[Federal Register Volume 67, Number 117 (Tuesday, June 18, 2002)]
[Notices]
[Pages 41561-41565]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-15289]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46067; File No. SR-NASD-2002-04]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to Amendments to Rule 3010(b)(2) and IM-8310-2

June 12, 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 7, 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 May 31, 2002, NASD filed Amendment No. 1 to the 
proposed rule change.\3\ The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Grace Yeh, Assistant General Counsel, NASD 
Regulation, to Katherine England, Assistant Director, Division of 
Market Regulation, Commission, dated May 31, 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 amend NASD Rule 3010(b)(2), also 
known as the ``Taping Rule,'' and NASD IM-8310-2. The proposed 
amendments to the Taping Rule generally would: (1) Permit firms that 
become subject to the Taping Rule a one time opportunity to adjust 
their staffing levels to fall below the prescribed threshold levels and 
thus avoid application of the Rule; (2) revise the criteria by which 
firms become subject to the Taping Rule by not including certain short-
term employees of disciplined firms into the calculations of the Taping 
Rule threshold levels; (3) expand the compliance deadline from 30 to 60 
days for firms subject to the Taping Rule to install taping systems; 
(4) clarify the staff's authority to grant exemptions from the Rule 
pursuant to the Rule 9600 Series only in exceptional cases; and (5) 
extend the taping requirements from two years to three years to 
eliminate conflicting time periods in the Taping Rule. In addition, 
NASD Regulation proposes amendments to NASD IM-8310-2 to permit, upon 
request, public disclosure of whether a particular firm is subject to 
the Taping Rule. Below is the text of the proposed rule change. 
Proposed new language is in italics; proposed deletions are in 
[brackets].
* * * * *

3010. Supervision

    (a) No Change.
    (b) Written Procedures.
    (1) No Change.
    (2) Tape recording of conversations.
    (A) [(i)] Each member that either is notified by NASD Regulation or 
otherwise has actual knowledge that it meets one of the criteria in 
paragraph (b)(2)(H)[(viii)] relating to the employment history of its 
registered persons at a Disciplined Firm as defined in paragraph 
(b)(2)(J)[(x)] shall establish, maintain, and enforce special written 
procedures for supervising the telemarketing activities of all of its 
registered persons.
    (B)[(ii)] The member must establish and implement the supervisory 
procedures required by this paragraph within [30] 60 days of receiving 
notice from NASD Regulation or obtaining actual knowledge that it is 
subject to the provisions of this paragraph.
    A member that meets one of the criteria in paragraph (b)(2)(H) for 
the first time may reduce its staffing levels to fall below the 
threshold levels within 30 days after receiving notice from NASD 
Regulation pursuant to the provisions of paragraph (b)(2)(A) or 
obtaining actual knowledge that it is subject to the provisions of the 
paragraph, provided the firm promptly notifies the Department of Member 
Regulation, NASD Regulation, in writing of its becoming subject to the 
Rule. Once the member has reduced its staffing levels to fall below the 
threshold levels, it shall not rehire a person terminated to accomplish 
the staff reduction for a period of 180 days. On or prior to reducing 
staffing levels pursuant to this paragraph, a member must provide the 
Department of Member Regulation, NASD Regulation with written notice, 
identifying the terminated person(s).
    (C) [(iii)] The procedures required by this paragraph shall include 
tape-recording all telephone conversations between the member's 
registered persons and both existing and potential customers.
    (D) [(iv)] The member shall establish reasonable procedures for 
reviewing the tape recordings made pursuant to the requirements of this 
paragraph to ensure compliance with applicable securities laws and 
regulations and applicable rules of [this] the Association. The 
procedures must be appropriate for the

