[Federal Register Volume 68, Number 59 (Thursday, March 27, 2003)]
[Notices]
[Pages 15023-15024]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-7344]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47558; File No. SR-NASD-2003-36]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Relating to Amendments to NASD Rule 2340

March 21, 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 March 12, 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, 
II, and III below, which Items have been prepared by NASD. Pursuant to 
Section 19(b)(3)(A)(i) of the Act,\3\ and Rule 19b-4(f)(1) 
thereunder,\4\ NASD has designated this proposal as constituting a 
stated policy, practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule, which renders the 
proposed rule change effective upon filing with 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\ 15 U.S.C. 78s(b)(3)(A)(i).
    \4\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD is proposing to amend NASD Rule 2340 to eliminate outdated and 
unnecessary references to Rule 15c3-1 under the Act. Below is the text 
of the proposed rule change. Proposed new language is italicized; 
proposed deletions are in brackets.
* * * * *

2200. Transactions with Customers

* * * * *

2340. Customer Account Statements

    (a) through (b) No change.
    (c) Definitions
    For purposes of this Rule, the following terms will have the stated 
meanings:
    (1) No change.
    (2) a ``general securities member'' refers to any member [which] 
that conducts a general securities business and is required to 
calculate its net capital pursuant to the provisions of SEC Rule 15c3-
1(a)[, except for paragraphs (a)(2) and (a)(3)]. Notwithstanding the 
foregoing definition, a member [which] that does not carry customer 
accounts and does not hold customer funds [and] or securities is exempt 
from the provisions of this section.
    (3) through (5) No change.
    (d) 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 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 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
    NASD represents that the proposed rule change would eliminate from 
NASD Rule 2340 outdated and unnecessary references to Rule 15c3-1 under 
the Act. NASD Rule 2340 requires that a general securities member send 
quarterly account statements to customers. Rule 2340(c)(2) defines a 
general securities member as ``any member which conducts a general 
securities business and is required to calculate its net capital 
pursuant to the provisions of SEC Rule 15c3-1(a), except for paragraphs 
(a)(2) and (a)(3).'' NASD represents that when the SEC amended Rule 
15c3-1 to change the net capital requirements of certain broker-
dealers, the SEC also moved, with some minor modifications, many of the 
provisions that were in paragraphs (a)(2) and (a)(3) into new Rule 
15c3-1(a)(2)(iv), (v), and (vi) under the Act.\5\
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    \5\ Specifically, old paragraph (a)(2) described introducing 
broker-dealers that do not carry customers' accounts, but that 
occasionally receive customer funds and securities. Old paragraph 
(a)(2) has been replaced by Rule 15c3-1(a)(2)(iv), which describes 
broker-dealers that introduce customer accounts and that also 
receive, but do not hold, customer funds or securities and Rule 
15c3-1(a)(2)(vi), which describes broker-dealers that introduce 
customer accounts but do not receive or hold customer funds or 
securities or carry customer accounts. Old paragraph (a)(3) 
described broker-dealers that engage solely in the sale of 
redeemable shares of registered investment companies and certain 
other share accounts. These broker-dealers also do not hold customer 
funds or securities. This category is now described in Rule 15c3-
1(a)(2)(v). As a result of these changes, the references to Rule 
15c3-1 in NASD Rule 2340 no longer refer to the sections that were 
intended when NASD Rule 2340 was adopted.
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    NASD represents that, besides being obsolete, the references to old 
paragraphs (a)(2) and (3) are unnecessary in light of the broader 
exemption that already exists in NASD Rule 2340(c)(2). Specifically, 
the second sentence of NASD Rule 2340(c)(2) excludes from the 
definition of a general securities member any member that ``does not 
carry customer accounts and does not hold customer funds and 
securities.'' Because the broker-dealers described in old paragraphs 
(a)(2) and (a)(3) of Rule 15c3-1 do not carry customer accounts or hold 
customer funds or securities, NASD represents that the exemption in 
NASD Rule 2340(c)(2) automatically excludes them from the definition of 
general securities member.
    NASD represents that it is not proposing new references to the 
amended provisions of Rule 15c3-1 under the Act because the broker-
dealers described in these provisions also do not carry customer 
accounts or hold customer funds or securities, and therefore, are 
excluded from the definition of general securities member by the 
exemption currently provided in NASD Rule 2340(c)(2). In addition, NASD 
represents that deleting such

[[Page 15024]]

references in NASD Rule 2340 prevents the need to change the rule if 
the broker-dealers described in paragraphs (a)(2)(iv), (v), and (vi) 
are moved to other provisions in Rule 15c3-1 under the Act.
    In addition, NASD represents that to ensure that Rule 2340(c)(2) 
more closely reflects the language in Rule 15c3-1 and the NASD staff's 
long-standing interpretation, the proposed rule change amends the 
exclusion from the definition of a general securities member for ``a 
member that does not carry customer accounts and does not hold customer 
funds and securities'' to state ``a member that does not carry customer 
accounts and does not hold customer funds or securities'' (emphasis 
added).
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of section 15A(b)(6) of the Act,\6\ 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 represents that the proposed rule change would 
amend NASD Rule 2340 to eliminate outdated and unnecessary references 
to Rule 15c3-1 under the Act.
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    \6\ 15 U.S.C. 78o-3(b)(6).
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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 become immediately effective pursuant 
to section 19(b)(3)(A)(i) of the Act,\7\ and Rule 19b-4(f)(1) 
thereunder,\8\ in that it constitutes a stated policy, practice, or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule. At any time within 60 days of the 
filing of such proposed rule change, the Commission may summarily 
abrogate the 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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    \7\ 15 U.S.C. 78s(b)(3)(A)(i).
    \8\ 17 CFR 240.19b-4(f)(1).
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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 NASD. All submissions 
should refer to File No. SR-NASD-2003-36 and should be submitted by 
April 17, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-7344 Filed 3-26-03; 8:45 am]
BILLING CODE 8010-01-P