[Federal Register Volume 61, Number 88 (Monday, May 6, 1996)]
[Notices]
[Pages 20299-20301]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11228]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37150; File No. SR-NASD-96-14]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the National Association of Securities Dealers, Inc. Relating
to the Requirement That Members Provide Information to Other Regulators
for Regulatory Purposes
April 29, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on April 4, 1996, the
National Association of Securities Dealers, Inc. (``NASD'' or
``Association'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change,\2\ 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ On April 19, 1996, the NASD filed Amendment No. 1 to the
proposed rule change. Letter from Suzanne E. Rothwell, Associate
General Counsel, NASD, to Mark P. Barracca, Special Counsel,
Division of Market Regulation, SEC, dated April 19, 1996.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The NASD is filing a proposed rule change to amend NASD Rules 8210
and 8220.\3\ The NASD is proposing to amend Rule 8210 to require
members to provide information to domestic and foreign self-regulatory
organizations, associations, securities or contract markets or
regulators with which the Association has entered into information
sharing agreements for regulatory purposes and to the NASD's Market
Surveillance Committee. Pursuant to Amendment No. 1, the NASD is
amending Rule 8220 to authorize any Market Surveillance Committee to
require any member to submit a report in writing with regard to any
matter connected with such member's business or business practices, and
to inspect the books, records and accounts of any member. Below is the
text of the proposed rule change. Proposed new language is italicized.
---------------------------------------------------------------------------
\3\ Pursuant to a new rule numbering system for the NASD Manual
anticipated to be effective no later than May 1, 1996, Sec. 5 of
Art. IV and the Resolution of the Board of Governors thereto of the
Rules of Fair Practice that are the subject of this proposed rule
change will become Rules 8210 and 8220, respectively. Securities
Exchange Act Release No. 36698 (Jan. 11, 1996), 61 FR 1419 (Jan. 19,
1996) (order approving File No. SR-NASD-95-51).
---------------------------------------------------------------------------
[[Page 20300]]
PROCEDURAL RULES
8000. COMPLAINTS, INVESTIGATIONS AND SANCTIONS
* * * * *
8200. INVESTIGATIONS
8210. Reports and Inspection of Books for Purpose of Investigating
Complaints
(a) For the purpose of any investigation, or determination as to
filing of a complaint or any hearing of any complaint against any
member of the Association or any person associated with a member made
or held in accordance with the Rule 9000 Series, or made or held by
another domestic or foreign self-regulatory organization, association,
securities or contract market or regulator of such markets, with whom
the Association has entered into an agreement providing for the
exchange of information and other forms of material assistance solely
for market surveillance, investigative, enforcement or other regulatory
purposes, any District Business Conduct Committee, the Market
Surveillance Committee, or the Board of Governors, or any duly
authorized member or members of any such Committees or Board or any
duly authorized agent or agents of any such Committee or Board shall
have the right:
(1) to require any member of the Association, person associated
with a member, or person no longer associated with a member when such
person is subject to the Association's jurisdiction to report, either
informally or on the record, orally or in writing with regard to any
matter involved in any such investigation or hearing, and
(2) to investigate the books, records and accounts of any such
member or person with relation to any matter involved in any such
investigation or hearing.
(b) No such member or person shall fail to make any report as
required in this Rule, or fail to permit any inspection of books,
records and accounts as may be validly called for under this Rule. Any
notice requiring an oral or written report or calling for an inspection
of books, records and accounts pursuant to this Rule shall be deemed to
have been received by the member or person to whom it is directed by
the mailing thereof to the last known address of such member or person
as reflected on the Association's records.
8220. Suspension of members for Failure to Furnish Information Duly
Requested
* * * * *
(e) It is essential for the promotion of the Association's welfare,
object and purposes and more particularly for the administration and
enforcement of its Rules:
(1) that any District Business Conduct Committee, any Market
Surveillance Committee, or any duly authorized member or members of any
such Committees, or any duly authorized agent or agents of any such
Committees, or any Association examiner duly authorized by the
President shall have the right, in order to and solely for the purpose
of determining whether any member is complying with the Rules of the
Association:
(A) to require any such member to submit a report in writing with
regard to any matter connected with such member's business or business
practices, and
(B) to inspect the books, records and accounts of any such member;
and
(2) that any such Committee or any such member or members thereof,
or any such agent or agents thereof, or any such examiner, be and
hereby is granted such rights.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the 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. The 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
Currently, Rule 8210 of the NASD's Procedural Rules provides that
the NASD may require members and associated persons to provide
information, and may investigate a member's books and records, in
connection with investigations or proceedings conducted by the NASD.
The NASD periodically receives requests from other regulatory
organizations with whom the NASD has entered into agreements to share
regulatory information, including self-regulatory organizations
(``SROs'') who participate in the Intermarket Surveillance Group
(``ISG''), \4\ for information from NASD members in connection with
investigations being conducted by these regulators. Rule 8210, however,
does not expressly permit the NASD to require members to provide
information in connection with investigations being conducted by other
regulatory organizations, or to bring disciplinary action against a
member that refuses to cooperate.
---------------------------------------------------------------------------
\4\ The ISG is an organization of securities industry self-
regulatory organizations (``ISG/SROs'') formed in 1983 to coordinate
and develop intermarket surveillance programs designed to identify
and combat fraudulent and manipulative acts and practices. In order
to promote its purposes, members agree to exchange such information
as is necessary for ISG members to perform their self-regulatory and
market surveillance functions. The NASD has been a member of the ISG
since its formation.
