[Federal Register Volume 69, Number 205 (Monday, October 25, 2004)]
[Notices]
[Pages 62311-62312]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2818]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50557; File No. SR-MSRB-2004-04]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Approving Proposed Rule Change and Amendment No. 1 Thereto 
Relating to Proposed Amendments To Eliminate Exemptions From the 
Continuing Education Regulatory Element Requirements

October 18, 2004.
    On August 5, 2004, the Municipal Securities Rulemaking Board 
(``MSRB'' or ``Board'') filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC'') a proposed rule change, pursuant 
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') 
\1\ and Rule 19b-4 thereunder,\2\ to eliminate all currently effective 
exemptions from the requirement to complete the Regulatory Element of 
the Continuing Education (``CE'') Program. On August 27, 2004, the MSRB 
filed Amendment No. 1 to the proposed rule change.\3\ The proposed rule 
change, as amended, was published for comment in the Federal Register 
on September 14, 2004.\4\ The Commission received no comments on the 
proposal. 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 Ronald W. Smith, Senior Legal Associate, 
MSRB, to Katherine A. England, Assistant Director, Division of 
Market Regulation, Commission, dated August 26, 2004. Amendment No. 
1 replaced the original rule filing in its entirety.
    \4\ See Securities Exchange Act Release No. 50328 (September 7, 
2004), 69 FR 55482 (September 14, 2004).
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    MSRB Rule G-3(h) currently provides, in part, that no member shall 
permit any registered person to continue to, and no registered person 
shall continue to, perform duties as a registered person, unless such 
person has complied with the Regulatory Element of the CE requirement 
set forth in this Rule.\5\ The Regulatory Element component of MSRB 
Rule G-3(h)(i)(1) requires each registered person to complete a 
standardized, computer-based, interactive CE program within 120 days of 
their second registration anniversary date and every three years 
thereafter, or as otherwise prescribed by the Board. Registered persons 
who fail to complete the Regulatory Element are deemed inactive and may 
not perform in any capacity or be compensated in any way requiring 
registration.
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    \5\ See MSRB Rule G-3(h).
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    Currently, two classes of persons are exempt from Regulatory 
Element requirements under MSRB G-3(h). The first class of persons come 
within the ``grandfathered'' exemption which applies to persons who 
were continuously registered, without serious disciplinary action,\6\ 
for more than ten years as of the Rule's effective date (i.e., July 1, 
1995). The second class of persons come within the ``graduated'' 
exemption, which, although discontinued as of July 1998, continues to 
apply to registered persons who were ``graduated'' prior to the 
discontinuation of the exemption.\7\
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    \6\ For purposes of MSRB Rule G-3(h), a significant disciplinary 
action generally means a statutory disqualification as defined in 
Section 3(a)(39) of the Act; a suspension or imposition of a fine of 
$5,000 or more; or being subject to an order from a securities 
regulator to re-enter the Regulatory Element. See MSRB Rule G-
3(h)(i)(C).
    \7\ When MSRB Rule G-3(h) was first adopted in 1995, the 
Regulatory Element schedule required registered persons to satisfy 
the Regulatory Element on the second, fifth, and tenth anniversary 
of their initial securities registration. After satisfying the tenth 
anniversary requirement, a person was ``graduated'' from the 
Regulatory Element. A graduated principal re-entered the Regulatory 
Element if he or she incurred a significant disciplinary action. A 
graduated person who was not a principal re-entered if he or she 
acquired a principal registration or incurred a significant 
disciplinary action.

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[[Page 62312]]

    However, in response to recommendations made by the Securities 
Industry/Regulatory Council on Continuing Education (the ``Council''), 
MSRB submitted a proposed rule change to eliminate all currently 
effective exemptions from required participation in Regulatory Element 
programs.\8\ The Council believes that there is great value in exposing 
all registered industry participants to the full benefit of Regulatory 
Element programs.
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    \8\ The Council recommended at its December 2003 meeting that 
SRO Rules (e.g., MSRB Rule G-3(h)), be amended to eliminate existing 
exemptions from the Regulatory Element and to require all 
``grandfathered'' and ``graduated'' persons to fully participate in 
future standardized CE programs, according to the Rule's prescribed 
schedule.
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    The effective date of the MSRB proposed rule change is dependent 
upon the effective date of a similar proposed rule change filed by NASD 
\9\ because NASD administers the Regulatory Element computer-based 
education program. NASD has stated that it will announce the effective 
date of its proposed rule change in a Notice to Members to be published 
no later than 60 days following Commission approval. NASD stated that 
the effective date will be (1) not more than 30 days following 
publication of the Notice to Members announcing Commission approval, 
(2) not more than 30 days following the implementation of necessary 
changes to Web Central Registration Depository (Web CRD), or (3) April 
4, 2005, whichever date is the latest to occur. The effective date of 
the MSRB proposed rule change will be the same as the effective date of 
the NASD's proposed rule change.
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    \9\ See Securities Exchange Act Release No. 50204 (August 16, 
2004), 69 FR 51873 (August 23, 2004) (SR-NASD-2004-098).
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    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to the MSRB.\10\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 15B(b)(2)(C) of the Act,\11\ which requires, among other 
things, that the MSRB'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 proposed rule change 
should help to ensure that all registered persons are kept up-to-date 
on regulatory, compliance, and sales practice-related industry issues. 
Further, the Commission believes that the proposed rule change will 
reinforce the importance of compliance with just and equitable 
principles of trade by exposing all registered industry participants to 
the full benefits of the Regulatory Element programs, which include a 
new Regulatory Element module that focuses specifically on ethics.
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    \10\ In approving the proposed rule change, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78o-4(b)(2)(C).
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    It Is Therefore Ordered, pursuant to section 19(b)(2) of the 
Act,\12\ that the proposed rule  change (SR-MSRB-2004-04), as amended, 
is approved.
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    \12\ 15 U.S.C. 78s(b)(2).
    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E4-2818 Filed 10-22-04; 8:45 am]
BILLING CODE 8010-01-P