[Federal Register Volume 68, Number 46 (Monday, March 10, 2003)]
[Notices]
[Pages 11424-11430]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-5570]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47433; File No. SR-NASD-2003-24]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. To Amend the NASD Registration Rules

March 3, 2003.
    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 26, 2003, the National Association of Securities Dealers, 
Inc. (``NASD'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
items I and II below, which items have been prepared by NASD. NASD has 
designated the proposed rule change as constituting a ``non-
controversial'' rule change pursuant to rule 19b-4(f)(6) under the 
Act,\3\ which renders the proposal effective upon receipt of this 
filing by the Commission. 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\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    As part of its rule modernization initiative, NASD is proposing to 
make technical changes to the NASD registration rules and to update 
these rules. Below is the text of the proposed rule change. New text is 
in italics. Proposed deletions are in [brackets].
* * * * *
1000. Membership, Registration and Qualification Requirements
* * * * *
1020. Registration of Principals
1021. Registration Requirements
    (a) All Principals Must Be Registered
    All persons engaged or to be engaged in the investment banking or 
securities

[[Page 11425]]

business of a member who are to function as principals shall be 
registered as such with [the Association] NASD in the category of 
registration appropriate to the function to be performed as specified 
in rule 1022. Before their registration can become effective, they 
shall pass a Qualification Examination for Principals appropriate to 
the category of registration as specified by the Board of Governors. A 
member shall not maintain a principal registration with [the 
Association] NASD for any person (1) who is no longer active in the 
member's investment banking or securities business, (2) who is no 
longer functioning as a principal, or (3) where the sole purpose is to 
avoid the examination requirement prescribed in paragraph (c). A member 
shall not make application for the registration of any person as 
principal where there is no intent to employ such person in the 
member's investment banking or securities business. A member may, 
however, maintain or make application for the registration as a 
principal of a person who performs legal, compliance, internal audit, 
back-office operations, or similar responsibilities for the member or a 
person engaged in the investment banking or securities business of a 
foreign securities affiliate or subsidiary of the member.
    (b) through (c) No change.
(d) Application for Principal Status
    (1) Any person associated with a member as a Registered 
Representative whose duties are changed by the member so as to require 
registration in any principal classification shall be allowed a period 
of 90 calendar days following the change in his duties during which to 
pass the appropriate Qualification Examination for Principals. Upon 
elevation, the member shall submit to [the Association] NASD an 
[elevation form] amended ``Uniform Application for Securities Industry 
Registration or Transfer'' [designated by the Board of Governors] and 
the applicable fees. In no event may a person function as a Principal 
beyond the initial 90 calendar day period following the change in his 
duties without having successfully passed the appropriate Qualification 
Examination.
    (2) No Change.
    [(3) If an applicant does not take the examination within the 
ninety calendar day period or if the applicant fails the examination, a 
new principal elevation form and examination fee shall be required.]
(e) Requirement of Two Registered Principals for [New Applicants for] 
Membership] Members
    (1) An [applicant for membership in the Association] NASD member, 
except a sole proprietorship, shall have at least two officers or 
partners who are [qualified to become] registered as principals with 
respect to each aspect of the [applicant's] member's investment banking 
and securities business pursuant to the applicable provisions of rule 
1022[(a), (d) and (e), whichever are applicable, before it shall be 
admitted to membership]. This requirement applies to persons seeking 
admission as members and existing members.
    (2) through (3) No change.
1022. Categories of Principal Registration
(a) General Securities Principal
    (1) through (2) No Change.
    (3) Except as provided in rule 1021(c), a person who was registered 
with [the Association] NASD as a Principal [or a Financial Principal,] 
shall not be required to pass a Qualification Examination for General 
Securities Principal and shall be qualified as a General Securities 
Principal.
    (4) A person registered solely as a General Securities Principal 
shall not be qualified to function as a Limited Principal--Financial 
and Operations; Limited Principal--Registered Options and Security 
Futures; Limited Principal--General Securities Sales Supervisor; 
Municipal Securities Principal, or Municipal Fund Securities Limited 
Principal, unless [he] that person is also qualified and registered as 
such [pursuant to paragraph (b)].
    [(5) A person registered solely as a General Securities Principal 
shall not be qualified to function as a Registered Options Principal 
unless he is also qualified and registered as such pursuant to the 
provisions of paragraph (f).]
    [(6) A person qualified solely as a General Securities Principal 
shall not be qualified to be registered as a Limited Principal--General 
Securities Sales Supervisor unless he is also qualified and registered 
as such pursuant to the provisions of paragraph (g)(1).]
(b) Limited Principal--Financial and Operations
    (1) through (2) No change.
    [(3) Except as provided in rule 1021(c), a person designated 
pursuant to the provisions of subparagraph (1) hereof shall not be 
required to take the Limited Principal--Financial and Operations 
Examination and shall be qualified for registration as a Limited 
Principal--Financial and Operations if:
    (A) such person had been performing the functions of a Limited 
Principal--Financial and Operations as defined in subparagraph (2) 
hereof on or before September 1, 1972; or
    (B) such person was registered with the Association as a Financial 
Principal.]
    (4) Renumbered as (3).
    (c) through (e) No change.
(f) Limited Principal--Registered Options and Security Futures 
[Principals]
    No change to rule language.
(g) Limited Principal--General Securities Sales Supervisor
    (1) No change.
    (2) A person registered in this category solely on the basis of 
having passed the Qualification Examination for Limited Principal--
General Securities Sales Supervisor shall NOT be qualified to:
    (A) [be registered in any other category of principal registration] 
function in a principal capacity with responsibility over any area of 
business activity not prescribed in subparagraph (1);
    (B) through (C) No change.
    (3) No change.

