2052 Federal Register / Vol. 72, No. 10 / Wednesday, January 17, 2007 / Notices 

15 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3). 

4 17 CFR 240.19b-4.(f)(6). 

No. SR–ISE–2006–72 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

Station Place, 100 F Street, NE., 

Washington, DC 20549–1090. 

All submissions should refer to File No. 

SR–ISE–2006–72. This file number 

should be included on the subject line 

if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). 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 the filing also will be 

available for inspection and copying at 

the principal office of the Exchange. 

All comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. 

All submissions should refer to File 

No. SR–ISE–2006–72 and should be 

submitted on or before February 7, 2007. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.15

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–478 Filed 1–16–07; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55061; File No. SR–

NASDAQ–2006–061] 

Self-Regulatory Organizations; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change by the 

NASDAQ Stock Market LLC To Codify 

Sponsored Access Rule 

January 8, 2007. 

Pursuant to the provisions of Section 

19(b)(1) under the Securities Exchange 

Act of 1934 (‘‘Act’’),1 and Rule 19b–4 

thereunder,2 The NASDAQ Stock 

Market LLC (‘‘Nasdaq’’) is filing 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 Nasdaq. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of the Substance 

of the Proposed Rule Change 

Nasdaq is filing with the Commission 

a proposed rule change to update and 

clarify the requirements for members 

that provide electronic access to 

Nasdaq’s execution services, and to 

codify these requirements in Nasdaq’s 

rules. 

Nasdaq has designated this proposal 

as one effecting a change that: (i) Does 

not significantly affect the protection of 

investors or the public interest; (ii) does 

not impose any significant burden on 

competition; and (iii) by its terms, does 

not become operative for 30 days after 

the date of the filing. 

Nasdaq has provided the Commission 

with written notice of its intent to file 

this proposed rule change, along with a 

brief description and text of the 

proposed rule change, at least five 

business days prior to the date of filing 

of the proposed rule change pursuant to 

Section 19(b)(3)3 and Rule 19b–4(f)(6) 

thereunder.4 The proposed rule change 

will become operative 30 days after the 

date of the filing. 

The text of the proposed rule change 

is below. The proposed new language is 

italicized. 

* * * * * 

4611. Nasdaq Market Center Participant 

Registration 

(a)–(c) No change. 

(d) Members may provide sponsored 

access in accordance with the 

provisions below: 

(1) Definition. Sponsored Access is 

the practice by a member firm 

(‘‘Sponsoring Member’’) of providing 

access to the Nasdaq Execution System 

(‘‘Nasdaq’’) on an agency basis to 

another firm or customer (‘‘Sponsored 

Firm’’). Sponsored access can be of two 

forms: (a) pass-through access, whereby 

a Sponsored Firm enters orders that 

pass through the Sponsoring Member’s 

systems and then into Nasdaq (‘‘Passthrough Sponsored Access’’), and (b) 

direct access, whereby the Sponsored 

Firm enters orders directly into Nasdaq 

(‘‘Direct Sponsored Access’’). 

(2) Sponsoring Members that provide 

Sponsored Access to Nasdaq shall be 

responsible for complying with the 

obligations in Rule 4611 with respect to 

any activity conducted by a Sponsored 

Firm using a market participant 

identifier (‘‘MPID’’) assigned to the 

Sponsoring Member. 

(3) A Sponsoring Member that 

provides Direct Sponsored Access to 

Nasdaq shall execute and file with 

Nasdaq the Addendum to the Nasdaq 

Services Agreement for Sponsored 

Access to Nasdaq (‘‘Sponsored Access 

Agreement’’) and any other such 

agreements as specified by Nasdaq. 

Sponsored Firms shall also execute and 

file with Nasdaq a Sponsored Access 

Agreement and any other such 

agreements as specified by Nasdaq. 

