[Federal Register Volume 67, Number 152 (Wednesday, August 7, 2002)]
[Notices]
[Pages 51310-51312]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-19891]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46289; File No. SR-NASD-2002-103]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. To Amend NASD Interpretive Material 8310-2 
Regarding the Release of Disciplinary Information to the Public

July 31, 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 July 31, 2002, the National Association of Securities Dealers, Inc. 
(``NASD'') 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 the NASD. The NASD 
filed the proposal pursuant to section 19(b)(3)(A) of the Act,\3\ and 
Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal effective 
upon filing with the Commission.\5\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ The NASD provided the Commission with notice of its intent 
to file the proposed rule change on June 28, 2002. See Rule 19b-
4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The NASD proposes to amend NASD Interpretive Material 8310-2 (``IM-
8310-2'') to clarify the terms under which the NASD will release 
disciplinary information to the public. The proposed rule change will 
become operative on September 1, 2002. The text of the proposed rule 
change is below. Proposed additions are in italics; proposed deletions 
are in brackets.
IM-8310-2. Release of Disciplinary Information
    (a) through (c) No change.
    (d)(1) [The Association] NASD shall release to the public 
information with respect to any disciplinary decision issued pursuant 
to the Rule 9000 Series imposing a suspension, cancellation or 
expulsion of a member; or suspension or revocation of the registration 
of a person associated with a member; or suspension or barring of a 
member or person associated with a member from association with all 
members; or imposition of monetary sanctions of $10,000 or more upon a 
member or person associated with a member; or containing an allegation 
of a violation of a Designated Rule; and may also release such 
information with respect to any disciplinary decision or group of 
decisions that involve a significant policy or enforcement 
determination where the release of information is deemed by the 
President of NASD [Regulation, Inc.] Regulatory Policy and Oversight to 
be in the public interest. [The Association] NASD also may release to 
the public information with respect to any disciplinary decision issued 
pursuant to the Rule 8220 Series imposing a suspension or cancellation 
of the member or a suspension of the association of a person with a 
member, unless the National Adjudicatory Council determines otherwise. 
The National Adjudicatory Council may, in its discretion, determine to 
waive the requirement to release information with respect to a 
disciplinary decision under those extraordinary circumstances where the 
release of such information would violate fundamental notions of 
fairness or work an injustice. [The Association] NASD may release to 
the public information on any [other final, litigated,] disciplinary 
decision issued pursuant to the Rule 8220 Series or Rule 9000 Series, 
not specifically enumerated in this paragraph, regardless of sanctions 
imposed, so long as the names of the parties and other identifying 
information is redacted.

[[Page 51311]]

    (A) NASD shall release to the public, in unredacted form, 
information with respect to any disciplinary decision issued pursuant 
to the Rule 9300 Series that does not meet one or more of the criteria 
in IM-8310-2(d)(1) for the release of information to the public, 
provided that the underlying decision issued pursuant to the Rule 9200 
Series meets one or more of the criteria in IM-8310-2(d)(1) for the 
release of information to the public, and information regarding such 
decision has been released to the public in unredacted form.
    (B) In the event there is more than one respondent in a 
disciplinary decision issued pursuant to the Rule 9000 Series, and 
sanctions imposed on one or more, but not all, of the respondents meets 
one or more of the criteria in Rule IM-8310-2(d)(1) for the release of 
information to the public, NASD shall release to the public, in 
unredacted form, information with respect to the respondent(s) who meet 
such criteria, and may release to the public, in redacted form, 
information with respect to the respondent(s) who do not meet such 
criteria. Notwithstanding the foregoing, NASD shall release to the 
public, in unredacted form, information with respect to any respondent 
in a disciplinary decision issued pursuant to the Rule 9300 Series if 
the sanctions imposed on such respondent in the underlying decision 
issued pursuant to Rule 9200 meet one or more of the criteria for 
release of information to the public, and information with respect to 
that respondent has been released in unredacted form.
    (2) No change.
    (e) 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, the NASD included statements 
concerning the purpose of and basis for its proposal and discussed any 
comments it received regarding the proposal. The text of these 
statements may be examined at the places specified in Item IV below. 
The NASD 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 purpose of the proposed rule change is to amend IM-8310-2 to 
clarify the circumstances under which the NASD shall redact information 
released to the public with respect to Hearing Panel and Extended 
Hearing Panel disciplinary decisions issued under the Rule 9200 Series 
(hereinafter collectively referred to as ``Hearing Panel decisions''), 
and National Adjudicatory Council (``NAC'') disciplinary decisions 
issued under the Rule 9300 Series. The proposed rule change also 
conforms the timing for the release of information in redacted form to 
the timing for the release of information in unredacted form with 
respect to both Hearing Panel and NAC decisions. As further detailed 
below, the proposed rule change is effective immediately upon filing 
and will become operative on September 1, 2002.
    IM-8310-2(d)(1) requires the NASD to release to the public 
information with respect to any disciplinary decision that: imposes a 
suspension, cancellation or expulsion of a member; suspends or revokes 
an associated person's registration; suspends or bars an associated 
person; or imposes monetary sanctions of $10,000 or more. The NASD also 
may release to the public information about cases that involve a 
significant policy or enforcement determination where the President of 
NASD Regulatory Policy and Oversight (formerly the President of NASD 
Regulation, Inc.) deems the release of such information to be in the 
public interest.\6\
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    \6\ In this transitional period, Mary Schapiro is serving both 
as President of NASD Regulation, Inc. and President of NASD 
Regulatory Policy and Oversight. NASD is describing Ms. Schapiro 
solely as President of NASD Regulatory Policy in the text of IM-
8310-2 to avoid the necessity of amending the rule filing at such 
time as NASD Regulation, Inc. no longer exists.
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    Additionally, pursuant to an amendment effective July 10, 2000,\7\ 
IM-8310-2 permits the NASD to publish in redacted form decisions that 
do not meet any of the criteria for release of information to the 
public. As defined in IM-8310-2(d)(1), a redacted decision is one in 
which the names of the parties and other identifying information (such 
as the names of employer firms and addresses) are redacted prior to its 
release.
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    \7\ See Securities Exchange Act Release No. 42783 (May 15, 
2000), 65 FR 32140 (May 22, 2000) (SR-NASD-2000-05).
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    The first proposed amendment to IM-8310-2(d)(1) would permit the 
prompt release, in redacted form, of disciplinary decisions that do not 
meet one or more of the criteria for release of information to the 
public under IM-8310-2(d)(1). IM-8310-2(d)(1) currently provides that 
the NASD shall promptly publish on its web site ``any disciplinary 
decision'' that meets one or more of the criteria for release of 
disciplinary information to the public. The July 10, 2000 amendment to 
IM-8310-2(d)(1) that permits the NASD to publish in redacted form 
disciplinary decisions that do not meet one or more of the criteria for 
release of information to the public, however, provides that release of 
information with respect to such decisions is limited to the 
publication of ``final, litigated decisions.''
    Limiting the publication of redacted disciplinary decisions to 
``final, litigated decisions'' has the unintended consequence of 
preventing the NASD from promptly releasing information with respect to 
Hearing Panel decisions; rather, the NASD must wait until the time for 
appeal has expired. Further, in the event the decision is appealed or 
called for review, the NAC decision is considered the ``final, 
litigated decision,'' and the Hearing Panel decision is never 
published. The proposed rule change would amend IM-8310-2(d)(1) to 
change ``final, litigated, disciplinary decision'' as to the release of 
information in redacted form to ``any disciplinary decision.'' This 
rule change would eliminate the current internal inconsistency in IM-
8310-2 by establishing the same standard for the release of unredacted 
and redacted information, thereby permitting the NASD to publish all 
disciplinary decisions (in unredacted or redacted form as the case may 
be) promptly after issuance.
    Proposed IM-8310-2(d)(1)(A) would address the situation in which 
the NAC lowers the sanctions imposed in a Hearing Panel decision so 
that the NAC decision no longer meets the criteria for release of 
information to the public. In such cases, the NASD releases information 
to the public with respect to the Hearing Panel decision in unredacted 
form on the NASD's web site and in redacted form with respect to the 
NAC decision.
    To make it easier to follow the history of a case, NASD Office of 
Hearing Officers (``OHO'') is in the process of enhancing its web site 
by adding a direct link from Hearing Panel decisions that are appealed 
or called for review to the subsequent NAC decisions. Linking an 
unredacted Hearing Panel decision to a redacted NAC decision clearly

