[Federal Register Volume 68, Number 205 (Thursday, October 23, 2003)]
[Notices]
[Pages 60748-60750]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-26711]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48641; File No. SR-NASD-2003-148]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Relating to the NASD's Minor Rule Violation 
Plan and Late Fee Provision

October 16, 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 October 3, 2003, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by the NASD. The 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NASD is proposing to amend Interpretative Material 9216 (IM-
9216) and Schedule A of the NASD By-Laws (``Schedule A'') to clarify 
that a failure to timely file Schedule I, pursuant to Rule 17a-10 of 
the Act,\3\ is eligible for disposition under the NASD's Minor Rule 
Violation Plan (``MRVP'' or ``the Plan'') and for assessment of a late 
fee. Below is the text of the proposed rule change. Proposed new 
language is italicized; proposed deletions are in brackets.
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    \3\ 17 CFR 240.17a-10.
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* * * * *

Schedule A to the NASD By-Laws

* * * * *
Section 4--Fees
    (a)-(k) No Change.
    (l) (1) Unless a specific temporary extension of time has been 
granted, there shall be imposed upon each member required to file 
reports, as designated by this paragraph, a fee of $100 for each day 
that such report is not timely filed. The fee will be assessed for a 
period not to exceed 10 business days. Requests for such extension of 
time must be submitted to NASD at least three business days prior to 
the due date; and
    (2) Any report filed pursuant to this Rule containing material 
inaccuracies or filed incompletely shall be deemed not to have been 
filed until a corrected copy of the report has been resubmitted.
    (3) List of Designated Reports:
    (A) SEC Rule 17a-5--Monthly and quarterly FOCUS reports and annual 
audit reports[.]; and
    (B) SEC Rule 17a-10-Schedule I.
* * * * *
9200. Disciplinary Proceedings
* * * * *
    IM-9216. Violations Appropriate for Disposition Under Plan Pursuant 
to SEC Rule 19d-1(c)(2)
    --Rules 2210(b) and (c) and Rules 2220(b) and (c)--Failure to have 
advertisements and sales literature approved by a principal prior to 
use, failure to maintain separate files of advertisements and sales 
literature containing required information, and failure to file 
communications with NASD within the required time limits.
    --Rule 3360--Failure to timely file reports of short positions on 
Form NS-1.
    --Rule 3110--Failure to keep and preserve books, accounts, records,

[[Page 60749]]

memoranda, and correspondence in conformance with applicable laws, 
rules, regulations and statements of policy promulgated thereunder, and 
with NASD Rules.
    --Rule 8211, Rule 8212, and Rule 8213--Failure to submit trading 
data as requested.
    --Article IV--Failure to timely submit amendments to Form BD.
    --Article V--Failure to timely submit amendments to Form U-4.
    --Rule 1120--Failure to comply with continuing education 
requirements (Firm Element).
    --Rule 3010(b)(2)(vii)--Failure to timely file reports pursuant to 
the Taping Rule.
    --Rule 3070--Failure to timely file reports.
    --Rule 4619(d)--Failure to timely file notifications pursuant to 
SEC Regulation M.
    --Rules 4632, 4642, 4652, 6240, 6420, 6620, 6650, and 6720--
Transaction reporting in equity, convertible debt, and high yield 
securities.
    --Rules 6130 and 6170--Transaction reporting to ACT.
    --Rules 6954 and 6955--Failure to submit data in accordance with 
OATS.
    --Rule 11870--Failure to abide by customer account transfer 
contracts.
    --SEC Rule 11Ac1-4--Failure to properly display limit orders.
    --SEC Rule 11Ac1-1(c)(5)--Failure to properly update published 
quotes in certain ECNs.
    --SEC Exchange Act Rule 17a-5--Failure to timely file FOCUS reports 
and annual audit reports.
    --SEC Exchange Act Rule 17a-10--Failure to timely file Schedule I.
    --MSRB Rule A-14--Failure to pay annual fee.
    --MSRB Rule G-12--Failure to abide by uniform practice rules.
    --MSRB Rule G-14--Failure to submit reports.
    --MSRB Rule G-36--Failure to timely submit reports.
    --MSRB Rule G-37--Failure to timely submit reports for political 
contributions.
    --MSRB Rule G-38--Failure to timely submit reports detailing 
consultant activities.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the NASD included statements 
concerning the purpose of and basis for 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
    The purpose of this proposed rule change is to clarify that a 
member's failure to timely file Schedule I, pursuant to Rule 17a-10 of 
the Act,\4\ is appropriate for disposition under the NASD's MRVP and 
that such member may be assessed a late fee under Schedule A. As 
described in more detail herein, the NASD believes that the current 
rule language in IM-9216 and Schedule A referring to Rule 17a-5 of the 
Act--FOCUS Report, does not clearly reflect that a failure to timely 
file Schedule I is included in the NASD's MRVP and late fee provision.
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    \4\ 17 CFR 240.17a-10.
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NASD's Minor Rule Violation Plan

