[Federal Register Volume 67, Number 26 (Thursday, February 7, 2002)]
[Notices]
[Pages 5862-5867]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-2959]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45385; File No. SR-NASD-2002-05]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change, Amendment No. 1, and Amendment No. 2 Thereto by the National 
Association of Securities Dealers, Inc. Relating to Revisions to Form 
U-4 and Form U-5

February 1, 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 9, 2002, the National Association of Securities Dealers, 
Inc. (``NASD''), through its wholly owned subsidiary, NASD Regulation, 
Inc. (``NASD Regulation''), filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I, II and III below, which Items have been prepared 
by NASD Regulation. On January 23, 2002, NASD Regulation submitted 
Amendment No. 1 to the proposed rule change.\3\ On January 31, 2002, 
NASD Regulation submitted Amendment No. 2 to the proposed rule 
change.\4\ The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.\5\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Patrice M. Gliniecki, Vice President and 
Acting General Counsel, NASD Regulation, to Katherine England, 
Assistant Director, Division of Market Regulation (``Division''), 
SEC, dated January 22, 2002 (``Amendment No. 1''). In Amendment No. 
1, NASD Regulation: (1) removed all language from the original 
filing indicating that the filing was submitted pursuant to Section 
19(b)(3)(A) of the Act, 15 U.S.C. 78s(b)(3)(A); and (2) amended the 
legends on the Forms to read ``Rev. Form U-4 (3/2002)'' and ``Rev. 
Form U-5 (3/2002),'' rather than ``Rev. Form U-4 (7/2001)'' and 
``Rev. Form U-5 (7/2001).''
    \4\ See letter from Patrice M. Gliniecki, Vice President and 
Acting General Counsel, NASD Regulation, to Katherine England, 
Assistant Director, Division, SEC, dated January 31, 2002 
(``Amendment No. 2''). In Amendment No. 2, NASD Regulation 
renumbered the amendment to comply with Form 19b-4.
    \5\ NASD Regulation requested that the Commission make various 
technical corrections and delete a reference to ``initial'' 
registrations with regard to the Temporary Registration 
Acknowledgement (15C) described in the Signature and Acknowledgement 
Sections of the Purpose Section of this notice. Telephone discussion 
between Christopher B. Stone, Attorney Advisor, Division, SEC and 
Gary L. Goldsholle, Associate General Counsel, NASD Regulation, and 
Richard E. Pullano, Chief Counsel and Associate Director, CRD Public 
Disclosure, NASD Regulation (January 25, 2002).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    NASD Regulation is proposing to revise the Uniform Application for 
Securities Industry Registration or Transfer (``Form U-4'') and Uniform 
Termination Notice for Securities Industry Registration (``Form U-5'') 
(collectively, the ``Forms'') to: (1) Make technical changes to 
accommodate the electronic submission of investment adviser filings in 
the Investment Adviser Registration Depository (``IARD\SM\'') system; 
(2) establish procedures that will enable broker/dealer firms and 
investment adviser firms employing dually registered persons to concur 
with information contained in the Forms filed on such persons; (3) make 
the filing instructions clearer for all filers, but especially for 
those firms that are electronic filers; (4) provide separate paper 
filing instructions for certain investment adviser representative 
filers and other state-only filers that do not use the Central 
Registration Depository (``CRD'') or IARD systems; (5) 
clarify certain items that have been a source of confusion for users of 
the new Internet-based CRD system (``Web CRD\SM\''); (6) make certain 
formatting and technical changes to the Forms that would complete the 
transition from a paper-based filing model to an electronic-filing 
model; (7) update the Form U-4 to add examination and registration 
categories not previously included; and (8) amend NASD IM-8310-2, 
Release of Disciplinary Information, to refer to the newly numbered 
Section 14 of the Form U-4. The proposed technical and formatting 
amendments do not alter the reporting or disclosure requirements 
applicable to broker/dealers or their registered persons.
    The text of the proposed rule change and the Exhibits related 
thereto are available at the principal offices of NASD Regulation and 
at the Commission.

