[Federal Register Volume 68, Number 250 (Wednesday, December 31, 2003)]
[Notices]
[Pages 75682-75684]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-32180]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48986; File No. SR-NASD-2003-183]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to Proposed Amendments to Rule 1120 Regarding Regulatory Element 
Contact Person

December 23, 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 December 9, 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 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 Rule 1120 to require that each 
member designate and identify to NASD the individual(s) who will 
receive Web Central Registration Depository (``CRD'') continuing 
education (``CE'') Regulatory Element e-mails. The proposed rule change 
further would require that each member quarterly review and update the 
CE contact person(s) information. Below is the text of the proposed 
rule change. Proposed new language is in italics; proposed deletions 
are in [brackets].
* * * * *

1120. Continuing Education Requirements

    This Rule prescribes requirements regarding the continuing 
education of certain registered persons subsequent to their initial 
qualification and registration with NASD [the Association]. The 
requirements shall

[[Page 75683]]

consist of a Regulatory Element and a Firm Element as set forth below.
(a) Regulatory Element
    (1) through (6) No change.
    (7) Regulatory Element Contact Person
    Each member shall designate and identify to NASD (by name and e-
mail address) an individual or individuals responsible for receiving e-
mail notifications provided via the Central Registration Depository 
regarding when a registered person is approaching the end of his or her 
Regulatory Element time frame and when a registered person is deemed 
inactive due to failure to complete the requirements of the Regulatory 
Element program, and provide prompt notification to NASD regarding any 
change in such designation(s). Each member must review and, if 
necessary, update the information regarding its Regulatory Element 
contact person(s) within 17 business days after the end of each 
calendar quarter to ensure the information's accuracy.
    (b) No change.\3\
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    \3\ Subparagrah (c) was renumbered to subparagraph (b) to 
accurately reflect the current text of NASD Rule 1120. Pursuant to a 
telephone conversation between Grace Yeh, Counsel, NASD, and A. 
Michael Pierson, Law Clerk, Division of Market Regulation 
(``Division''), Commission, dated, December 22, 2003.
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* * * * *

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
    NASD Rule 1120 sets forth the CE requirements for registered 
persons. One of the two CE components is the Regulatory Element, a 
computer-based education program administered by the NASD to help 
ensure that registered persons are kept up-to-date on regulatory, 
compliance, and sales practice matters in the industry. Each registered 
person is required to complete the Regulatory Element initially within 
120 days after the person's second registration anniversary date and, 
thereafter, within 120 days after every third registration anniversary 
date. A registered person who becomes inactive for failing to complete 
the required Regulatory Element program (``CE inactive'') is prohibited 
from performing, or being compensated for, any activities requiring 
registration, including supervision. Members are required under NASD 
Rule 1120 to restrict CE inactive persons from performing the 
prohibited activities.
    To help firms keep track of their registered persons' Regulatory 
Element status, NASD provides members with e-mail notifications through 
Web CRD when a person is both 90 days and 30 days away from the end of 
his or her period to complete the Regulatory Element program before 
going inactive. CRD also notifies members when a registered person at 
the firm becomes CE inactive. Currently, receipt of the e-mail 
notifications is optional, and some firms have elected not to receive 
the notifications. The proposed rule change would require each member 
to designate a contact person or persons to receive such CRD Regulatory 
Element e-mail notifications. The member would be required to provide 
to the NASD the name and e-mail address of the designated contact 
person(s) and to promptly notify the NASD of any changes to the 
information. The NASD intends to collect the contact information 
through the NASD Contact System \4\ on the NASD Web site.
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    \4\ Effective as of December 8, 2003, the NASD Contact System 
replaced the Member Firm Contact Questionnaire, the previous system 
used for members to update and maintain certain required contact 
information.
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    To ensure the accuracy of the CE contact information, the proposed 
rule change also would require that each member review and, if 
necessary, update its CE contact person information within 17 business 
days after the end of each calendar quarter.\5\ The NASD is examining 
different methods of reminding members of the obligation to quarterly 
review and update contact person information, including the possibility 
of a Web page linked to the act of filing the FOCUS report that would 
prompt members to update such contact person and/or through e-mail 
reminders to the designated CE contact person.\6\
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    \5\ This proposed schedule is consistent with a member's 
quarterly FOCUS reporting schedule, as well as with the proposed 
rule change regarding members' business continuity plans. See 
Securities Exchange Act Release No. 46444 (August 30, 2002), 67 FR 
57257 (September 9, 2002) (File No. SR-NASD-2002-108); Securities 
Exchange Act Release No. 47441 (March 4, 2003), 68 FR 11432 (March 
10, 2003) (Notice of Filing of Amendment Nos. 1, 2, and 3 of File 
No. SR-NASD-2002-108); Securities Exchange Act Release No. 48503 
(September 17, 2003), 68 FR 55686 (September 26, 2003) (Notice of 
Filing of Amendment Nos. 4 and 5 of File No. SR-NASD-2002-108). The 
Commission notes that these filings are pending at the Commission, 
and would require members to review and update emergency contact 
information within 17 business days after the end of each calendar 
quarter. Similarly, the proposed schedule is consistent with a 
proposed rule change filed with the Commission regarding the review 
and update of a member's Executive Representative designation and 
contact information. See SR-NASD-2003-184.
    \6\ Similarly, NASD would prompt members to review and update, 
where necessary, their emergency contact and Executive 
Representative information. See supra note 4.
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    The NASD believes that the proposed rule change will help firms 
avoid an NASD Rule 1120(a) violation that would occur if an inactive 
person were permitted to perform, or receive compensation for, 
activities that required registration during the period of inactive 
status. Specifically, the notifications will ensure that firms are 
positioned to prevent any registered persons from becoming inactive, 
thus enabling firms and individuals to avoid violations that occur when 
persons prohibited from doing business due to a CE inactive status 
nonetheless conduct business or improperly receive compensation.
    The NASD also believes the proposed rule change is designed to 
assist the NASD with its efforts to further automate various aspects of 
its examination program with a goal of removing a substantial portion 
of CE compliance inspections from on-site firm examinations. The NASD 
believes that a more automated approach will result in a more efficient 
use of the NASD Department of Member Regulation resources and lead to a 
less intrusive regulatory approach for firms.
2. Statutory Basis
    The NASD believes that the proposed rule change is consistent with 
the provisions of section 15A(b)(6) of the Act,\7\ 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 NASD believes that the proposed rule 
change is designed to accomplish these ends by helping firms ensure 
that their registered persons complete the required Regulatory Element 
training and are prevented from conducting business if they become CE 
inactive.
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    \7\ 15 U.S.C. 78o-3(b)(6).

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[[Page 75684]]

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) As the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the NASD consents, the Commission will:
    A. By order approve such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

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. 
Comments may also be submitted electronically at the following e-mail 
address: [email protected]. All comment letters should refer to 
File No. SR-NASD-2003-183. This file number should be included on the 
subject line if e-mail is used. To help the Commission process and 
review your comments more efficiently, comments should be sent in 
hardcopy or by e-mail but not by both methods. 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 No. SR-NASD-2003-183 and should be 
submitted by January 21, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-32180 Filed 12-30-03; 8:45 am]
BILLING CODE 8010-01-P