[Federal Register Volume 68, Number 176 (Thursday, September 11, 2003)]
[Notices]
[Pages 53626-53628]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-23153]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48448; File No. SR-NASD-2003-136]


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 Rules 1013 and 
1140

September 4, 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 August 29, 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. 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

    NASD is proposing to amend NASD Rule 1013 to eliminate the 
requirement that new member applicants include in their membership 
applications signed, paper Forms U4 for each proposed associated person 
who is required to be registered under NASD Rules and, instead, to 
require new member applicants to file these Forms U4 electronically. 
NASD is also proposing to amend Rule 1140 to require new member 
applicants to follow the same procedures members must follow when 
making electronic Form U4 filings. In addition, NASD is proposing 
technical changes to Rules 1013 and 1140. 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

* * * * *

1013. New Member Application and Interview

(a) Filing of Application
(1) Where to File
    An Applicant for [Association] NASD membership shall file its 
application with the Department of Member Regulation at the district 
office in the district in which the Applicant intends to have its 
principal place of business as defined in Rule 1011(1).
(2) Contents
    The application shall include:
    (A) an original signed and notarized paper Form BD, with applicable 
schedules;
    [(B) an original signed paper Form U-4 for each Associated Person 
who is required to be registered under the Rules of the Association;]
    (C) through (H) Renumbered as (B) through (G).
    [(I)] (H) documentation of any of the following events, unless the 
event has been reported to the Central Registration Depository:
    (i) through (ii) No change.
    (iii) an investment-related customer complaint or arbitration that 
is required to be reported on Form U4 [U-4];
    (iv) through (v) No change.
    (J) through (S) Renumbered as (I) through (R).
(3) Electronic Filings
    Upon approval of the Applicant's Web CRD entitlement request form, 
the Applicant shall submit its Forms U4 for each Associated Person who 
is required to be registered under NASD Rules, any amendments to its 
Forms BD or U4 [U-4, any additional Forms U-4], and any Form U5 [U-5] 
electronically via Web CRD.
* * * * *
    (4) through (7) No change.
    (b) No change.
* * * * *

1140. Electronic Filing Rules

    (a) through (b) No change.
    (c) Form U4 [U-4] Filing Requirements
    (1) [Initial and transfer electronic application filings] Every 
initial and transfer electronic Form U4 filing shall be based on a 
signed Form U4 [U-4] provided to the member or applicant for membership 
by the person on whose behalf the Form U4 is being filed [applicant]. 
As part of the member's recordkeeping requirements, it shall retain the 
[applicant's] person's signed Form U4 [U-4] and make it available 
promptly upon regulatory request. An applicant for membership also must 
retain every signed Form U4 it receives during the application process 
and make them available promptly upon regulatory request.
    (2) Fingerprint Cards
    Upon filing an electronic Form U4 [U-4] on behalf of [an applicant] 
a person applying for registration, a member shall promptly submit a 
fingerprint card for [the applicant] that person. NASD [Regulation] may 
make a registration effective pending receipt of the fingerprint card. 
If a member fails to submit a fingerprint card within 30 days after 
NASD [Regulation] receives the electronic Form U4 [U-4], the person's 
registration shall be deemed inactive. In such case, NASD [Regulation] 
shall notify the member that the person must immediately cease all 
activities requiring registration and is prohibited from performing any 
duties and functioning in any capacity requiring registration. NASD 
[Regulation] shall administratively terminate a registration that is 
inactive for a period of two years. A person whose registration is 
administratively terminated may reactivate the registration only by 
reapplying for registration and meeting the qualification requirements 
of the applicable provisions of the Rule 1020 Series and the Rule 1030 
Series. Upon application and a showing of good cause, [the Association] 
NASD may extend the 30-day period.
    (d) through (e) 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. 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
    NASD staff has been working to make its membership application 
process more efficient and less burdensome for applicants. As part of 
that effort, NASD staff proposes to eliminate Rule 1013's current 
requirement that an applicant for NASD membership submit with its 
membership application an original,

