[Federal Register Volume 63, Number 112 (Thursday, June 11, 1998)]
[Notices]
[Pages 32033-32035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-15505]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40062; File No. SR-NASD-98-36]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by NASD Regulation, Inc. Relating to At-Large Industry Members
of the National Adjudicatory Council
June 3, 1998.
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, 1998, the National Association of Securities Dealers, Inc.
(``NASD'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by NASD Regulation, Inc.
(``NASD Regulation''). The filing was thereafter amended on May 19,
1998.\3\ The Commission is publishing this notice to solicit comments
on the proposed rule change, as amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Letter from T. Grant Callery, General Counsel, NASD to
Katherine England, Assistant Director, Commission dated May 19,
1998. Several additional non-substantive textual changes were also
provided by telephone call on June 2, 1998. Telephone call between
Alden Adkins, General Counsel, NASD Regulation and Mandy S. Cohen,
Division of Market Regulation, Commission.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
NASD Regulation proposes to amend Article V, Section 5.2 of its By-
Laws relating to the composition of the National Adjudicatory Council
(``NAC''). The NAC, which is responsible for overseeing Association
disciplinary proceedings, is balanced between industry and non-industry
members. The current by-laws require the NASD Regulation Board of
Governors to divide the United States into various geographical regions
for the purpose of selecting nominees for industry positions on the
NAC. The purpose of the current proposal is to differentiate between
those industry positions on the NAC that are subject to such regional
nomination requirements, and those that are not. The following sets
forth the text of the proposed rule change. Proposed new language is
italicized; proposed deletions are in brackets.
BY-LAWS OF NASD REGULATION, INC
* * * * *
ARTICLE V
NATIONAL ADJUDICATORY COUNCIL
* * * * *
Number of Members and Qualifications
Sec. 5.2(a) The National Adjudicatory Council shall consist of no
fewer than 12 and no more than 14 members. The number of Non-Industry
members, including at least three Public members, shall equal or exceed
the number of Industry members. In 1999 and thereafter, each [the
Industry members shall represent a] geographic region [designated]
established by the Board under Article VI, Section 6.1 shall be
represented by an Industry member.
[[Page 32034]]
Those Industry members not representing a geographic region, if any,
shall be considered at-large Industry members.
* * * * *
Nomination Process
Sec. 5.3 (a) Pursuant to Article VII, Section 9 of the NASD By-
Laws, the National Nominating Committee shall nominate all candidates
for the National Adjudicatory Council for subsequent appointment by the
Board. Each Regional Nominating Committee shall nominate an Industry
member candidate for consideration by the National Nominating Committee
as provided in Article VI of these By-Laws [and subsection (b) of this
Section] Candidates for at-large Industry member positions on the
National Adjudicatory Council shall not be subject to regional
nominating procedures.
* * * * *
ARTICLE VI
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SECURITIES AND EXCHANGE COMMISSION
National Adjudicatory Council Regional Nominations for Industry
Members
Establishment of Regions
Sec. 6.1 The Board shall establish boundaries for geographical
regions within the United States for the purpose of nominating
candidates for regional industry [membership] member positions on the
National Adjudicatory Council to the National Nominating Committee. The
Board may make changes from time to time in the number or boundaries of
the regions as the Board deems necessary or appropriate in accordance
with Article V, Section 5.2(a). The Board shall prescribe such policies
and procedures as are necessary or appropriate to address the
implementation of a new region configuration in the event of a change
in the number or boundaries of the regions.
* * * * *
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 Regulation 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 Regulation 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 purpose of the proposed rule change is to amend the NASD
Regulation By-Laws to permit one or more Industry members of the NAC
\4\ to serve as at-large Industry members of the NAC, rather than
requiring that all Industry members represent a region as is currently
provided in the NASD Regulation By-Laws. Currently, the NASD Regulation
By-Laws authorize the NASD Regulation Board to appoint an NAC of 12 to
14 members, and require that the number of Non-Industry members equal
or exceed the number of Industry members.\5\ Thus, the NAC generally
will include six or seven Industry members. The By-Laws also require
that beginning in 1999 and thereafter, all Industry members represent a
geographic region.\6\ Industry members must be nominated by a Regional
Nominating Committee and may be challenged for such nomination.\7\ The
Regional Nominating Committees then nominate their candidates to the
National Nominating Committee, which makes the final determination as
to the nominees presented to the NASD Regulation Board for appointment
to the NAC.\8\
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\4\ The functions of the NAC include hearing appeals and
conducting reviews of disciplinary proceedings, statutory
disqualification proceedings, and membership proceedings; reviewing
offers of settlement; reviewing exemptions granted or denied by
staff; and making recommendations to the Board on policy and rule
changes relating to securities business and sales practices and
enforcement policies, including policies with respect to fines and
other sanctions. See Article V, Section 5.1 of the NASD Regulation
By-Laws.