[[Page 51312]]

eliminates the effectiveness of redacting the NAC decision; not linking 
the two decisions, however, obscures the subsequent history of the 
Hearing Panel decision. To eliminate the anomalous practice of 
initially releasing information about the same disciplinary matter 
first in unredacted form and then in redacted form, the proposed rule 
change would require the NASD to release NAC decisions that do not meet 
the publication criteria in unredacted form if the underlying Hearing 
Panel decision meets the criteria for release of information under IM-
8210-2 and has been published in unredacted form. This proposed rule 
change would permit public investors and other interested persons who 
have read an unredacted Hearing Panel decision to follow the history of 
a disciplinary matter without having to read a NAC decision that 
redacts information previously released to the public.
    Proposed IM-8310-2(d)(1)(B) would address the situation in which 
sanctions imposed on one or more, but not all, of the respondents in 
Hearing Panel or NAC decisions meet the criteria for release of 
information to the public. The proposed rule change would clarify that, 
in such situations, the NASD will release information with respect to 
both Hearing Panel and NAC decisions in unredacted form as to the 
respondents who meet the publication criteria and in redacted form as 
to the respondents who do not meet the publication criteria.
    In some cases, a subsequent NAC decision may modify the sanctions 
imposed by the Hearing Panel so that particular respondent(s) in the 
Hearing Panel decision no longer meet the criteria for release of 
information to the public. Consistent with proposed IM-8310-2(d)(1)(A) 
as discussed above, information regarding respondents in NAC decisions 
that do not meet the criteria for release of information to the public 
will be released in unredacted form if the sanctions imposed on the 
respondent in the underlying Hearing Panel decision meet one or more of 
such criteria and the Hearing Panel decision as to that respondent was 
published in unredacted form.
2. Statutory Basis
    The NASD believes that the proposal is consistent with the 
provisions of section 15A(b)(6) of the Act,\8\ which requires, among 
other things, that NASD 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. The NASD believes that the proposed rule change is 
designed to accomplish these ends by clarifying that the NASD will 
release information to the public with respect to Rule 9200 Series 
disciplinary decisions upon the issuance of such decisions and 
clarifying the circumstances under which the NASD will redact 
information with respect to all Rule 9000 Series disciplinary 
decisions.
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    \8\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The NASD 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

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Because the foregoing proposed rule change does not:
    (i) significantly affect the protection of investors or the public 
interest;
    (ii) impose any significant burden on competition; and
    (iii) become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to section 19(b)(3)(A) of the Act \9\ and 
Rule 19b-4(f)(6) thereunder.\10\ At any time within 60 days of the 
filing of the proposed rule change, the Commission may summarily 
abrogate such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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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 number SR-NASD-2002-103 and should be 
submitted by August 28, 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. 02-19891 Filed 8-6-02; 8:45 am]
BILLING CODE 8010-01-P