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 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

[[Page 5863]]

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 Form U-4 is the Uniform Application for Securities Industry 
Registration or Transfer. Representatives of broker/dealers, investment 
advisers, or issuers of securities must use this form to become 
registered in the appropriate jurisdictions and/or with appropriate 
self-regulatory organizations (``SROs''). The Form U-5 is the Uniform 
Termination Notice for Securities Industry Registration. Broker/
dealers, investment advisers, and issuers of securities must use this 
form to terminate registration of an individual in the various SROs and 
jurisdictions.
    The proposed revisions to the Forms would (1) make technical 
changes to the Forms to accommodate the electronic submission of 
investment adviser filings in the IARD system; (2) establish procedures 
that will enable broker/dealer firms and investment adviser firms 
employing dually registered persons to concur with information 
contained in the Forms filed on such persons; (3) make the filing 
instructions clearer for all filers, but especially for those firms 
that are electronic filers; (4) provide separate paper filing 
instructions for certain investment adviser representative filers and 
other state-only filers that do not use the CRD or IARD systems; (5) 
clarify certain items that have been a source of confusion for Web CRD 
users; (6) make certain formatting and technical changes to the Forms 
that would complete the transition from a paper-based filing model to 
an electronic-filing model; (7) update the Form U-4 to add examination 
and registration categories not previously included; and (8) amend NASD 
IM-8310-2, Release of Disciplinary Information, to refer to the newly 
numbered Section 14 of the Form U-4. The proposed technical and 
formatting amendments do not alter the reporting or disclosure 
requirements applicable to broker/dealers or their registered persons.
    On June 25, 1999, the Commission approved amendments to the Forms 
(``1999 Forms'') \6\ that included both technical and formatting 
changes in anticipation of the transition to Web CRD. Web CRD was 
deployed on August 16, 1999, and it became the primary system for the 
registration of broker/dealers and their associated persons.\7\
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    \6\ See Exchange Act Rel. No. 41560 (June 25, 1999), 64 FR 36059 
(July 2, 1999).
    \7\ For a description of the transition from the Legacy CRD 
system to Web CRD, see Exchange Act Rel. No. 41560 (June 25, 1999), 
cited at note 6 supra.
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    Since the implementation of Web CRD, a task force comprised of the 
North American Securities Administrators Association, Inc. (``NASAA''), 
the states, the Commission, representatives from the securities 
industry, and other SROs (hereinafter referred to as the ``Working 
Group''), has been examining the way in which Forms filings are 
processed. The consensus of the Working Group is that while an 
Internet-based electronic registration and termination process provides 
efficiencies that cannot be paralleled through a paper-filing model, 
additional efficiencies can be achieved by transitioning from a model 
designed for a paper filing system to a model that is specifically 
designed for an electronic filing process.
    The current Forms, which were designed to be used in a paper-filing 
environment, are not completely compatible with an electronic filing 
environment. For example, the current paper Forms contain formatting 
and numbering inconsistencies that can be confusing to electronic 
filers. The proposed changes to the Forms are specifically designed to 
accommodate electronic filing and to take full advantage of an 
interactive filing environment. The proposed Forms have a revised 
format and separate instructions for electronic and paper filers.\8\ 
The Forms will be available interactively to users on the Web CRD and 
IARD systems, and an identical static version of the Forms will be 
available in Portable Document Format (``PDF'') on NASD Regulation's 
Web site.\9\
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    \8\ Form U-4 filings generally will be made electronically 
through Web CRD or IARD. However, some individuals (e.g., agents of 
issuers, filers with certain stock exchanges, certain investment 
advisers) may need to file the form on paper. The proposed Form U-4 
suggests that filers contact state regulators or the appropriate SRO 
for clarification on filing status.
    \9\ PDF is a file format that allows for a representation or 
display of documents in a software manner that is independent of the 
original application hardware and operating system used to create 
those documents. NASD Regulation understands that NASAA also intends 
to make the PDF forms available on its Web site.
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    To provide useful information to Form filers, the Working Group has 
developed a ``Uniform Forms Reference Guide'' that, among other things: 
(1) Provides address and contact information for NASD Regulation and 
NASAA; (2) defines filing type designations; \10\ (3) and identifies 
the certifications from professional organizations that may make 
investment adviser representative applicants eligible for a waiver of 
the applicable state examination requirement.\11\ The Working Group 
determined to separate the stand-alone reference guide from the Forms 
because of the nature of the information contained in it and to allow 
for convenient updates to the information as needed.