Interpretive Material 4611–1—

Sponsored Access 

(1) Compliance with Nasdaq 

Supervision and Customer Protection 

Requirements 

Sponsoring Members have 

responsibility for the conduct of their 

Sponsored Firms as if the conduct were 

their own. Sponsoring Members that 

provide Sponsored Access, whether 

Pass-through or Direct, have a 

continuing obligation to comply with all 

Nasdaq rules and procedures and the 

federal securities laws and rules, and 

must, in accordance with Rule 3010, 

have supervisory systems and written 

procedures reasonably designed to 

achieve compliance with these 

obligations. For example, Sponsoring 

Members must have systems and written 

procedures to supervise the activity of 

Sponsored Firms, including obligations 

with respect to the Nasdaq and SEC 

short sale rules (Rule 3350 and SEC 

Rule 10a–1 and Regulation SHO), and 

the requirements articulated in Rule 

3370. Further, Sponsoring Members 

must satisfy their obligations under IM–

2110–2 or Rule 6440 to not trade ahead 

of customers. Similarly, a limit order 

from a Sponsored Firm is subject to the 

SEC limit order display rule (Rule 604 

under Regulation NMS) and the order 

must be handled in compliance with the 

rule. Sponsoring Members also must 

possess sufficient information about 

their Sponsored Firms to satisfy the 

‘‘know your customer’’ obligation that is 

embedded in the Nasdaq Conduct 

Rules. 

(2) Compliance With Other Nasdaq 

Requirements 

(a) Rule 8210. Sponsoring Members 

are responsible for complying with all 

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Federal Register / Vol. 72, No. 10 / Wednesday, January 17, 2007 / Notices 2053 

5The Notice to Members described Sponsored 

Access as ‘‘electronic pass-through services.’’

6Securities Exchange Act Release No. 40354 

(Aug. 24, 1998), 63 FR 46264 (Aug. 31, 1998). 

requests for information pursuant to 

Rule 8210. The Sponsored Access 

Agreement described in Rule 4611(d)(3) 

shall provide that Sponsored Firms and 

Sponsoring Members must comply with 

Rule 8210. 

(b) Fees. Sponsoring Members are 

responsible for paying all Nasdaq fees 

accrued under their MPIDs, irrespective 

of the fact that particular charges may 

be associated with orders entered by 

Sponsored Firms. 

(c) Services Agreement; Termination. 

The fact that a member is providing 

Sponsored Access does not alter 

Nasdaq’s rights with regard to the 

Sponsoring Member that are articulated 

in Nasdaq’s agreements with members 

(e.g., the Nasdaq Services Agreement). 

In particular, if the Sponsoring 

Member’s provision of Sponsored 

Access threatens the integrity of Nasdaq 

systems, Nasdaq reserves the right 

under the Nasdaq Services Agreement 

to unilaterally and immediately 

terminate the Sponsoring Member’s 

access. 

(d) Examinations. Sponsoring 

Members are reminded that, as a selfregulatory organization responsible for 

examining the activity of a member, 

Nasdaq may examine the Sponsoring 

Member’s books, records, and facilities 

to determine whether a violation of 

Nasdaq rules and/or federal securities 

laws, rules, and regulations have 

occurred. Such examination may 

include an examination of the 

Sponsoring Member’s internal systems, 

as well as the member’s records 

regarding its customers and their 

activity. 

(3) Obligation To Ensure Accuracy of 

Orders Entered into Nasdaq 

Sponsoring Members have an 

obligation under Nasdaq Rule 3010 to 

have in place a supervisory system and 

written supervisory procedures 

reasonably designed to ensure that 

orders placed by Sponsored Firms into 

Nasdaq are not entered in error or in a 

manner inconsistent with Nasdaq rules. 

Sponsoring Members should consider 

the following factors when developing a 

supervisory system and written 

supervisory procedures: 

(a) Sponsoring Member order 

management systems should include 

controls that limit the use of such 

systems to authorized persons, check for 

order accuracy, prevent orders that 

exceed preset credit- and order-size 

parameters from being transmitted to 

Nasdaq, and prevent the unwanted 

generation, cancellation, repricing, 

resizing, duplication, or re-transmission 

of orders. 

(b) Safeguards should be in place to 

ensure that the operation, testing, or 

maintenance of a Sponsoring Member’s 

order management system does not 

result in the inadvertent disabling of 

Nasdaq, mistaken executions, errors, or 

other trading problems. 

(c) Sponsoring Members and Direct 

Sponsored Access Sponsored Firms 

should ensure that they do not test their 

systems’ connectivity to Nasdaq by 

sending orders that are not executable, 

such as by sending orders during 

normal market hours that are priced far 

outside a security’s current price. Firms 

must test pursuant to established 

protocols and test messages should be 

clearly denoted as such. 

