
15A(b)(6) of the Act.
    The Commission finds that NASD Regulation has sufficiently 
addressed commenters' concerns about any possible technical flaws and 
inconsistencies of the INSITE program. The Commission believes that 
NASD Regulation's pilot program with three clearing firms should help 
to identify any significant programs in collecting and reporting this 
data, and any technical problems experienced by member firms. The 
Association notes that should a system failure happen in the normal 
course of doing business, and a firm is attempting to correct it, the 
Association would not view the violation of Rule 3150 as a disciplinary 
matter.\46\ Further, NASD Regulation represents that the reporting 
program is designed to require member firms to provide summaries of 
information that it already collects. Moreover, NASD Regulation is 
specifying the file formats and providing information on the INSITE Web 
site on how to establish the reporting program should some firms need 
to make some programming changes. Therefore, the Commission believes 
that the Association will work with its member firms to develop a 
useful format.
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    \46\ The Commission notes, however, that a series of systems 
failures raises issues as to a broker-dealer's fulfillment of its 
regulatory responsibilities. See Lowell H. Listrom, 50 S.E.C. 883, 
887 note 7 (1992).
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    After careful consideration of the commenters' concerns about the 
ambiguous time frame of implementing reporting requirements pursuant to 
proposed Rule 3150, the Commission finds that the Association's 
proposal to begin requiring reporting under proposed Rule 3150 as of 
December 10, 2001, phase in the three pilot member firms first, and 
thereafter phase in other member firms in several stages should 
reasonably help the Association to implement the reporting requirements 
of proposed Rule 3150 by giving clearing and self-clearing firms, and 
service bureaus sufficient time to prepare. The Commission believes 
that the representation by NASD Regulation that it would give member 
firms no less than six-months notice of their start-up date should 
provide clearing and self-clearing member firms adequate notice to 
prepare for the reporting requirements. Further, NASD Regulation has 
represented that it would take into account broker-dealer relationships 
with service bureaus in establishing the phase-in schedules.
    The Commission also finds that the Association's proposal to 
include a provision for exemptive relief from the reporting 
requirements of proposed Rule 3150 should alleviate commenters concerns 
that members under certain circumstances should be exempted from the 
reporting requirements. The Commission notes, in particular, that the 
size of a firm will not be the determinative factor in deciding to 
grant such exemption in order not to jeopardize the strength of the 
INSITE program.

IV. Amendments No. 1 and No. 2

    The Commission finds good cause for approving Amendments No. 1 and 
2 prior to the thirtieth day after notice of the publication in the 
Federal Register. In addition to making minor technical changes to the 
proposed rule language, these amendments (1) explicitly refer to both 
clearing firms and self-clearing firms, and clarify that only member 
clearing and self-clearing firms are required to report the prescribed 
data; (2) eliminate the requirement that all data be reported on a 
daily basis; and (3) provide an exemption process from Rule 3150. 
Additionally, these amendments address commenters' concerns about 
duplicative data reporting and the proposed implementation date, and 
provide the assurance of NASD Regulation that it will work in close 
coordination with its member firms in implementing the reporting 
requirements under rule 3150. Accordingly, the Commission finds that by 
providing Amendments Nos. 1 and 2 to proposed Rule 3150 the Rule should 
enable the Association to detect unusual trading patterns at an early 
stage and thereby better protect investors and the public interest from 
abusive sales practices. The Commission believes that it is not 
necessary to separately solicit comment on Amendment Nos. 1 and 2 prior 
to approving this proposal because it finds that these changes to the 
proposed rule language respond to and incorporate suggestions made by 
commenters to the original proposal. The Commission therefore finds 
that acceleration of Amendments No. 1 and 2 is appropriate.

V. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment Nos. 1 and 2, including whether the 
proposed amendments are 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 amendments that are 
filed with the Commission, and all written communications relating to 
the amendments between the Commission and any person, other than those 
that

[[Page 63275]]

may be withheld from the public in accordance with the provisions of 5 
U.S.C. 552, will be available for inspection and copying at the 
Commission's Public Reference Room. Copies of such filing also will 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 December 26, 2001.

VI. Conclusion

    It is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\47\ that the proposed rule change (SR-NASD-2001-19), as amended, 
is approved.
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    \47\ 15 U.S.C. 78s(b)(2).

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\48\
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    \48\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-30138 Filed 12-4-01; 8:45 am]
BILLING CODE 8010-01-M