(h) Limited Principal--Government Securities

    (1) All persons associated with a member not previously registered 
as a principal who are to function as government securities principals 
shall be registered as such with NASD.
    (2) Each person associated with a member must be registered as a 
Limited Principal--Government Securities if such person is:
    (A) Engaged in the management or supervision of the member's 
government securities business, including:
    (i) Underwriting, trading or sales of government securities;
    (ii) Financial advisory or consultant services for issuers in 
connection with the issuance of government securities;
    (iii) Research or investment advice, other than general economic 
information or advice, with respect to government securities in 
connection with the activities described in (i) and (ii) above;
    (iv) Activities other than those specifically described above that 
involve communication, directly or indirectly, with public investors in 
government securities in connection with the activities described in 
(i) and (ii) above; or
    (B) Responsible for supervision of:

[[Page 11426]]

    (i) The processing and clearance activities with respect to 
government securities; or
    (ii) The maintenance of records involving any of the activities 
described in paragraph (2)(A) above.

(3) Notification of Principal Status

    A member shall promptly notify NASD when an individual not 
previously registered with the member as a principal assumes the duties 
of a principal on the form designated by the Board accompanied by the 
applicable fees.
IM-1022-1. Limited Principal--Registered Options and Security Futures 
[Principals]
    No change to rule language.
* * * * *
1030. Registration of Representatives
1031. Registration Requirements
(a) All Representatives Must Be Registered
    All persons engaged or to be engaged in the investment banking or 
securities business of a member who are to function as representatives 
shall be registered as such with [the Association] NASD in the category 
of registration appropriate to the function to be performed as 
specified in rule 1032. Before their registration can become effective, 
they shall pass a Qualification Examination for Representatives 
appropriate to the category of registration as specified by the Board 
of Governors. A member shall not maintain a representative registration 
with [the Association] NASD for any person (1) who is no longer active 
in the member's investment banking or securities business, (2) who is 
no longer functioning as a representative, or (3) where the sole 
purpose is to avoid the examination requirement prescribed in paragraph 
(c). A member shall not make application for the registration of any 
person as representative where there is no intent to employ such person 
in the member's investment banking or securities business. A member 
may, however, maintain or make application for the registration as a 
representative of a person who performs legal, compliance, internal 
audit, back-office operations, or similar responsibilities for the 
member, or a person who performs administrative support functions for 
registered personnel, or a person engaged in the investment banking or 
securities business of a foreign securities affiliate or subsidiary of 
the member.
    (b) through (c) no change.
1032. Categories of Representative Registration
(a) General Securities Representative
    (1) No change.
    (2) Except as provided in rule 1031(c):
    [(A) Any person who was registered with the Association as a 
Representative prior to September 1, 1974, shall be qualified to be 
registered with the Association as a General Securities 
Representative.]
    [(B) A person who applied for registration as a Representative 
prior to September 1, 1974, and who became registered as a 
Representative prior to April 1, 1975, by virtue of having passed the 
Qualification Examination for Representatives (Test Series 1) shall be 