[[Page 41562]]

member's business, size, structure, and customers.
    (E) [(v)] All tape recordings made pursuant to the requirements of 
this paragraph shall be retained for a period of not less than three 
years from the date the tape was created, the first two years in an 
easily accessible place. Each member shall catalog the retained tapes 
by registered person and date.
    (F) [(vi)] Such procedures shall be maintained for a period of 
[two] three years from the date that the member establishes and 
implements the procedures required by the provisions of this paragraph.
    (G) [(vii)] By the 30th day of the month following the end of each 
calendar quarter, each member firm subject to the requirements of this 
paragraph shall submit to the Association a report on the member's 
supervision of the telemarketing activities of its registered persons.
    (H) [(viii)] The following members shall be required to adopt 
special supervisory procedures over the telemarketing activities of 
their registered persons:
     A firm with at least five but fewer than ten registered 
persons, where 40% or more of its registered persons have been 
[employed by] associated with one or more Disciplined Firms in a 
registered capacity within the last three years;
     A firm with at least ten but fewer than twenty registered 
persons, where four or more of its registered persons have been 
[employed by] associated with one or more Disciplined Firms in a 
registered capacity within the last three years;
     A firm with at least twenty registered persons, where 20% 
or more of its registered persons have been [employed by] associated 
with one or more Disciplined Firms in a registered capacity within the 
last three years.
    For purposes of the calculations required in subparagraph (H), 
firms should not include registered persons who:
    (1) have been registered for an aggregate total of 90 days or less 
with one or more Disciplined Firms within the past three years; and
    (2) do not have a disciplinary history.
    (I)[(ix)] For purposes of this Rule, the term ``registered person'' 
means any person registered with the Association as a representative, 
principal, or assistant representative pursuant to the Rule 1020, 1030, 
1040, and 1110 Series or pursuant to Municipal Securities Rulemaking 
Board (``MSRB'') Rule G-3.
    (J)[(x)] For purposes of this Rule, the term ``disciplined firm'' 
means a member that, in connection with sales practices involving the 
offer, purchase, or sale of any security, has been expelled from 
membership or participation in any securities industry self-regulatory 
organization or is subject to an order of the Securities and Exchange 
Commission revoking its registration as a broker/dealer.
    (K)[(xi)] For purposes of this Rule, the term ``disciplinary 
history'' means a finding of a violation by a registered person in the 
past five years by the Securities and Exchange Commission, a self-
regulatory organization, or a foreign financial regulatory authority of 
one or more of the provisions (or comparable foreign provision) listed 
in IM-1011-1 or rules or regulations thereunder.
    (L) Pursuant to the Rule 9600 Series, the Association may in 
exceptional circumstances, taking into consideration all relevant 
factors, exempt any member unconditionally or on specified terms and 
conditions from the requirements of this paragraph [upon satisfactory 
showing that the member's supervisory procedures ensure compliance with 
applicable securities laws and regulations and applicable rules of the 
Association].
* * * * *

IM-8310-2. Release of Disciplinary [Information] and Other Information 
Through the Public Disclosure Program

    (a) In response to a written inquiry, electronic inquiry, or 
telephonic inquiry via a toll-free telephone listing, the Association 
shall release certain information contained in the Central Registration 
Depository regarding a current or former member, an associated person, 
or a person who was associated with a member within the preceding two 
years, through the Public Disclosure Program. Such information shall 
include:
    (1) the person's employment history and other business experience 
required to be reported on Form U-4;
    (2) currently approved registrations for the member or associated 
person;
    (3) the main office, legal status, and type of business engaged in 
by the member; and
    (4) an event or proceeding--
    (A) required to be reported under Item 23 on Form U-4;
    (B) required to be reported under Item 11 on Form BD; or
    (C) reported on Form U-6.
    The Association also shall make available through the Public 
Disclosure Program certain arbitration decisions against a member 
involving a securities or commodities dispute with a public customer. 
In addition, the Association shall make available in response to 
telephonic inquiries via the Public Disclosure Program's toll-free 
telephone listing whether a particular member is subject to the 
provisions of Rule 3010(b)(2). The Association shall not release 
through the Public Disclosure Program social security numbers, 
residential history information, or physical description information, 
or information that the Association is otherwise prohibited from 
releasing under Federal law.
    (b) through (l) 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 at 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

