[Federal Register Volume 68, Number 116 (Tuesday, June 17, 2003)]
[Notices]
[Pages 35926-35933]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-15265]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48015; File No. SR-NASD-2003-55]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by National Association of 
Securities Dealers, Inc. Relating to Proposed Amendments to Article 
VIII (District Committees and District Nominating Committees) of the 
By-Laws of NASD Regulation, Inc.

June 11, 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 21, 2003, 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 NASD. NASD has 
designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under 
the Act,\3\ which renders the proposal effective upon filing with the 
Commission. On April 17, 2003, NASD submitted Amendment No. 1 to the 
proposed rule change to correct certain typographical errors in the 
proposed rule text.\4\ On April 28, 2003, NASD submitted Amendment No. 
2 to the proposed rule change to correct certain typographical errors 
in the proposed rule text.\5\ On June 6, 2003, NASD submitted Amendment 
No. 3 to the proposed rule change to revise the proposed rule text.\6\ 
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\ 17 CFR 240.19b-4(f)(6).
    \4\ See letter from Kosha K. Dalal, Assistant General Counsel, 
NASD, to Katherine A. England, Assistant Director, Division of 
Market Regulation, Commission, dated April 17, 2003.
    \5\ See letter from Kosha K. Dalal, Assistant General Counsel, 
NASD, to Katherine A. England, Assistant Director, Division of 
Market Regulation, Commission, dated April 28, 2003.
    \6\ See letter from Kosha K. Dalal, Assistant General Counsel, 
NASD, to Katherine A. England, Assistant Director, Division of 
Market Regulation, Commission, dated June 6, 2003. For purposes of 
calculating the 60-day period within which the Commission may 
summarily abrogate the proposed rule change under Section 
19(b)(3)(C) of the Act, the Commission considers that period to 
commence on June 6, 2003, the date the NASD filed Amendment No. 3. 
See 15 U.S.C. 78s(b)(3)(C).
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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 Article VIII (District Committees and 
District Nominating Committees) of the By-Laws of NASD Regulation, Inc. 
(``NASD Regulation'') to streamline the nomination and election 
processes governing District Committees and District Nominating 
Committees, modernize communication procedures, and improve the 
consistency among the Committees across all districts. The text of the 
proposed rule change is set forth below. Proposed new language is in 
italics; proposed deletions are in [brackets].
* * * * *
ARTICLE VIII
DISTRICT COMMITTEES AND DISTRICT NOMINATING COMMITTEES

Establishment of Districts

    Sec. 8.1 The Board shall establish boundaries for districts within 
the United States to assist NASD Regulation in administering its 
affairs in a manner that is consistent with applicable law, the 
Restated Certificate of Incorporation, these By-Laws, the Delegation 
Plan, and the Rules of the Association. The Board may make changes from 
time to time in the number or boundaries of the districts as it deems 
necessary or appropriate. The Board shall prescribe such policies and 
procedures as are necessary or appropriate to address the 
implementation of a new district configuration in the event of a change 
in the number or boundaries of the districts.

Composition of District Committees

    Sec. 8.2 (a) A district created under Section 8.1 shall elect a 
District Committee pursuant to this Article. A District Committee shall 
consist of no fewer than five and no more than 20 members, unless 
otherwise provided by resolution of the Board. Subject to the 
limitation set forth in the immediately preceding sentence, the 
authorized number of members of a District Committee shall be 
determined from time to time by the Board; provided, however, that no 
decrease in the authorized number of members of a District Committee 
shall shorten the term of office of any member thereof. Each District 
Committee member shall: (1) Be employed [in the office of]by an NASD 
member eligible to vote in the district for District Committee 
elections, and (2) work primarily from such NASD member's principal 
office or a branch

[[Page 35927]]

office that is located within the district where the member serves on a 
District Committee. [A District Committee shall determine the number of 
its members to be elected each year.] Members of the District 
Committees shall serve as panelists in disciplinary proceedings in 
accordance with the Rules of the Association. The District Committees 
shall consider and recommend policies and rule changes to the Board. 
The District Committees shall endeavor[, in such manner as they deem 
appropriate,] to educate NASD members and other brokers and dealers in 
their respective districts as to the objects, purposes, and work of the 
NASD[,] and NASD Regulation[, and Nasdaq] in order to foster NASD 
members' interest and cooperation.
    (b) A member of a District Committee may resign at any time upon 
giving notice to the District Director. Any such resignation shall take 
effect upon receipt of such Notice or at any later time specified 
therein, provided that Notice of resignation at a later date may be 
made immediately effective at the discretion of the Executive Vice 
President, Regulatory Policy and Programs or the Executive Vice 
President, Member Regulation or their respective designee(s). The 
acceptance of such resignation shall not be necessary to make such 
resignation effective.
    (c) [(b)] In the event of the refusal, failure, neglect, or 
inability of a member of a District Committee to discharge his or her 
duties, or for any cause affecting the best interests of NASD 
Regulation, the sufficiency of which shall be decided by the District 
Committee, the District Committee may remove the member by the 
affirmative vote of two-thirds of the members of the District Committee 
then in office and declare the member's position vacant. The District 
Committee shall notify the District Committee member of his or her 
removal within seven days after the vote. [The member's position shall 
be filled pursuant to Section 8.4.]A member who is removed may submit a 
written appeal of the removal to the Board within 30 days after the 
date he or she is notified of the removal. The Board may affirm, 
reverse, or modify the determination of the District Committee. A vote 
of a majority of the Directors then in office shall be required to 
reverse or modify the action of the District Committee.
    (d) In the event of a vacancy in a District Committee resulting 
from death, resignation, removal, or other cause, the Executive Vice 
President, Regulatory Policy and Programs or the Executive Vice 
President, Member Regulation or their respective designee(s) shall 
determine whether such vacancy shall be filled prior to the next 
regularly scheduled election of District Committee members. In the 
event the Executive Vice President, Regulatory Policy and Programs or 
the Executive Vice President, Member Regulation or their respective 
designee(s) determines that a vacancy on a District Committee should be 
filled, the vacancy shall be filled pursuant to Section 8.4.

