[Federal Register Volume 67, Number 14 (Tuesday, January 22, 2002)]
[Notices]
[Pages 2937-2942]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-1426]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45277; File No. SR-NASD-99-04]


Self-Regulatory Organizations; Notice of Filing of Amendment No. 
1 to Proposed Rule Change by the National Association of Securities 
Dealers, Inc. Relating to Microcap Initiative--Recommendation Rule

January 14, 2002.
    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 January 11, 2002, 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'') 
Amendment No. 1 to the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by NASD Regulation. 
The proposed rule change was published for comment in the Federal 
Register on March 1, 1999.\3\ The Commission is publishing this notice 
to solicit comments on Amendment No. 1 from interested persons.
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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. 41075 (February 9, 
1999), 64 FR 10037.
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I. Self-Regulatory Organizations Statement of the Terms of 
Substance of the Proposed Rule Change

    NASD Regulation is proposing to amend the rules of the Association 
to add a new rule, Rule 2315. Below is the text of the proposed new 
rule, as filed

[[Page 2938]]

with the Commission on January 13, 1999 and as modified by Amendment 
No. 1. Proposed additions under Amendment No. 1 are in italics; 
proposed deletions are in brackets.
* * * * *
2315. Recommendations to Customers in OTC Equity Securities
    Preliminary Note: The requirements of this Rule are in addition to 
other existing member obligations under NASD rules and the federal 
securities laws, including obligations to determine suitability of 
particular securities transactions with customers and to have a 
reasonable basis for any recommendation made to a customer. This Rule 
is not intended to act or operate as a presumption or as a safe harbor 
for purposes of determining suitability for any other legal obligation 
or requirement imposed under NASD rules or the federal securities laws.

(a) Review Requirement

    [(1)] No member or person associated with a member shall recommend 
[to a customer the purchase, sale, or exchange of] that a customer 
purchase or sell short any equity security that is not listed on Nasdaq 
or on a national securities exchange and is published or quoted in a 
quotation medium unless the member has reviewed the current financial 
statements of [,] the issuer, [and] current material business 
information about [j] the issuer, and [makes] made a determination that 
such information, and any other information available, provides a 
reasonable basis under the circumstances for making the recommendation.

(b) Definitions

    (1) For purposes of this Rule, the term ``current financial 
statements'' shall include:
    (A) For issuers who are not foreign private issuers,
    (i) a balance sheet as of a date less than [16] 15 months before 
the date of the recommendation;
    (ii) a statement of profit and loss for the 12 months preceding the 
date of the balance sheet;
    (iii) if the balance sheet is not as of a date less than 6 months 
before the date of recommendation, additional statements of profit and 
loss for the period from the date of the balance sheet to a date less 
than 6 months before the date of the recommendation;
    (iv) publicly available financial statements and other financial 
reports filed during the 12 months preceding the date of the 
recommendation and up to the date of the recommendation with [any] the 
issuer's principal financial or securities regulatory authority in its 
home jurisdiction, including the Commission, foreign regulatory 
authorities, bank and insurance regulators, and
    (v) all publicly available financial information [contained in 
regulation statements, including any amendments, with respect to 
securities transactions registered under the Securities Act of 1933 
(Securities Act), or in the case of securities offered pursuant to the 
exemptions from registration provided by Regulation A, Rule 505, or 
Rule 506 under the Securities Act, all financial information provided 
in connection with offerings conducted pursuant to those rules] filed 
with the Commission during the 12 months preceding the date of the 
recommendation contained in registration statements or Regulation A 
filings.
    (B) For foreign private issuers.
    (i) a balance sheet as of a date less than 18 months before the 
date of the recommendation;
    (ii) a statement of profit and loss for the 12 months preceding the 
date of the balance sheet;
    (iii) if the balance sheet is not as of a date less than 9 months 
before the date of the recommendation, additional statements of profit 
and loss for the period from the date of the balance sheet to a date 
less than 9 months before the date of the recommendation, if any such 
statements have been prepared by the issuer; and
    (iv) publicly available financial statements and other financial 
reports filed during 12 months preceding the date of the recommendation 
and up to the date of the recommendation with the issuer's principal 
financial or securities regulatory authority in its home jurisdiction, 
including the Commission, foreign regulatory authorities, bank and 
insurance regulators.
    (2) For purposes of this Rule, the term ``quotation medium'' shall 
mean any [quotation system, publication, electronic communication 
network, or any other device, including any issuer or inter-dealer 
quotation system, that is used to regularly disseminate quotations or 
indications of interest in transactions in equity securities that are 
not listed on Nasdaq or on a national securities exchange, including 
offers to buy or sell at a stated price or otherwise or invitations of 
offers to buy or sell]:
    (A) System of general circulation to brokers or dealers that 
regularly disseminates quotations or indications of interest of 
identified brokers or dealers; or
    (B) Publication, alternative trading system or other device that is 
used by brokers or dealers to disseminate quotations or indications of 
interest to others.

