[Federal Register Volume 69, Number 217 (Wednesday, November 10, 2004)]
[Notices]
[Pages 65238-65240]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3124]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50626; File No. SR-NASD-2004-133]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to Proposed Amendments to NASD Rule 9522 (``Initiation of Eligibility 
Proceeding; Member Regulation Consideration'')

November 3, 2004.
    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 September 1, 2004, 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 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

    NASD proposes to amend NASD Rule 9522 (``Initiation of Eligibility 
Proceeding; Member Regulation Consideration''). The text of the 
proposed rule change is below. Proposed new language is in italics; 
proposed deletions are in brackets.
9500. OTHER PROCEEDINGS
* * * * *

[[Page 65239]]

9522. Initiation of Eligibility Proceeding; Member Regulation 
Consideration
    (a) through (e)(1) No change.
    (e)(2) Matters that may be Approved by the Department of Member 
Regulation after the Filing of an Application.
    The Department of Member Regulation, as it deems consistent with 
the public interest and the protection of investors, may approve an 
application filed by a disqualified member or sponsoring member if a 
disqualified member or disqualified person is subject to one or more of 
the following conditions but is not otherwise subject to 
disqualification (other than a matter set forth in subparagraph 
(e)(1)):
    (A) through (C) No change.
    (D) The disqualification consists of a court order or judgment of 
injunction or conviction, and such order or judgment:
    (i) No change.
    (ii) includes such restrictions or limitations for a specified time 
period and such time period has elapsed[.]; or
    (E) The disqualified person's functions are purely clerical and/or 
ministerial in nature.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NASD included statements 
concerning the purpose of and basis for the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. 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's Rule 9520 Series sets forth NASD's eligibility procedures 
under which persons subject to a statutory disqualification may become 
or remain associated with a member firm. NASD Rule 9522 specifies when 
Member Regulation may approve a matter \3\ and when the National 
Adjudicatory Council (``NAC'') must consider a matter. The purpose of 
the proposed rule change to NASD Rule 9522(e)(2) is to give Member 
Regulation the authority to approve the MC-400 Applications 
(``Applications'') of statutorily disqualified persons who will be 
engaged solely in clerical and/or ministerial activities.
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    \3\ Member Regulation does not have the authority to deny an 
Application or other written request for relief. See NASD Rule 
9522(e) and NASD Rule 9523.
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    Rule 19h-1 under the Act,\4\ which prescribes the form and content 
of, and establishes the mechanism by which the SEC reviews, proposals 
submitted by NASD (and other self-regulatory organizations) to allow 
persons subject to statutory disqualification to become or remain 
associated with member firms, exempts from the filing requirement 
persons who are statutorily disqualified but who perform only clerical 
or ministerial functions.\5\ Currently, the NASD Rule 9520 Series 
requires the NAC (after a hearing and consideration by the Statutory 
Disqualification (``SD'') Committee) to determine whether a statutorily 
disqualified person may associate with a member firm in a purely 
clerical and/or ministerial capacity.
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    \4\ 17 CFR 240.19h-1.
    \5\ Rule 19h-1(a)(2) under the Act specifies that notices must 
be filed with the Commission if, among other things, a disqualified 
person ``* * * controls [the] member, is a general partner or 
officer (or person occupying a similar status or performing a 
similar function) of [the] member, is an employee who, on behalf of 
[the] member, is engaged in securities advertising, public 
relations, research, sales, trading, or training or supervision of 
other employees who engage or propose to engage in such activities, 
except clerical and ministerial persons engaged in such activities, 
or is an employee with access to funds, Securities or books and 
records, * * *''
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    NASD wishes to be able to handle these matters more expeditiously, 
while also retaining the necessary ability to conduct a thorough review 
to determine whether a disqualified person may enter or continue in the 
securities industry in a clerical and/or ministerial capacity. 
Therefore, under the proposed rule change, the sponsoring firm would 
continue to be required to file an Application on behalf of the 
disqualified individual seeking to engage in solely clerical and/or 
ministerial activities. Member Regulation would have the authority 
under amended NASD Rule 9522(e)(2) to approve the Application. In the 
event Member Regulation does not approve the Application, the 
sponsoring member would have the right to proceed under Rule 9524 
(i.e., to have the matter decided by the NAC after a hearing and 
consideration by the SD Committee).\6\
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    \6\ Member Regulation also retains the discretion to refer any 
matter to the NAC, rather than exercise its authority under NASD 
Rule 9522 to review an Application or other request for relief.
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    If Member Regulation determines that the Application should be 
approved, but with specific supervisory requirements, the parties would 
have the option of proceeding under NASD Rule 9523. NASD Rule 9523 
provides that the Chairman of the Statutory Disqualification Committee 
(``Chairman''), acting on behalf of the NAC, may accept a letter 
indicating that the sponsoring firm and Member Regulation have 
consented to the imposition of an agreed-upon supervisory plan. The 
Chairman also has the option of rejecting the plan or referring the 
matter to the NAC. The plan is deemed final if it is accepted by the 
NAC or the Chairman. If the parties cannot agree on a supervisory plan, 
the sponsoring member may request NAC consideration of the matter under 
NASD Rule 9524.
    Should the Commission approve this proposed rule change, NASD will 
announce the effective date of the proposed rule change in a Notice to 
Members to be published no later than 60 days following Commission 
approval. The effective date will be 30 days following publication of 
the Notice to Members announcing Commission approval.
2. Statutory Basis
    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 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 and Section 15A(b)(8) of the Act,\8\ which requires 
that NASD rules provide a fair procedure for the denial of membership 
to any person seeking membership therein. NASD believes that its 
proposed rule change is consistent with the provisions of the Act noted 
above in that it provides for a fair procedure for determining whether 
a statutorily disqualified person may participate in the securities 
industry in a clerical and/or ministerial capacity.
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    \7\ 15 U.S.C. 78o-3(b)(6).
    \8\ 15 U.S.C.78o-3(b)(8).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    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, as amended.

[[Page 65240]]

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 self-regulatory organization 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. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File No. SR-NASD-2004-133 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-NASD-2004-133. 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, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 Section, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such filing also will be 
available for inspection and copying at the principal office of NASD. 
All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File No. SR-NASD-2004-133 and 
should be submitted on or before December 1, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E4-3124 Filed 11-9-04; 8:45 am]
BILLING CODE 8010-01-P