Term of Office of District Committee Members

    Sec. 8.3 Each regularly elected member of a District Committee 
shall hold office for a ``full term'' [of three years] which is the 
later of three years or until a successor is elected and qualified. 
Notwithstanding the term of office for a regularly elected member, such 
member's term shall terminate sooner upon the member's [, or 
until]death, resignation, or removal. [A member of a District Committee 
may not serve more than two consecutive terms.]There is no limit on the 
number of terms that may be served by a member of a District Committee, 
provided, that no more than two terms may be served consecutively. The 
word ``term'' as used for the purpose of this Section shall mean either 
a full term for a regularly elected member or a ``partial term'' which 
is a term served by a member appointed to fill a vacancy on the 
District Committee created by the termination of a regularly elected 
member's office prior to the expiration of the full term.

Filling of Vacancies on District Committees

    Sec. 8.4 In the event of a vacancy on a District Committee [caused 
by the departure of a Committee member] prior to the expiration of the 
member's term of office, and where the Executive Vice President, 
Regulatory Policy and Programs or the Executive Vice President, Member 
Regulation or their respective designee(s) determines, pursuant to 
Section 8.2(d), that such vacancy should be filled, or in the event of 
a newly created membership on a District Committee by virtue of an 
increase in the authorized number of members thereof, the District 
Committee shall appoint by majority vote a representative of an NASD 
member eligible pursuant to Section 8.2(a) [to vote in the district ]to 
fill the vacancy or newly created membership. The appointment by the 
District Committee shall be effective until the next regularly 
scheduled election [occurs], and until such member's successor is 
elected and qualified. Following the next regularly scheduled election, 
in the event of a vacancy, the newly elected Committee member shall 
serve only the duration of the departed Committee member's term, and in 
the event of a newly created membership, the newly elected Committee 
member shall serve only the duration of the term for such class of 
membership.

Meetings of District Committees

    Sec. 8.5 Meetings of a District Committee shall be held at such 
times and places, upon such notice, and in accordance with such 
procedures as [each District Committee] the Executive Vice President, 
Regulatory Policy and Programs or the Executive Vice President, Member 
Regulation or their respective designee(s) in [its] his or her 
discretion may determine in consultation with the Chair of the District 
Committee. A quorum of a District Committee shall consist of a majority 
of its members, and any action taken by a majority present at any 
meeting at which a quorum is present, except as otherwise provided in 
these By-Laws, shall constitute the action of the Committee. Any or all 
members of a District Committee may participate in any such meeting by 
means of conference telephone or other communications equipment by 
means of which all participants can communicate with each other, and 
such participation shall constitute presence in person at the meeting. 
Action by a District Committee may be taken by consent in writing or by 
electronic transmission in lieu of a meeting [mail, telephonic, or 
telegraphic vote], in which case any action taken by a majority of the 
Committee shall constitute the action of the Committee. [Any action 
taken by telephonic vote shall be confirmed in writing at a regular 
meeting of the District Committee.]

Election of District Officers

    Sec. 8.6 At or following its last regularly scheduled meeting of 
the calendar year, [Following the annual election of members of the 
District Committees pursuant to this Article] each District Committee 
shall elect from its members a Chair and such other officers as it 
deems necessary for the proper performance of its duties under these 
By-Laws[, and shall prescribe their powers and duties].

Advisory Council

    Sec. 8.7 (a) The Chairs of the District Committees, elected 
pursuant to Section 8.6, together with the Chair of the Market 
Regulation Committee shall constitute an Advisory Council to the Board.

[[Page 35928]]

    (b) The Advisory Council shall be advised of and entitled to attend 
such meetings of the Board as the Board may designate for such Advisory 
Council's attendance, and the Board shall designate at least one such 
meeting annually. The Advisory Council shall not be entitled to vote at 
meetings of the Board.

Expenses of District Committees

    Sec. 8.8 Funds to meet the regular expenses of each District 
Committee shall be provided by the Board, and all such expenses shall 
be subject to the approval of the Board.