(c) Compliance Requirements

    (1) A member [firm] shall designate a registered [individual] 
person to conduct the review required by this R[r]ule. In making such 
designation, the member [firm] must ensure that:
    (A) E[e]ither the [individual] person is registered as a Series 24 
principal, or [his] the person's conduct in complying with the 
provisions of this Rule is appropriately supervised by a Series 24 
[individual] principal; and
    (B) S[s]uch designated [individual] person has the requisite 
skills, background and knowledge to conduct the review required under 
this R[r]ule.
    (2) The member shall document the information reviewed, the date of 
the review, and the name of the person performing the review of the 
required information.

(d) Additional Review Requirement for Delinquent Filers

    If an issuer has not made current filings required by [any] the 
issuer's principal financial or securities regulatory authority in its 
home jurisdiction, including the Commission, [a] foreign regulatory 
[authority] authorities, or bank and insurance regulators, such review 
must include an inquiry into the circumstances concerning the failure 
to make current filings, and a determination, based on all the facts 
and circumstances, that the recommendation is appropriate under the 
circumstances. Such a determination must be made in writing and 
maintained by the member.

(e) Exemptions

    (1) The requirements of this Rule shall not apply to:
    (A)[1] T[t]ransactions that meet the requirements of Rule 504 of 
Regulation D under the Securities Act of 1933 (``Securities Act'') and 
transactions with an issuer not involving any public offering pursuant 
to Section 4(2) of the Securities Act.
    (B)[2] T[t]ransactions with or for an account that qualifies as an 
``institutional account'' under Rule 3110(c)(4) or with a customer that 
is a ``qualified institutional buyer'' under Rule 144A promulgated 
under the Securities Act or ``qualified purchaser'' under Section 
[3(c)(7) 2(a)(51) of the Investment Company Act of 1940;
    (C)[3] T[t]ransactions in an issuer's securities if the issuer has 
[$100] at least $50 million in total assets and $10 million in 
shareholder's equity as [of date of the issuer's most recent audited

[[Page 2939]]

balance sheet, which balance sheet should be of a date within 6 months 
prior to the recommendation] stated in the issuer's most recent audited 
current financial statements, as defined in this Rule;
    (D)[4] T[t]ransactions in securities of a bank [under] as defined 
in Section 3(a) [(4)] ((6) of the Securities Exchange Act of 1934 and/
or insurance company subject to regulation by a state or federal bank 
or insurance regulatory authority [.];
    (E) A security with a worldwide average daily trading volume value 
of at least $100,000 during each month of the six full calendar months 
immediately before the date of the recommendation;
    (F) A convertible security, if the underlying security meets the 
requirement of Section (e)(1)(E) of this Rule;
    (G) A security that has a bid price, as published in a quotation 
medium, of at least $50 per share. If the security is a unit composed 
of one or more securities, the bid price of the unit divided by the 
number of shares of the unit that are not warrants, options, rights, or 
similar securities must be at least $50; or
    (2) Pursuant to the Rule 9600 Series, the Association, for good 
cause shown after taking into consideration all relevant factors, may 
exempt any person, security or transaction, or any class or classes of 
persons, securities or transactions, either unconditionally or on 
specified terms, from any or all of the requirements of this Rule if it 
determines that such exemption is consistent with the purpose of this 
Rule, the protection of investors, and the public interest.
* * * * *