1. Purpose
    The Taping Rule, which was adopted in 1998, is designed to ensure 
that members with a large number of registered persons from firms that 
have been expelled from membership or have had their registration 
revoked (``Disciplined Firms'') have proper supervisory procedures over 
telemarketing activities to prevent fraudulent and improper sales 
practices or other customer harm. Under the Rule, firms that hire a 
significant number of employees from Disciplined Firms must establish, 
maintain, and enforce special written procedures for supervising the 
telemarketing activities of all their registered persons. In addition, 
such firms are required to install taping systems to record all 
telephone conversations between all of their registered persons and 
both existing and potential customers, review the tape recordings, and 
file quarterly reports with NASD Regulation.
    Based upon staff's experience with the Taping Rule and input from 
the National Adjudicatory Council and NASD Regulation Committees, the 
staff proposes several amendments to the Rule. Generally, the proposed 
amendments are intended to refine the

[[Page 41563]]

application of the Taping Rule and to provide additional flexibility to 
assist member firms in meeting their compliance obligations under the 
Rule. Firms that, as of the effective date of the proposed rule change, 
have a pending exemption request from the Taping Rule requirements (or 
related appeal before the National Adjudicatory Council (``NAC'')), or 
for which the time period in which to seek an applicable exemption (or 
related appeal to the NAC) has not yet expired, may elect to comply 
with the Taping Rule as amended by the proposed rule change in lieu of 
complying with the current requirements under the Rule.
    a. Establishment of a 30-Day Staff Adjustment Period. NASD 
Regulation is concerned that some firms may inadvertently or 
unintentionally become subject to the Taping Rule due, for example, to 
sudden turnover among registered persons or other events beyond the 
firm's control. As a means to address these types of occurrences, NASD 
Regulation is proposing to provide all firms that trigger application 
of the Taping Rule (for the first time) a one-time opportunity to 
obtain relief from the Taping Rule requirements by adjusting their 
staffing levels.
    In particular, NASD Regulation proposes to permit firms, within 30 
days after receiving the notice that they are subject to the Taping 
Rule or obtaining actual knowledge that they are subject to the Rule 
(and have promptly notified the Department of Member Regulation that 
they are subject to the Rule), to reduce their staffing levels to fall 
below the threshold levels contained in paragraph (b)(2)(viii) of the 
Taping Rule and thus avoid application of the Taping Rule. Under the 
proposed rule change, firms would not be permitted to hire additional 
registered representatives to fall below the stated thresholds but 
rather would be required to reduce their number of registered 
representatives from Disciplined Firms. Once a firm has made the 
reductions, the firm would not be permitted to rehire the terminated 
individuals for a period of at least 180 days. Under the proposed rule 
change, firms may elect, but are not required, to make reductions to 
their staffing levels. If a firm chooses not to make the adjustment, 
then it will be required to comply with the Taping Rule requirements.
    A firm would be permitted to adjust its staffing levels only when 
it becomes subject to the Taping Rule for the first time. If the firm 
re-triggers the Taping Rule at any point in the future, then the firm 
automatically would become subject to its provisions. While a new 
entity resulting from a restructuring (by a merger, acquisition, or 
otherwise) would be allowed to make a staff adjustment to avoid 
application of the Taping Rule even if one of the participating members 
in the restructuring had previously adjusted its staff level pursuant 
to the proposed rule change, this would not be the case for an entity 
that was restructured in an effort to avoid compliance with the Rule.
    b. Revision of the Criteria by Which Firms Become Subject to the 
Taping Rule. NASD Regulation is proposing to revise the criteria for 
determining whether a firm is subject to the Taping Rule by excluding 
from the firm's calculations registered persons who were associated 
with a Disciplined Firm for only a short period of time. Specifically, 
in calculating whether firms exceed the Taping Rule thresholds set 
forth in the Rule, registered persons who were registered with one or 
more Disciplined Firms for 90 days or less within the last three years 
and who have no relevant disciplinary history, while still included in 
the total number of registered persons at a firm, may be excluded from 
the number of registered persons at the firm from Disciplined Firms.
    NASD Regulation believes that the proposed rule change is 
consistent with the intent of the Taping Rule. The proposed rule change 
recognizes that persons registered with Disciplined Firms for a short 
period of time (i.e., an aggregate total of 90 days or less) are far 
less likely to have acquired the ``bad habits'' from the Disciplined 
Firms that the Taping Rule seeks to redress. Moreover, it is 
anticipated that these individuals will receive proper training and 
supervision at their new firms. To provide greater assurance that these 
short-term employees have not acquired the ``bad habits'' of concern or 
do not otherwise raise the concerns that the Rule is designed to 
address, the proposed rule change also requires that such short-term 
employees have no disciplinary history by a finding of a violation of 
the provisions set forth in NASD IM-1011-1.
    In addition, the proposed rule change would clarify that the 
calculation of registered representatives from Disciplined Firms 
includes independent contractors previously registered with a 
Disciplined Firm. NASD Regulation proposes to make a technical 
amendment to the current rule language by substituting ``associated 
with one or more Disciplined Firms in a registered capacity'' for 
``employed by one or more Disciplined Firms'' in subparagraph 
(b)(2)(viii) of the Taping Rule.
    c. Expansion Of The Compliance Deadline From 30 To 60 Days. Under 
the current Taping Rule, firms are obligated to implement the special 
supervisory procedures, including the installation of taping systems 
within 30 days of receiving notice from the NASD (or obtaining actual 
knowledge) that they are subject to the Taping Rule. Most of the firms 
that have become subject to the Taping Rule have requested extensions 
of time to complete the installation of a taping system. In light of 
these requests and the staff's understanding that firms typically 
require greater than 30 days to install an appropriate taping system, 
the proposed rule change would extend the time for firms to install the 
taping system from 30 days to 60 days. Based on the staff's experience, 
60 days should provide adequate time for firms to install the taping 
systems and would alleviate the need for firms to request extensions of 
time.
    d. Clarification Of The Exemptive Relief Authority. Currently, 
paragraph (b)(2)(xi) of the Taping Rule permits member firms that 
become subject to the Taping Rule to apply for exemptive relief under 
the Rule 9600 Series ``upon satisfactory showing that the member's 
supervisory procedures ensure compliance with applicable securities 
laws and regulations and applicable rules of the Association.'' In 
reviewing exemptive requests, NASD Regulation generally has required a 
firm to establish that it has alternative procedures to assure 
supervision at a level functionally equivalent to a taping system. 
Notwithstanding this high standard, the staff has received a 
substantial number of applications for exemptive relief, all but one of 
which have been denied.
    Based on its experience administering exemptive requests, the staff 
believes that the exemption provisions should be explicitly drafted to 
be available in ``exceptional circumstances'' only. The staff believes 
that clearly articulating a high standard for an exemption will save 
firms and the staff the time and expense involved in the vast majority 
of unmeritorious exemption applications the staff has reviewed to date. 
Further, the additional flexibility created by the proposed rule 
change, particularly the one-time ability to reduce staffing levels to 
avoid application of the Rule, should significantly reduce any need to 
seek an exemption.
    e. Increase Duration Of The Special Supervisory Requirements. The 
proposed rule change would extend the time period for which firms must 
maintain taping systems from two years to three years. NASD Regulation

