30460 Federal Register / Vol. 65, No. 92 / Thursday, May 11, 2000 / Notices

4Because callable common stock combines the

features of more than one category of securities (i.e.,

common stock and a call option), the staff of The

Nasdaq Stock Market will evaluate whether callable

common stock is eligible for inclusion in the

Nasdaq National Market pursuant to the ‘‘other

securities’’ provisions of NASD Rule 4420(f).

5 15 U.S.C. 78o–3(b)(6).

6 15 U.S.C. 78s(b)(3)(A)(i).

7 17 C.F.R. 240.19b–4(f)(1).

8 17 CFR 200.30–3(a)(12)

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3 In Amendment No. 1, the NASD clarified: (1)

Operational distinctions between the NASD

Regulation and the NASD; (2) what initiates a

proceeding; and (3) other technical matters. See

Restated 19b–4 filing marked Amendment No. 1

(‘‘Amendment No. 1’’).

4Technical and clarifying changes to the notice

were made pursuant to a telephone conversation

between Eric Moss, Assistant General Counsel,

Office of the General Counsel, NASD Regulation,

and Katherine England, Assistant Director, Division

of Market Regulation, Commission, on April 28,

2000.

company, or voluntarily delists for

another market. Occasionally, common

stock will be callable, that is, subject to

being called away from a shareholder,

either by the issuer or a third party.

Typically, the price at which callable

common stock is called away from a

shareholder is at a premium to the then

prevailing market price or pursuant to a

schedule of prices announced at the

time the common stock is issued. 4

An investor purchasing callable

common stock is subject to unique risks

not typically associated with ownership

of common stock, even where such

stock is called away at a premium.

Moreover, the ability of an issuer’s

common stock to be called away from a

shareholder generally will be a material

fact to an investor. Accordingly, NASD

Regulation believes that high standards

of commercial honor and just and

equitable principles of trade require that

any member that provides a written

confirmation for a transaction involving

callable common stock must disclose on

the confirmation that the security is

callable and that the customer may

contact the member for more

information. NASD Regulation

emphasizes that the disclosure of the

call feature on the confirmation in no

way relieves a member of its obligation

to consider the callable nature of the

security when complying with any

applicable suitability obligations.

2. Statutory Basis

NASD Regulation believes that the

proposed rule change is consistent with

the provisions of Section 15A(b)(6) of

the Act, 5 which requires, among other

things, that the Association’s rules 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. NASD

Regulation believes that callable

common stock is subject to unique and

material risks not typically associated

with ownership of common stock;

therefore, any member that provides a

written confirmation for a transaction

involving callable common stock must

disclose that the security is callable and

that the customer may contact the

member for more information.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

NASD Regulation does not believe

that the proposed rule change will result

in any burden on competition that is not

necessary or appropriate.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

NASD Regulation has neither

solicited nor received written

comments.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The proposed rule change constitutes

a stated policy, practice, or

interpretation with respect to the

meaning, administration, or

enforcement of an existing rule and,

therefore, has become effective upon

filing pursuant to section 19(b)(3)(A)(i)

of the Act 6 and paragraph (f)(1) of Rule

19b-4 thereunder.7

At any time within 60 days of this

filing, the Commission may summarily

abrogate this proposal if it appears to

the Commission that such action is

necessary or appropriate in the public

interest, for the protection of investors,

or otherwise in furtherance of the

purposes of the Act.

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, N.W.,

Washington, D.C. 20549–0609. 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 insepection 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 SR–NASD–

00–24 and should be submitted by June

1, 2000.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–11806 Filed 5–10–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42760; File No. SR–NASD–

99–26]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

National Association of Securities

Dealers, Inc. Relating to Denial of

Access Procedures

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 27,

1999, the National Association of

Securities Dealers, Inc. (‘‘NASD’’),

through its wholly owned subsidiary,

NASD Regulation, Inc. (‘‘NASD

Regulation’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’) the proposed rule

change. The Association submitted

Amendment No. 1 to its proposal on

August 24, 1999.3 The proposed rule

change, as amended, is described in

Items I, II, and III below, which Items

have been prepared by NASD

Regulation. The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested persons.4