Composition of District Nominating Committees

    Sec. 8.9 (a) Each district created under Section 8.1 shall elect a 
District Nominating Committee pursuant to this Article. A District 
Nominating Committee shall consist of five members, unless the Board by 
resolution increases a District Nominating Committee to a larger 
number. Each District Nominating Committee member [of a District 
Nominating Committee] shall: (1) be employed [in the office of]by an 
NASD member eligible to vote in the district for District Committee 
elections, and (2) work primarily from such NASD member's principal 
office or a branch office that is located within the district where the 
member serves on a District Nominating Committee, but shall not be a 
member of the District Committee. A majority of the members of the 
District Nominating Committee shall include [a majority of] persons who 
previously have served on a District Committee or who are current or 
former Directors or current or former Governors of the NASD Board[, and 
shall include at least one current or former Director or Governor].
    (b) A member of a District Nominating Committee may resign at any 
time upon giving Notice to the District Director. Any such resignation 
shall take effect upon receipt of such Notice or at any later time 
specified therein, provided that notice of resignation at a later date 
may be made immediately effective at the discretion of the Executive 
Vice President, Regulatory Policy and Programs or the Executive Vice 
President, Member Regulation or their respective designee(s). The 
acceptance of such resignation shall not be necessary to make such 
resignation effective.
    (c) [(b)] In the event of the refusal, failure, neglect, or 
inability of a member of a District Nominating Committee to discharge 
his or her duties, or for any cause affecting the best interests of 
NASD Regulation, the sufficiency of which shall be decided by the 
District Nominating Committee, the District Nominating Committee may 
remove the member by the affirmative vote of two-thirds of the members 
of the District Nominating Committee then in office and declare the 
member's position vacant. [The member's position shall be filled 
pursuant to Section 8.11.] The District Nominating Committee shall 
notify the District Nominating Committee member of his or her removal 
within seven days after the vote. A member who is removed may submit a 
written appeal of the removal to the Board within 30 days after the 
date he or she is notified in writing of the removal. The Board may 
affirm, reverse, or modify the determination of the District Nominating 
Committee. A vote of a majority of the Directors then in office shall 
be required to reverse or modify the action of the District Nominating 
Committee.
    (d) In the event of a vacancy in a District Nominating Committee 
resulting from death, resignation, removal, or other cause, the 
Executive Vice President, Regulatory Policy and Programs or the 
Executive Vice President, Member Regulation or their respective 
designee(s) shall determine whether such vacancy shall be filled prior 
to the next regularly scheduled election of District Nominating 
Committee members. In the event the Executive Vice President, 
Regulatory Policy and Programs or the Executive Vice President, Member 
Regulation or their respective designee(s) determines that a vacancy on 
a District Nominating Committee should be filled, the vacancy shall be 
filled pursuant to Section 8.11.

Term of Office of District Nominating Committee Members

    Sec. 8.10 Each regularly elected member of a District Nominating 
Committee shall hold office for a ``full term'' [of one year] which is 
the later of one year [and] or until a successor is elected and 
qualified. Notwithstanding the term of office for a regularly elected 
member, such member's term shall terminate sooner upon the member's [, 
or until]death, resignation, or removal. [A member of a District 
Nominating Committee may not serve more than two consecutive 
terms.]There is no limit on the number of terms that may be served by a 
member of a District Nominating Committee, provided, that no more than 
two terms may be served consecutively. The word ``term'' as used for 
the purpose of this Section shall mean either a full term for a 
regularly elected member or a ``partial term'' which is a term served 
by a member appointed to fill a vacancy on the District Nominating 
Committee created by the termination of a regularly elected member's 
office prior to the expiration of the full term.

Filling of Vacancies for District Nominating Committees

    Sec. 8.11 In the event of a vacancy on a District Nominating 
Committee [caused by the departure of a Committee member] prior to the 
expiration of the member's term of office, and where the Executive Vice 
President, Regulatory Policy and Programs or the Executive Vice 
President, Member Regulation or their respective designee(s) 
determines, pursuant to Section 8.9(d), that such vacancy should be 
filled, or in the event of a newly created membership on a District 
Nominating Committee by virtue of an increase in the authorized number 
of members thereof, the District Nominating Committee shall appoint by 
majority vote a representative of an NASD member eligible pursuant to 
Section 8.9(a) [to vote in the district ]to fill the vacancy or newly 
created membership. The appointment shall be effective until the next 
regularly scheduled election [occurs] pursuant to this Article, and 
until such member's successor is elected and qualified.

Meetings of District Nominating Committees

    Sec. 8.12 Meetings of a District Nominating Committee shall be held 
at such times and places, upon such notice, and in accordance with such 
procedures as [each District Nominating Committee] the Executive Vice 
President, Regulatory Policy and Programs or the Executive Vice 
President, Member Regulation or their respective designee(s) in [its] 
his or her discretion may determine in consultation with the Chair of 
the District Nominating Committee. A quorum of a District Nominating 
Committee shall consist of a majority of its members, and any action 
taken by a majority [of the entire Committee]present at any meeting at 
which a quorum is present, except as otherwise provided in these By-
Laws, shall constitute the action of the District Nominating Committee. 
Any or all members of a District Nominating Committee may participate 
in any such meeting by means of conference telephone or other 
communications equipment by means of which all participants can 
communicate with each other, and such participation shall constitute 
presence in person at the meeting. Action by a District Nominating 
Committee may be taken by consent in writing or by electronic 
transmission in lieu of a meeting [mail,

[[Page 35929]]

telephonic, or telegraphic vote], in which case any action taken by a 
majority of the District Nominating Committee shall constitute the 
action of the District Nominating Committee. [Action taken by 
telephonic vote shall be confirmed in writing at a regular meeting of 
the District Committee].[.]