[[Page 41564]]

believes that this proposed change will reduce confusion concerning the 
application of the Taping Rule. Currently, the Taping Rule requires 
firms to install the taping systems for a period of two years; however, 
the Taping Rule also requires firms to look back three years for the 
employment history of their registered representatives to calculate the 
threshold levels under paragraph (b)(2)(viii) of the Taping Rule. 
Equalizing these two time periods to three years would eliminate the 
confusion and would alleviate any problems in the calculations for the 
Taping Rule thresholds.
    In addition, the proposed rule change would clarify that the period 
for which firms are required to maintain the taping system begins from 
the date that the member establishes its special supervisory procedures 
and implements the taping system. The proposed rule change further 
would clarify in paragraph (b)(2)(ii) of the Taping Rule that a firm is 
required to both establish and implement the taping system within the 
time period set forth in such paragraph.
    f. Publication Of The Identity Of Firms Subject To The Taping Rule. 
Since the inception of the Taping Rule, the staff has received requests 
from regulators, consumer groups, and investor representatives, to make 
the identity of firms subject to the Taping Rule publicly available. 
After careful consideration of the issue, NASD Regulation believes that 
public disclosure of the identity of firms subject to the Taping Rule 
in circumstances where information is being sought regarding a 
particular firm is appropriate and consistent with the objectives of 
the Taping Rule. As a result, the proposed rule change would enable 
investors and the general public to ascertain, upon request, whether an 
identified firm is subject to the Taping Rule.
2. Statutory Basis
    NASD Regulation believes that the proposed rule change is 
consistent with the provisions of section 15A(b)(6) of the Act,\4\ 
which require, 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 provides firms with more flexibility to 
comply with the Rule while still requiring firms that hire a 
significant number of registered persons from Disciplined Firms to 
adopt enhanced supervisory procedures to protect investors and prevent 
fraudulent and manipulative sales practices.
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    \4\ 15 U.S.C. 78-3(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