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

NASD Regulation is proposing to

amend the NASD Rule 9510 Series of

the National Association of Securities

Dealers, Inc. (‘‘NASD’’ or ‘‘Association’’)

to: (i) Expand the circumstances under

which an aggrieved Party may request a

hearing to challenge an Association

action that the Party believes constitutes

a ‘‘denial of access;’’ (ii) expand the

pool of potential hearing panelists in

Federal Register / Vol. 65, No. 92 / Thursday, May 11, 2000 / Notices 30461

5The language in proposed NASD Rule 9511(a)

reflects proposed language changes from pending

File No. SR–NASD–98–80. See Securities Exchange

Act Release No. 40826 (December 22, 1998); 63 FR

71984 (December 30, 1998) (Proposed rule change

to enable the NASD to issue temporary cease and

desist orders). In SR–NASD–98–80, NASD

Regulation proposed modifying NASD Rule 9511(a)

as follows (additions are italicized; deletions are

[bracketed]): ‘‘The Rule 9510 Series sets forth

procedures for: (1) summary proceedings

authorized by Section 15A(h)(3) of the Act; and (2)

non-summary proceedings to impose (A) a

suspension or cancellation for failure to comply

with an arbitration award or a settlement agreement

related to an arbitration or mediation pursuant to

Article VI, Section 3 of the NASD By-Laws; (B) a

suspension or cancellation of a member, or a

limitation or prohibition on any member, associated

person, or other person with respect to access to

services offered by the Association or a member

thereof, if the Association determines that such

member or person does not meet the qualification

requirements or other prerequisites for such access

or such member or person cannot be permitted to

continue to have such access with safety to

investors, creditors, members, or the Association;

[or] (C) an advertising pre-use filing requirement; or

(D) a suspension or cancellation of the membership

of a member of the registration of a person for

failure to comply with a permanent cease and desist

order entered pursuant to a decision issued under

the Rule 9200 Series or Rule 9300 Series or a

temporary cease and desist order entered pursuant

to a decision issued under the Rule 9800 Series.’’

6 In SR–NASD–98–80, NASD Regulation

proposed modifying NASD Rule 9513(b) as follows:

‘‘For any cancellation or suspension pursuant to

Rule 9511(a)(2)(A), the effective date shall be at

least 15 days after service of the notice on the

member or associated person. For any action taken

pursuant to Rule 9511(a)(2)(B) or (D), the effective

date shall be at least seven days after service of the

notice on the member or person, except that the

effective date for a notice of a limitation or

prohibition on access to services offered by the

Association or a member thereof with respect to

services to which the member, associated person, or

other person does not have access shall be upon

receipt of the notice.’’ See note 5, above.

denial of access proceedings, and

simplify the process by which panelists

are selected; (iii) establish the General

Counsel for the NASD as the custodian

of the record in denial of access cases;

and (iv) make other changes. Below is

the text of the proposed rule change.

Proposed new language is in italics;

proposed deletions are in [brakets].

* * * * *

9000. CODE OF PROCEDURE

9120. Definitions

(a) through (w) No change.

(x) ‘‘Party’’

With respect to a particular

proceeding, the term ‘‘Party’’ means:

(1) through (2) No change.

(3) in the Rule 9510 Series, the

department or office designated under

Rule 9514(b) or a member or person that

is the subject of a notice under Rule

9512 or Rule 9513(a) or an aggrieved

Party who initiates a proceeding under

Rule 9513(b) to review an action taken

by the Association under Rule

9511(a)(2)(B); or

(4) No change.

(y) through (cc) No change.