Election of District Nominating Committee Officers

    Sec. 8.13 Following the annual election of members of the District 
Nominating Committees pursuant to this Article, each District 
Nominating Committee shall elect from its members a Chair and such 
other officers as it deems necessary for the proper performance of its 
duties under these By-Laws[, and shall prescribe their powers and 
duties].

Expenses of District Nominating Committees

    Sec. 8.14 Funds to meet the regular expenses of each District 
Nominating Committee shall be provided by the Board, and all such 
expenses shall be subject to the approval of the Board.

Notice to [Chair] District Nominating Committee

    Sec. 8.15 On or before [May 1]June 1 of each year, the Secretary of 
NASD Regulation shall give a Notice [send a written notice] to [the 
Chair of] each District Nominating Committee member and each District 
Director [and each District Committee] identifying the members of the 
District Nominating Committee and the District Committee whose terms of 
office shall expire in the next calendar year. The Notice [notice] 
shall describe election procedures for filling the offices.

Solicitation of Candidates and Secretary's Notice to NASD Members

    Sec. 8.16 The Secretary of NASD Regulation shall give a Notice of 
the upcoming election to NASD members and the Executive Representatives 
of NASD members describing the election procedures and stating that 
NASD members may submit names of candidates for consideration to the 
District Director. NASD Regulation staff shall provide the District 
Nominating Committee with a description of the NASD membership in the 
district. The District Nominating Committee shall identify and solicit 
candidates to nominate for election to [the vacancies on] the District 
Committee and the District Nominating Committee. [The District 
Nominating Committee Chair shall send a written notice of the upcoming 
election to the Executive Representative and each branch office of the 
NASD members in the district and request that such NASD members submit 
names of candidates to the District Nominating Committee or the 
District Director for consideration.]

[Secretary's Notice to NASD Members]

    [Sec. 8.17 The Secretary of NASD Regulation shall send a written 
notice to NASD members in the district describing the election 
procedures.]

District Nominating Committee Slate

    Sec. 8.17 [Sec. 8.18] (a) The District Nominating Committee shall 
review the background of proposed candidates and the description of the 
NASD membership provided by NASD Regulation staff and shall nominate a 
slate of candidates for the election. The slate shall include one [or 
more] candidate[s] for each position on the District Committee and the 
District Nominating Committee subject to election at the next annual 
election [vacancy]. In nominating candidates for the office of member 
of the District Committee and the office of member of the District 
Nominating Committee, the District Nominating Committee shall endeavor 
to secure appropriate and fair representation on the District Committee 
and on the District Nominating Committee of the various sections of the 
district and [all] various classes and types of NASD members engaged in 
the investment banking or securities business within the district. In 
nominating candidates for the office of member of the District 
Nominating Committee, a District Nominating Committee shall assure that 
the composition of the District Nominating Committee meets the 
standards in Section 8.9(a).
    (b) A District Nominating Committee shall not nominate an incumbent 
member of the District Committee to succeed himself or herself on the 
District Committee [unless the District Nominating Committee first 
takes appropriate action by a written ballot of the entire NASD 
membership within the district to ascertain that such nomination is 
acceptable to a majority of the NASD members in the district,] unless 
the incumbent member of the District Committee is serving pursuant to 
the provisions of Section 8.4 or is serving a term pursuant to the 
provisions of Section 8.2 and reelection would not cause the incumbent 
member to violate the provisions of Section 8.3. A District Nominating 
Committee may not nominate more than two incumbent members of the 
District Nominating Committee to succeed themselves.

[Certification] Notification of Nomination

    Sec. 8.18 [Sec. 8.19] The District Director, acting on behalf of 
the District Nominating Committee, shall give a Notice to the Secretary 
of NASD Regulation of [certify to the District Committee] each 
candidate nominated by the District Nominating Committee and the office 
to which the candidate is nominated. [Within five calendar days after 
the certification, the District Committee shall send to the Executive 
Representatives of NASD members in the district a copy of the 
certification.] On or before October 1 of each year, the Secretary of 
NASD Regulation shall give a Notice of the nominated candidates to the 
Executive Representatives of NASD members and the District Committee.

Uncontested Election

    Sec. 8.19 If the District Nominating Committee nominates one 
candidate for each position on the District Committee and the District 
Nominating Committee subject to election at the next annual election 
and no additional candidate is nominated pursuant to Section 8.22, the 
candidates nominated by the District Nominating Committee shall be 
considered duly elected.