qualified to be registered as a General Securities Representative.]
    [(C) A person who applied for registration as a Representative on 
or after September 1, 1974, or who registered as a Representative on or 
after April 1, 1975, by virtue of having passed the Qualification 
Examination for Registered Representatives (Test Series 1) shall be 
qualified to be registered only as a Limited Representative--Investment 
Company and Variable Contracts Products and as a Limited 
Representative--Direct Participation Programs as defined in paragraph 
(b) and (c) hereof.]
    [(D) A person who was registered as a Registered Representative 
after September 1, 1974, by virtue of having passed the General 
Securities Representative Examination (Test Series 7) shall be 
qualified to be registered as a General Securities Representative.]
    (E) Renumbered as (A)
    [(F) A person who was registered as a Registered Representative for 
Sale of Variable Contracts Only shall be qualified to be registered as 
a Limited Representative--Investment Company and Variable Contracts 
Products.]
    [(G)](B) A person [registered and in good standing with] who is 
authorized or approved to conduct business in accordance with the 
requirements of The [Securities and Futures] Financial Services 
Authority and having passed the Modified General Securities 
Representative Qualification Examination [for United Kingdom 
Representatives] shall be qualified to be registered as a General 
Securities Representative except that such person's activities in the 
investment banking or securities business may not involve the 
solicitation, purchase and/or sale of municipal securities as defined 
in section 3(a)(29) of the Act.
    (H) through (I) renumbered as (C) through (D).
    (3) No change.
    (b) through (e) no change.
(f) Limited Representative--Equity Trader
    (1) No change.
    (2) Before registration as a Limited Representative--Equity Trader 
as defined in subparagraph (1) hereof may become effective, an 
applicant must:
    (A) No change.
    (B) pass an appropriate Qualification Examination for Limited 
Representative--Equity Trader. [Any person who was performing any of 
the activities described in paragraph (f)(1) above on or prior to May 
1, 1998, and who has filed an application to take this examination by 
August 31, 1998, must pass the examination by May 1, 2000. Any person 
who is eligible for this extended qualification period and who fails 
this examination during the 24 month time period commencing on May 1, 
1998, and ending on May 1, 2000, must wait 30 days from the date of 
failure to take the examination again. Any person, other than a person 
who is eligible for the extended qualification period, who files an 
application to take this qualification examination after May 1, 1998, 
must pass this examination before conducting such activities as 
described in paragraph (f)(1) above. In no event may a person who is 
eligible for the extended qualification period function as an Equity 
Trader beyond the 24-month period without having successfully passed 
the appropriate qualification examination.]
(g) Limited Representative--Government Securities
    (1) through (2) no change.
    [(3) A person who has been performing the functions of a Limited 
Representative--Government Securities on or before April 1, 1996, may 
register as such without first meeting the requirement of subparagraph 
(1)(B) above unless:
    (A) Such person is currently subject to a statutory 
disqualification as defined in section 3(a)(39) of the Act or
    (B) During the past 10 years before the effective date of that 
requirement was the subject of a suspension or fine of $5,000 or more 
by the Association, the Securities and Exchange Commission, the 
Commodity Futures Trading Commission, state securities commission, 
foreign financial regulatory authority, or any other regulatory 
organization responsible for the investment banking or securities 
business.]
    (h) No change.
* * * * *

[[Page 11427]]

