SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C.

 SECURITIES EXCHANGE ACT OF 1934
 Rel. No. 39800 / March 25, 1998

 Admin. Proc. File No. 3-9313
 -----------------------------------------------------------------

 :
 In the Matter of the Application of :
 :
 EAGLE SUPPLY GROUP, INC. :
 122 East 42nd Street :
 Suite 1116 :
 New York, New York 10168 :
 :
 For Review of Action Taken by the :
 :
 NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.:

 OPINION OF THE COMMISSION

REGISTERED SECURITIES ASSOCIATION -- DENIAL OF NASDAQSMALLCAP MARKET
LISTING

 Control Persons' Prior Civil and Criminal Actions

Registered securities association, in denying an issuer's request that its
securities be included in the association's automatic quotation system,
failed to explain why twenty-five- and twenty-seven-year-old securities law
violations by two control persons indicate a risk of future misconduct.
Held, remanded for a more definitive and complete statement of the
reasoning for its decision.

 APPEARANCES:

 Richard H. Rowe, of Proskauer Rose LLP, for Eagle Supply Group,
 Inc.

 Robert E. Aber, Sara Nelson Bloom, and Arnold P. Golub, for the
 Nasdaq Stock Market, Inc.

 Appeal filed:May 22, 1997
 Last brief filed:August 28, 1997

 I.

 Eagle Supply Group, Inc. ("Eagle" or the "Company") has applied
 for review of a decision of the National Association of
 Securities Dealers, Inc. ("NASD") denying its application to
 include the Company's securities on the Nasdaq SmallCap Market.
 The NASD identified as the basis for denial the fact that two of
 Eagle's control persons were found, in criminal and civil
 actions, to have violated the securities laws twenty-five and
 twenty-seven years ago. The NASD found that these prior
 violations created a risk of future misconduct and that denial of
 listing was, therefore, merited. [/] We base our findings on an
 independent review of the record.

 II.

 The two Eagle control persons referred to above are Douglas P.
 Fields, chairman of the board of directors and chief executive
 officer of the Company and Frederick M. Friedman, the executive
 vice president, treasurer, secretary, and a director of the
 Company. Since the early 1970s, Fields and Friedman have held
 the same positions with TDA Industries, Inc. ("TDA") that they
 hold with the Company.

 Fields and Friedman's securities law violations occurred in the
 early 1970s. In 1971, Fields and Friedman engaged in "illicit
 schemes and misrepresentations designed to artificially inflate
 the price of TDA stock prior to a public offering of that
 company's stock." [/] In addition, in 1971 and 1973, Fields and
 Friedman were involved in the payment of sham finder's fees
 disguised as legitimate business transactions in connection with
 company acquisitions by TDA and one of its subsidiaries. A
 prospectus relating to a public offering of TDA stock in November
 1971 and proxy materials distributed in December 1971 were false
 and misleading because they failed to disclose the 1971
 transactions.

 In a 1976 action brought by this Commission based on the conduct
 described above, Fields, Friedman, and TDA were enjoined from
 violating certain of the registration, reporting, proxy, and
 anti-fraud provisions of the federal securities laws. [/] In a
 1979 criminal action based on the same conduct, Fields and
 Friedman were convicted of conspiracy, securities fraud, making a
 false statement concerning finder's fees paid in connection with
 company acquisitions by TDA and a subsidiary of TDA, and the
 preparation and filing of an offering document and proxy
 statements that failed to disclose these transactions. [/] In
 1980, Friedman was convicted on two counts of mail fraud and one
 count of wire fraud in connection with the 1973 finder's
 fee. [/]

 Following their convictions and the expiration of the two-year
 prohibition on their acting as directors of TDA, Fields and
 Friedman resumed their positions with TDA and currently continue
 to hold these positions. TDA is a holding company which operates
 four business enterprises, including a roofing supply distributor
 and three real estate investment companies. Fields and Friedman
 currently advise the roofing supply distributor as to potential
 roofing company acquisitions and are compensated through finder's
 fees.