* * * * *

9500. OTHER PROCEEDINGS

9510. Summary and Non-Summary

Proceedings

9511. Purpose and Computation of Time

(a) Purpose

The Rule 9510 Series sets forth

procedures for the conduct and review

of: (1) summary proceedings authorized

by Section 15A(h)(3) of the Act; [and]

non-summary proceedings [to impose]

regarding the imposition of (A) a

suspension or cancellation for failure to

comply with an arbitration award or a

settlement agreement related to an

arbitration or mediation pursuant to

Article VI, Section 3 of the NASD ByLaws; (B) a suspension or cancellation

of a member, or a limitation or

prohibition on any member, associated

person, or other person with respect to

access to services offered by the

Association or a member thereof, if the

Association determines that such

member or person does not meet the

qualification requirements or other

prerequisites for such access or such

member or person cannot be permitted

to continue to have such access with

safety to investors, creditors, members,

or the Association; (C) an advertising

pre-use filing requirement; or (D) a

suspension or cancellation of the

membership of a member or the

registration of a person for failure to

comply with a permanent cease and

desist order entered pursuant to a

decision issued under the Rule 9200

Series or Rule 9300 Series or a

temporary cease and desist order

entered pursuant to a decision issued

under the Rule 9800 Series.5

(b) No Change.

***

9513. Initiation of Proceedings for NonSummary Limitation, or Prohibition

[Non-Summary Proceeding]

(a) Initiation of Proceeding by

Association [Notice]

No change.

(b) Initiation of Proceeding by

Aggrieved Party

An aggrieved Party may initiate a

proceeding authorized under Rule

9511(a)(2)(B) by filing a request for a

hearing under Rule 9514 to challenge

the Associations’ actions.

(c) Effective Date

For any cancellation or suspension or

pursuant to Rule 9511(a)(2)(A), the

effective date shall be at least 15 days

after service of the notice on the

member or associated person. For any

action taken pursuant to Rule

9511(a)(2)(B) or (D), the effective date

shall be at least seven days after service

of the notice on the member or person,

or the date when the Party otherwise

learns of the limitation or prohibition on

access to services (which ever occurs

first). E[e]except that the effective date

for a notice of a limitation or prohibition

on access to services offered by the

Association or a member thereof with

respect to services to which the

member, associated person, or other

person does not have access or is

requesting expanded access, shall be

upon receipt of the notice, or the date

when the Party otherwise learns of a

limitation or prohibition on access to

services (whichever occurs first).6

9514. Hearing and Decision

(a) Request

(1) Request by Member, Associated

Person, or Other Person

A member, associated person, or other

person who is subject to a notice issued

under Rule 2210, 2220, 9512(a), or

9513(a) or who initiates a proceeding

under rule 9513(b), may file a written

request for a hearing with the General

Counsel for the NASD [Association].

The request shall state the specific

grounds for requesting the hearing to

review the Association’s action(s)

[setting aside the notice]. The request

shall be filed pursuant to Rules 9135,

9136, and 9137 within seven days after

service of the notice under Rule 9512 or

9513(a), [or,] with respect to notice of a

pre-use filing requirement under Rule

2210(c)(4) and Rule 2220(c)(2), within

30 days of such notice, or with respect

to a proceeding initiated under rule

9513(b), within seven days after the date

that the Party learns of the anticipated

Association action for which the Party is

seeking review. The member, associated

person, or other person may withdraw

its request for a hearing at any time by

filing a written notice with the

Association pursuant to Rules 9135,

9136, and 9137.

In the event that the Association

issues a notice under Rule 9513(a)

regarding limitation or prohibition will

respect to access to services offered by

the Association, or a member thereof,

and an aggrieved party also attempts to

initiate a proceeding under Rule 9513(b)

to challenge the Association action

covered by the notice issued under Rule

9513(a), the aggrieved party will be

entitled to one hearing on the matter.

The proceeding will be deemed to be

initiated by the notice issued under Rule

9513(a), unless the aggrieved party has

mailed or otherwise served on the

Association the request for hearing prior

to receiving the notice, which case, the

30462 Federal Register / Vol. 65, No. 92 / Thursday, May 11, 2000 / Notices

proceeding will be deemed to be

initiated by the request for hearing

under Rule 9513(b).

