[Federal Register Volume 70, Number 163 (Wednesday, August 24, 2005)]
[Notices]
[Pages 49700-49701]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4625]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52294; File No. SR-NASD-2004-025]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Approving Proposed Rule Change To Amend NASD's 
Minor Rule Violation Plan

August 18, 2005.
    On February 10, 2004, the National Association of Securities 
Dealers, Inc. (``NASD'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend its minor rule violation 
plan (``MRVP''). On March 17, 2005, NASD filed Amendment No. 1 to the 
proposed rule change. On June 27, 2005, NASD filed Amendment No. 2 to 
the proposed rule change. The proposed rule change, as amended, was 
published for comment in the Federal Register on July 14, 2005.\3\ The 
Commission received two comments on the proposal.\4\ 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 Securities Exchange Act Release No. 51994 (July 7, 
2005), 70 FR 40764.
    \4\ See e-mails to [email protected] from Scott Lynn Fagin, 
Chief Compliance Officer and Chief Financial Officer, The Jeffrey 
Matthews Financial Group, LLC, dated August 5, 2005; and Joseph W. 
Mays, Jr., President, Securities Consulting Group, Inc., dated 
August 1, 2005. The comments are not germane to the proposal and 
thus do not raise any issue that would preclude approval of this 
proposal.
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    NASD proposed to make the following changes to its MRVP:
     Combine in one entry all rule violations eligible for 
disposition under the MRVP that relate to transaction reporting and 
audit trail requirements in equity and debt securities. Specifically, 
NASD proposes to eliminate the separate minor rule violation pertaining 
to NASD Rules 6130 and NASD 6170 (transaction reporting to the 
Automated Confirmation Transaction Service) and add them to a 
consolidated entry; add to the MRVP, and this consolidated entry, 
violations of NASD Rules 4632A, 5430, 6130A, and 6170A, which relate to 
TRACS requirements; and eliminate the reference in the MRVP to a 
violation of the Fixed Income Pricing System, NASD Rule 6240, and 
replace it with a violation of NASD Rule 6230, the TRACE transaction 
reporting rule.
     Include in the MRVP violations of standards applicable to 
member communications with the public (NASD Rules 2210, 2211, and 2220, 
and related Interpretive Materials) which would allow NASD to address 
minor or technical violations of content-related advertising rules.
     Expand the MRVP to include a member's failure to identify 
to NASD and keep current information regarding any contact person that 
a member must provide to NASD under any current or future NASD rule.
     Change ``the Association'' to ``NASD'' in the minor rule 
violation provision relating to NASD Rule 3110 and change ``ECN's'' to 
``ECNs'' in the minor rule violation provision relating to Rule 11Ac1-
1(c)(5) under the Act.
    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 a national securities 
association.\5\ In particular, the Commission believes that the 
proposal is consistent with Section 15A(b)(6) of the Act,\6\ which 
requires that the rules of an association be designed to promote just 
and equitable principles of trade, 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. The 
Commission also believes that the proposal is consistent with Sections 
15A(b)(2) and 15A(b)(7) of the Act \7\ which require that the rules of 
an association enforce compliance and provide appropriate discipline 
for violations of Commission and association rules. In addition, 
because existing NASD Rule 9216(b) provides procedural rights to a 
person fined under the MRVP to contest the fine and permits a hearing 
on the matter, the Commission believes the MRVP, as amended by this 
proposal, provides a fair procedure for the disciplining of members and 
persons associated with members, consistent with Sections 15A(b)(8) and 
15A(h)(1) of the Act.\8\
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    \5\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78o-3(b)(6).
    \7\ 15 U.S.C. 78o-3(b)(2) and 78o-3(b)(7).
    \8\ 15 U.S.C. 78o-3(b)(8) and 78o-3(h)(1).
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    Finally, the Commission finds that the proposal is consistent with 
the public interest, the protection of investors, or otherwise in 
furtherance of the purposes of the Act, as required by Rule 19d-1(c)(2) 
under the Act,\9\ which governs minor rule violation plans. The 
Commission believes that the change to its MRVP will strengthen NASD's 
ability to carry out its oversight and enforcement responsibilities as 
a self-regulatory organization in cases where full disciplinary 
proceedings are unsuitable in view of the minor nature of the 
particular violation.
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    \9\ 17 CFR 240.19d-1(c)(2).
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    In approving this proposal, the Commission in no way minimizes the 
importance of compliance with NASD rules and all other rules subject to 
the imposition of fines under NASD's MRVP. The Commission believes that 
the violation of any self-regulatory organization's rules, as well as 
Commission rules, is a serious matter. However, an MRVP provides a 
reasonable means of addressing rule violations that do not rise to the 
level of requiring formal disciplinary proceedings, while providing 
greater flexibility in handling certain violations. The Commission 
expects that NASD will continue to conduct surveillance with due 
diligence and make a determination based on its findings, on a case-by-
case basis, whether a fine of

[[Page 49701]]

more or less than the recommended amount is appropriate for a violation 
under the MRVP or whether a violation requires formal disciplinary 
action.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\10\ and Rule 19d-1(c)(2) under the Act,\11\ that the proposed rule 
change (SR-NASD-2004-025), as amended, be, and hereby is, approved and 
declared effective.
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    \10\ 15 U.S.C. 78s(b)(2).
    \11\ 17 CFR 240.19d-1(c)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(44).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4625 Filed 8-23-05; 8:45 am]
BILLING CODE 8010-01-P