9600. Procedures for Exemptions

9610. Application

(a) Where To File
    A member seeking exemptive relief as permitted under Rules 1021, 
1070, 2210, 2315, 2320, 2340, 2520, 2710, 2720, 2810, 2850, 2851, 2860, 
Interpretive Material 2860-1, 3010(b)(2), 3020, 3210, 3230, 3350, 8211, 
8212, 8213, 11870, or 11900, Interpretive Material 2110-1, or Municipal 
Securities Rulemaking Board Rule G-37 shall file a written application 
with the appropriate department or staff of the Association and provide 
a copy of the application to the Office of General Counsel of NASD 
Regulation.
    (b)-(c) 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 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 in 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

    Purpose
    a. Background
    NASD Regulation has been concerned with abuses in the trading and 
sales of thinly traded, thinly capitalized (``microcap'') securities 
quoted in the OTC market, and in particular, with the connection 
between potential fraud and manipulation and the lack of reliable and 
current financial information about issues of microcap securities. NASD 
Regulation proposed to amend NASD rules to include new NASD Rule 2315, 
entitled ``Recommendations to Customers in OTC Equity Securities'' 
(``Recommendation Rule''). As described in the rule filing and in this 
amendment, the Recommendation Rule requires a member, before it 
recommends a transaction in an OTC equity security, to review certain 
financial and business information and determine that there is a 
reasonable basis for making the recommendation. The proposed rule also 
provides certain exemptions from the rule's requirements.
    The requirements of the Recommendation Rule are in addition to 
other existing member obligations under NASD rules and the federal 
securities laws, including obligations to determine suitability of 
particular securities transactions for customers and to have a 
reasonable basis for any recommendation made to a customer. The rule is 
not intended to act or operate as a presumption or as a safe harbor for 
purposes of determining suitability or for any other legal obligation 
or requirement imposed under NASD rules or the federal securities laws.
    The Recommendation Rule is one of the NASD's microcap initiatives 
that was originally published for comment in NASD Notice to Members 98-
15 in January 1998. In May 1998, the NASD Board of Governors and NASD 
Regulation Board of Directors approved certain modifications, and at 
its meeting in December 1998, the NASD Board approved additional 
changes.
    On March 1, 1999, the Commission published the Recommendation Rule 
for public comment in the Federal Register and specifically sought 
comment on the potential need for exemption from proposed Rule 2315.\4\ 
The Commission received six comment letters in response to the Federal 
Register publication. The comment letters were from Goldman, Sachs & 
Co. (``Goldman''); A.G. Edwards & Sons, Inc. (``Edwards''); National 
Quotation Bureau (``NQB''); Securities Industry Association (``SIA'') 
Enstar Group, Inc. (``Enstar''); and Sullivan & Cromwell (``S&C'').
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    \4\ See supra note 3. NASD Regulation is filing the amendment 
notwithstanding that the Commission has not acted on reproposed 
Exchange Act Rule 15c2-11. To ensure more consistency, NASD 
Regulation originally had intended to await action on reproposed 
Rule 15c2-11 before filing the amendment. NASD Regulation will 
consider whether further revisions are required to this proposal 
following Commission action on reproposed Rule 15c2-11.
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    After considering the comments, NASD Regulation has made changes to 
the proposed Recommendation Rule. The text of the proposed rule 
provided in Amendment No. 1 reflects these changes, which include 
revised definitions, modified review requirements, and additional and 
revised exemption provisions.
b. Issues Raised in Comment Letters
    The commenters generally supported the concept behind the microcap 
initiative, that is, as a regulator, NASD Regulation should continue to 
combat fraud, manipulation and other abuses in the sale of microcap 
securities. The comments were directed primarily at modifying and 
clarifying the language in the proposed rule. Absent changes, a number 
of the commenters believed that the rule would impose an inappropriate 
burden on competition.
1. Application of the Rule
    Proposed Rule 2315, as published in the Federal Register, would 
apply when a member or associated person recommends to a customer the 
purchase, sale or exchange of any OTC equity security. Two commenters, 
Edwards and S&C, asked that the rule define the term 
``recommendation.'' Edwards believed the definition should distinguish 
a ``recommendation'' from a ``solicitation,'' while S&C was concerned 
whether a research report with a ``buy'' recommendation would