1070. Qualification Examinations and Waiver of Requirements
    (a) through (b) No Change.
    (c) Examination results shall be reported to member firms [on a 
pass/fail basis only] and may be accompanied by an analysis of the 
candidate's performance on the examination. Passing scores assigned to 
each examination series shall be determined by the Board of Governors, 
or its designee.
    (d) [An applicant cannot receive assistance while taking the 
examination. Each applicant shall certify to the Board of Governors 
that no assistance was given to or received by him during the 
examination.]
    [(e)] Pursuant to the rule 9600 Series, [the Association] NASD may, 
in exceptional cases and where good cause is shown, waive the 
applicable Qualification Examination and accept other standards as 
evidence of an applicant's qualifications for registration. Advanced 
age[,] or physical infirmity [or experience in fields ancillary to the 
investment banking or securities business] will not individually of 
themselves constitute sufficient grounds to waive a Qualification 
Examination. Experience in fields ancillary to the investment banking 
or securities business may constitute sufficient grounds to waive a 
Qualification Examination.
    (f) Renumbered as (e)
* * * * *
1080. Confidentiality of Examinations
    [The Association] NASD considers all of its Qualification 
Examinations to be highly confidential. The removal from an examination 
center, reproduction, disclosure, receipt from or passing to any 
person, or use for study purposes of any portion of such Qualification 
Examination, whether of a present or past series, or any other use 
which would compromise the effectiveness of the Examinations and the 
use in any manner and at any time of the questions or answers to the 
Examinations are prohibited and are deemed to be a violation of rule 
2110. An applicant cannot receive assistance while taking the 
examination. Each applicant shall certify to the Board that no 
assistance was given to or received by him during the examination.
* * * * *
1100. Foreign Associates
    (a) No Change.
    (b) Prior to the time the exemption provided for in paragraph (a) 
hereof may become effective, the member desiring to employ any such 
person must file with [the Association] NASD a [form designated 
``Application for Classification as a Foreign Associate''] ``Uniform 
Application for Securities Industry Registration or Transfer'' for each 
such person and must certify that such person meets the criteria of 
paragraph (a), as well as that:
    (1) through (2) no change.
    (c) No change.
[1110. Registration of Government Securities Principals and 
Representatives]
[1111. Registration of Principals]
    [All persons associated with a member not previously registered as 
a principal who are to function as government securities principals 
shall be registered as such with the Association.]
[(a) Definition of Government Securities Principal]
    [Persons associated with a member who are:]
    [(1) engaged in the management or supervision of the member's 
government securities business, including:]
    [(A) underwriting, trading or sales of government securities;]
    [(B) financial advisory or consultant services for issuers in 
connection with the issuance of government securities;]
    [(C) research or investment advice, other than general economic 
information or advice, with respect to government securities in 
connection with the activities described in (A) and (B) above;]
    [(D) activities other than those specifically mentioned that 
involve communication, directly or indirectly, with public investors in 
government securities in connection with the activities described in 
(A) and (B) above; or]
    [(2) are responsible for supervision of:]
    [(A) the processing and clearance activities with respect to 
government securities; or]
    [(B) the maintenance of records involving any of the activities 
described in paragraph (a)(1) above;]
    [are designated as principals.]
[(b) Notification of Principal Status]
    [A member shall promptly notify the Association of the assumption 
by an individual not previously registered with the member as a 
principal on the form designated by the Board of Governors accompanied 
by the applicable fees.]
* * * * *
[1113. Persons Exempt From Registration
    Persons associated with a member whose functions are exclusively 
clerical or ministerial are not required to register with the 
Association.]
* * * * *

