[Federal Register Volume 69, Number 189 (Thursday, September 30, 2004)]
[Notices]
[Pages 58568-58569]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2418]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50446; File No. SR-NASD-2004-121]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change and Amendment Nos. 1 and 2 Thereto by the National Association 
of Securities Dealers, Inc. To Include Failures to Timely Submit 
Amendments to Form U5 in its Minor Rule Violation Plan

September 24, 2004.

I. Introduction

    On August 11, 2004, the National Association of Securities Dealers, 
Inc. (``NASD''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ filed 
with the Securities and Exchange

[[Page 58569]]

Commission (``Commission'' or ``SEC'') a proposed rule change to amend 
NASD Interpretative Material 9216 (``IM-9216'') (Violations Appropriate 
for Disposition Under the Plan Pursuant to SEC Rule 19d-1(c)(2)). NASD 
amended the proposal on August 17, 2004,\3\ and August 19, 2004.\4\ The 
proposed rule change, including Amendment Nos. 1 and 2, was published 
for notice and comment in the Federal Register on August 25, 2004.\5\ 
The Commission received one comment on the proposal.\6\ This order 
approves the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Shirley H. Weiss, Associate General Counsel, 
NASD, to Katherine A. England, Assistant Director, Division of 
Market Regulation, Commission, dated August 16, 2004 (``Amendment 
No. 1''). In Amendment No. 1, NASD alphabetically rearranged the 
contents of Exhibit 3 to the proposed rule change. Exhibit 3 
included comment letters NASD received from its members with respect 
to the proposed rule change.
    \4\ See letter from Shirley H. Weiss, Associate General Counsel, 
NASD, to Katherine A. England, Assistant Director, Division of 
Market Regulation, Commission, dated August 19, 2004 (``Amendment 
No. 2''). In Amendment No. 2, NASD made technical corrections to 
accurately reflect the existing text of IM-9216.
    \5\ See Securities Exchange Act Release No. 50221 (August 19, 
2004), 69 FR 52317.
    \6\ See letter from Colon Brown, Jr., President, Brown & Brown 
Securities, Inc., dated September 9, 2004.
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II. Description of the Proposed Rule Change

    NASD proposes to amend IM-9216 to expand the list of violations 
eligible for disposition under NASD's Minor Rule Violation Plan 
(``MRVP'') to include failure to timely submit amendments to Form U5, 
as required by Article V, Section 3(a) of the NASD By-Laws. The 
proposed rule change also changes references of ``U-4'' to ``U4,'' to 
be consistent with the most recent amendments to that form.
    NASD represents that the inclusion of the failure to timely submit 
amendments to Form U5 would be consistent with the current MRVP, which 
includes failure to timely submit amendments to Form U4, as required by 
Article V, Section 2(c) of the NASD By-Laws, and failure to timely 
submit amendments to Form BD, as required by Article IV, Section 1(c) 
of the NASD By-Laws. In addition, NASD believes that the addition of 
this violation to the MRVP would provide NASD staff with the ability to 
impose a meaningful sanction for violations that warrant more than a 
Letter of Caution but do not necessarily rise to a level meriting a 
full disciplinary proceeding.

III. Comment Received

    The Commission received one comment on the proposal. The commenter, 
while supportive of NASD's efforts to regulate behavior that is 
contrary to the best interest of the investing public, questioned 
whether additional rules and more severe sanctions deter individuals 
with dishonest motives. The commenter also argued that increasing the 
severity of sanctions for minor or technical violations places 
additional undue burdens on many practitioners, and warned against 
increases in the level of fines.
    NASD responded \7\ that the proposed rule change would not create 
any additional requirements on the securities industry. Further, NASD 
responded that the addition of this violation to the MRVP would not 
place additional undue burdens on the industry; rather, the addition 
would provide NASD staff with the ability to impose a meaningful 
sanction (currently limited to a maximum of $2,500) on a member for 
failing to timely file an amendment to a Form U5 that warrants more 
than a Letter of Caution but less than a more expensive and time-
consuming formal disciplinary proceeding.
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    \7\ See letter from Shirley H. Weiss, Associate General Counsel, 
NASD, to Katherine A. England, Assistant Director, Division of 
Market Regulation, Commission, dated September 22, 2004.
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IV. Discussion

    After careful review of the proposed rule change, the comment 
letter, and NASD's response to comment letter, 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.\8\ Specifically, the Commission 
believes that the proposed rule change is consistent with Section 
15A(b)(6) of the Act,\9\ in that it is designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and to protect investors and the public interest. 
Further, the Commission believes that the proposed rule change is 
consistent with Section 15A(b)(7) of the Act \10\ in that it provides 
for the appropriate discipline for violation of Commission rules and 
NASD rules. Moreover, the Commission believes the proposed rule change 
is consistent with Section 15A(b)(8) of the Act \11\ in that it 
provides a fair procedure for the disciplining of NASD members and 
associated persons. Finally, the Commission finds that the proposed 
rule change is consistent with Rule 19d-1(c)(2) under the Act,\12\ 
which governs minor rule violation plans. The Commission believes it is 
reasonable for NASD to be able to sanction late filings of Form U5 
amendments pursuant to its MRVP. The Commission does not believe that 
the comment submitted raises any issue that would preclude approval of 
this proposal.
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    \8\ In approving the proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78o-3(b)(6).
    \10\ 15 U.S.C. 78o-3(b)(7).
    \11\ 15 U.S.C. 78o-3(b)(8).
    \12\ 17 CFR 240.19d-1(c)(2).
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    In approving the proposed rule change, the Commission in no way 
minimizes the importance of compliance with NASD rules, and all other 
NASD rules subject to the imposition of fines under the MRVP. The 
Commission believes that the violation of any self-regulatory 
organization's rules, as well as Commission rules, is a serious matter. 
However, in an effort to provide NASD with greater flexibility in 
addressing certain violations of NASD rules, the MRVP provides a 
reasonable means to address violations that do not rise to the level of 
requiring formal NASD disciplinary proceedings. The Commission expects 
that NASD will continue to conduct surveillance with due diligence, and 
make a determination based on its findings whether fines of more or 
less than the recommended amount are appropriate for violations of NASD 
rules under the MRVP, on a case by case basis, or if a violation 
requires formal disciplinary action.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-NASD-2004-121) and Amendment 
Nos. 1 and 2 are approved.
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    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-2418 Filed 9-29-04; 8:45 am]
BILLING CODE 8010-01-P