[[Page 2940]]

constitute a ``recommendation'' under the proposed rule. NASD 
Regulation believes that it is not necessary to define the term 
``recommendation'' in this rule. For guidance, members are directed to 
NASD Rule 2310 ``Recommendations to Customers (Suitability)'' and the 
accompanying interpretive material. Further, NASD Notices to Members 
provide supplemental advice regarding questions relating to suitable 
recommendations.\5\
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    \5\ See NASD Notice to Members 01-23, ``Suitability and Online 
Communications'' (April 2001); NASD Notice to Members--For Your 
Information, ``Clarification of Notice to Members 96-60'' (March 
1997); NASD Notice to Members 96-60, ``Clarification of Members' 
Suitability Responsibilities under NASD Rules with Special Emphasis 
on Member Activities in Speculative and Low-Priced Securities'' 
(September 1996); and NASD Notice to Members 96-32, ``Members 
Reminded to Use Best Practices When Dealing in Speculative 
Securities'' (May 1996).
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    Edwards, the SIA and NQB proposed that ``sales'' be eliminated from 
the requirement of the rule, arguing that there should not be any 
potential regulatory barrier to allowing a broker to recommend, for 
example, that a client sell a security from what the broker may suspect 
is a ``pump-and-dump'' scheme. NASD Regulation agrees that the 
regulatory benefits of this rule apply to recommendations to purchase 
or sell short, but not to recommendations to sell. Therefore, it has 
revised the requirement by deleting the requirement that the rule apply 
to recommendations to sell or exchange a security and adding the 
requirement that the rule apply to recommendations to sell short.
    The rule applies to any equity security that is not listed on 
Nasdaq or on a national securities exchange and is published or quoted 
in a quotation medium. The SIA and Goldman stated that the rule should 
apply only when the member has actual knowledge that the security is 
published or quoted in a quotation medium. NASD Regulation, concerned 
about possible circumvention of the rule, does not agree that the rule 
should apply only when the member has actual knowledge that the 
security is being published or quoted.
2. Definitions
    Several commenters, Edwards, Goldman, SIA and S&C, offered changes 
to the definition of ``current financial statements'' in the proposed 
Recommendation Rule. They argued that the definition did not take into 
account the customary accounting periods of foreign issuers. For 
example, Goldman noted that many nations, such as the United Kingdom 
and Germany, permit their domestic issuers to report financial 
information on a semi-annual basis rather than on a quarterly basis. 
Several commenters recommended that the definition be harmonized with 
that in reproposed Rule 15c2-11,\6\ which distinguishes between the 
foreign private issuers and non-foreign private issuers. NASD 
Regulation agrees with these suggestions and has revised the definition 
to be consistent with the language in reproposed Rule 15c2-11 for non-
reporting companies,\7\ including foreign private issuers. The term 
``foreign private issuer'' is defined in Rule 3b-4 promulgated under 
the Act.
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    \6\ See Securities Exchange Act Release No. 41110 (February 25, 
1999), 64 FR 11124 (March 8, 1999).
    \7\ Id. at 11144.
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    Edwards, Goldman, the SIA and S&C criticized the requirement in the 
Recommendation Rule that firms review financial statements and other 
financial reports filed with ``any regulatory authority'' as being 
overly broad. The SIA, for example, pointed out that these financial 
reports could include an endless array of filings, such as tax filings, 
filings with trade authorities and even filings with environmental or 
labor authorities. As to foreign issuers, commenters recommended that 
the rule be limited to filings made by the issuer with the principal 