The ISG's self-regulatory organization members (ISG/SROs)
include all of the registered securities exchanges and associations:
American Stock Exchange (AMEX), Boston Stock Exchange (BSE), Chicago
Board Options Exchange (CBOE), Chicago Stock Exchange (CHX),
Cincinnati Stock Exchange (CSE), National Association of Securities
Dealers, Inc. (NASD), New York Stock Exchange (NYSE), Pacific Stock
Exchange (PSE), and Philadelphia Stock Exchange (PHLX). In addition,
other domestic contract markets and foreign SROs have been granted
``affiliate'' membership in the ISG: Alberta Stock Exchange (ASE),
Amsterdam Stock Exchange (AMSE), Australian Stock Exchange (ASX),
Chicago Board of Trade (CBOT), Chicago Mercantile Exchange (CME),
London International Financial Futures and Options Exchange (LIFFE),
London Stock Exchange (LSE), Montreal Exchange (ME), New York
Futures Exchange (NYFE), Securities and Futures Authority (SFA),
Toronto Stock Exchange (TSE), and the Vancouver Stock Exchange
(VSE). ISG/SROs and ISG affiliates are referred to herein as
``participants.''
---------------------------------------------------------------------------
While the NASD believes that Rule 8210 provides adequate authority
to require members and associated persons to provide information to
other regulatory organizations, it is believed that clarifying this
provision to expressly provide for such information sharing would be
desirable. Most of the other ISG participants have amended or are
amending their rules to clarify their investigatory and information
sharing authority. \5\ The proposed rule change
[[Page 20301]]
would permit the NASD to require members and associated persons to
provide information to any other domestic or foreign SROs,
associations, securities or contract markets or regulators of such
markets with whom the Association has entered into agreements providing
for the exchange of regulatory information. By amending Rule 8210, the
NASD also will have explicit authority to discipline members and
associated persons who fail to provide information to other domestic or
foreign SROs, associations, securities or contract markets or
regulators of such markets with whom the NASD has information sharing
agreements.
---------------------------------------------------------------------------
\5\ The CBOE recently amended Rule 15.9(b) to require its
members and associated persons, at the request of the CBOE, to
furnish testimony, documentary evidence or other information in
connection with any inquiry by a domestic or foreign self-regulatory
organization, association, contract market, or regulator of such
market with whom the CBOE has entered into an agreement providing
for the exchange of information and other forms of mutual assistance
for market surveillance, investigative, enforcement and regulatory
purposes. Securities Exchange Act Release No. 35403 (Feb. 22, 1995),
60 FR 10884 (Feb. 28, 1995) (order approving File No. SR-CBOE-94-
39). The PSE recently amended Rule 10.2(d) to require PSE members,
member organizations, persons associated with a member or member
organization, and other persons or entities over whom the PSE has
jurisdiction pursuant to Rule 10.1(b) to testify before another SRO
and to furnish information in connection with a regulatory inquiry,
investigation, examination, or disciplinary proceeding resulting
from an agreement entered into by the PSE pursuant to Rule 14.1.
Securities Exchange Act Release No. 35646 (Apr. 25, 1995), 60 FR
21227 (May 1, 1995) (order approving File No. SR-PSE-95-02).
Currently, NYSE Rule 476(a)(11) permits the NYSE to bring
disciplinary action against a member, member organization, allied
member, approved person, registered or non-registered employee for
failing to comply with an NYSE request to submit books and records
to the NYSE or any other SRO and for failure to furnish information
to or to appear or testify before the NYSE or other SRO. The NYSE
has proposed an amendment to Rules 27, 476(a)(11), and 477 to
require persons under Exchange jurisdiction to comply with
information requests from commodities markets and associations and
foreign self-regulatory organizations and associations. Securities
Exchange Act Release No. 36831 (Feb. 12, 1996), 61 FR 6279 (Feb. 16,
1996) (notice of File No. SR-NYSE-95-43). Currently, Art. V, Sec.
4(a) of the AMEX Rules facilitates examinations being conducted by
another exchange.
---------------------------------------------------------------------------
Finally, the NASD is proposing to insert the phrase ``the Market
Surveillance Committee'' in that part of Subparagraph (a) of Rule 8210
that references the District Business Conduct Committee and the Board
of Governors, and the phrase ``any Market Surveillance Committee,''
after the phrase ``any District Business Conduct Committee'' in
Subparagraph (e)(1) of Rule 8220. The change conforms Rules 8210 and
8220 with references to the Market Surveillance Committee in the
definitions and relevant titles of the Code of Procedure.
2. Statutory Basis
The NASD believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(6) of the Act,\6\ which require, among
other things, that the rules of the Association be designed to foster
cooperation and coordination with persons engaged in regulating
securities transactions. The proposed rule change is consistent with
these objectives in that it clarifies that the Association has the
authority to require members to provide information to other domestic
or foreign self-regulatory organizations, associations, securities or
contract markets or regulators of such markets for regulatory purposes
and to discipline those members who fail or refuse to provide such
information.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78o-3.
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The 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
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the 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 self-regulatory organization consents, the Commission will:
(A) By order approve the 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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
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 will also be
available for inspection and copying at the principal office of the
NASD. All submissions should refer to File No. SR-NASD-96-14 and should
be submitted by May 27, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-11228 Filed 5-3-96; 8:45 am]
BILLING CODE 8010-01-M