[[Page 53627]]

signed paper Form U4 for each of the applicant's proposed associated 
persons who are required to be registered with NASD. Instead, the 
proposed rule change will require that, upon approval of the 
applicant's Web CRD entitlement request form, the applicant will file 
such Forms U4 electronically via Web CRD.
    NASD Rule 1013(a)(3) already requires that an applicant, upon 
approval of its Web CRD entitlement request form, electronically submit 
any amendments to its filed Form BD and Forms U4 and any additional 
Forms U4 or Forms U5 not submitted with the membership application. By 
extending the electronic filing requirement to include all Form U4 
filings an applicant must submit in connection with its membership 
application, the proposed rule change allows an applicant to use one 
unified process for all its Form U4 submissions in the membership 
application process and reduces the amount of paperwork the applicant 
must submit with its membership application.
    The proposed change will also lessen the burden on NASD staff 
receiving the membership application because it will eliminate the need 
to separate the Forms U4 from the membership application material and 
route them to the appropriate office for review and entry into the Web 
CRD system. Also, because the proposed change will result in the 
applicant filing the Forms U4 directly with Web CRD, NASD Web CRD staff 
will not experience any delays that might occur from the routing 
process.
    In connection with the new electronic Form U4 filing requirement, 
NASD is also proposing to amend Rule 1140 to apply to applicants the 
same electronic filing requirements that members must follow when 
filing electronic Forms U4. Currently, Rule 1140 requires that every 
electronic Form U4 filing made by a member be based on a signed Form U4 
provided by the associated person. Rule 1140 also requires that the 
member, as part of its recordkeeping requirements, retain the signed 
Forms U4 and make them available promptly upon regulatory request. The 
proposed changes to Rule 1140 will require an applicant to follow these 
same procedures when making electronic Form U4 filings. These 
requirements will help ensure that associated persons have reviewed and 
accepted the information and representations provided with the 
electronic Form U4.
    Finally, the proposed rule change makes several technical changes 
to Rules 1013 and 1140. First, the references in these rules to ``Form 
U-4'' and ``Form U-5'' are being changed to ``Form U4'' and ``Form 
U5,'' respectively.\4\ Second, Rule 1011(a) defines ``applicant'' to 
mean either a person applying for NASD membership under Rule 1013 or a 
member filing an application under Rule 1017 for approval of a change 
in ownership, control, or business operations. However, the current use 
of the term ``applicant'' in Rule 1140 is inconsistent with this 
definition because it currently uses the term ``applicant'' to refer to 
the person on whose behalf the electronic Form U4 filing is being made. 
Accordingly, the rule change would replace references to ``applicant'' 
in Rule 1140 with references to persons on whose behalf Forms U4 
filings are being made, as appropriate. Finally, NASD no longer refers 
to itself or its subsidiary, NASD Regulation, Inc., using its full 
corporate name, ``the Association,'' ``the NASD'' or ``NASD 
Regulation.'' Instead, NASD uses the name ``NASD'' unless otherwise 
appropriate for corporate or regulatory reasons. Accordingly, the 
proposed rule change replaces, as a technical change, several 
references to ``the Association'' and ``NASD Regulation'' in Rules 1013 
and 1140 with the name ``NASD.''
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    \4\ This change is being made in accordance with SR-NASD-2003-57 
(Rule Change to Revise Uniform Application for Securities Industry 
Registration or Transfer (Form U-4) and Uniform Termination Notice 
for Securities Industry Registration (Form U-5)), which changed the 
references for Forms ``U-4'' and ``U-5'' to ``U4'' and ``U5.'' SEC 
Release No. 34-48161 (July 10, 2003) 68 FR 42444 (July 17, 2003).
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2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\5\ 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. The proposed rule change amends NASD Rule 1013 to 
eliminate the requirement that new member applicants include in their 
membership applications signed, paper Forms U4 for each proposed 
associated person who is required to be registered under NASD Rules 
and, instead, to require new member applicants to file these Forms U4 
electronically. The proposed rule change also amends Rule 1140 to 
require new member applicants to follow the same procedures members 
must follow when making electronic Form U4 filings. In addition, the 
proposed rule change makes certain technical changes to Rules 1013 and 
1140.
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    \5\ 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 been filed by NASD as a ``non-
controversial'' rule change pursuant to Section 19(b)(3)(A) of the Act 
\6\ and Rule 19b-4(f)(6) thereunder.\7\ Consequently, 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 from the date on which it was filed, 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, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \8\ and 
Rule 19b-4(f)(6) thereunder.\9\
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f)(6).
    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
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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

[[Page 53628]]

change that are filed with the Commission, and all written 
communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for inspection and copying in the Commission's Public 
Reference Room. Copies of such filing will also be available for 
inspection and copying at the principal office of the NASD. All 
submissions should refer to File No. SR-NASD-2003-136 and should be 
submitted by October 2, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-23153 Filed 9-10-03; 8:45 am]
BILLING CODE 8010-01-P