[Federal Register Volume 67, Number 46 (Friday, March 8, 2002)]
[Notices]
[Pages 10783-10785]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-5548]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45493; File No. SR-NASD-2002-27]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and by the National Association of Securities Dealers, Inc. 
Amending NASD Rule 3070 Concerning the Reporting of Criminal Offenses 
by Members and Persons Associated With a Member to the NASD

March 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 February 21, 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 (``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by NASD Regulation. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    NASD Regulation proposes to amend NASD Conduct Rule 3070 to limit 
reporting under this category to any felony, certain types of 
misdemeanors, and substantially equivalent activity in a domestic or 
foreign court. According to NASD Regulation, this proposed rule change 
would conform NASD Rule 3070(a)(5) to a proposed rule change by the New 
York Stock Exchange (``NYSE'') to amend NYSE Rule 351(a)(5).\3\
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    \3\ See Securities Exchange Act Release No. 45404 (February 6, 
2002), 67 FR 6565 (February 12, 2002).
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    The text of the proposed rule change appears below. New text is in 
italics; deletions are in brackets.

Rule 3070. Reporting Requirements

    (a) Each member shall promptly report to the Association whenever 
such member or person associated with the member:

    (1) through (4) No change.
    (5) is indicted, or convicted of, or pleads guilty to, or pleads no 
contest to, [any criminal offense (other than traffic violations)] any 
felony; or any misdemeanor that involves the purchase or sale of any 
security, the taking of a false oath, the making of a false report, 
bribery, perjury, burglary, larceny, theft, robbery, extortion, 
forgery, counterfeiting, fraudulent concealment, embezzlement, 
fraudulent conversion, or misappropriation of funds, or securities, or 
substantially equivalent activity in a domestic or foreign court.
    (6) through (10) No change.
    (b) through (e) No change.\4\
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    \4\ The initial text of the proposed rule change stated ``(a) 
through (e) No Change.'' In fact, NASD Regulation intended to state 
``(b) through (e) No Change.'' The Commission made this correction 
to the proposed rule text with the agreement of NASD Regulation. 
Telephone conversation between Shirley H. Weiss, Associate General 
Counsel, NASD Regulation, and Christopher Solgan, Law Clerk, 
Division, Commission, on February 28, 2002.
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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 at the places 
specified in Item IV below. NASD Regulation has prepared summaries, set 
forth in sections A, B,

[[Page 10784]]

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
    NASD Regulation proposes to amend NASD Rule 3070(a)(5) to limit 
reporting under this category to any felony, certain types of 
misdemeanors, and substantially equivalent activity in a domestic or 
foreign court. According to NASD Regulation, this proposed rule change 
would conform NASD Rule 3070(a)(5) to a proposed amendment by the NYSE 
to NYSE Rule 351(a)(5).
    NASD Rule 3070, adopted in 1995,\5\ requires members to promptly 
report to the NASD the occurrence of 10 specified events (including 
criminal indictments and convictions, securities law violations, 
securities or commodities-related litigation or arbitration resulting 
in an award or judgment exceeding $15,000, customer claims settled for 
an amount exceeding $15,000, association with a statutorily 
disqualified person, and certain disciplinary proceedings) and to file 
quarterly statistical information concerning customer complaints. 
According to NASD Regulation, NASD Rule 3070 assists the NASD in the 
timely identification and investigation of problem members, branch 
offices, and registered representatives that may pose heightened risks 
to public investors.
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    \5\ See Securities Exchange Act Release No. 36211 (September 8, 
1995), 60 FR 48182 (September 18, 1995).
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    NASD Regulation represents that the reporting requirements under 
NASD Rule 3070 significantly parallel comparable provisions of NYSE 
Rule 351 as well as the disclosure requirements of the Uniform 
Application for Securities Industry Registration or Transfer (``Form U-
4''). In this regard, any member subject to substantially similar 
reporting requirements of another self-regulatory organization of which 
it is a member is exempt from the provisions of NASD Rule 3070.
    With respect to criminal offenses, NASD Regulation states that both 
NASD Rule 3070(a)(5) and NSYE Rule 351(a)(5) currently require members 
to promptly report to the NASD and NYSE, respectively, when such member 
or person associated with the member is indicted, convicted of, pleads 
guilty to, or pleads no contest to any criminal offense other than 
traffic violations. NASD Regulation believes that this requirement is 
overly broad, in that it requires members and persons associated with 
members to report information that is not material to NASD Regulation's 
regulatory program. NASD Regulation states that the proposed rule 
change would continue to require members and associated persons to 
report ``any felony,'' consistent with Question 23A(1) of the Form U-
4,\6\ but it would limit the scope of reportable misdemeanor criminal 
events to the type of business-related offenses that are required to be 
reported in response to Question 23B(1) of the Form U-4.\7\ NASD 
Regulation also believes that the proposed rule change would be 
consistent with a proposed rule change submitted by the NYSE to amend 
NYSE Rule 351(a)(5), which would limit the reporting of criminal 
offenses to: ``any felony or any misdemeanor that involves the purchase 
or sale of any security, the taking of a false oath, the making of a 
false report, bribery, perjury, burglary, larceny, theft, robbery, 
extortion, forgery, counterfeiting, fraudulent concealment, 
embezzlement, fraudulent conversion or misappropriation of funds or 
securities, or substantially equivalent activity in a domestic or 
foreign court.'' \8\
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    \6\ Question 23A(1) reads as follows:
    Have you ever:
    (a) been convicted of or pled guilty or nolo contendere (``no 
contest'') in a domestic, foreign, or military court to any felony?
    (b) been charged with any felony?
    \7\ Question 23B(1) reads as follows:
    Have you ever:
    (a) been convicted of or pled guilty or nolo contendere (``no 
contest'') in a domestic or foreign court to a misdemeanor 
involving: investments or an investment-related business, fraud, 
false statements or omissions, wrongful taking of property, or 
bribery, forgery, counterfeiting or extortion, or a conspiracy to 
commit any of these offenses?
    (b) been charged with a misdemeanor specified in 23(B)(1)(a)?
    \8\ See Securities Exchange Act Release No. 45404 (February 6, 
2002), 67 FR 6565 (February 12, 2002).
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(2) Statutory Basis
    NASD Regulation believes that the proposed rule change is 
consistent with the provisions of sections 15A(b)(6) \9\ of the Act, 
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 is designed to accomplish these ends by 
conforming NASD Rule 3070(a)(5) to a proposed rule change to NYSE Rule 
351(a)(5) and making NASD Rule 3070(a)(5) more consistent with the 
reporting requirements of Form U-4.
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    \9\ 15 U.S.C. 78o-3(b)(5).
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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

    NASD Regulation neither solicited nor received written comments.

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 filings will also be 
available for inspection and copying at the principal office of the 
Association. All submissions should refer to File No. SR-NASD-2002-27 
and should be submitted by March 29, 2002.


[[Page 10785]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 02-5548 Filed 3-7-02; 8:45 am]
BILLING CODE 8010-01-P