Designation of Additional Candidates

    Sec. 8.20 If an officer, director, or employee of an NASD member 
who meets the qualifications of Section 8.2 or 8.9, as applicable, is 
not nominated by the District Nominating Committee and wants to be 
considered for election to [a vacancy on] the District Committee or the 
District Nominating Committee, he or she shall deliver [send] a written 
notice to the District Director within 14 calendar days after the 
Secretary of NASD Regulation gives the Notice of nominated candidates 
[the mailing date of the certification to the Executive 
Representatives] pursuant to Section 8.18[9]. The District Director 
shall make a written record of the time and date of the receipt of the 
officer's, director's, or employee's notice. The officer, director, or 
employee shall be designated as an ``additional candidate.''

List of NASD Members Eligible to Vote

    Sec. 8.21 (a) The Secretary of NASD Regulation shall provide a list 
of all NASD members eligible to vote in the district, their mailing 
addresses, and their Executive Representatives to the additional 
candidate promptly [immediately] following receipt of the additional 
candidate's timely notice by the District Director.
    (b) An NASD member that has its principal office[,] and/or one or 
more registered branch offices[, or its

[[Page 35930]]

principal office and one or more registered branch offices] in the 
district shall be eligible to cast one vote through the NASD member's 
Executive Representative for each position on the District Committee 
and the District Nominating Committee [vacancy] to be filled in the 
election.

Requirement for Petition Supporting Additional Candidate

    Sec. 8.22 An additional candidate shall be nominated if a petition 
signed by at least ten percent of the NASD members eligible to vote in 
the district is filed with the District Nominating Committee within 30 
calendar days after the date of the mailing of the list to the 
additional candidate pursuant to Section 8.21. Only an Executive 
Representative may sign a petition on behalf of an NASD member.

[Uncontested Election]

    [Sec. 8.23 If the District Nominating Committee nominates one 
candidate for each vacancy and no additional candidate is nominated 
pursuant to Section 8.22, the candidates nominated by the District 
Nominating Committee shall be considered duly elected and the District 
Committee shall certify the election to the Board.]

Notice of Contested Election

    Sec. 8.23 [Sec. 8.24] If [the District Nominating Committee 
nominates more than one candidate for vacancy, or if] an additional 
candidate is nominated pursuant to Section 8.22, the election shall be 
considered a contested election. The Secretary of NASD Regulation shall 
give a Notice [District Committee shall send a notice] to the Executive 
Representatives of the NASD members eligible to vote in the district 
announcing the names of the candidates and the office to which each 
candidate is nominated and describing contested election procedures.

Administrative Support

    Sec. 8.24 [Sec. 8.25] The District Office shall provide 
administrative support to all candidates by sending, by electronic 
transmission, to NASD members eligible to vote in the district up to 
two distributions [mailings] of materials prepared by the candidates. 
[NASD Regulation shall pay the postage for the mailings.] If a 
candidate wants such distributions [mailings] sent, the candidate shall 
prepare such material on the candidate's personal stationery and make 
the material available to NASD Regulation in electronic format. The 
material shall state that it represents the opinion of the candidate. 
[The candidate shall provide a copy of the material for each member of 
the NASD in the district.] Candidates nominated by the District 
Nominating Committee may identify themselves as such in their 
materials. Any candidate also may send [additional] mailings at the 
candidate's own expense. Except as provided in this Article, NASD 
Regulation, the Board, the Regional Nominating Committee, any other 
committee, and NASD Regulation staff shall not provide any other 
administrative support to a candidate in the election.

Ballots

    Sec. 8.25 [Sec. 8.26] With the assistance of the Secretary of NASD 
Regulation and an Independent Agent, the District Nominating Committee 
shall prepare a ballot with the names of the District Nominating 
Committee's candidates and any additional candidate nominated pursuant 
to Section 8.22 and the office to which each candidate is nominated. 
The ballot shall list separately, in alphabetical order, the candidates 
[in alphabetical order and shall identify the candidates] nominated by 
the District Nominating Committee and the additional candidates 
nominated pursuant to Section 8.22. The Secretary of NASD Regulation 
[District Nominating Committee] shall send a ballot to the Executive 
Representative of each NASD member eligible to vote in the district. 
Instructions on the ballot shall direct the Executive Representative to 
return the ballot to the Independent Agent and state that the ballot 
envelope must be postmarked on or before the return date specified on 
the ballot. The return date specified on the ballot shall be no fewer 
than [30]20 and no more than [45]30 days after the date of mailing of 
the ballot.

Vote Qualification List

    Sec. 8.26 [Sec. 8.27] Eligibility to vote in a district election 
shall be based on the NASD's membership records as of a date selected 
by the Secretary of NASD Regulation that is not more than 30 days 
before the date of mailing of the ballot. The Secretary of NASD 
Regulation shall prepare a list of NASD members eligible to vote in the 
district, their mailing addresses, and their Executive Representatives, 
which shall be used for vote qualification purposes, and shall provide 
the list to the candidates.

Ballots Returned as Undelivered

    Sec. 8.27 [Sec. 8.28] The Independent Agent shall open any ballot 
envelope returned undelivered and shall determine whether it was sent 
to the NASD member's address of record. If incorrectly addressed, the 
Independent Agent shall send a new ballot to the address of record.

