[Federal Register Volume 70, Number 112 (Monday, June 13, 2005)]
[Notices]
[Pages 34170-34172]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3055]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51786; File No. SR-NASD-2005-064]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc. Notice of Filing of Proposed Rule Change Relating to the 
Publication of Any Decision Issued by the National Adjudicatory Council 
Pursuant to Rule 1015

June 6, 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 May 12, 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. 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 is proposing to amend NASD Interpretative Material 8310-2 
(``IM-8310-2'') to give NASD authority to release to the public, in 
unredacted form, information with respect to any decision issued by the 
National Adjudicatory Council (``NAC'') pursuant to NASD Rule 1015. The 
text of the proposed rule change is available on NASD's Web site 
(http://www.nasd.com), at NASD's Office of the Secretary, and at the 
Commission's Public Reference Room.

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 and 
discussed any comments it received on 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
    The proposed rule change will amend IM-8310-2 to give NASD 
authority to release to the public, in unredacted form, information 
with respect to any decision issued by the NAC pursuant to Rule 1015. 
Rule 1015 is part of the Rule 1010 Series governing membership 
proceedings. These proceedings involve both new member applications and 
applications for approval of a change in ownership, control, or 
business operations.
    Background. The NAC reviews two types of membership decisions that 
are adverse to the applicants. Under Rule 1014, NASD's Department of 
Member Regulation (``Department'') determines whether an applicant 
meets all of the requisite standards for admission to NASD and serves 
the applicant with a written decision. Department decisions under Rule 
1014 explain the reason for any restriction or, in some cases, denial. 
Under Rule 1017, the Department considers applications for approval of 
change in ownership, control, or business operations and renders a 
decision. Department decisions under Rule 1017 explain the basis for 
denying

[[Page 34171]]

a requested application in whole or in part.
    Under Rule 1015, an aggrieved applicant may file a written request 
for NAC review of the Department's decision issued under Rules 1014 or 
1017. Unlike disciplinary appeals conducted pursuant to the Rule 9300 
Series, membership appeal hearings before the NAC are trial-level 
proceedings that usually involve the submission of new exhibits and 
testimony and are not limited to 30-minute appellate argument. The NAC 
may affirm, modify, or reverse the Department's decision or remand the 
membership proceeding with instructions. The NAC's decision will 
include a description of the Department's decision, including its 
rationale; a description of the principal issues raised; a summary of 
the evidence; a statement as to whether the Department's decision is 
affirmed, modified, or reversed; and a rationale for the decision that 
references the applicable standards. The NAC's decisions under Rule 
1015 are subject to discretionary review by the NASD Board, which may 
affirm, modify, reverse, or remand the NAC's proposed decision. IM-
8310-2 does not currently provide for the release of NAC membership 
application decisions.\3\
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    \3\ NASD currently makes the following decisions issued by the 
NAC available to the public under IM-8310-2 and publishes them on 
NASD's Web site:
     In unredacted form, any disciplinary decision imposing 
a suspension, cancellation or expulsion of a member; or suspension 
or revocation of the registration of an associated person; or 
suspension or barring of a member or person associated with a 
member; or imposition of monetary sanctions of $10,000 or more on a 
member or associated person;
     In redacted form, any disciplinary decision that does 
not meet the above requirements;
     In redacted form, decisions issued in eligibility 
proceedings governing the association of a statutorily disqualified 
person with a member.
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    Proposed Rule Change. The proposed rule change would amend IM-8310-
2 to give NASD authority to release to the public, information with 
respect to any decision issued by the NAC pursuant to Rule 1015, 
including decisions pertaining to new membership applications (Rule 
1014) or continuing membership applications (Rule 1017). NASD proposes 
to release these decisions in unredacted form, except that the 
decisions would not routinely identify those persons who are not 
themselves under consideration or review as part of the membership 
application process. For example, the decisions would not routinely 
name shareholders of a closely held broker-dealer that is being sold 
when the decision evaluates the qualifications of the proposed buyers. 
NASD notes that, if a member appeals the NAC's adverse decision to the 
SEC, the SEC will make its decision in the matter available to the 
public, including on the SEC's Web site.
    NASD believes that making these decisions available to the public 
would benefit both potential new members and members that are 
considering a change in ownership, control, or business operations. 
Access to these decisions would assist applicants in understanding the 
standards that must be met under Rule 1014 or 1017, as appropriate, and 
the manner in which such standards are applied, especially with respect 
to applicants that are denied membership. Applicants also would be 
better informed about the membership process and standards and may be 
deterred from pursing meritless appeals. NASD believes that public 
investors and persons who are potentially seeking NASD membership 
should have the opportunity to review the rationale behind the NAC's 
decisionmaking, including where the NAC denies membership to an 
applicant. In addition, publishing the NAC's decisions would benefit 
the NAC members who serve on the subcommittees that conduct the hearing 
in connection with applications for membership and change in ownership, 
control, or business operations because their decisions could cite to 
and build upon earlier NAC precedents.
    NASD also believes that public investors will benefit from the 
availability of information about any limitations placed on members, 
where such limitations result from proceedings before the NAC. NASD 
believes that public investors also will benefit from the availability 
of NAC decisions that describe the factors that have been instrumental 
in the granting of membership or the expansion of business activities 
available to the public.
    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. 
NASD will publish only those NAC decisions issued pursuant to Rule 1015 
in which the appeal has been filed on or after the effective date of 
this proposed rule change.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of with Section 15A(b)(6) of the Act,\4\ 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 amending IM-8310-2 to 
release to the public information with respect to any decision issued 
by the NAC under Rule 1015, in unredacted form, is in the interest of 
both member firms and the general public to be able to read these 
decisions to become better informed about NASD's membership process and 
standards and the manner in which such standards are applied.
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    \4\ 15 U.S.C. 78o-3(b)(6).
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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.

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 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

[[Page 34172]]

Number SR-NASD-2005-064 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-0609.
    All submissions should refer to File Number SR-NASD-2005-064. 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 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 the File Number SR-NASD-2005-
064 and should be submitted on or before July 5, 2005.
    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12)

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-3055 Filed 6-10-05; 8:45 am]
BILLING CODE 8010-01-P