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 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. 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
    As part of the NASD's rule modernization initiative, NASD has 
identified certain registration rules that are antiquated and need to 
be updated to reflect changes in the regulatory landscape. Many of 
these registration rules impose requirements that no longer serve a 
valid investor protection goal. The proposed changes, which primarily 
are technical in nature, are intended to clarify and clean-up existing 
rules to reduce burdens on the industry caused by outdated registration 
requirements.
Rules 1021 and 1031 (Principal and Representative Registration 
Requirements)
    Rules 1021(a) and 1031(a) state that persons engaged in a member's 
investment banking or securities business who are functioning as 
principals or representatives must be registered with NASD in the 
appropriate registration category. These rules prohibit a member from 
registering a person as principal or representative where the member 
does not intend to employ the person in its investment banking or 
securities business. Rules 1021(a) and 1031(a) provide a narrow 
exception to this general prohibition by permitting a member to 
maintain the registration of a principal or representative who performs 
legal, compliance, internal audit, or similar responsibilities. NASD 
believes that principals or representatives who perform back-office 
operations,

[[Page 11428]]

including, but not limited to, cashiering, accounting, settling, and 
the record keeping of customers' cash or margin accounts, also should 
be included under this limited exception. Accordingly, NASD is 
proposing to add the term ``back-office operations'' before the terms 
``or similar responsibilities'' in rules 1021(a) and 1031(a). Rule 
1021(d)(1) states that a person who is currently a registered 
representative may function as a principal for 90 calendar days before 
he or she is required to pass the appropriate qualification examination 
for principal. This rule requires that a member submit an ``elevation 
form'' for a representative who has been elevated to principal. NASD no 
longer uses an ``elevation form.'' Rather, NASD now requires members to 
submit an amended ``Uniform Application for Securities Industry 
Registration or Transfer'' (Form U-4). NASD is proposing to amend the 
rule to reflect this change.
    Rule 1021(d)(3) suggests that an applicant who does not take the 
examination within 90 days or fails the examination can submit a new 
form and continue to function as a principal until qualified. This is 
inconsistent with rule 1021(d)(1), which states that in no event may a 
person function as a principal beyond the initial 90-day period. 
Therefore, NASD is proposing to delete rule 1021(d)(3).
    Rule 1021(e) requires applicants for NASD membership to have at 
least two principals with respect to each aspect of the applicant's 
investment banking and securities business. NASD has interpreted rule 
1021(e) to generally require all members, including new applicants, to 
have at least two principals with respect to each aspect of the 
member's investment banking and securities business. Therefore, NASD is 
proposing to amend rule 1021(e) to clarify that this requirement 
applies to existing members as well as new applicants.
Rules 1022 and 1032 (Principal and Representative Registration 
Categories)
    Rule 1022(a)(3) states that a person who was registered with NASD 
as a principal or financial principal is not required to pass a 
qualification examination for general securities principal to be 
qualified as a principal. The term ``financial principal'' refers to an 
examination that is no longer administered and thus should be deleted 
from rule 1022(a)(3).
    Rules 1022(a)(4), (5), and (6) provide that a person registered 
solely as a general securities principal is not automatically qualified 
to function in certain limited principal capacities. NASD is proposing 
to combine these rules to eliminate certain redundancies in the 
language. Further, NASD is proposing to clarify that a person 
registered solely as a general securities principal is not 
automatically qualified to function as a municipal securities principal 
or municipal fund securities limited principal.
    Rule 1022(b)(3) provides an exception from the limited principal--
financial and operations examination for those persons who were 