securities regulator in its home jurisdiction, rather than ``any 
regulatory authority.'' NASD Regulation has revised the requirement in 
response to the comments.
    Further, the definition of ``current financial statements'' 
included, among other things, all financial information provided in 
offerings made pursuant to Rule 505 or rule 506 of Regulation D. The 
same four commenters requested that this requirement be eliminated, 
pointing out that the offering materials are not publicly available. 
NASD Regulation has removed from the definition of ``current financial 
statements'' financial information provided in offerings made pursuant 
to Rules 505 and 506. However, the requirement that a broker review 
certain financial information prior to making a recommendation would 
clearly apply to the secondary trading of covered securities that were 
originally offered pursuant to any small or private offering exemption, 
including Rule 505 or Rule 506.
    Finally, NASD Regulation notes that current financial statements 
must be prepared in accordance with generally accepted accounting 
principles (``GAAP'') or foreign GAAP. If the financial statements are 
not audited, the issuer must provide a representation that the 
financial statements are prepared in accordance with GAAP or foreign 
GAAP.
    The Recommendation Rule also defined the term ``quotation medium.'' 
Edward argued that the rule should apply only to priced quotation, 
while the NQB suggested that the rule apply to all non-Nasdaq 
securities, as that term is defined in the Rule 6700 Series. The SIA 
suggested that the definition of ``quotation medium'' be limited to 
those that give period quotations, and it recommended that the 
definition mirror the language in reproposed Rule 15c2-11, NASD 
Regulations does not believe it should narrow the rule to include only 
priced quotations, nor does it believe it should expand the rule so 
broadly as to encompass all non-Nasdaq securities, including those not 
published or quoted in quotation medium. However, it has determined to 
revise the definition of ``quotation medium'' to be consistent with 
that in reproposed Rule 15c2-11.\8\
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    \8\ NASD Regulation has slightly modified the definition found 
in reproposed Rule 15c2-11 to expressly included dissemination of 
indications of interest. However, the NASD Regulation believes that 
this change remains consistent with reproposed Rule 15c2-11 because 
that rule incorporates indications of interest through its 
definition of ``quotation.'' NASD Regulation's proposed 
Recommendation Rule does not contain a separate definition of 
``quotation''.
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3. Requirements
    NASD Regulation received comments on several areas relating to the 
Recommendation Rule's requirements. First, S&C expressed concern that 
the proposed rule would, in effect, add a new suitability requirement 
that would apply in addition to the suitability requirement in NASD 
Rule 2310. S&C suggested that NASD Regulation modify the rule to focus 
on a members's need to be ``familiar'' with the security and the 
issuer. As stated in the ``Preliminary Note'' to the proposed rule, the 
requirements of the Recommendation Rule are clearly in addition to 
existing obligations, including obligations to determine suitability. 
NASD Regulation believes that the Recommendation Rule is necessary to 
address abuses in the trading and sales of microcap securities, and in 
light of the exemptions, applies appropriately.
    Second, as originally proposed, Rule 2315 required members to 
review current business information about an issuer. Edwards and the 
SIA expressed concern that the requirement was too broad and could 
conceivably include almost any fact or rumor published by anyone in 
periodicals or in sites on the Internet. In response, NASD Regulation 
has changed the requirements so that members need review only current 
material business information about the issuer. Generally, current 
material