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    \10\ On Web CRD, firms can choose from seven Form U-4 filing 
types: (1) Initial or Transfer: for individuals who have never been 
registered on Web CRD or who have not previously been licensed/
registered with a jurisdiction or SRO within thirty (30) days from 
the date of the current filing; (2) Amendment: to add or change 
information on an existing FormU-4; (3) Page 2 for BD Schedule A/B: 
for individuals who appear on Schedules A or B of the Form BD, 
providing personal, employment and residential information on Direct 
or Indirect Owners; (4) Page 2 Amendment for BD Schedule A/B: to add 
or change personal, employment or residential information on Direct 
or Indirect Owners; (5) DualRegistration: for individuals who intend 
to maintain registrations with two or more firms not under common 
ownership with the submitting firm; (6) Relicensing: for individuals 
who are registering with a new firm within thirty (30) days from 
their being registered with their previous firm in jurisdictions or 
SROs where they previously were registered; and (7) Concurrence 
Filing: to enable firms to concur with certain changes made to the 
Form U-4 of individuals who also are employed by another broker/
dealer or investment adviser. Firms can choose from three Form U-5 
filing types: (1) Full Form U-5: to terminate fully an individual 
from the firm; (2) Partial Form U-5: to terminate individuals from 
selected SROs/jurisdictions; and (3) Amendment Form U-5: to update 
or amend disclosure and/or residential information on an individual 
already terminated from a firm.
    \11\ An investment adviser applicant will be able to indicate on 
the Form U-4 whether he or she holds one of the five professional 
certifications (i.e., Certified Financial Planner, Chartered 
Financial Consultant, Personal Financial Specialist, Chartered 
Financial Analyst, or Chartered Investment Counselor) recognized by 
jurisdictions. The IARD system will then use information provided by 
the certifying organization to verify that the individual has the 
indicated certification.
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    On April 5, 2000, the Commission proposed new rules that would, 
among other things, allow investment advisers to fulfill their filing 
obligations with federal and state regulators by filing electronically 
through a new Internet-based system--the IARD.\12\ On July 28, 2000, 
the Commission formally designated NASD Regulation as the entity to 
establish and maintain the IARD system.\13\ In consultation with the

[[Page 5864]]

Commission and NASAA, NASD Regulation has built and begun to operate 
the IARD system. NASD Regulation administered a pilot program for the 
IARD system in October 2000, and it commenced full operation of the 
``firm'' component of the IARD system in January 2001. The ``firm'' 
component of the IARD system allows investment adviser firms to file 
electronically Forms ADV and amendments thereto in the IARD system.
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    \12\ See Investment Advisers Act Rel. No. 1862 (Apr. 5, 2000), 
65 FR 20524 (Apr. 17, 2000).
    \13\ See Investment Advisers Act Rel. No. 1888 (July 28, 2000), 
65 FR 47807 (Aug. 3, 2000). As noted in the Release, in 1996, 
Congress gave the Commission authority ``to participate in an 
electronic system for the registration of investment advisers.'' As 
a result, Congress enacted Section 203(A)(d) of the Advisers Act, 
which enables the Commission to require investment advisers to file 
registration and other forms ``through any entity designated [by the 
Commission] for that purpose'' and to ``pay the reasonable costs 
associated with[these] filings.'' A description of the IARD system 
is provided in Investment Advisers Act Rel. No. 1862 (Apr. 5, 2000), 
cited in note 7 supra. Although the IARD system will function in a 
manner similar to Web CRD, NASD Regulation will not act as an SRO 
for investment advisers or investment adviser representatives.
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    Currently, investment advisers must file hard copy Forms to 
register and terminate the registrations of investment adviser 
representatives with state regulators. Starting on March 18, 2002, NASD 
Regulation is scheduled to deploy the ``individual'' component of the 
IARD system, which will allow investment adviser firms to register and 
terminate electronically the registrations of their investment adviser 
representatives with appropriate state regulators. Individuals who are 
registered with both a registered investment adviser and a broker/
dealer will share a single registration record on the CRD and IARD 
systems.\14\
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    \14\ NASD Regulation does not regulate the registration of 
investment advisers or investment adviser representatives. As a 
vendor of the IARD system, NASD Regulation merely maintains and 
supports the IARD system.
