[Federal Register Volume 69, Number 65 (Monday, April 5, 2004)]
[Notices]
[Pages 17723-17724]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-7600]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49497; File No. SR-NASD-2003-184]


Self-Regulatory Organizations; Order Granting Approval of 
Proposed Rule Change by the National Association of Securities Dealers, 
Inc., To Require Members To Review and Update Executive Representative 
Contact Information on a Quarterly Basis

March 29, 2004.

I. Introduction

    On December 8, 2003, the National Association of Securities 
Dealers, Inc. (``NASD'') filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC''), pursuant to section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to require members to conduct a 
review, and, if necessary, update their executive representative 
contact information on a quarterly basis, specifically within 17 
business days after the end of each calendar quarter. The proposed rule 
change was published for notice and comment in the Federal Register on 
January 27, 2004.\3\ The Commission received two comment letters on the 
proposal.\4\ On March 17, 2004, the NASD filed a response to 
comments.\5\ This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 49110 (January 21, 
2004), 69 FR 3973.
    \4\ See February 4, 2004 letter from Bradley C. McCurtain, Maine 
Securities Corporation (``MSC letter'') (via e-mail), and February 
16, 2004 letter from John J. Dardis, President, Jack Dardis & 
Associates, LTD (``Dardis letter'') (via e-mail).
    \5\ See March 17, 2004 letter from Grace Yeh, Assistant General 
Counsel, NASD, to Katherine A. England, Assistant Director, Division 
of Market Regulation, Commission (``NASD letter'').
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II. Summary of Comments

    The Commission received two comment letters on the NASD's 
proposal.\6\ One commenter expressed full support for the proposal, but 
suggested the information become a line item on the quarterly FOCUS 
report, because ``small firms seldom have executive management 
changes.'' \7\ The other commenter found it ``difficult to not agree'' 
with the NASD's proposal, but noted a lack of instructions on how the 
NASD will implement the proposed rule change, and a concern that the 
costs of the proposed rule change might outweigh the benefits of the 
new requirement.\8\ The commenter raised a number of specific 
questions, including:
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    \6\ See footnote 4, supra.
    \7\ MSC letter.
    \8\ Dardis letter.
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     Is the lack of current information a quarterly 
problem?
     Do contact persons change that often?
     Is this a significant problem with small broker-
dealers?
     What is the penalty if a member fails to comply 
for one quarter?
     If there is no response from the designated 
person, can the local district follow up to see if there has been a 
change?\9\
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    \9\ Id.
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    NASD, in response to the comments, stated the proposal ``is 
essential to its ability to regulate the marketplace.'' \10\ NASD 
believes that requiring members to review and update such information 
will ``help ensure the accuracy of the information.'' \11\
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    \10\ NASD letter at 1.
    \11\ NASD has proposed similar quarterly contact information 
review requirements. See Securities Exchange Act Release Nos. 49246 
(February 13, 2004), 69 FR 8255 (February 23, 2004) (SR-NASD-2003-
183) (order approving continuing education contact person(s) 
quarterly update requirement), and 46444 (August 30, 2002), 67 FR 
57257 (September 9, 2002) (SR-NASD-2002-108) (proposing quarterly 
update of emergency contact information).
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    NASD stated it will collect the information through NASD's Contact 
System (``NCS''), with all quarterly reviews and updates being 
performed on a central location in NCS. Additionally, NASD will require 
members ``to perform all quarterly reviews and updates on the same 
schedule (i.e., within 17 business days after the end of each 
quarter).'' \12\
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    \12\ NASD letter at 2.
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    In response to a commenter's suggestion that NASD add the executive 
representative contact information directly to the FOCUS report, NASD 
``notes that the FOCUS report is an SEC document, requiring SEC action 
to be amended, and that any amendments to such form tend to be related 
to financial reporting requirements.'' \13\ Instead, to help members 
comply with this new requirement, NASD is considering different methods 
of notifying members of the need to update their executive 
representative designation and contact information, including (1) 
reminders that are contemporaneous with the act of filing a quarterly 
FOCUS report; (2) periodic e-mail broadcasts distributed to members' 
executive representatives; and (3) individual e-mails to executive 
representatives.\14\
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    \13\ Id.
    \14\ Id.
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    The NASD explained that failure to provide the requisite 
information during the 17 business days following each calendar quarter 
can result in disciplinary action by NASD.\15\ NASD noted that, in SR-
NASD-2004-025,\16\ NASD seeks to amend its minor rule violation plan to 
address violations of the requirement that members provide or update 
contact information.
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    \15\ NASD letter at 3 (``NASD may use informal or formal means 
to enforce violations of its rules'').
    \16\ The Commission has not yet published notice of SR-NASD-
2004-025. Copies of the proposed rule change are available at the 
Commission and at the NASD.
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III. Discussion and Commission Findings

    The Commission has reviewed carefully the proposed rule change, the

[[Page 17724]]

comment letters, and the NASD's response to the comments, and finds 
that the proposed rule change is consistent with the requirements of 
the Act and the rules and regulations thereunder applicable to a 
national securities association \17\ and, in particular, the 
requirements of section 15A(b)(6) of the Act,\18\ which requires, among 
other things, that NASD's rules 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.
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    \17\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \18\ 15 U.S.C. 78o-3(b)(6).
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    Specifically, the Commission believes the proposed rule change 
should assist the NASD in maintaining accurate information about its 
members' executive representative designation and contact information. 
Balancing the important role of an executive representative, the NASD's 
need for accurate information, and the NASD's efforts to minimize the 
burden of reporting on a quarterly basis the information described in 
this proposed rule change, the Commission believes the proposed rule 
change is reasonable and consistent with the purposes of the Act. The 
Commission also is satisfied that NASD has adequately addressed the 
commenters' concerns.

IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\19\ that the proposed rule change (SR-NASD-2003-184) be, and it 
hereby is, approved.
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    \19\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-7600 Filed 4-2-04; 8:45 am]
BILLING CODE 8010-01-P