(2) Failure to File Request

If the member, associated person, or

other person subject to the notice issued

under Rule 2210, 220, 9512(a), or

9513(a) does not file a written request

for a hearing under subparagraph (1),

the notice shall constitute final action

by the Association. For purposes of

proceedings initiated under Rule

9513(b), if a member, associated person,

or other person does not file a written

request for a hearing pursuant to

subparagraph (1) of the Rule, the

Association’s action with respect to a

limitation or prohibition on access to

services will constitute final Association

action.

(3) Ex Parte Communications

No change.

(b) Designation of Party for the

Association and Appointment of

Hearing Panel

If a member, associated person, or

other person subject to a notice under

Rule 2210, 2220, 9512, or 9513(a) files

a written request for a hearing or

initiates a proceeding under Rule 9513(b),

an appropriate department or office of

the Association shall be designated as a

Party in the proceeding, and a Hearing

Panel shall be appointed.

(1) If the President of NASD

Regulation or NASD Regulation staff

issued the notice initiating the

proceeding under Rule 2210, 2220,

9512(a), or 9513(a), or if an aggrieved

party initiates a hearing under Rule

9513(b) to challenge NASD Regulation

staff action(s), the President of NASD

Regulation shall designate an

appropriate NASD Regulation

department or office as Party. For

proceeding initiated under Rule 9513(a)

concerning failure to comply with an

arbitration award or a settlement

agreement related to an NASD

arbitration or medication, the Chief

Hearing Officer shall appoint a Hearing

Panel composed of a Hearing Office. For

any other proceedings initiated under

Rule 2210, 2220, 9512(a) or 9513(a) by

the President of NASD Regulation or

NASD Regulation staff, the NASD

Regulation Board shall appoint a

Hearing Panel composed of two or more

members; one member shall be a

Director of NASD Regulation, and the

remaining member or members shall be

Hearing Officer(s) or current or former

Directors of NASD Regulation or

Governors. The President of NASD

Regulation may not serve on a Hearing

Panel.

(2) If the President of Nasdaq or

Nasdaq staff issued the notice under

Rule 9512(a) or 9513(a) or if an

aggrieved party initiates a hearing under

Rule 9513(b) to challenge Nasdaq staff

action(s), the President of Nasdaq shall

designate an appropriate Nasdaq

department or office as a Party, and the

Nasdaq Board shall appoint a Hearing

Panel. The Hearing Panel shall be

composed of two or more members. One

member shall be director of Nasdaq, and

the remaining member or members shall

be Hearing Officers or current or former

directors of Nasdaq or Governors. The

President of Nasdaq may not serve on

the Hearing Panel.

(c) Stays

(1) Summary Proceeding

No change.

(2) Non-Summary Proceeding

Unless the NASD Board or the

Executive Committee of the NASD

Board orders otherwise, a request for a

hearing shall stay the notice issued

under Rule 2210, 2220, [or] 9513 (a), or

the Association action challenged under

Rule 9513(b), except that a request for a

hearing shall not stay: (i) a notice of a

limitation or prohibition on services

offered by the Association or a member

thereof with respect to services to which

a member, associated person, or other

person does not have access or is

requesting expanded access; or (ii) the

Association action challenged under

Rule 9513(b) with respect to services to

which a member, associated person, or

other person does not have access or is

requesting expanded access.

(d) Time of Hearing

(1) Summary Proceeding

No change.

(2) Non-Summary Proceeding

If a member, associated person, or

other person [who is subject to a notice

issued under Rule 2210, 2220, or

9513(a)] files a written request for a

hearing under 9514(a) (except for

proceedings brought under 9512(a)), a

hearing shall be held within 21 days

after the filing of the request for hearing.

The Hearing Panel may, during the

initial 21 day period, extend the time in

which the hearing shall be held by an

additional 21 days on its own motion or

at the request of a Party for good cause

shown. Not less than five days before

the hearing, the Hearing Panel shall

provide written notice to the Parties of

the location date, and time of the

hearing by facsimile or overnight

commercial courier.

