[Federal Register Volume 70, Number 170 (Friday, September 2, 2005)]
[Notices]
[Pages 52460-52461]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4828]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52352; File No. SR-NASD-2005-58]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Approving Proposed Rule Change and Amendment No. 1 
Relating to the Reporting of Data to Clearing Firms by Correspondent 
Firms

August 26, 2005.

I. Introduction

    On May 2, 2005, 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 NASD Rule 3150 and Rule 3230 governing 
the reporting of data to clearing firms by correspondent firms. On July 
14, 2005, NASD filed Amendment No. 1 to the proposed rule change.\3\ 
The proposed rule change, as amended, was published for comment in the 
Federal Register on July 26, 2005.\4\ The Commission received one 
comment letter on the proposed rule change.\5\ 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    \3\ Amendment No. 1, which replaced and superseded the original 
filing in its entirety, clarifies which piggybacking arrangements 
will be subject to the rule and modifies certain rule language to 
conform with other terms used in NASD rules.
    \4\ Securities Exchange Act Release No. 52059 (July 19, 2005), 
70 FR 43204 (July 26, 2005).
    \5\ See letter from James Rogan, Chairman, SIA Clearing Firms 
Committee, Securities Industry Association (``SIA''), to Jonathan G. 
Katz, Secretary, Commission, dated August 12, 2005 (``SIA letter'').
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II. Description

    NASD proposes to amend NASD Rule 3150 (governing reporting 
requirements for clearing firms) and NASD Rule 3230 (governing clearing 
agreements) to permit regulators and clearing firms to distinguish 
between data belonging to an introducing firm and data belonging to its 
``piggybacking'' firm(s). Broker-dealers that contract for clearing 
services with an introducing firm are often referred to as 
``piggybacking'' firms, or ``piggybackers.'' Under this arrangement, 
only the introducing firm has a contractual arrangement with the 
clearing firm, which clears for both the introducing firm and the 
introducing firm's piggybacking firms. The proposed rule change would 
require clearing firms to report data to NASD about each piggybacking 
firm separately from the introducing firm's own customer and 
proprietary data. The proposed rule change would apply only if the 
piggybacking relationship with the introducing firm is established on 
or after the effective date of the proposed rule change.

III. Comment Received

    The commenter discussed a concern that the SIA Clearing Firms 
Committee had with a prior version of the proposed rule change relating 
to which intermediary account relationships would be subject to the 
proposed rule change.\6\ Specifically, the SIA letter stated that ``we 
are pleased to see that subsection (b) has now been modified so that 
Rule 3150 will only apply to intermediary clearing arrangements which 
are actually established after the effective date of the rule.'' \7\
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    \6\ See SIA letter supra note 5.
    \7\ Id.
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IV. Discussion

    After careful review, 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 \8\ and, in particular, the requirements of 
Section 15A of the Act and the rules and regulations thereunder.\9\ The 
Commission finds specifically that the proposed rule change is 
consistent with the provisions of Section 15A(b)(6) \10\ of the Act, 
which requires, among other things, that NASD rules must be designed to 
prevent fraudulent and manipulative acts and practices, to

[[Page 52461]]

promote just and equitable principles of trade, and in general, to 
protect investors and the public interest. The Commission notes that 
the NASD proposal, as amended, will allow regulators and clearing firms 
to determine whether data being reported to clearing firms belongs to 
an introducing firm or a piggybacking firm. The Commission believes 
that this ability will enhance the surveillance component of NASD's 
National Examination Program and may facilitate any future Securities 
Investor Protection Corporation (``SIPC'') liquidations of a broker-
dealer.
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    \8\ In approving this proposed rule change, the Commission has 
considered the proposal's impact on efficiency, competition and 
capital formation. See 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78o-3.
    \10\ 15 U.S.C. 78o-3(b)(6).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (File No. SR-NASD-2005-58), as 
amended, is approved.
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    \11\ 15 U.S.C. 78s(b)(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).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4828 Filed 9-1-05; 8:45 am]
BILLING CODE 8010-01-P