[[Page 2941]]

business information would include that material information that is 
available or relates to events that have occurred within the last 
twelve months prior to the recommendation.
    Third, the proposed Recommendation Rule required that a registered 
person conduct the review of the financial and business information. 
Goldman and the SIA expressed concern that it was to restrictive to 
limit this function to registered persons. However, NASD Regulation 
maintains that the review should be conducted by a registered person 
over whom it has jurisdiction; it has not made changes to this 
requirement. NASD Regulation also requires that the member document the 
information reviewed, the date of the review and the name of the person 
who conducted the review.
    Finally, NASD Regulation received comments on the requirements that 
members conduct an inquiry when an issuer has into made current 
filings. Goldman suggested that the provision be strengthened to say 
that no recommendation can be made if the filings are delinquent. The 
SIA and S&C stated that the reference to ``any regulatory authority'' 
was too broad, and that it should be changed to the ``issuer's 
principal financial or securities regulatory authority in its home 
jurisdiction.'' NASD Regulation does not agree that the rule should 
unilaterally prohibit a recommendation if the issuer is delinquent in 
its filing. However, it has narrowed the reference from ``any 
regulatory authority'' to ``issuer's principal financial or securities 
regulatory authority in its home jurisdiction'' which is consistent 
with the change to the definition of ``current financial statements.''
4. Exemptions
    NASD Regulation amended the exemption provisions of the 
Recommendation Rule in several ways. First, the response to comments by 
the S&C, NASD Regulation added ``qualified institutional buyers'' as 
defined under Rule 144A to the list of customers for whom the rule 
would not apply.
    Second, commenters recommended changes to the exemption large 
issuers, that is issuers with $100 million in assets and $10 million in 
shareholder's equity. Goldman and the SIA recommended reducing the 
asset threshold to $25 million in assets, while Enstar recommended 
changing the test to a net tangible asset test found in reproposed Rule 
15c2-11. NASD Regulation recognizes that the asset amount could be 
reduced without significantly diminishing the effectiveness of the 
rule, although it believes that a reduction to $50 million in assets is 
sufficient. Also, the exemption was revised to refer to the revised 
definition of ``current financial statements'' so as to address 
comments regarding the age of the balance sheets in the original 
proposed Recommendation Rule.
    Third, in response to comments by Edwards, Goldman, the SIA and 
S&C, to new exemption were added to ensure the rule focused on small 
issuers, where the microcap abuses have been found. NASD Regulation 
determined that it was appropriate to include exemptions which were 
consistent with those provided in reproposed Rule 15c2-11. Thus, NASD 
Regulation added provisions to exempt a security based on the 
security's average daily trading volume (``ADTV'') and the security's 
bid price. Specifically, an exemption applies to a security with a 
worldwide ADTV value of at least $100,000 during each month of the six 
full calendar months immediately before the date of the recommendation; 
the exemption also covers a convertible security, if the underlying 
security meets the ADTV requirement. An exemption also applies when a 
security has a bid price of at least $50 per share, as published in a 
quotation medium.
    Finally, in response to comments by the NQB, NASD Regulations has 
provided that members may seek an exemption for good cause shown, 
pursuant to the Rule 9600 series. The exemption may be for any person, 
security of transaction, or for certain classes of persons, securities 
or transactions, such as securities listed on certain foreign 
exchanges.
    However, NASD Regulation did not adopt two further proposals for 
exemptions. Goldman and the SIA suggested that the rule not apply to 
members who are also investment advisers, and to members who are 
subject to Rule 472 ``Communications with the Public'' of the New York 
Stock Exchange (``NYSE''). NASD Regulation believes that the provisions 
of Rule 472 do not have the specificity of the Recommendation Rule and 
thus, the Recommendation Rule is appropriately applied to NASD members 
who are also NYSE members. NASD Regulation does not agree that the rule 
should have an exemption for members who are also investment advisers.
2. Statutory Basis
    NASD Regulation believes that the proposed rule change is 
consistent with the provisions of Section 15A(b)(6) of the Act,\9\ 
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. NASD Regulation believes 
that the proposed rule change will address actual and potential frauds 
in the quotation and trading of unlisted securities.
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    \9\ 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

    On March 1, 1999, the Commission published the Association's 
proposal and solicited comments in the Federal Register.\10\ The 
comment period ended on March 22, 1999. As discussed above, the 
Commission received six comment letters. After considering the 
comments, the Association is proposing Amendment No. 1 to the rule 
filing, as outlined above.
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    \10\ See supra note 3.
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III. Date of Effectiveness of the Proposed Rule Change and Timing 
for 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 proceeding to determine whether the proposed rule 
change should be disapproved.

Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 1, including whether Amendment No. 
1, including whether Amendment No. 1 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

[[Page 2942]]

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 SR-NASD-99-04 and should be submitted by 
February 12, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-1426 Filed 1-18-02; 8:45 am]
BILLING CODE 8010-01-M