[Federal Register Volume 62, Number 73 (Wednesday, April 16, 1997)]
[Notices]
[Pages 18665-18666]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-9715]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38491; File No. SR-NASD-97-06]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change by National Association of Securities Dealers, Inc., Relating to
the Scope of the Uniform Practice Code
April 9, 1997.
On February 20, 1997, the NASD Regulation, Inc., (``NASD
Regulation'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
To amend Rule 11100 of the Uniform Practice Code (``Code'') of the
National Association of Securities Dealers, Inc., (``NASD'' or
``Association''), to clarify the scope of the Code and the exception
for transactions settled through a clearing agency.\2\ No comment
letters were received. The Commission is approving the proposed rule
change.
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\1\ 15 U.S.C. Sec. 78s(B)(1)(1988).
\2\ The proposed rule change was originally submitted on January
29, 1997. The NASD subsequently submitted Amendment No. 1 that
removed certain unnecessary text. Letter from Suzanne E. Rothwell,
Associate General Counsel, NASD Regulation, to Katherine A. England,
Assistant Director, Division of Market Regulations, SEC, dated
February 20, 1997.
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I. Background
The introductory language in paragraph (a) of Rule 11100 states the
general standard that ``all over-the-counter secondary market
transaction in securities between members shall be subject to the
provisions of this Code. * * *'' According to NASD Regulations, that
introductory language does not encompass those provisions of the Code
that address the rights and liabilities of the members participating in
the transaction or provide procedures that are not related to
securities transactions, e.g., the setting of ex-dates and the transfer
of customer accounts. In addition, subparagraph (a)(1) of the Rule
11100 of the Code excludes securities transactions compared, cleared or
settled through a registered clearing agency from the provisions of the
Code. NASD Regulation believes that exception is technically not
available when the rules of the clearing agency require that the Code
or the rules of other relevant markets apply to the transaction.
Finally, since the SEC's adoption of Rule 144A in 1991, NASD Regulation
believes that members were uncertain as to whether the Code is
applicable to transactions in restricted
[[Page 18666]]
securities. Thus, NASD Regulation proposes to amend the Code to expand
the language of paragraph (a) of Rule 11100 to state that the Code
applies to all secondary market transactions in securities including:
(i) The ``rights and liabilities of the members participating in the
transaction''; (ii) ``those operational procedures that affect the day-
to-day business of members'',\3\ (iii) securities transactions
compared, cleared or settled through a registered clearing agency when
the rules of the clearing agency require that the Code or the rules of
other relevant markets apply to the transaction; and (iv) securities
transactions in ``restricted securities, as defined in Rule 144(a)(3)
under the Securities Act of 1933.'' According to NASD Regulations, as a
result of this change, secondary market transactions in restricted
securities that are not in a depository will be required to comply with
the Code's operational procedures. NASD Regulation is also clarifying
that securities sold offshore pursuant to the exemption from
registration provided by Regulation S are considered to be subject to
the requirements of the Code when those securities are traded in the
U.S. after the expiration of the restricted period.
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\3\ This language is drawn from Article XV, Section 1 of the
NASD By-Laws which authorizes the Association to adopt the Uniform
Practice Code which states that the adoption of such Code is for the
purpose that ``the transaction of day-to-day business by members may
be simplified and facilitated. . . .''
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II. Discussion
The Commission believes the proposed rule change is consistent with
the Association's obligations under Section 15A(b)(6) to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities because the proposed rule
change clarifies that the Code applies to the liabilities of parties to
a transaction, transactions in restricted securities, the operational
procedures that affect the day-to-day business of members and
transactions settled through a clearing agency where the rules of the
clearing agency direct that the rules of the governing market apply to
the transaction. The Commission believes the proposed rule change
should clarify the broad scope and applicability of the Code, simplify
the transaction of day-to-day business by NASD members and guide NASD
members regarding the application of the Code to transactions settled
through a clearing agency.
The Commission also believes the proposed rule change is consistent
with the NADA's obligations under Section 15A(b)(2) to enforce
compliance by its members with the provisions of the Act, the rules and
regulations thereunder and the rules of the NASD in that the proposed
rule change applies the Code to the liabilities of NASD members that
are parties to a securities transaction, the operational procedures
that affect the day-to-day business of NASD members, transactions in
restricted securities and transactions settled through a clearing
agency, when the rules of the clearing agency direct that the rules of
the governing market apply to the transaction.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change SR-NASD-97-06 be, and hereby is,
approved.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\4\
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\4\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-9715 Filed 4-15-97; 8:45 am]
BILLING CODE 8010-01-M