performing these functions before September 1, 1972, and those persons 
who were registered as a financial principal. NASD is proposing to 
delete rule 1022(b)(3) because the grandfather clause and the reference 
to ``financial principal'' relate to changes made in the 1970s.
    For consistency with the other headings under rule 1022, NASD is 
proposing to amend the headings for rule 1022(f) and IM-1022-1 to 
state: ``Limited Principal-Registered Options and Security Futures.''
    Rule 1022(g)(2)(A) provides that a limited principal'general 
securities sales supervisor cannot be qualified to be registered in any 
other principal registration category. NASD believes that rule 
1022(g)(2)(A) is inaccurate. Accordingly, NASD is proposing to replace 
the current language in rule 1022(g)(2)(A) to state that a person 
registered solely as a Limited Principal--General Securities Sales 
Supervisor shall not be qualified to function in a principal capacity 
with responsibility over any of the areas of business not described in 
that rule. This will clarify that such persons may be registered in 
other categories, if applicable.
    Rules 1032(a)(2)(A)-(D) and 1032(a)(2)(F) relate to the transition 
from the Series 1 to the Series 7, which took place in the 1970's. NASD 
is proposing to delete rules 1032(a)(2)(A)-(D) and 1032(a)(2)(F) 
because these sections are no longer relevant to a vast majority of our 
members and NASD could provide waivers if necessary. Rule 1032(a)(2)(G) 
provides that persons registered and in good standing with the 
Securities and Futures Authority (``SFA'') and who have passed the 
Modified General Securities Representative Qualification Examination 
for United Kingdom Representatives are qualified to be registered as 
general securities representatives, with certain restrictions. Under 
the previous regulatory framework in the United Kingdom, certain 
persons engaged in the securities and derivatives business were 
required to register with the SFA before they could engage in such 
business. The Financial Services Authority (``FSA'') has consolidated 
the regulatory duties that were carried out by the previous regulatory 
bodies, including the SFA. The FSA is an independent non-governmental 
body with statutory powers under United Kingdom legislation to regulate 
the financial services industry in the United Kingdom. Under the FSA 
structure, persons that plan to perform specified functions, known as 
regulated activities or controlled functions, must be either authorized 
or approved by the FSA before they can carry out these functions. 
Therefore, NASD is proposing to revise the language in rule 
1032(a)(2)(G) to reflect the FSA's new authorization and approval 
process.
    Rule 1032(f)(2)(B) sets forth the grace periods for passing the 
equity trader examination. For instance, registered representatives who 
were eligible for the two-year grace period were given until October 1, 
2000, to pass the examination. Because the grace period deadlines have 
passed, NASD is proposing to delete the periods specified under rule 
1032(f)(2)(B).
    Rule 1032(g)(3) provides a grandfathering provision for persons who 
were performing the functions of a government securities limited 
representative on or before April 1, 1996. NASD believes that it is no 
longer necessary to keep this section because most persons who were 
eligible for grandfathering have been processed and, if necessary, the 
staff may provide waivers to new applicants. Accordingly, NASD is 
proposing to eliminate rule 1032(g)(3) in its entirety.
Rule 1070 (Qualification Examination and Waiver of Requirements)
    Rule 1070(c) provides that qualification examination results will 
be reported to members on a pass/fail basis only. NASD is proposing to 
delete the phrase ``on a pass/fail basis only'' because NASD provides 
more than just pass/fail information to members.
    Rule 1070(d) prohibits an applicant from receiving assistance while 
taking an examination. Rule 1080 requires that examinations be kept 
confidential. NASD is proposing to combine the language in rule 1070(d) 
and rule 1080 because these sections cover similar topics. 
Consequently, NASD is proposing to incorporate rule 1070(d) into rule 
1080 and delete rule 1070(d).
    Rule 1070(e) provides that experience in fields ancillary to 
investment banking or securities business will not in and of itself 
constitute sufficient grounds for waiving an examination. NASD is 
proposing to amend rule 1070(e) to clarify that although age or 
physical