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    NASD Regulation has been working closely with other members of the 
Working Group to propose revisions to the 1999 Forms that would best 
accommodate investment adviser representative registrations through an 
electronic filing process. NASAA approved the proposed Forms revisions 
in two steps: at its April 29, 2001 membership meeting, and on October 
11, 2001, by an electronic vote of the NASAA membership.
    (a) Highlights of Proposed Changes
    (i) Section Headers Replace Numbered Fields
    The proposed Forms eliminate the numbered field approach used in 
the 1999 (and previous) Forms. Because an electronic interactive filing 
system (and an ``electronic form'') presents information in a specified 
order, the need for numbered fields is eliminated. Instead, the 
proposed Forms contain 15 clearly identified, numbered section headers 
that describe the core categories of information elicited or action 
required by the applicant or firm, with applicable subquestions 
contained within each section. As a result of organizing the current 
fields into 15 sections, the question numbers have changed, but the 
questions have not been changed substantively, and, importantly, there 
are no changes to the questions eliciting information about disclosure 
events. For example, current Question 23, which elicits information 
about disclosure events, will change to Question 14, but the 
subquestions, now numbered 14A, 14B, etc. are the same as current 
subquestions 23A, 23B, etc. Applicants and firms will not be required 
to ``re-file'' disclosure information with the implementation of the 
revised Forms.
    (ii) Explanation of Terms and Specific Instructions
    The proposed revisions to the Explanation of Terms and Specific 
Instructions sections use ``plain English'' and change passive language 
to more active and instructive language wherever possible. The 
revisions to the Explanation of Terms section include the addition of 
seven new terms \15\ and an alphabetical list of definitions to better 
aid applicants and firms. The Specific Instructions also include 
directions for Investment Adviser Representative-only applicants (i.e., 
those individuals not also registered or seeking registration with a 
broker/dealer), as well as specific instructions for paper filers.
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    \15\ The new terms are: affiliated, applicant, designated 
entity, filing firm, firm, firm CRD number, and individual CRD 
number.
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    (iii) Private Residence Check Box
    The General Information section of the proposed Forms contains a 
``private residence check box'' that allows individuals to indicate 
that their office of employment address is a private residence. This 
field was added to address privacy concerns raised in connection with 
the potential release of this information to the public through public 
disclosure programs administered by the SEC, NASD, and the states. The 
investment adviser community has raised specific concerns about the 
public disclosure of the home addresses of investment advisers who are 
sole practitioners operating out of their homes.\16\ A check in the 
``private residence check box'' would enable regulators to block the 
release of an employment address that is a private residence through 
public disclosure programs. Regulators or firms will be able to view 
the employment address on Web CRD or IARD, whether or not the box is 
checked.
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    \16\ In December 2000, the Commission made a technical amendment 
to the Form ADV that added a check box for investment advisers whose 
employment address is a private residence. See Exchange Act Rel. No. 
43758 (December 21, 2000), 65 FR 81737 (December 27, 2000). The 
amendment addressed comments received by the SEC in response to its 
April 2000 proposing release, Exchange Act Rel. No. 42620 (April 5, 
2000), 65 FR 20524 (April 17, 2000), in which commenters expressed 
privacy concerns that home addresses might be disclosed through a 
regulator's public disclosure program.
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    (iv) Fingerprint Information
    The proposed Form U-4 contains a new ``Fingerprint Information'' 
section to address procedures for the submission of fingerprints by 
persons seeking registration as required under federal, SRO, or state 
rules.\17\ This section includes a representation that affirms that an 
electronic filer seeking registration with a broker/dealer is 
submitting or will promptly submit fingerprint cards consistent with 
SRO rules.\18\ The representation on current Question 8A regarding 
fingerprint exempt firms also has been modified to permit an applicant 
firm to represent that the subject of a filing is exempt from the 
fingerprint requirement if the applicant meets one or more of the 
exemptions established by Rule 17f-2 under the Exchange Act.\19\ In 
addition, this section also addresses the applicable scenarios for 
filing of fingerprint cards by individuals who are

[[Page 5865]]

filing only as investment adviser representatives.\20\
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    \17\ Questions involving submission of fingerprints were 
contained in Question 8A on the 1999 Form U-4.