(d) Before sponsoring access to 

Nasdaq, a Sponsoring Member must 

have a supervisory system and written 

supervisory procedures in place 

reasonably designed to ensure that such 

orders are not entered in error or in a 

manner inconsistent with Nasdaq rules 

(including, but not limited to, Rule 3310 

and IM–3310) or with the Nasdaq 

Services Agreement. 

(e) Procedures that are available to 

adjudicate clearly erroneous 

transactions are to be used only in cases 

of clear or obvious errors and should not 

be used as a proxy for proper system use 

or trading procedures. Other errors, 

whether as a result of a system problem 

or human error, will not be dealt with 

through the rules applicable to clearly 

erroneous transactions. 

* * * * * 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

Nasdaq 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. Nasdaq 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 

Nasdaq proposes to amend the rules 

governing Nasdaq to update and codify 

the requirements applicable to Nasdaq 

members that provide access to other 

firms and customers to the Nasdaq 

execution system (‘‘Sponsored Access’’). 

With one exception, members will be 

subject to the requirements articulated 

in NASD Notice to Members 98–66 

(‘‘Notice to Members’’ or ‘‘Notice’’) and 

which were reiterated and updated by 

the NASD in Notice to Members 04–66.5

Notice to Members 98–66, which was 

filed with the Commission as an 

interpretation of the NASD rules and the 

Nasdaq subscriber agreement, clarified 

that members could provide Sponsored 

Access and remain in compliance with 

their rule and contract obligations to 

safeguard Nasdaq equipment and to 

prevent unauthorized access to Nasdaq 

systems.6 In addition, the Notice reemphasized members’ existing 

obligations to monitor the trading 

activity by their customers, including 

those being provided Sponsored Access, 

and to have written procedures 

governing customer trading. Notice to 

Members 04–66 also re-asserted that 

members are responsible for all trading 

conducted in their name, and that the 

member is responsible for the fees 

associated with that trading. 

The proposed rule change amends the 

Nasdaq rules governing Nasdaq’s 

execution system to articulate 

specifically that members providing 

Sponsored Access are responsible for all 

activity conducted using their market 

participant identifier (‘‘MPID’’). In 

addition, the proposal adds an 

Interpretive Material to Rule 4611 (IM–

4611–1—Sponsored Access) that 

discusses members’ ongoing 

responsibilities to comply with all 

Nasdaq rules and operating procedures, 

as well as the federal securities laws and 

rules, and to have systems and written 

procedures reasonably designed to 

achieve compliance with these 

obligations. For example, IM–4611–1 

discusses that members must continue 

to comply with the Nasdaq and SEC 

short sale rules, including the 

requirements of Rule 3370, when a firm 

sells securities under a Sponsored 

Access arrangement, and that members 

also must fulfill their ‘‘know your 

customer’’ obligations that are 

embedded in the Nasdaq Conduct Rules. 

The interpretive material also states that 

members must continue to satisfy any 

limit order protection and display 

obligations that arise from limit orders 

submitted by sponsored firms. 

The interpretive material also reminds 

members that they remain responsible 

for all Nasdaq fees accrued under their 

MPID, irrespective of the fact that some 

of the fees may be attributable to orders 

submitted by sponsored firms. 

mstockstill on PROD1PC61 with NOTICES

2054 Federal Register / Vol. 72, No. 10 / Wednesday, January 17, 2007 / Notices 

7A member’s system and procedures would need 

to be reasonably designed to achieve compliance 

with, for example, the requirements of Rule 3370. 

8The Sponsoring Member also would be required 

to execute the Sponsored Access Agreement. 

9 15 U.S.C. 78f. 

10 15 U.S.C. 78f(b)(5). 11 17 CFR 200.30–3(a)(12). 

Similarly, the interpretive material 

states that Nasdaq’s rights with regard to 

the Sponsoring Member that are 

articulated in Nasdaq’s agreements with 

members (e.g., the Nasdaq Services 

Agreement) are not altered by fact that 

a member is providing Sponsored 

Access. 

As stated earlier, with one exception, 

members will continue to be subject to 

the same requirements as imposed by 

the Notice to Members when providing 

Sponsored Access. Specifically, Nasdaq 

is eliminating the requirement that 

orders must be entered into a member’s 

system (or a service bureau’s system 

provided by the member) before being 

transmitted to Nasdaq (i.e., the 

electronic pass-through requirement). 