General Procedures for Qualification and Accounting of Ballots

    Sec. 8.28 [Sec. 8.29] After the voting period, on a date or dates 
designated by the Secretary of NASD Regulation, the qualification and 
accounting of ballots shall take place. The date or dates designated 
shall be not later than 14 calendar days after the return date 
specified on the ballot pursuant to Section 8.25[6]. Candidates and 
their representatives shall be allowed to observe the qualification and 
accounting of ballots. Representation for each candidate shall be 
limited to two individuals. The Independent Agent shall bring to [the 
district office] a location within the district agreed to between the 
Independent Agent and the Secretary of NASD Regulation all ballots 
timely received. Under the direction of the Secretary of NASD 
Regulation or the Secretary's designee, the Independent Agent shall 
open and count the ballots. For ballot qualification purposes, the 
Independent Agent shall identify to the candidates the NASD members 
that timely returned ballots and inform the candidates of the 
Independent Agent's determination of whether or not a ballot is 
qualified for voting purposes. The determination shall be based on a 
comparison of ballots received against the list of NASD members 
eligible to vote in the district and their Executive Representatives as 
prepared by the Secretary of NASD Regulation pursuant to Section 
8.26[7]. The Secretary of NASD Regulation or the Secretary's designee 
shall make the final determination of the qualification of a ballot. 
Upon the qualification of a ballot, the Independent Agent shall record 
the vote indicated on the ballot. The candidates and their 
representatives shall not be allowed to see the vote of an NASD member.

Ballots Set Aside

    Sec. 8.29 [Sec. 8.30] The Independent Agent shall set aside a 
ballot if: (a) the ballot is received from an NASD member eligible to 
vote in the district and the ballot is signed by a person who is not 
the Executive Representative listed on the vote qualification list 
prepared under Section 8.26[7], and the Secretary of the NASD has not 
received proper notice of a change in Executive Representative pursuant 
to the NASD By-Laws; or (b) if two or more properly executed ballots 
are received from an NASD member eligible to vote in the district. If 
the

[[Page 35931]]

Independent Agent determines that the ballots set aside are material to 
the outcome of the election, the Secretary of NASD Regulation and the 
Independent Agent shall make reasonable efforts to resolve each ballot 
set aside. With respect to a ballot not signed by an Executive 
Representative of record, the Secretary of NASD Regulation shall 
contact the NASD member to request that the NASD member send written 
notice of any change in Executive Representative by facsimile so that 
the ballot may be counted. With respect to multiple ballots from an 
NASD member, the Independent Agent shall contact the Executive 
Representative of the NASD member to obtain the NASD member's vote. The 
Secretary of NASD Regulation shall keep a list of NASD members that 
reported their ballot was lost or not received and that were provided 
with a duplicate ballot. The Secretary of NASD Regulation shall provide 
the list to the Independent Agent and, upon request, to the candidates.

Invalid Ballots

    Sec. 8.30 [Sec. 8.31] The Independent Agent shall declare a ballot 
invalid if one or more of the following conditions exist:
    (a) The ballot is not signed by the Executive Representative 
(unless Section 8.29 [30] applies);
    (b) a vote is not indicated on the ballot; or
    (c) the ballot indicates votes for more candidates than there are 
positions on the District Committee or District Nominating Committee 
subject to election in the election [vacancies for an office].

[Certification of] Election Results

    Sec. 8.31 [Sec. 8.32] Under the direction of the Secretary of NASD 
Regulation or the Secretary's designee, the Independent Agent shall 
count the votes received for each candidate in a district. The 
candidates for the office of member of the District Committee or 
District Nominating Committee receiving the largest number of votes 
cast in the district for the office shall be declared elected such that 
the number of candidates declared elected equals the number of 
positions [vacancies] on the District Committee or District Nominating 
Committee subject to election in the election. [The candidates for the 
office of member of the District Nominating Committee receiving the 
largest number of votes cast in the district for the office shall be 
declared elected such that the number of candidates declared elected 
equals the number of vacancies on the District Nominating Committee.] 
In the event of a tie, there shall be a run-off election. The Secretary 
of NASD Regulation shall notify the Board of the election results. 
[Each District Committee shall send a written certification of the 
election results to the Board.] The notification [certification] shall 
state the number of votes received by each candidate and the number of 
ballots set aside.

Extensions of Time and Additional Procedures

    Sec. 8.32 [Sec. 8.33] The Secretary of NASD Regulation may extend a 
time period under this Article for good cause shown. In extraordinary 
circumstances, the Secretary of NASD Regulation, with the approval of 
the Executive Committee or the Board, may adopt additional procedures 
for elections under this Article.