    \18\ See, e.g., NASD Rule 1140, Electronic Filing Rules. Under 
this rule, which was implemented with the deployment of Web CRD, 
NASD members have been required to submit fingerprint cards within 
30 days of electronically filing Form U-4. Firms currently submit 
hard copy cards via U.S. Mail or other delivery service; however, 
the NASD is exploring the possibility of implementing an electronic 
fingerprinting process at some future time. Accordingly, this 
representation regarding submission of fingerprint cards has been 
drafted to accommodate technological changes that may allow for 
electronic submission of fingerprint cards at some future time. In 
addition, for these same reasons, the representation in former 
Question 8A that ``[a]pplicant has submitted a fingerprint card 
through a CRD approved electronic method'' has been deleted because 
it is subsumed in the new proposed representation.
    \19\ The representation in current Question 8A that 
``[a]pplicant is applying for registration with a Fingerprint Exempt 
firm'' only covers the exemption under Rule 17f-2(a)(1) for entire 
firms. The proposed representation more clearly reflects the full 
set of potential exemptions available under Rule 17f-2, which not 
only permits an entity to claim an exemption for all of its 
associated persons (e.g., a broker/dealer, registered transfer 
agent, or registered clearing agency) provided it qualifies for an 
exemption (see Rule 17f-2(a)(1)), but also permits exemptions for 
certain classes of partners, directors, officers or employees of any 
member of any national securities exchange, broker, dealer, 
registered transfer agent or registered clearing agent upon 
application to the Commission. NASD members have informed the NASD 
staff that it is difficult to fingerprint their associated persons 
who may be located in certain foreign countries; such member firms 
may wish to seek exemptive relief from the Commission for this class 
of employees under Rule 17f-2(a)(2).
    \20\ Not all jurisdictions currently require the submission of 
fingerprint cards for investment adviser representatives. 
Accordingly, the proposed Form U-4 permits filers to make 
appropriate representations, through the use of radio buttons (i.e., 
defined fields or sections within the system that users can click 
on), for their particular circumstances.
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    (v) Dual Registration/Affiliated Firms
    The meaning of ``dual registration'' in Questions 9 and 10 on the 
1999 Forms has caused some confusion for both regulators and member 
firms. A ``yes'' response to Question 9A on the current Form U-4 is 
intended to determine whether the applicant will maintain registrations 
with separately owned and unaffiliated broker/dealers. Current Question 
10 is intended to elicit whether an individual is going to maintain 
registrations with affiliated firms. Users of the Form U-4, however, 
have found these two questions, as currently worded, to be confusing.
    The rule change proposes that Questions 9 and 10 be placed into two 
sections: ``Registration with Unaffiliated Firms'' and ``Registration 
with Affiliated Firms.'' ``Registration with Unaffiliated Firms'' 
clearly states that individuals who answer this question will be 
considered to be ``dually registered,'' and that the individual/firm 
should consult applicable rules because some jurisdictions do not 
permit dual registrations.\21\ ``Registration with Affiliated Firms'' 
applies to individuals registering with firms that are under common 
ownership or control.\22\
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    \21\ The ``Registration with Affiliated Firms'' section defines 
the majority view of states with respect to the ``dual 
registration'' issue. Based on information provided by the states, 
28 states do not allow a person to be registered with unaffiliated 
entities. A list of those states may be found on the NASD Regulation 
Web site at http://www.nasdr.com/pdftext/statefee sch.pdf.
    \22\ The term affiliated is defined in the ``Explanation of 
Terms'' section of the Form BD as
    ``under common ownership or control.''
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    (vi) Registration Categories and Examination Requests 
    The proposed Forms add: (1) A new registration category for the 
International Securities Exchange (``ISE''); \23\ (2) new registration 
categories for the New York Stock Exchange (``NYSE'') Trading Assistant 
(``TA'') and Specialist Clerk (``SC'') positions; \24\ and (3) a 
registration category for the Private Placement (``PR'') position as 
required by the Gramm-Leach-Bliley Act.\25\ The position described as 
General Securities and Options Representative has been omitted from the 
proposed Forms because it was included in error when the Forms were 
revised in 1999.