Nasdaq does not expect many members 

to provide such ‘‘direct access’’ to 

Nasdaq. Nasdaq stresses, however, that 

eliminating this requirement does not 

diminish a member’s responsibility for 

ensuring that trading occurring under its 

MPID is in compliance with Nasdaq’s 

rules and procedures and the federal 

securities laws. For example, members 

considering providing such direct 

access must, in accordance with Rule 

3010, have systems and written 

procedures to supervise the activity of a 

sponsored firm with direct access to 

Nasdaq.7 In addition, members also 

must fulfill their ‘‘know your customer’’

obligations that are embedded in the 

Nasdaq Conduct Rules. 

To limit its exposure in commercial 

disputes and to protect its intellectual 

property when a sponsored firm can 

submit orders to Nasdaq directly, 

Nasdaq is proposing to require 

sponsored firms with this type of access 

to execute an agreement (‘‘Sponsored 

Access Agreement’’) that will require 

them to abide by the Nasdaq Services 

Agreement, which is executed by all 

members accessing Nasdaq’s systems.8

Requiring the Sponsored Access 

Agreement ensures that Nasdaq has an 

agreement with the party actually 

submitting orders to Nasdaq, although 

the member remains responsible for the 

trading, including compliance with 

Nasdaq rules and procedures and the 

federal securities laws and rules. 

An executed Sponsored Access 

Agreement will not be necessary when 

a sponsored firm does not enter orders 

directly into Nasdaq Market Center (i.e., 

submits orders utilizing an electronic 

pass-through), because the orders are 

entering Nasdaq through a system 

provided by a party with whom Nasdaq 

already has an agreement: A member. 

2. Statutory Basis 

Nasdaq believes that the proposed 

rule change is consistent with the 

provisions of section 6 of the Act,9 in 

general and with section 6(b)(5) of the 

Act,10 in particular, in that it is designed 

to promote just and equitable principles 

of trade and to protect investors and the 

public interest. The proposal is 

consistent with these obligations 

because it updates the standards for 

providing Sponsored Access, and 

clearly articulates the obligations in the 

Nasdaq’s rules. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

Nasdaq 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. 

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 

The foregoing rule change has become 

effective pursuant to section 19(b)(3)(A) 

of the Act and subparagraph (f)(6)(iii) of 

rule 19b–4 thereunder in that it effects 

a change that does not become operative 

for 30 days after the date of the filing, 

or such shorter time as the Commission 

may designate if consistent with the 

protection of investors and the public 

interest; provided that the selfregulatory organization has given the 

Commission written notice of intent to 

file the proposed rule change, along 

with a brief description and text of the 

proposed rule change, at least five 

business days prior to the date of filing 

of the proposed rule change, or such 

shorter time as designated by the 

Commission. The proposed rule change 

will become operative 30 days after the 

date of the filing. 

At any time within 60 days of the 

filing of a rule change pursuant to 

section 19(b)(3)(A) of the Act, the 

Commission may summarily abrogate 

the rule change 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. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–NASDAQ–2006–061 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy Morris, Secretary, Securities 

and Exchange Commission, Station 

Place, 100 F Street, NE., Washington, 

DC 20549–1090. 

All submissions should refer to File 

Number SR–NASDAQ–2006–061. This 

file number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). 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 also will be 

available for inspection and copying at 

the principal office of Nasdaq. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. 

All submissions should refer to File 

Number SR–NASDAQ–2006–061 and 

should be submitted on or before 

February 7, 2007. 

mstockstill on PROD1PC61 with NOTICES

Federal Register / Vol. 72, No. 10 / Wednesday, January 17, 2007 / Notices 2055 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(6). 

5NASD informed the Commission staff that a 

clerical error was made in its filing and the word 

‘‘individual’s’’ in paragraph (a)(5)(B)(iii) of Rule 

10308 should be lowercase. Telephone conversation 

between Jean Feeney, Vice President, NASD; and 

Michael Hershaft, Special Counsel, Commission 

(Jan. 9, 2006). Because this is a non-substantive 

change, this amendment to the proposed rule 

change will not toll the 60-day abrogation period. 

6The Commission recently approved 

amendments to Rule 10308, effective Jan. 15, 2007. 