(e) Transmission of Documents

(1) Not less than five days before the

hearing, the Association shall provide to

the member, associated person, or other

person who requested the hearing, by

facsimile or overnight commercial

courier, all documents that were

considered in issuing the notice under

Rule 2210, 2220, 9512, or 9513, or were

considered by the Association in making

the determination to take the action

being challenged under Rule 9513(b),

unless a document meets the criteria of

Rule 9251(b)(1)(A), (B), or (C). A

document that meets such criteria shall

not constitute part of the record, but

shall be retained by the Association

until the date upon which the

Association serves a final decision and

the period for review lapses or, if

applicable, upon the conclusion of any

review by the Commission or the federal

courts.

(2) No change.

(f) Hearing Panel Consideration

(1) through (4) No change.

(5) Custodian of the Record

[If the President of NASD Regulation

or NASD Regulation staff initiated the

proceeding under Rule 2210, 2220,

9512, or 9513, t]The [Office of the]

General Counsel of NASD [Regulation]

shall be the custodian of the record for

proceedings initiated under Rule 2210,

2220, 9512, or 9513, except that the

Office of Hearing Officers shall be the

custodian of record for proceedings

initiated under Rule 9513(a) concerning

failure to comply with an arbitration

award or a settlement agreement related

to an NASD arbitration or mediation. [If

the President of Nasdaq or Nasdaq staff

initiated the proceeding under Rule

9512 or 9513, the Office of General

Counsel of Nasdaq shall be the

custodian of the record.]

(6) No change.

(g) Decision of the Hearing Panel

(1) through (2) No change.

(3) Contents of Decision

The decision shall include:

(A) through (B) No change.

(C) if applicable, the grounds for

issuing the notice under Rule 2210,

2220, 9512, or 9513(a);

(D) if applicable, either: (i) an

explanation why the action being

challenged under Rule 9513(b) is not a

limitation or prohibition on access to

services subject to review under Section

19 of the Act; or (ii) the grounds for the

limitation or prohibition to access to

service that is the basis for the

proceeding;

(E) a statement of findings of fact with

respect to any act or practice that was

alleged to have been committed or

omitted by the member, associated

person, or other person;

(F)[(E)] a statement in support of the

disposition of the principal issues raised

in the proceedings; and

(G)[(F)] if a summary suspension,

limitation, or prohibition continues to

be imposed, the specific grounds for

imposing such suspension, limitation,

or prohibition, and the terms of the

suspension, limitation, or prohibition;

Federal Register / Vol. 65, No. 92 / Thursday, May 11, 2000 / Notices 30463

7The Commission notes that NASD conclusions

of law are not binding on the Commission.

8See Securities Exchange Act Release No. 41367

(May 4, 1999), 64 FR 25942 (May 13, 1999) (Order

approving File No. SR–NASD–98–88).

9 15 U.S.C. 78o–3(b)(6).

10 15 U.S.C. 17o–3(b)(8).

11 Id.

or, if a non-summary suspension,

cancellation, bar, limitation, prohibition

or pre-use filing requirement is to be

imposed or continue to be imposed, its

effective date, time, and terms.

(4) No change.

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 statutory

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

A. Initiating Denial of Access

Proceedings. Currently, before the

Association takes an action that it

believes constitutes a denial of access,

the Association issues a notice under

NASD Rule 9513 that informs a Party

that: (1) it is taking such an action; and

(2) the Party has a right to appeal the

matter. Under NASD Rule 9514, a Party

may not request a hearing to challenge

an alleged denial of access unless the

requisite notice was issued under NASD

Rule 9513.

Under the current procedures, the

Association is generally the

‘‘gatekeeper’’ to the appeal process

because the NASD must make the legal

conclusion 7 that a matter constitutes a

denial of access to services requiring the

issuance of a notice. The current rules

create difficulties in situations where

the NASD does not issue an NASD Rule

9513 notice because it does not believe

an action constitutes a denial of access

to services but where the Party who is

the subject of the action believes the

underlying action amounts to a denial of

access to services.

The proposed rule change defines the

circumstances under which an

aggrieved Party may request a hearing

under NASD Rule 9514 for the purpose

of reviewing Association action

concerning a purported denial of access.