 Eagle was incorporated on May 1, 1996, primarily to raise capital
 and to acquire and operate privately-held companies engaged in
 the wholesale distribution of roofing supplies. On August 12,
 1996 the Company filed a Form S-1 Registration Statement
 ("Registration Statement") with this Commission in connection
 with an initial public offering of its common stock and warrants.
 [/] According to the Registration Statement, upon the conclusion
 of the initial public offering, TDA will own approximately 54% of
 the issued and outstanding common stock of the Company. Fields
 and Friedman are principal stockholders of TDA and therefore will
 own, through TDA, a controlling interest in the Company. [/]
 Fields and Friedman will identify potential acquisitions for the
 Company and receive finder's fees in return for their services.

 In November 1996, the Company applied to the NASD for inclusion
 of its securities in the Nasdaq SmallCap Market. The NASD staff
 denied the Company's application based on the disciplinary
 histories of Fields and Friedman and on other issues. [/] The
 Company appealed the decision to the Nasdaq Listing
 Qualifications Panel ("Qualifications Panel"). During the
 pendency of the Company's application, all of the issues that
 were the basis of the NASD's initial denial other than the
 disciplinary history of Fields and Friedman were resolved. The
 Qualifications Panel, however, also denied the Company's request
 for listing on the Nasdaq SmallCap Market.

 The Qualifications Panel was particularly concerned by its belief
 that Fields and Friedman had received a kick-back twenty-five
 years ago and concurred with the NASD staff's concern that there
 were "similarities between the activities from which the civil
 and criminal penalties resulted and the activities that Messrs.
 Fields and Friedman . . . will be engaged in on behalf of the
 Company." At the hearing before the Qualifications Panel,
 Company counsel testified that in the more than twenty-five years
 since the misconduct occurred "there has not been any suggestion
 of any wrongdoing on a civil or criminal level against" Fields
 and Friedman. The Qualifications Panel noted that "the passage
 of time" may be considered a mitigating factor. The
 Qualifications Panel concluded, however, that the serious nature
 of the violations and Fields' and Friedman's "direct ties" to the
 Company merited denial of listing.

 The Company requested that the Nasdaq Listing and Hearing Review
 Committee ("Review Committee") review the Qualifications Panel's
 decision. During the review process the Company notified the
 Review Committee that the Qualifications Panel had incorrectly
 stated that the Commission had alleged that both Fields and
 Friedman received a kick-back in connection with TDA's
 acquisition of another company. The Company noted that the
 Commission alleged that only Friedman received such a kick-back.

 The Review Committee affirmed the Qualifications Panel's decision
 to deny listing based on the "serious disciplinary histories" of
 Fields and Friedman. Thus, the basis for the NASD's refusal to
 accept the Company for listing on the Nasdaq SmallCap Market is
 the disciplinary histories of Fields and Friedman. The Review
 Committee concurred with the Qualifications Panel's conclusion
 that since the "SEC complaint focused on the receipt of a kick-
 back by Messrs. Fields and Friedman," there existed "this same
 potential with respect to activities that they will be engaged in
 on behalf of the Company going forward." The Review Committee
 did not explain how, or even whether, it factored into its
 decision to concur with the Panel the Company's assertion that
 only Friedman received a kick-back in connection with TDA's
 acquisition of another company and what significance, if any,
 this information might have. The Review Committee also did not
 explain why it believed that securities law violations that
 occurred twenty-five and twenty-seven years ago would create the
 potential for similar misconduct in the future given the
 Company's assertion that Fields and Friedman have had an
 unblemished record since that time.

 III.

 In order to sustain NASD action of this nature, we must find that
 such action is in accordance with applicable NASD rules and that
 these rules are and were applied in a manner consistent with the
 purposes of the securities laws. In addition, the specific
 grounds for the denial of inclusion must exist in fact. [/] The
 applicable NASD rule here is Rule 4300. [/]

 In reviewing applications for listing, the NASD "will form a
 reasonable belief as to whether certain persons connected with an
 issuer may be predisposed to engage in further violative conduct"
 since "the NASD believes that the history of prior violative
 conduct raises concerns regarding the continuing potential for
 conduct in connection with the operation of the company or the
 market for its securities that would be considered fraudulent and
 manipulative, contrary to just and equitable principles of trade,
 or otherwise raise investor protection concerns." [/] Thus, the
 NASD may consider past securities law violations in assessing
 whether the association of certain persons with a company raises
 concerns about its listing. Nevertheless, the NASD must
 articulate a basis for concluding that individuals who have
 engaged in past misconduct may be predisposed to engage in future
 violations of the securities laws or otherwise present a risk to
 the integrity of the Nasdaq Stock Market. [/] The NASD's
 decision and the record here do not reveal the basis for its
 conclusion.

