[Federal Register Volume 70, Number 53 (Monday, March 21, 2005)]
[Notices]
[Pages 13560-13562]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1212]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51368; File No. SR-NASD-2005-004]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing of Proposed Rule Change and Amendment 
Nos. 1 and 2 Thereto Relating to Annual Compliance Meetings

March 14, 2005.
    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 January 13, 2005, the National Association of Securities Dealers, 
Inc. (``NASD''), filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
items I, II, and III below, which items have been prepared by NASD. On 
March 1, 2005, NASD filed Amendment No. 1 to the proposed rule 
change.\3\ On March 9, 2005, NASD filed Amendment No. 2 to the proposed 
rule change.\4\ The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the NASD further clarified that the 
scope of NASD Rules 3010(a), 3010(a)(3), and 3010(b)(1), 
specifically extends to registered representatives and registered 
principals, as well as other associated persons.
    \4\ In Amendment No. 2, the NASD filed a partial amendment to 
the proposed rule change to remove the underlining from the term 
``applicable NASD Rules'' in NASD Rule 3010(a), as it is part of the 
existing rule text.

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[[Page 13561]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD proposes to amend NASD Rule 3010(a) to require that registered 
principals, in addition to registered representatives, attend an annual 
compliance meeting. NASD also is proposing a technical amendment to 
NASD Rule 3010(a) to clarify that each member is required to establish 
and maintain a system to supervise the activities of each registered 
representative, registered principal, and other associated persons. 
Below is the text of the revised rule change. Proposed new language is 
in italics; proposed deletions are in [brackets].
3010. Supervision
(a) Supervisory System
    Each member shall establish and maintain a system to supervise the 
activities of each registered representative, registered principal, and 
other associated person that is reasonably designed to achieve 
compliance with applicable securities laws and regulations, and with 
applicable NASD Rules. Final responsibility for proper supervision 
shall rest with the member. A member's supervisory system shall 
provide, at a minimum, for the following:
    (1) through (2) No Change.
    (3) The designation as an office of supervisory jurisdiction (OSJ) 
of each location that meets the definition contained in paragraph (g) 
of this Rule. Each member shall also designate such other OSJs as it 
determines to be necessary in order to supervise its registered 
representatives, registered principals, and other associated persons in 
accordance with the standards set forth in this Rule, taking into 
consideration the following factors:
    (A) Whether registered persons at the location engage in retail 
sales or other activities involving regular contact with public 
customers;
    (B) Whether a substantial number of registered persons conduct 
securities activities at, or are otherwise supervised from, such 
location;
    (C) Whether the location is geographically distant from another OSJ 
of the firm;
    (D) Whether the member's registered persons are geographically 
dispersed; and
    (E) Whether the securities activities at such location are diverse 
and/or complex.
    (4) through (6) No Change.
    (7) The participation of each registered representative and 
registered principal, either individually or collectively, no less than 
annually, in an interview or meeting conducted by persons designated by 
the member at which compliance matters relevant to the activities of 
the representative(s) and principal(s) are discussed. Such interview or 
meeting may occur in conjunction with the discussion of other matters 
and may be conducted at a central or regional location or at the 
representative's(') or principal's(') place of business.
(b) Written Procedures
    (1) Each member shall establish, maintain, and enforce written 
procedures to supervise the types of business in which it engages and 
to supervise the activities of registered representatives, registered 
principals, and other associated persons that are reasonably designed 
to achieve compliance with applicable securities laws and regulations, 
and with the applicable Rules of NASD [this Association].
    (2) through (4) No Change.
    (c) through (g) No Change.

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

1. Purpose
    NASD proposes to amend NASD Rule 3010(a)(7) to require that 
registered principals, in addition to registered representatives, 
attend an annual compliance meeting. NASD Rule 3010(a)(7) currently 
requires the attendance of registered representatives at annual 
compliance meetings, but it does not require the attendance of 
registered principals. NASD believes that registered principals also 
should be required to attend such meetings given the supervisory and 
compliance-related functions that principals perform and that the 
primary purpose of these meetings is to discuss compliance issues and 
keep registered persons current on changing compliance requirements or 
changes in the firm. Accordingly, NASD proposes to amend NASD Rule 
3010(a)(7) to require that all registered principals, in addition to 
registered representatives, attend an annual compliance meeting in 
accordance with the Rule.
    Further, according to the NASD, although registered principals are 
considered associated persons and thus are included in the scope of 
NASD Rule 3010(a), registered principals are not specifically listed in 
NASD Rule 3010(a). Therefore, NASD proposes a technical amendment to 
NASD Rule 3010(a) to clarify that each member is required to establish 
and maintain a system to supervise the activities of each registered 
representative, registered principal, as well as other associated 
persons.
    NASD represents that the proposal clarifies that this provision 
applies to registered representatives and registered principals, who 
are considered to be associated persons, as well as all other 
associated persons. To be consistent with this proposed amendment to 
NASD Rule 3010(a), NASD is proposing similar changes to NASD Rules 
3010(a)(3) and 3010(b)(1) to clarify that the scope of these rules 
extends to registered representatives and registered principals, as 
well as other associated persons.\5\ NASD is also proposing to replace 
a reference to ``Association'' with ``NASD'' in the text of NASD Rule 
3010(b)(1) to reflect the fact that NASD no longer refers to itself 
using its full corporate name, ``Association,'' or ``the NASD.''
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    \5\ See Amendment No. 1, supra note 3.
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    NASD will announce the effective date of the proposed rule change 
in an NtM to be published no later than 60 days following Commission 
approval. The effective date will be 30 days following publication of 
the NtM announcing Commission approval.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of section 15A of the Act,\6\ in general and with section 
15A(b)(6) of the Act,\7\ in particular, 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. NASD believes that the proposed rule change to NASD 
Rule 3010(a)(7) will increase the level of interaction between 
registered representatives and principals with respect to compliance 
issues and will assist firms in ensuring that all their registered 
persons remain current on changing compliance requirements and changes 
in the firms. NASD believes that the technical amendments to NASD Rules 
3010(a), 3010(a)(3), and 3010(b)(1) will further clarify members' 
obligations with respect to their registered representatives and 
registered principals, as well as other associated persons.
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    \6\ 15 U.S.C. 78o-3.
    \7\ 15 U.S.C. 78o-3(b)(6).

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[[Page 13562]]

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.

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 NASD consents, the Commission will:
    A. By order approve such proposed rule change; or
    B. Institute proceedings to determine whether the proposed rule 
change, as amended, 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, as amended, 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 Number SR-NASD-2005-004 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-2005-004. 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 Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the 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 Number SR-NASD-2005-004 and should be submitted on or before April 
11, 2005.

    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. E5-1212 Filed 3-18-05; 8:45 am]
BILLING CODE 8010-01-P