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    \23\ See Exchange Act Rel. No. 42455 (Feb. 24, 2000), 65 FR 
11388 (March 2, 2000), in which the Commission approved the 
International Securities Exchange as a national securities exchange.
    \24\ See Exchange Act Rel. No. 40943 (January 13, 1999), 64 FR 
3330 (January 21, 1999) and Exchange Act Rel. No. 41701 (August 3, 
1999), 64 FR 43804 (August 11, 1999) in which the Commission 
approved the Trading Assistant and Specialist Clerk positions, 
respectively.
    \25\ The PR position was implemented in May 2001 as required by 
the Gramm-Leach-Bliley Act of 1999, which added a new subsection (j) 
to Section 15A of the Exchange Act and created a new NASD 
registration category for individuals engaged only in private 
securities offerings. See Section 203, P.L. 102, Gramm-Leach-Bliley 
Act (Nov. 12, 1999).
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    The proposed Forms also add: (1) A Series 7A examination that 
corresponds with the Floor Member Conducting Public Business (``PM'') 
registration category; \26\ (2) a NYSE BranchManager Series 12 
examination that corresponds with the Securities Manager (``SM'') 
registration category; \27\ (3) a Series 21 examination that 
corresponds with the NYSE SC registration category; \28\ (4) a Series 
25 examination that corresponds with the NYSE TA registration category; 
\29\ (5) a National Futures Association (``NFA'') Financial Instruments 
examination (Series 33) for individuals registered as a General 
Securities Representative with the NASD, or who limit their futures 
activities to soliciting or accepting customer orders for futures or 
options involving stock index, currency or interest rate products; \30\ 
(6) a limited representative-private securities offering examination 
(Series 82) that corresponds to the PR registration category discussed 
above; \31\ and (7) a new continuing education regulatory element 
(Series 106) for Series 6 registered persons.\32\ The new Forms omit 
the Series 47 examination, originally anticipated for individuals with 
a Japanese-limited general securities (JP) registration position.\33\
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    \26\ See Exchange Act Rel. No. 32698 (July 29, 1993), 58 FR 
41539 (August 4, 1993) in which the Commission approved the NYSE 
proposed rule change to adopt the Series 7A examination as a module 
of the Series 7 examination for floor members who only accept orders 
from professional customers, and to establish a new registration 
category. See also Exchange Act Rel. No. 44790 (September 13, 2001), 
66 FR 48502 (September 20, 2001), in which the Commission recently 
approved the Series 7A examination for Pacific Stock Exchange floor 
members.
    \27\ See Exchange Act Rel. No. 39577 (January 23, 1988), 63 FR 
4513 (January 29, 1988) in which the NYSE proposed adding a firm 
element for supervisors by including the Series 12 examination for 
branch managers in the supervisor category.
    \28\ See note 22 supra.
    \29\ See note 22 supra.
    \30\ Including this NFA-sponsored examination on the proposed 
Form will allow member firms to request this examination without 
having to request it on the Form U-10 (the Uniform Examination 
Request for Non-NASD Candidates).
    \31\ See note 20 supra.
    \32\ See NASD Notice to Members 01-71. See NASD Rule 1120, which 
permits the NASD to designate continuing education regulatory 
elements for various registration categories.
    \33\ Although the Commission approved the JP registration 
category (see Exchange Act Rel. No. 37112 (April 12, 1996), 61 FR 
17339 (April 19, 1996)), this examination has not yet been 
implemented.
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    (vii) Professional Designations Section
    The proposed Form U-4 adds Section 8, ``Professional 
Designations,'' to enable an individual requesting registration as an 
investment adviser representative to seek a waiver from examinations if 
he or she currently maintains certain designations.\34\ The 
instructions on the Form U-4 state that this is an optional field that 
will only be used by individuals who seek the applicable waiver.
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    \34\ See note 7 supra.
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    (viii) Signature and Acknowledgment Sections
    To accommodate electronic filing, proposed Section 15, the 
``Signatures'' section, defines a ``signature'' as either ``a manual 
signature or an electronically transmitted equivalent.'' This section 
permits individuals and appropriate signatories to go directly to 
designated signature fields to execute the electronic signatures 
required by the Forms. Proposed Sections 15A and 15B address the 
individual/applicant's acknowledgment and consent and the firm/
appropriate signatory's representations, both of which must be 
completed on all initial or temporary registration form filings. 