    In 1984, the Commission adopted amendments to Rule 19d-1(c) of the 
Act \5\ to allow self-regulatory organizations to adopt, with 
Commission approval, plans for the disposition of minor violations of 
rules.\6\ In 1993, pursuant to Rule 19d-1(c) of the Act,\7\ the NASD 
established a MRVP.\8\ See NASD Rule 9216(b). In 2001, the Commission 
approved amendments to the NASD's MRVP.\9\
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    \5\ 17 CFR 240.19d-1(c).
    \6\ See Securities Exchange Act Release No. 21013 (June 1, 
1984), 49 FR 23833 (June 8, 1994).
    \7\ 17 CFR 240.19d-1(c).
    \8\ See Securities Exchange Act Release No. 32076 (March 31, 
1993), 58 FR 18291 (April 8, 1993)(SR-NASD-93-6); see also Notice to 
Members 93-42 (July 1993).
    \9\ See Securities Exchange Act Release No. 44512 (July 3, 
2001), 68 FR 36812 (July 13, 2001)(SR-NASD-00-39).
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    NASD Rule 9216(b) authorizes the NASD to impose a fine of $2,500 or 
less on any member or associated person of a member for a violation of 
any of the rules specified in NASD IM-9216. NASD staff reviews the 
number and seriousness of the violations, as well as the previous 
disciplinary history of the respondent to determine if a matter is 
appropriate for disposition under the Plan and to determine the amount 
of the fine. Once the NASD has brought a minor violation of a rule 
against an individual or member firm, the NASD may, at its discretion, 
issue progressively higher fines for all subsequent minor violations of 
rules within the next 24-month period or initiate more formal 
disciplinary proceedings.
    The purpose of the MRVP is to provide for a meaningful sanction for 
the minor or technical violation of a rule when the initiation of a 
disciplinary proceeding through the formal complaint process would be 
more costly and time-consuming than would be warranted. Inclusion of a 
rule in the NASD's MRVP does not mean it is an unimportant rule; 
rather, a minor or technical violation of the rule may be appropriate 
for disposition under the MRVP. The NASD retains the discretion to 
bring full disciplinary proceedings.
    One violation eligible for disposition under the MRVP is listed in 
IM-9216 as ``SEC Exchange Act Rule 17a-5--failure to timely file FOCUS 
reports and annual audit reports.'' Even though Schedule I is part of 
the FOCUS report, it is technically filed pursuant to Rule 17a-10 of 
the Act,\10\ not Rule 17a-5 of the Act.\11\ As a result, some members 
may conclude that the failure to file Schedule I does not qualify for 
the NASD's MRVP. This is incorrect. The NASD believes that there is 
ample evidence to suggest that Schedule I, which is part of the FOCUS 
report, ought to be included in the MRVP.\12\ In its 2001 rule filing 
expanding the MRVP (and late fee provision) to include late FOCUS 
reports, the NASD did not intend to exempt portions of the FOCUS 
report, such as Schedule I. To hold otherwise would allow the NASD to 
impose minor rule violations for only parts of the FOCUS report. 
Nevertheless, for purposes of clarity, the proposed rule change amends 
IM-9216 to make clear that a failure to timely file Schedule I is 
eligible for disposition under the MRVP.
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    \10\ 17 CFR 240.17a-10.
    \11\ 17 CFR 240.17a-5.
    \12\ The rule text of Rule 17a-10 under the Act specifically 
refers to Schedule I as being part of Form X-17A-5, the FOCUS 
Report. See, e.g., Rule 17a-10(a)(1) of the Act (``Every broker or 
dealer exempted from the filing requirements of paragraph (a) of 
Rule 17a-5 shall, not later than 17 business days after the close of 
each calendar year, file * * * Schedule I of Form X-17A-5 for such 
calendar year.''); see also Rule 17a-10(a)(2) under the Act. In 
addition, the Commission characterizes Schedule I as being a 
supplement to the FOCUS report. See FOCUS Reporting System, 
Securities Exchange Act Release No. 13462 (Apr. 22, 1977), 12 S.E.C. 
Docket 156; Securities Exchange Act Release No. 13100 (Dec. 22, 
1976), 42 FR 782 (January 4, 1977) (approving proposed Commission 
rule amendments).
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Late Fees