 At the hearing before the Qualifications Panel, Company counsel
 stated that, in the lengthy period following the securities law
 violations by Fields and Friedman, "there has not been any
 suggestion of any wrongdoing on a civil or criminal level against
 [Fields and Friedman]." The NASD does not respond to this
 contention, and the record does not reflect any facts to the
 contrary. The NASD simply notes that the securities law
 violations committed by Fields and Friedman were serious, and
 that Fields and Friedman currently hold the same positions with
 the Company that they held at the time of the violations.
 However, Fields and Friedman have held these positions for over
 twenty years, [/] during which time the Company asserts that
 there has been no suggestion of any further misconduct. The NASD
 does not describe in detail its concerns about the misconduct of
 Fields and Friedman and we are unable to ascertain the extent to
 which the criminal record of Fields and Friedman was reviewed or
 considered by the NASD. Absent further explanation of the NASD's
 conclusion that these historic violations are indicative of the
 potential for future misconduct, we cannot evaluate the NASD's
 decision. Given the circumstances, we think it is appropriate to
 remand this review proceeding for further consideration.

 The decision as to whether or not to list a particular security
 in Nasdaq "should not depend solely on meeting quantitative
 criteria, but should also entail an element of judgment given the
 expectation of investors and the imprimatur of listing on a
 particular market." [/] We have said that "[t]o the extent that
 discretion enters into the matter . . . the discretion in
 question is the NASD's, not ours." [/] We do not intend to
 substitute our judgment for that of the NASD. Rather, we are
 directing the NASD on remand to provide a sufficient basis for
 its decision to enable us to make the requisite determination as
 to whether the NASD's action was in accordance with applicable
 NASD rules and that such rules were applied in a manner
 consistent with the purposes of the securities laws. [/]

 IV.

 We find that the Review Committee has set forth insufficient
 reasoning for its denial of Eagle's application for inclusion of
 its securities in the Nasdaq SmallCap Market. Accordingly, this
 review proceeding is remanded to the NASD for further
 consideration and for an explanation of the basis for its finding
 that there exists a potential for future misconduct by Fields and
 Friedman. Its explanation should be supported by a description
 of the factors which led it to conclude that the securities law
 violations of Fields and Friedman have a likelihood of
 repetition. [/] In making the decision to remand, we express no
 view concerning the outcome.

 An appropriate order will issue. [/]

 By the Commission (Chairman LEVITT and Commissioners JOHNSON,
 HUNT AND UNGER); Commissioner CAREY not participating.

 Jonathan G. Katz
 Secretary

 **FOOTNOTES**

[/]:/The NASD invoked its authority under NASD Marketplace Rules 4300 and
4330. Rule 4300 provides that the NASD exercises "broad discretionary
authority" over initial inclusion in the Nasdaq SmallCap Market. Rule 4330
provides that the NASD may "deny inclusion or apply additional or more
stringent criteria for the initial . . . inclusion of particular
securities" if the NASD "deems it necessary to prevent fraudulent and
manipulative acts and practices, to promote just and equitable principles
of trade, or to protect investors and the public interest."

[/]:/United States v. Fields, No. 76 Crim. 1022, 1977 LEXIS 15588 (S.D.N.Y.
Jun. 3, 1977).

[/]:/See SEC v. TDA Industries, Inc., No. 75 Civil 4519, 1976 SEC LEXIS
1835 (S.D.N.Y. Apr. 23, 1976)(In addition, Fields and Friedman were removed
as directors of TDA and were prohibited from voting any securities of TDA
for a two-year period).

[/]:/See United States v. Friedman, No. 76 Crim. 1022, 1979 SEC LEXIS 326
(S.D.N.Y. Nov. 14, 1979)(Fields was sentenced to six months imprisonment on
each of five counts, to run concurrently, and a $50,000 fine, and Friedman
was sentenced to three months imprisonment on each of two counts, to run
concurrently, and a $25,000 fine).