Section 15C addresses the Temporary Registration Acknowledgment (15C), 
which must be completed for all temporary registrations. Section 15D 
has been added to address an individual/applicant's acknowledgment and 
consent to amendments to the disclosure questions or the Disclosure 
Reporting Pages (``DRPs''). Firms and appropriate signatories must 
complete Section 15E for all amendment form filings. In addition, the 
signature section includes the Firm/Appropriate Signatory Concurrence 
(15F), which is a new signature section that enables one firm to 
``concur'' with a filing made by another firm with which an individual 
is also registered (i.e., the individual is registered with more than 
one broker/dealer and/or investment adviser firm).
    The proposed changes to the Form 
U-5 combine the signatures into Section 8, which includes the firm 
acknowledgment in Section 8A and the individual acknowledgment and 
consent in Section 8B. Only appropriate signatories of firms are 
required to sign the Form U-5; however, if the terminating firm reports 
on the Form U-5 that an individual is under internal review, that 
individual may file a Part

[[Page 5866]]

II to the Internal Review DRP to provide a response.\35\ In addition, 
unregistered individuals are obligated to report to CRD any address 
changes for two years following the termination of registration.\36\ 
The individual acknowledgment and consent is included in the proposed 
changes to the Form U-5 to require individuals submitting an address 
change or an Internal Review DRP-Part II to attest that the information 
is accurate and complete.
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    \35\ With the exception of Part II of the Form U-5 Internal 
Review DRP, there is currently no mechanism for a former associated 
person or member to submit information to amend or update a 
disclosure record through the use of the Forms. Part II of the Form 
U-5 Internal Review DRP provides a current or former registered 
representative an opportunity to provide a summary of the 
circumstances relating to an internal review reported on a FormU-5 
by a former employer.
    \36\ See generally Article V, Section 4 of the NASD By-Laws, 
Forms U-4 and U-5, and Notice to Members 97-31.
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    (ix) Firm/Appropriate Signatory Concurrence Section
    Investment adviser representatives who are also registered with one 
or more broker/dealers will share a single registration record on the 
CRD/IARD systems.\37\ Therefore, a single event may trigger Form U-4 
filing obligations by more than one investment adviser 
and/or broker/dealer. As noted above, Section 15F provides a mechanism 
by which a broker/dealer may indicate that it concurs with information 
filed by an investment adviser regarding a representative who is 
registered with both entities, and vice versa.
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    \37\ NASD Regulation is scheduled to deploy the investment 
adviser representative component of the IARD system on March 18, 
2002. With the deployment of this component of the system, 
investment advisers will be able to submit Forms U-4 and U-5 
electronically to register and terminate the registrations of their 
investment adviser representatives with appropriate state 
regulators. Individuals who are registered with both a registered 
investment adviser and a broker/dealer will share a single 
registration record on the CRD and IARD systems.
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    The CRD and IARD systems would send an electronic notice to an 
employer broker/dealer or investment adviser that another broker/dealer 
or investment adviser that also employs that individual has submitted a 
Form U-4 for one of its associated persons. The investment adviser or 
broker/dealer would then be able to review the information that has 
been submitted. If the firm agreed that the information was correctly 
reported, it would make a ``concurrence filing,'' which would 
communicate to the CRD system (and, therefore, all appropriate 
regulators) that it had adopted the filing as its own. Firms would not 
be required to make concurrence filings where the filing amends 
information that is relevant only to the broker/dealer or investment 
adviser that initially filed the Form U-4 (e.g., such firms would not 
be required have to submit concurrence filings for changes to 
registrations, office of employment address, etc. that are specific to 
the entity making the initial filing).
    NASD Regulation believes that concurrence filings will be made in 
the vast majority of cases involving individuals who are registered 
with multiple firms (whether they are broker/dealers or investment 
advisers). In the event that multiple firms associated with any 
particular individual submit different DRPs reporting the same 
disclosure event, NASD Regulation staff would ``flag'' the affected 
record on the CRD/IARD systems. This would identify on the system that 
a difference exists, and it would immediately put regulators and the 
involved firms on notice that a difference exists. The Working Group 
has determined that the ``difference flag'' will be set whenever there 
is a change to any of the information provided in any of the fields 
eliciting objective factual information (i.e., all of the DRP fields, 
with the exception of the last field on the DRP, which is reserved for 
the registered representative's summary or commentary on the event). 