[[Page 11429]]

infirmity will not individually of themselves constitute sufficient 
grounds to waive an examination, experience in an ancillary field may 
be sufficient grounds to waive an examination.
Rule 1100 (Foreign Associates)
    Rule 1100(b) requires that members employing foreign associates 
file an ``Application for Classification as a Foreign Associate.'' NASD 
no longer uses this application. Thus, NASD is proposing to replace the 
terms ``Application for Classification as a Foreign Associate'' with 
the terms ``Uniform Application for Securities Industry Registration or 
Transfer,'' which is the current application.
Rule 1111 (Registration of Government Securities Principals)
    Rule 1111 relates to the registration requirements for government 
securities principals. Because this rule relates to principal 
registration requirements, NASD is proposing to move this rule to the 
rule 1020 Series and renumber it as rule 1022(h). The heading for rule 
1022(h) will be ``Limited Principal--Government Securities.'' Rule 
1022(h) will not include a subsection on examination because there is 
no required examination for this registration category. Non-substantive 
changes also were made to this provision to clarify its application.
Rule 1113 (Persons Exempt From Registration)
    Both rules 1060(a)(1) and 1113 state that associated persons whose 
functions are solely and exclusively clerical or ministerial are exempt 
from registration. NASD is proposing to delete rule 1113 because it 
duplicates rule 1060(a)(1).
    Finally, NASD is adopting a new corporate structure and is seeking 
the merger of NASD Regulation and NASD Dispute Resolution into NASD, 
with the merger becoming effective upon the Commission's authorization 
of the operation of Nasdaq other than as a facility of NASD. To 
underscore this new corporate structure and renewed regulatory focus, 
NASD generally does not refer to itself using its full corporate name, 
``the Association'' or ``the NASD.'' Instead NASD uses ``NASD'' unless 
otherwise appropriate for corporate or regulatory reasons. Accordingly, 
NASD has replaced several references to ``the Association'' and ``the 
NASD'' in the text of the proposed rule change with ``NASD.''
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of section 15A(b)(6) of the Act,\4\ which requires, among 
other things, that NASD'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 believes that the proposed rule change also is 
consistent with the provisions of sections 15A(b)(3)\5\ and 15A(g)(3) 
of the Act,\6\ which, among other things, authorize NASD to prescribe 
standards of training, experience, and competence for persons 
associated with NASD members. NASD believes that the proposed rule 
change clarifies NASD registration obligations and provides consistency 
throughout these rules and will assist members and their associated 
persons in complying with these rules.
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    \4\ 15 U.S.C. 78o-3(b)(6).
    \5\ 15 U.S.C. 78o-3(b)(3).
    \6\ 15 U.S.C. 78o-3(g)(3).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    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

    The proposed rule change has been filed by NASD as a ``non-
controversial'' rule change pursuant to section 19(b)(3)(A) of the Act 
\7\ and rule 19b-4(f)(6) thereunder.\8\ Because the foregoing proposed 
rule change: (1) Does not significantly affect the protection of 
investors or the public interest; (2) does not impose any significant 
burden on competition; and (3) does not become operative for 30 days 
(or such shorter time as the Commission may designate if consistent 
with the protection of investors and the public interest) after the 
date of this filing; and NASD provided the Commission with written 
notice of its intent to file the proposed rule change at least five 
business days prior to the filing date,\9\ the proposed rule change has 
become effective pursuant to section 19(b)(3)(A) of the Act \10\ and 
rule 19b-4(f)(6) thereunder.\11\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
    \9\ NASD initially filed the proposed rule change on December 
30, 2002 for full notice and comment in accordance with section 
19(b)(2) of the Act. See SR-NASD-2002-185. NASD subsequently 
withdrew SR-NASD-2002-185 and refiled the proposed rule change as a 
``non-controversial'' filing pursuant to section 19(b)(3)(A) of the 
Act and rule 19b-4(f)(6) thereunder because the proposed rule change 
is highly technical in nature. Rule 19b-4(f)(6)(iii) under the Act 
requires the self-regulatory organization to provide the Commission 
written notice of its intent to file the proposed rule change at 
least five business days before doing so (or such shorter time as 
designated by the Commission). The Commission finds that NASD 
satisfied the five-day pre-filing requirement by filing SR-NASD-
2002-185.
    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    NASD has requested that the Commission waive the 30-day pre-
operative waiting period, which would make the proposed rule operative 
immediately. The Commission believes that it is consistent with the 
protection of investors and the public interest to waive the 30-day 
pre-operative period in this case because the proposed rule change is 
highly technical in nature. For these reasons, the Commission waives 
the 30-day pre-operative period and designates that the proposal become 
operative immediately.\12\
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    \12\ For purposes of accelerating the operative date of this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    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.

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

[[Page 11430]]

available for inspection and copying at the principal office of the 
NASD. All submissions should refer to File No. SR-NASD-2002-03 and 
should be submitted by March 31, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-5570 Filed 3-7-03; 8:45 am]
BILLING CODE 8010-01-P