    The proposed rule change was published for comment in NASD Notice 
to Members 01-38 (June 2001). Sixteen comments were received in 
response to the Notice.\5\ Copies of the comment letters have been 
provided to the Commission. Of the 16 comment letters received, 12 were 
in favor of the proposed rule change and 4 were opposed.
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    \5\ Comments letters were received from: Anonymous; Robert Banks 
(``Banks''); Patricia Bartholomew, Thinkequity Partners 
(``Bartholomew''); Clark Dodge & Company, Inc. (``Clark Dodge''); 
E.E. Powell & Company Inc. (``E.E. Powell''); First Liberty 
Investment Group (``First Liberty''); Jerard Basmagy, First Montauk 
Securities Corp. (``Basmagy''); Joseph Stevens & Co., Inc. (``Joseph 
Stevens''); J.P. Turner & Company, LLC (``J.P. Turner''); Alexander 
Nova (``Nova''); Personalized Investments, Inc. (``Personalized 
Investments''); Rushmore Securities Corp. (``Rushmore''); Matthew 
Schonberg, Aegis Capital Corp. (``Schonberg''), Seth Schwartz, 
Washington Square Securities, Inc. (``Schwartz''); Maryanne Sylenko 
(``Sylenko''); and James Welch, Morgan Stanley (Fort Worth, Texas) 
(``Welch'').
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    Establishment of a 30-day Staff Adjustment Period: Generally, the 
commenters supported the proposal to allow member firms that become 
subject to the Taping Rule for the first time to make a downward 
adjustment of staff in order to fall below the triggering thresholds of 
the Rule. Nine of the commenters supported the proposal.\6\ Three 
commenters opposed the proposal.\7\ While supporting the proposal, 
Bartholomew believed that the staff adjustment mechanism should be 
based upon a facts and circumstances determination and should not be 
automatic. One commenter who did not support the proposal, Schonberg, 
noted that the representatives from Disciplined Firms, even employed 
for a short period of time, have the capability to teach ``bad habits'' 
to the new firm's representatives.
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    \6\ See, e.g., Comment letters from First Liberty, Joseph 
Stevens, Basmagy, Personalized Investments, Bartholomew, E.E. 
Powell, Schwartz, Sylenko, and Clark Dodge.
    \7\ See, e.g., Comment letters from Schonberg, Welch, and 
Anonymous.
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    Short-term Employee Proposal: With respect to the proposals to 
exclude short-term employees from a member firm's Taping Rule 
calculations and to define ``short-term'' as a period of not more than 
90 days, a slight majority of the commenters supported the proposals. 
Nine commenters supported the proposal regarding a firm's 
calculations.\8\ Seven commenters opposed this proposal.\9\
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    \8\ See, e.g., Comment letters from Banks, J.P. Turner, Joseph 
Stevens, Basmagy, Personalized Investments, E.E. Powell, Sylenko, 
Clark Dodge, and Rushmore. (Although Banks responded negatively to 
Question 2, he did express a willingness to support the proposal if 
the 90-day short-term period was done in the aggregate. The proposal 
would calculate the 90-day period in the aggregate.)
    \9\ See, e.g., Comment letters from First Liberty, Schonberg, 
Nova, Bartholomew, Schwartz, Welch, and Anonymous.
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     A smaller group of commenters responded to the proposed definition 
of short-term period. Seven commenters supported the proposed 
definition.\10\ Six commenters opposed the proposed definition.\11\ 
First Liberty and Banks believed the time period should be 30 days 
while Nova believed that the period should be no longer than 14 days. 
Joseph Stevens did not support the proposed definition due to the fact 
that firms may hire consultants for periods of longer than 90 days.
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    \10\ See, e.g., Comment letters from Personalized Investments, 
Basmagy, E.E. Powell, Welch, Anonymous, Clark Dodge, and Rushmore.
    \11\ See, e.g., Comment letters from First Liberty, Schonberg, 
Banks, Nova, Joseph Stevens, and Schwartz.
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    Expansion of the Compliance Deadline: In general, the commenters 
supported the proposals to extend the compliance deadline for firms 
that become subject to the Taping Rule requirements and to set the 
deadline for compliance at 60 days. Ten commenters supported extending 
the compliance deadline and, with the exception of Clark Dodge, J.P. 
Turner and Schwartz, the same commenters stated that the 60-day period 
was a sufficient period of time for compliance.\12\ Five commenters did 
not support the extension of the current 30-day time period.\13\ Clark 
Dodge, J.P. Turner, Schwartz, and Rushmore believed that the time 
period should be longer with Schwartz and Rushmore stating that a 90-
day period would be more appropriate and Clark Dodge suggesting 75 
days. Basmagy would maintain the current 30-day