The NASD is proposing removal of the

Association’s function as gatekeeper for

determining whether a Party may

request review of a denial of access.

Under the proposed rule change, either

the Association or the aggrieved Party

(regardless of whether a notification of

the limitation or prohibition is sent

under NASD Rule 9513) may seek to

initiate a denial of access proceeding

under NASD Rule 9514. Thus, the

proposed rule change would liberalize

the Association’s procedures for

initiating denial of access hearings. In

those instances where staff intends to

take an action that it believes constitutes

a denial of access, the staff will issue the

NASD Rule 9513(a) notice.

B. Hearing Panel. The proposed rule

change would expand the pool from

which a Hearing Panel may be drawn

for hearings requested under NASD

Rule 9514 to include Hearing Officers.

C. Custodian of the Record. Under the

proposed rule change, the General

Counsel for the NASD would be the

custodian of record in proceedings

initiated under NASD Rule 2210, 2220,

9512, or 9513, except that the Office of

Hearing Officers would be the custodian

of record for the proceedings initiated

under NASD Rule 9513(a) concerning

failure to comply with an arbitration

award or a settlement agreement related

to an NASD arbitration or mediation.

Currently, the Code provides that if the

President of NASD Regulation or NASD

Regulation staff initiated the proceeding

under NASD Rule 2210, 2220, 9512, or

9513, the Office of the General Counsel

of NASD Regulation would be the

custodian of the record, except that the

Office of Hearing Officers would be the

custodian of record for proceedings

initiated under NASD Rule 9513(a)

concerning failure to comply with an

arbitration award or a settlement

agreement related to an NASD

arbitration or mediation. If the President

of Nasdaq or Nasdaq staff initiated the

proceeding under NASD Rule 9512 or

9513, the Office of the General Counsel

of Nasdaq would be the custodian of the

record.

D. Replacement of NASD Rule 4800

and 9700 Series. On May 4, 1999, the

Commission approved SR–NASD–98–

88, which replaced the existing NASD

Rule 4800 Series (NASD Rule 4810

through 4890, inclusive) with a new

Code of Procedure for review of Nasdaq

listing determinations.8 File number

SR–NASD–98–88 also temporarily

relocated the existing NASD Rule 4800

Series—which relates to other

grievances concerning the automated

systems—to the NASD Rule 9700 Series,

pending submission and approval of the

subject Rule Filing on denial of access

proceedings. SR–NASD–98–88 also

deleted the NASD Rule 9700 Series

immediately upon approval of revisions

to the NASD Rule 9500 Series contained

in this filing. Accordingly, upon

approval of this rule filing, the NASD

Rule 9700 Series will be deleted and

denials of access involving Nasdaq’s

automated systems will be reviewed

through the NASD Rule 9500 Series

procedures.

(2) Statutory Basis

NASD Regulation believes that the

proposed rule change is consistent with

the provisions of Section 15A(b)(6) of

the Act,9 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 rule change is

consistent with Section 15A(b)(8) 10 in

that it furthers the statutory goals of

providing a fair procedure for imposing

prohibitions or limitations on

Association services. Under the

proposed rule change, the Code would

be amended so as to eliminate the

Association from serving as the

gatekeeper for determining whether an

aggrieved Party may seek a hearing to

determine whether that Party has been

improperly denied access to Association

services, thus allowing for greater access

to the protections afforded by Section

15(A)(b)(8).11

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

NASD Regulation 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

Written comments were neither

solicited nor received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 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

30464 Federal Register / Vol. 65, No. 92 / Thursday, May 11, 2000 / Notices

12 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b-4.

3Securities Exchange Act Release No. 34–42501

(March 7, 2000), 65 FR 13801.

4See Securities Exchange Act Release No. 42487

(March 2, 2000), 65 FR 13801 (March 9, 2000).

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, N.W.,

Washington, D.C. 20549–0609. 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 the File No.

SR–NASD–99–26 and should be

submitted by June 1, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–11807 Filed 5–10–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42757; File No. SR–NYSE–

99–44]

Self-Regulatory Organizations; New

York Stock Exchange, Inc; Order

Approving Proposed Rule Change

Relating to NYSE Rule 103A

May 4, 2000.