Definitions

    Sec. 8.33 (a) When used in Article VIII of these By-Laws, the term 
``Notice'' means a notice in writing or by electronic transmission and 
the term ``electronic transmission'' means any form of communication, 
not directly involving the physical transmission of paper, that creates 
a record that may be retained, retrieved and reviewed by a recipient 
thereof, and that may be directly reproduced in paper form by such a 
recipient through an automated process.
    (b) For purposes of this Article VIII, any notice by NASD 
Regulation, the Secretary of NASD Regulation, or the District Director 
given by electronic transmission shall be deemed given: (1) if by 
facsimile telecommunication, when directed to a number at which the 
person entitled to notice has consented to receive notice; (2) if by 
electronic mail, when directed to an electronic mail address at which 
the person entitled to notice has consented to receive notice; (3) if 
by a posting on an electronic network when the person entitled to 
notice has consented to receive notice in this manner, together with 
separate notice to the person entitled to notice of such specific 
posting, upon the later of (A) such posting and (B) the giving of such 
separate notice; and (4) if by any other form of electronic 
transmission when the person entitled to notice has consented to 
receive notice in this manner, when directed to the person entitled to 
notice. For purposes of this Article VIII, if mailed, any such notice 
by NASD Regulation, the Secretary of NASD Regulation, or the District 
Director shall be deemed given when deposited in the United States 
mail, postage prepaid, directed to the person entitled to notice at 
such person's address as it appears on the records of NASD Regulation.
* * * * *

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
    Article VIII of NASD Regulation By-Laws (``By-Laws'') sets forth 
provisions relating to the operation of District Committees and 
District Nominating Committees (collectively, ``Committees''), 
including specifically, provisions regarding Committee meetings, 
vacancies and elections. Under Article VIII, the role of the District 
Committee members includes serving as panelists in disciplinary 
proceedings in accordance with NASD Rules, recommending policy and rule 
changes to the Board, educating members in their district, and 
selecting members of the regional District Committee and District 
Nominating Committees in a manner consistent with Article VIII of the 
By-Laws. The role of the District Nominating Committee includes 
nominating candidates to serve on the District Committee and District 
Nominating Committee for that region.
    Currently, there are 11 District Committees, divided by geographic 
region. Based on the experience of NASD Regulation staff in working 
with the Committees since that time, and the current practices of the 
Committees, NASD is proposing a series of amendments to modernize and 
clarify the Article VIII provisions. NASD represents that the proposed 
changes are designed to streamline the nomination and election 
processes by, among other things, centralizing the communication 
procedures in the Corporate Secretary's Office of NASD Regulation, 
revising the nomination and election timeline, and modernizing the 
methods of communication by permitting electronic delivery of 
documents. In addition, NASD represents that the proposed

[[Page 35932]]

amendments would improve coordination and consistency among the 
Committees across the districts, modify the procedures to fill 
vacancies, and provide for more administrative flexibility. The key 
proposed amendments are discussed below.
Section 8.2 (Composition of District Committees) and Section 8.9 
(Composition of District Nominating Committees)
    Create Consistency in Size of Committee. Currently, Section 8.2(a) 
provides that each District Committee will determine how many members 
to elect each year. To create more consistency in District Committee 
sizes across districts, the proposed amendments would allow the Board 
of Directors of NASD (``Board'') to determine the size of each 
Committee.
    Establish Qualifications to Serve on Committee. Currently, Section 
8.2 and Section 8.9 provide that each Committee member must be employed 
by an NASD member eligible to vote in such district. NASD believes that 
the proposed amendments would clarify additional qualifications 
necessary to serve as a member of a Committee. The proposed amendments 
provide that a member must: (1) be employed by an NASD member eligible 
to vote in the district for District Committee elections; and (2) work 
primarily from such NASD member's principal office or a branch office 
that is located within the district where the member serves on a 
Committee. NASD believes the additional qualifications will ensure that 
Committee members have a significant connection to the district in 
which they serve.
    Eliminate Requirement in Section 8.9 that One District Nominating 
Committee Member be a Current or Former Director. The proposed 
amendments would eliminate the current requirement contained in Section 
8.9 that at least one member of the District Nominating Committee be a 
current or former Director or Governor. Based on the experience of NASD 
Regulation staff, it has become increasingly difficult to satisfy this 
composition requirement.
Section 8.3 (Term of Office of District Committee Member) and Section 
8.10 (Term of Office of District Nominating Committee Member)
    Clarify Term of Office. Currently, Section 8.3 and Section 8.10 
provide that Committee members may not serve more than two consecutive 
terms. The proposed amendments to these provisions would clarify that 
there is no limit on the number of terms that a Committee member may 
serve, provided that a member may not serve more than two consecutive 
terms. The word ``term'' would be defined to include either a full term 
(three years for District Committees or one year for District 
Nominating Committees) or any partial term where a member is appointed 
to fill a vacancy. NASD believes that this would allow for greater 
member participation in the Committees over time.
Section 8.4 (Filling of Vacancies on District Committee) and Section 
8.9 (Filling of Vacancies for District Nominating Committees)
    Streamline Process for Filling Vacancies. Proposed new Sections 
8.2(b) and (d) and Sections 8.9(b) and (d) would clarify that Committee 
members may formally resign from their positions by serving a notice to 
the Chair. In addition, the proposed new provisions provide a process 
for filling vacancies. Under the proposed amendments, the Executive 
Vice President, Regulatory Policy and Programs, the Executive Vice 
President, Member Regulation or their respective designee(s) would be 
authorized to determine whether a vacancy created on the Committee 
needs to be filled. In some instances there may not be a need to fill a 
vacancy immediately--for example, when there is no scheduled meeting 
between the time of the vacancy and the next regularly scheduled 
election. If a determination were to be made to fill a vacancy, or if a 
new position were to be created by an increase in Committee size, the 
Committee would fill such vacancy by a majority vote of a quorum 
present at a meeting as currently prescribed by Sections 8.4 (District 
Committee) and 8.11 (District Nominating Committee).
Section 8.5 (Meetings of District Committee) and Section 8.12 (Meetings 
of District Nominating Committees)
    Coordinate Procedures for Meetings. Currently, Section 8.5 and 
Section 8.12 provide that each Committee will determine the time, 
place, and procedures for each meeting. NASD represents that the 
proposed amendments would simplify and better coordinate Committee 
meetings across districts by authorizing the Executive Vice President, 
Regulatory Policy and Programs or the Executive Vice President, Member 
Regulation or their respective designee(s), to determine the times, 
places and procedures for Committee meetings in consultation with the 
Chair of each Committee. In addition, NASD represents that the proposed 
amendments would clarify that an individual may attend a meeting either 
in person or by telephone and that action taken by telephonic vote will 
not require written confirmation.
Section 8.6 (Election of District Officers) and Section 8.13 (Election 
of District Nominating Committees)
    Eliminate Requirement to Designate Function of Committee Officers. 
Currently Section 8.6 and Section 8.13 require that the Committees 
prescribe the powers and duties of its elected officers. The Committees 
have not found it necessary to perform this function. The proposed 
amendments would eliminate this requirement.
Section 8.7 (Advisory Council)
    Members of Advisory Council. The proposed amendments would clarify 
that the Chair of the Market Regulation Committee of NASD is a member 
of the Advisory Council to the Board.
General Amendments to Allow Electronic Communications
    Several Sections in Article VIII require parties to provide notice 
or other communications to Committee members or NASD Regulation. The 
proposed amendments would provide that where provisions in Article VIII 
call for notice and other communications to be given either among 
Committee members, or between Committees and NASD Regulation staff, the 
requirement may be satisfied by electronic means, provided that the 
person entitled to notice consents to receive notice in this manner. 
Specifically, the proposed amendments would add new Section 8.33 which 
defines the term ``Notice'' as used in Article VIII to mean a notice in 
writing or by electronic transmission. In proposed Section 8.23, the 
Secretary of NASD Regulation may provide notice by electronic 
transmission to Executive Representatives of NASD members announcing 
names of candidates, the offices for which they are nominated, and the 
procedures for contested elections, if the need arises. Additionally, 
in proposed Section 8.24, NASD staff and District Offices would provide 
administrative support to all candidates by sending electronically up 
to two distributions prepared by the candidates to NASD members 
eligible to vote.
General Amendments to Centralize Procedures for Nominations and 
Elections
    In general, the amendments would create a more streamlined and 
flexible election process, conform the By-Laws language with current 
practice, and allow the Secretary of NASD Regulation to play a more 
centralized role in the