The Working Group determined to set the ``difference flag'' pursuant to 
these criteria to eliminate subjective determinations by NASD staff in 
identifying such differences.
    When a difference is flagged, NASD Regulation staff will alert the 
firms involved to request that they resolve the difference. If the 
firms are not able to reach an agreement within 30 calendar days, NASD 
Regulation staff will refer the matter to a state regulator and/or NASD 
Regulation's Member Regulation or Enforcement staff, as appropriate, 
based on the facts and circumstances of the situation, for review and 
resolution.\38\ NASD Regulation also will implement procedures to 
ensure that a public investor (or other person) who requests a public 
disclosure report before the difference is resolved is made aware of 
the conflicting or inconsistent information. Specifically, NASD 
Regulation intends to provide to such a requestor a public disclosure 
report that contains both versions of the information submitted 
whenever such a difference has been identified.\39\ This process of 
permitting broker/dealers and investment advisers to concur with 
filings submitted by another broker/dealer or investment adviser should 
make it more efficient for firms to comply with their reporting 
obligations.\40\
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    \38\ Referrals to NASD Regulation's Member Regulation or 
Enforcement Department would be made only in cases where a member 
firm is involved (e.g., when a difference is identified between 
filings made by two broker/dealer member firms or between filings 
made by a broker/dealer member firm and an investment adviser firm 
that is registered with a state). If NASD staff identifies a 
difference between filings made by two non-member investment adviser 
firms, a referral will be made to states in which those firms are 
registered. Where investment adviser firms are registered in 
multiple states, the Working Group has indicated that referrals 
would be made to the state where the investment adviser firm's 
principal place of business is located.
    \39\ NASD Regulation believes that it is unlikely that there 
will be many cases involving these types of differences. The 
universe of individuals who are registered with both a broker/dealer 
and an unaffiliated investment adviser is small relative to the 
number of individuals who maintain investment adviser registrations 
with a firm that is registered both as a broker/dealer and an 
investment adviser. NASD Regulation does not expect firms that are 
registered both as a broker/dealer and an investment adviser to 
submit differing reports about the same event. NASD Regulation 
further expects that any differences will be quickly resolved, given 
that both investment advisers and broker/dealers are subject either 
to state or NASD rules and regulations that require complete and 
accurate reporting on the Forms.
    \40\ The proposed language in the General Instructions under 
Section 15F states: ``This section must be completed to concur with 
a U-4 filing made by another firm (IA/BD) on behalf of an individual 
who is also registered with that other firm (IA/BD).'' Because this 
addition is exclusive to the electronic form, the Specific 
Instructions for Paper Filers states that Section 15F does not apply 
to paper filers; consequently, a paper filer would be required 
independently to submit hard copy filings to states and would not be 
able to use the electronic concurrence filing mechanism.
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2. Statutory Basis
    NASD Regulation believes that the proposed rule change is 
consistent with the provisions of section 15A(b)(6) \41\ of the Act, 
which requires, among other things, that the Association's rules 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 is designed to accomplish these ends by 
making technical changes to the Forms to accommodate the electronic 
submission of investment adviser filings on the IARD system; 
establishing procedures that will enable broker/dealer firms and 
investment adviser firms employing dually registered persons to concur 
with information contained in the Forms; making certain formatting and 
technical changes to the Forms that would complete the transition from 
a paper-based filing model to an electronic-filing model; providing 
separate paper filing instructions for those filers that do not

[[Page 5867]]

use the CRD or IARD systems; clarifying certain items that have been a 
source of confusion for WebCRD users; and updating the Forms to add 
examination and registration categories that were not previously 
included.
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    \41\ 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.

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

    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 NASD consents, the Commission will:
    A. by order approve such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2002-05 and 
should be submitted by February 28, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\42\
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    \42\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-2959 Filed 2-6-02; 8:45 am]
BILLING CODE 8010-01-P