I. Introduction

On November 3, 1999, the New York

Stock Exchange, Inc (‘‘NYSE’’ or

‘‘Exchange’’) submitted to the Securities

and Exchange Commission ‘‘SEC’’ or

‘‘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

relating to NYSE Rule 103A. The

proposed rule change was published for

comment in the Federal Register on

March 14, 2000.3 The Commission did

not receive any comment letters with

respect to the proposal. This order

approves the Exchange’s proposal.

II. Description of the Proposal

1. Purpose

The Exchange proposed to amend

Rule 103A (Special Stock Reallocation)

to codify the Market Performance

Committee’s (‘‘MPC’’) authority with

respect to allocation freezes, stock

assignments and reassignments,

specialist unit organizational changes,

and Floor member qualification and

continuing education requirements.

a. Allocation Freezes

Currently, Rule 103A provides the

MPC the authority to establish and

administer measures of specialist

performance, conduct performance

improvement actions when a specialist

unit does not meet the performance

standards in Rule 103A, and reallocate

stocks if a unit does not achieve its

specified goals when subject to a

performance improvement action. The

Exchange represented that these

standards help to establish and maintain

acceptable levels of specialist

performance, thereby enhancing the

competitiveness of the Exchange’s

specialist system. The purpose of a

performance improvement action is to

provide assistance and guidance to

specialist units to enable them to

enhance their performance. When a

performance improvement action is

initiated, a specialist unit is required to

submit a performance improvement

plan addressing how it intends to

improve performance to the MPC. Based

on the MPC’s review of the performance

improvement plan, the MPC has the

authority to preclude a specialist unit,

that is subject to a performance

improvement action, from applying to

be allocated any newly-listing company

(an ‘‘allocation freeze’’) if the MPC

believes such action is appropriate.

The Exchange proposed to amend

Rule 103A to allow the MPC to exercise

its discretion in imposing allocation

freezes. In certain instances, the

Committee will determine that a unit’s

performance is not as strong as other

units’ performance, although the unit’s

performance fully meets the Rule 103A

performance standards. For example,

this may occur when a specialist unit’s

scores on the quarterly Specialist

Performance Evaluation Questionnaire

are above Rule 103A perfomace

standards, however, the unit may have

lower scores than other units over a

period of several quarters, resulting in

persistent lower rankings in the bottom

quartile. In these instances, the

Exchange believes the MPC should be

able to use its professional judgment to

provide incentives to specialist units to

encourage them to enhance their

performance. Therefore, the Exchange

proposes to add to Rule 103A authority

for the Committee to initiate an

allocation freeze for a unit, without

initiating a formal performance

improvement action. The Commission

expects the NYSE’s MPC to exercise its

discretion consistent with the purpose

of the Act.

b. Receipt of New Listings During an

Allocation Freeze

Under the Exchange’s Allocation

Policy and Procedures (the ‘‘Allocation

Policy’’) the are circumstances when a

newly-listing company may choose its

specialist unit. For example, a newlylisting company that is related to an

already listed company many choose to

stay with the current specialist for the

listed company or choose to go through

the Allocation Committee.4 The newlylisting company may choose to stay

with the current specialist for the

related listed company even if such unit

it is under an allocation freeze imposed

by the MPC as long as the unit is not

subject to a performance improvement

action.

Similarly, under the Allocation

Policy, the newly-listing company may

choose its specialist from among a group

of specialist units chosen by the

Allocation Committee. The Allocation

Committee has the ability to exclude or

include the current specialist for the

related company in such a group. If the

specialist unit was under an allocation

freeze imposed by the MPC, it would

not be precluded from being placed in

the group or chosen by the newly-listing

company as long as the allocation freeze

was not the result of a performance

improvement action.

c. Floor Member Qualification and

Continuing Education

The Exchange also proposes to amend

Rule 103A to make mandatory (i)

participation by proposed Floor

members in an Exchange-sponsored