[[Page 41565]]

period; however, he would permit firms to petition the Association for 
extensions of time.
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    \12\ See, e.g., Comment letters from First Liberty, J.P. Turner, 
Joseph Stevens, Personalized Investments, E.E. Powell, Schwartz, 
Welch, Anonymous, Clark Dodge, and Rushmore.
    \13\ See, e.g., Comment letters from Schonberg, Banks, Nova, 
Basmagy, and Bartholomew.
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    Narrowing of the Exemptive Relief Authority: No comments were 
received on the proposal expressly to limit the exemptive provisions of 
the Taping Rule to ``exceptional circumstances.''
    Increase Duration of the Special Supervisory Requirements: No 
comments were received on the proposal to extend the taping 
requirements and special supervisory procedures from two years to three 
years to correspond to the look-back provisions of the Rule.
    Publication of the Identity of Firms Subject to the Taping Rule: 
The Notice to Members sets forth two proposals for publication of the 
identity of firms subject to the Taping Rule. One proposal would allow 
an individual to receive the information that a firm is subject to the 
Taping Rule in response to a request for information of the firm 
through the CRD Public Disclosure Program (``PDP''). The other proposal 
would publish a list of firms subject to the Taping Rule on the NASD 
Regulation web site similar to the list of Disciplined Firms that is 
currently on the Web site. The majority of commenters supported both 
proposals.
    Thirteen commenters supported the disclosure of the information 
through the PDP \14\ and of these commenters only Clark Dodge did not 
support posting the information on the Web site. Banks and Basmagy 
supported the proposals since they would permit an investor to make an 
informed decision prior to establishing a relationship with a member 
firm. J.P. Turner and Rushmore did not support either proposal noting 
that publication of the information would be unfair to the firms. Nova 
supported both proposals, however he recommended that the information 
be put in one location in the PDP so that the public could more easily 
obtain the information.
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    \14\ See, e.g., Comment letters from First Liberty, Schonberg, 
Banks, Nova, Personalized Investments, Basmagy, Bartholomew, E.E. 
Powell, Schwartz, Welch, Anonymous, Slenko, and Clark Dodge.
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    NASD Regulation believes that the list of taping firms should not 
be made publicly available on the NASD Regulation Web site because the 
requirement to tape is not a disciplinary sanction, but rather a 
heightened supervisory requirement not typically disclosed to the 
public. However, because knowing whether a firm is subject to the 
Taping Rule may help investors make a more informed decision about 
doing business with a firm, NASD Regulation would make the information 
available to investors who inquire about a specific firm. In addition, 
NASD Regulation would highlight to investors (e.g., on the NASD 
Regulation Web site) the ability to inquire through the PDP's toll-free 
telephone listing whether a particular firm is subject to the Taping 
Rule.

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 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 proposal 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-2002-04 and should be 
submitted by July 9, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12)
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-15289 Filed 6-17-02; 8:45 am]
BILLING CODE 8010-01-P