[Federal Register Volume 69, Number 116 (Thursday, June 17, 2004)]
[Notices]
[Pages 33968-33969]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-13633]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49845; File No. SR-NASD-2003-69]


Self-Regulatory Organizations; Order Granting Approval of 
Proposed Rule Change by the National Association of Securities Dealers, 
Inc. Regarding Failure To Pay Arbitration Awards

June 10, 2004.

I. Introduction

    On April 7, 2003, the National Association of Securities Dealers, 
Inc. (``NASD'') filed with the Securities and Exchange Commission 
(``Commission''), 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 (1) to amend Article V, Section 4 of the NASD By-
Laws to permit NASD to suspend for failure to pay an arbitration award 
or settlement, for a period of two years after the award is entered, 
former associated persons who terminated their registration before the 
award was

[[Page 33969]]

entered; and (2) to amend Article VI, Section 3 of the NASD By-Laws to 
clarify that NASD may suspend the association, and not just the 
registration, of any person who fails to pay an arbitration award. 
Notice of the proposed rule change was published for comment in the 
Federal Register on May 7, 2004.\3\ The Commission received one comment 
on the proposed rule change.\4\ 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. 49636 (April 30, 
2004), 69 FR 25652 (``Notice'').
    \4\ See e-mail dated May 28, 2004 from Douglas K. Traynor. The 
e-mail did not raise any issues with respect to the substance of the 
proposed rule change.
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II. Description of Proposed Rule Change

    The proposed rule change amends Article V, Section 4 of the NASD 
By-Laws to provide that, for the limited purpose of instituting 
proceedings for failure to pay arbitration awards or settlements, NASD 
retains, for a period of two years after the entry of the award or 
settlement, jurisdiction to impose suspensions against former 
associated persons if the award or settlement resulted from a claim 
submitted for arbitration or mediation pursuant to the NASD Rules. The 
proposal addresses NASD's concern that a person associated with a 
member will terminate his or her association with the member once aware 
that an arbitration award may be entered against him or her in order to 
avoid sanction by NASD for failure to pay any award or settlement 
agreement resulting from the proceeding. In addition, the proposed rule 
change amends Article VI, Section 3 of the NASD By-Laws to clarify that 
NASD may suspend any person from associating with a member in any 
capacity for failure of such person to comply with an arbitration award 
or settlement.

III. Discussion

    The Commission 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.\5\ 
Specifically, the Commission finds that the proposal is consistent with 
Section 15A(b)(6) of the Act,\6\ 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. The 
Commission believes that the amendments should improve NASD's ability 
to ensure that its membership is not likely to engage in conduct that 
may be harmful to public investors. The Commission notes that the 
proposed rule change strengthens NASD's ability to prevent persons who 
fail to honor securities-related arbitration awards from seeking to re-
enter the securities business, and clarifies that persons who fail to 
honor such awards may be suspended from associating with NASD members 
in any capacity.
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    \5\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78o-3(b)(6).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\7\ that the proposed rule change (File No. SR-NASD-2003-69) be, 
and it hereby is, approved.
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    \7\ 15 U.S.C. 78s(b)(2).

    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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-13633 Filed 6-16-04; 8:45 am]
BILLING CODE 8010-01-P