\5\ Article V, Section 5.2 of the NASD Regulation By-Laws.
\6\ Id.
\7\ Article VI of the NASD Regulation By-Laws.
\8\ Article VII, Section 9 of the NASD By-Laws; Article VI,
Section 6.25 of the NASD Regulation By-Laws.
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The proposed rule change would create up to two NAC Industry
members who would not be subject to the regional nominating process;
instead, these members would be considered as at-large Industry members
of the NAC. The number of at-large Industry members could vary from
year-to-year depending on the total number of Industry seats on the NAC
and the number of regions selected by the Board. For example, if the
Board determined that there should be a 12- or 13-member NAC (which
would include six Industry seats) and five regions, then there would be
one at-large Industry member. If the Board determined that there should
be a 14-member NAC (which would include seven Industry seats) and five
regions, then there would be two at-large Industry members. If the
number of Industry seats and the number of regions were equal, then
there would be no at-large Industry seats that year. Thus, given the
limitations on the size of the NAC and the number of Industry seats,
the proposed rule change would create zero, one, or two at-large
Industry members in any given year.
The proposed rule change would provide NASD Regulation with greater
flexibility in the nomination and appointment of Industry members to
the NAC. The availability of an at-large seat could assist the National
Nominating Committee in recruiting a particularly strong candidate for
the NAC by permitting the National Nominating Committee to nominate
that candidate to an at-large seat so that the candidate would not have
to go through the regional nominating process. Similarly, where a
region had two strong candidates, the proposed rule change would allow
the National Nominating Committee to nominate one of the candidates to
an at-large seat, which in some circumstances could save the time and
expense associated with a contested nomination.\9\ At the same time,
NASD member involvement in nominating Industry members for the NAC
would be preserved by requiring most Industry members of the NAC to
represent regions. This additional flexibility would help ensure that
the most highly qualified candidates are selected for the NAC.
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\9\ See Article VI, Sections 6.13 to 6.26 of the NASD Regulation
By-Laws.
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The proposed rule change is consistent with the corporate
reorganization approved by the Commission in SR-NASD-97-71 \10\ in that
the number of regions that may be established by the Board is not
specified in the NASD Regulation By-Laws so that the Board may retain
flexibility in determining the appropriate number of regions. The
proposed rule change also is consistent with the regional plan approved
by the Board at its meeting on May 6, 1998, which proposes a 12-member
NAC and five regions for 1999. The proposed rule change thus would
permit five Industry members of the NAC to be nominated by the regions
for consideration by the National Nominating Committee and one at-large
[[Page 32035]]
Industry member of the NAC who would not be subject to the regional
nominating requirements in Article VI of the NASD Regulation By-Laws.
All six Industry members, along with six Non-Industry members, would be
nominated by the National Nominating Committee and appointed by the
NASD Regulation Board.
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\10\ Securities Exchange Act Release No. 39326 (November 14,
1997), 62 FR 62385 (November 21, 1997) (File No. SR-NASD-97-71).
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NASD Regulation proposes to make the rule change effective upon
approval from the Commission.
2. Statutory Basis
NASD Regulation believes that the proposed rule change is
consistent with the provisions of Section 15A(b)(6) of the Act, which
requires, among other things, that the Association's 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. The NASD believes that the
proposed rule change will provide greater flexibility to the National
Nominating Committee and the NASD Regulation Board in selecting the
most highly qualified candidates for the National Adjudicatory Council,
which serves an important role in reviewing disciplinary, membership,
and other matters for NASD Regulation.
B. Self-Regulatory Organization's Statement on Burden on Competition
NASD Regulation does not believe the proposed rule change would
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
Withing 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 self-regulatory organization 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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549. Copies
of the submission, all subsequent amendments, all written statements
with respect to the propose 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 NASD
Regulation. All submissions should refer to file number SR-NASD-98-36
and should be submitted by July 2, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-15505 Filed 6-10-98; 8:45 am]
BILLING CODE 8010-01-M