[Federal Register Volume 70, Number 83 (Monday, May 2, 2005)]
[Notices]
[Pages 22732-22733]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2065]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51605; File No. SR-NASD-2005-004]


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

April 25, 2005.
    On January 13, 2005, the National Association of Securities Dealers 
(``NASD'') 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 clarify that the system that each member is 
required to establish and maintain to supervise the activities of 
registered representatives and associated persons also applies to 
registered principals. 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 proposed rule change, as amended, 
was published for comment in the Federal Register on March 21, 2005.\5\ 
The Commission received two comment letters on the proposal, as 
amended.\6\ On April 22, 2005, the NASD filed a response to the comment 
letters.\7\ 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\ 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.
    \5\ See Securities Exchange Act Release No. 51368 (March 14, 
2005), 70 FR 13560 (March 21, 2005).
    \6\ See letters from Jed Bandes, dated April 7, 2005 (``Bandes 
Letter'') and William F. Marshall, President, First Winston 
Securities, Inc., dated April 11, 2005 (``First Winston Letter'').
    \7\ See letter to Katherine A. England, Assistant Director, 
Division of Market Regulation from Afshin Atabaki, Counsel, NASD, 
dated April 22, 2005 (``NASD Response Letter'').
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I. Description of Proposed Rule Change

    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, although registered principals are included in the 
definition of associated person \8\ 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, and associated person.
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    \8\ See NASD Rule 1011(b).
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    NASD represents that the proposal clarifies that this provision 
applies to registered representatives and registered principals, 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.\9\ 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

[[Page 22733]]

corporate name, ``Association,'' or ``the NASD.''
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    \9\ See Amendment No. 1, supra note 3.
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II. Summary of Comment and NASD's Response

    The Commission received two comment letters on the proposed rule 
change that opposed the adoption of the proposal in its current 
form.\10\
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    \10\ See First Winston Letter and Bandes Letter.
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    Specifically, one commenter stated that the proposed rule change 
requiring principals to attend compliance meetings at the NASD was 
``bureaucratic excess and self indulgence'' as well as difficult to 
comply with for handicapped individuals.\11\ A second commenter stated 
that the NASD's proposal would ``impose an undue hardship both in time 
and monetarily'' for small firms.\12\
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    \11\ See Bandes Letter.
    \12\ See First Winston Letter.
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    NASD responded by stating that the commenters mischaracterized the 
proposal. NASD explained that the proposal requires the attendance of 
registered principals (in addition to registered representatives) at 
annual compliance meetings that are conducted by their respective 
member firms, not the NASD. Furthermore, NASD responded to the 
commenters' concerns by noting that the rule itself states that members 
are provided with substantial flexibility in implementing the 
compliance meeting requirement. NASD further stated that the proposal 
expressly allows the compliance meeting to be conducted at a 
principal's place of business and outside of regular business hours. 
Additionally the meeting may be conducted by video conference, 
interactive classroom setting, telephone or other interactive means 
provided appropriate safeguards are in place.\13\
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    \13\ See NASD Response Letter.
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III. Discussion

    The Commission has carefully reviewed the proposed rule change, the 
comment letters, and NASD's response and finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities association.\14\ In particular, the Commission finds that 
the proposed rule change, as amended, is consistent with Section 
15A.\15\ Specifically, the Commission finds that the proposed rule 
change is consistent with Section 15A(b)(6) of the Act because it is 
designed to promote just and equitable principals of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public 
interest.\16\
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    \14\ 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).
    \15\ 15 U.S.C. 78o-3.
    \16\ 15 U.S.C. 78o-3(b)(6).
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    The NASD's response to the comments adequately addresses the 
concerns raised. Moreover, the Commission believes that requiring 
registered principals to attend an interview or meeting at least 
annually at which relevant compliance matters are discussed will help 
to ensure that registered principals are current on new compliance 
requirements and changes at their firms.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\17\ that the proposed rule change (SR-NASD-2005-004), as amended, 
is approved.
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    \17\ 15 U.S.C. 78s(b)(2).
    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2065 Filed 4-29-05; 8:45 am]
BILLING CODE 8010-01-P