[/]:/See United States v. Friedman, No. 76 Crim. 1022, 1980 SEC LEXIS 2117
(S.D.N.Y. Feb. 7, 1980) (Friedman was sentenced to one month imprisonment
on each of three counts, to run concurrently, and a $3,000 fine).

[/]:/An amendment to the Registration Statement was filed on October 15,
1996 and this Commission sent comments concerning the amendment to the
Company on October 29, 1996. The Company has not responded to those
comments and the Registration Statement has not yet been declared
effective, withdrawn, or abandoned.

[/]:/Fields is the chairman of the board of directors, president, and the
chief executive officer of TDA, and Friedman is the executive vice
president, chief financial officer, treasurer, and a director of TDA.

[/]:/The NASD staff gave the following reasons for denying the application:

(1) the regulatory history of Douglas P. Fields, Frederick M. Friedman and
TDA Industries, Inc. coupled with their significant control and influence
over the operations of the Company presents a public interest concern to
future Nasdaq Investors, (2) certain June and July 1996 Private Placements
appear to be inconsistent with just and equitable principles of trade, and
(3) the legal entity applying to be listed on Nasdaq does not meet the
income [and net tangible asset] requirements . . . .

[/]:/Section 19(f) of the Securities Exchange Act of 1934 ("Exchange Act"),
15 U.S.C.  78s(f).

[/]:/This provision was adopted in 1994 as an amendment to Part II,
Section 3(a) of Schedule D to the NASD's By-Laws and subsequently became a part of
Rule 4300.

[/]:/See Exchange Act Rel. No. 34151 (June 3, 1994), 56 SEC Docket 2654, 2655.

[/]:/Eagle argues that the NASD has effectively established a rule, without
formal promulgation in accordance with the requirements of Section 19(b)
of the Exchange Act, that prevents an entity's securities from being listed
if an officer or director engaged in prior criminal or civil violations of
the federal securities laws. We disagree. As noted, the NASD has broad
discretion in these matters. This discretion necessarily involves a fact-
specific inquiry in determining whether to list particular securities.

[/]:/Twenty years have elapsed since the expiration of the two-year prohibition
on Fields and Friedman acting as directors of TDA.

[/]:/See Exchange Act Rel. No. 34151 (June 3, 1994), 56 SEC Docket 2654, 2656.

[/]:/Tassaway, Inc., 45 S.E.C. 706, 710 (1975).

[/]:/We also note that in order to affirm NASD action of this nature, we must
find that the specific grounds for the denial of inclusion exist in
fact. Exchange Act Section 19(f), 15 U.S.C.  78s(f). The Review Committee
appears to have relied on an inaccurate version of certain facts. The
Review Committee stated in its decision that it concurred "with the Panel's
concerns regarding the potential for similar misconduct going forward."
In reaching this conclusion, the Qualifications Panel specifically relied
on its belief that both Fields and Friedman had received a kick-back. The
Review Committee in its decision notes that the Company alerted the Review
Committee to this inaccuracy by stating that in the Commission complaint
only Friedman was the focus of allegations involving kick-backs in connection
with TDA's acquisition of another company. However, the Review
Committee does not respond to this, or address the impact, if any, of
this information on the Review Committee's reasoning. The NASD may address this
point on reconsideration.

[/]:/The NASD explanation may also be supported by any additional
fact-finding that it deems necessary.

[/]:/All of the arguments advanced by the parties have been considered.
They are rejected or sustained to the extent that they are inconsistent or in
accord with the views expressed herein.

 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C.

 SECURITIES EXCHANGE ACT OF 1934
 Rel. No.

 Admin. Proc. File No. 3-9313
 -----------------------------------------------------------------

 :
 In the Matter of the Application of :
 :
 EAGLE SUPPLY GROUP, INC. :
 122 East 42nd Street :
 Suite 1116 :
 New York, New York 10168 :
 :
 For Review of Action Taken by the :
 :
 NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.:
 :

 ORDER DISMISSING REVIEW PROCEEDING

 On the basis of the Commission's opinion issued this day, it is

 ORDERED that this proceeding be, and it hereby is, remanded to
 the National Association of Securities Dealers, Inc., for further
 action in accordance with such opinion.

 By the Commission.

 Jonathan G. Katz
 Secretary