    In 2001, the Commission also approved amendments to Schedule A of 
the NASD By-laws that provide for the

[[Page 60750]]

mandatory assessment of late fees for a failure to timely file certain 
documents.\13\ The late fees are automatically imposed and assessed on 
a per-day basis for a period of not more than 10 business days. Late 
fees are administrative rather than disciplinary in nature. NASD staff, 
however, may institute disciplinary proceedings concerning late filings 
if the circumstances so warrant. Currently, Schedule A, Section 4, 
Paragraph (l)(3) designates FOCUS reports and annual audit reports as 
documents that are eligible for the late fee provision.\14\ 
Specifically, this late fee provision applies to ``SEC Rule 17a-5--
monthly and quarterly FOCUS reports and annual audit reports.'' For the 
same reasons stated above, the NASD proposes to amend Schedule A to 
make clear that a member may be assessed a late fee for failing to 
timely file Schedule I of the FOCUS report.
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    \13\ See Securities Exchange Act Release No. 44512 (July 3, 
2001), 68 FR 36812 (July 13, 2001).
    \14\ Schedule A, Section 4, Paragraph (b)(2) contains a separate 
late fee provision for late filings of the Uniform Termination 
Notice for Security Industry Registration (``Form U-5''). Unlike the 
late fee provision in paragraph (l), the Form U-5 late fee provision 
provides for a one-time assessment of a late fee.
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2. Statutory Basis
    The NASD believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the Act,\15\ which requires, 
among other things, that the 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 NASD believes that this proposed rule 
change is necessary to clarify that a failure to timely file Schedule I 
is included in the NASD's MRVP and late fee provision under Schedule A.
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    \15\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The NASD does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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 is effective pursuant to Section 
19(b)(3)(A)(i) of the Act \16\ and subparagraph (f)(1) of Rule 19b-4 
thereunder,\17\ in that the foregoing proposed rule change constitutes 
a stated policy, practice, or interpretation with respect to the 
meaning, administration, or enforcement of an existing rule of the 
self-regulatory organization. At any time within 60 days of the filing 
of such proposed rule change, the Commission may summarily abrogate 
such rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act.
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    \16\ 15 U.S.C. 78s(b)(3)(A)(i).
    \17\ 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 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-2003-148 and 
should be submitted by November 13, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-26711 Filed 10-22-03; 8:45 am]
BILLING CODE 8010-01-P