[[Page 35933]]

election process. For example, the proposed amendments would provide 
that the Secretary of NASD Regulation would perform many of the 
notification and other communication functions currently performed by 
other parties, such as notifying NASD members of upcoming elections, 
requesting submission of candidates, notifying NASD members of the 
candidates nominated by the District Nominating Committee, notifying 
NASD members in the event of a contested election, and notifying the 
Board of election results.
2. Statutory Basis
    NASD believes that the proposed rule change, as amended, is 
consistent with the provisions of section 15A(b)(6) of the Act,\7\ 
which requires, among other things, that NASD 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 
changes to Article VIII of the By-Laws of NASD Regulation are designed 
to accomplish these ends by streamlining the procedures for operation 
of the District Committees and District Nominating Committees. NASD 
believes the proposed rule change, as amended, will streamline the 
nomination and election processes governing the Committees, modernize 
communication procedures, and improve the consistency among the 
Committees across all districts.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD does not believe that the proposed rule change, as amended, 
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

    Written comments were neither solicited nor received with respect 
to the proposed rule change, as amended.

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

    The proposed rule change, as amended, has been filed by NASD as a 
``non-controversial'' rule change under Rule 19b-4(f)(6) under the 
Act,\8\ and NASD represents that the proposed rule change, as amended, 
does not significantly affect the protection of investors or the public 
interest, and does not impose any significant burden on competition. In 
accordance with Rule 19b-4(f)(6)(iii),\9\ NASD submitted written notice 
of its intent to file the proposed rule change, along with a brief 
description and text of the proposed rule change, at least five 
business days prior to the date of filing, and the proposed rule change 
will become operative 30 days after the date of the filing.
---------------------------------------------------------------------------

    \8\ 17 CFR 240.19b-4(f)(6).
    \9\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    The proposed rule change, as amended, has become effective pursuant 
to Section 19(b)(3)(A) of the Act.\10\ At any time within 60 days of 
the filing of the proposed rule change,\11\ the Commission may 
summarily abrogate this proposed 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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ See note 6, supra.
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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 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 
available for inspection and copying at the principal office of the 
NASD. All submissions should refer to file number SR-NASD-2003-55 and 
should be submitted by July 8, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-15265 Filed 6-16-03; 8:45 am]
BILLING CODE 8010-01-P