Securities Exchange Act Release No. 54607 (Oct. 16, 

2006), 71 FR 62026 (Oct. 20, 2006) (file No. SR–

NASD–2005–094). 7 Id. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.11

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–543 Filed 1–16–07; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55078; File No. SR–NASD–

2006–136] 

Self-Regulatory Organizations; 

National Association of Securities 

Dealers, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Make Technical and 

Grammatical Corrections to Rule 10308 

January 10, 2007. 

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 December 

28, 2006, the National Association of 

Securities Dealers, Inc. (‘‘NASD’’) filed 

with the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

the proposed rule change as described 

in Items I and II below, which Items 

have been prepared by NASD. NASD 

has filed this proposal pursuant to 

Section 19(b)(3)(A) of the Act 3 and Rule 

19b–4(f)(6) thereunder 4 which renders 

the proposal effective upon filing with 

the Commission.5 The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

NASD is proposing to amend 

paragraph (a)(5)(B) of Rule 10308 of the 

NASD Code of Arbitration Procedure to 

delete unnecessary cross references in 

the definition of ‘‘immediate family 

member,’’ and to correct a grammatical 

error.6 The text of the proposed rule 

change is below. Proposed new 

language is in italics; proposed 

deletions are in brackets. 

10308. Selection of Arbitrators 

(a) Definitions 

(1) through (4) No change. 

(5) ‘‘public arbitrator’’

(A) No change. 

(B) For [the] purposes of this Rule, the 

term ‘‘immediate family member’’

means: 

(i) [The] a person’s parent, stepparent, 

child, or stepchild[, of a person engaged 

in the conduct or activities described in 

paragraphs (a)(4)(A) through (D)]; 

(ii) A member of [the] a person’s 

household [of a person engaged in the 

conduct or activities described in 

paragraphs (a)(4)(A) through (D)]; 

(iii) An individual to whom a person 

[who receives] provides financial 

support of more than 50 percent of the 

individual’s annual income [from a 

person engaged in the conduct or 

activities described in paragraphs 

(a)(4)(A) through (D)]; or 

(iv) A person who is claimed as a 

dependent for federal income tax 

purposes [by a person engaged in the 

conduct or activities described in 

paragraphs (a)(4)(A) through (D)]. 

(6) through (7) No change. 

(b) through (f) 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 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 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 

NASD believes that the crossreferences to ‘‘a person engaged in the 

conduct or activities described in 

paragraph (a)(4)(A) through (D)’’ in the 

definition of immediate family member 

in paragraphs (a)(5)(B)(i)–(iv) of Rule 

10308 are redundant when read in 

conjunction with other provisions of the 

rule. For example, Rule 

10308(a)(5)(A)(vii) provides that a 

person may be a public arbitrator if he 

or she ‘‘is not the spouse or immediate 

family member of a person who is 

engaged in the conduct or activities 

described in paragraphs (a)(4)(A) 

through (D).’’ The definition of 

‘‘immediate family member’’ in Rule 

10308(a)(5)(B) states, in part, ‘‘For the 

purpose of this Rule, the term 

‘‘immediate family member’’ means 

* * * (i) the parent, stepparent, child, 

or stepchild, of a person engaged in the 

conduct or activities described in 

paragraphs (a)(4)(A) through (D).’’ Thus, 

both the rule and the definition refer 

redundantly to ‘‘a person [who is] 

engaged in the conduct or activities 

described in paragraphs (a)(4)(A) 

through (D).’’

Moreover, new paragraphs (a)(5)(A)(v) 

and (vi) of Rule 10308 were recently 

added to provide that persons who are 

otherwise qualified may not serve as 

public arbitrators if they have certain 

family members who are employed by, 

or serve as officers or directors of, 

entities in a control relationship with a 

broker-dealer.7 In these instances, there 

is no need to refer to paragraphs 

(a)(4)(A) through (D) as those paragraphs 

are not at issue. Rather, what is 

important is the family relationship 

itself. 

For these reasons, NASD proposes to 

amend the examples of family 

relationships in the definition of 

‘‘immediate family member’’ in 

paragraphs (a)(5)(B)(i)–(iv) of Rule 

10308 in a non-substantive way to retain 

the relationships themselves but omit 

the references to paragraphs (a)(4)(A) 

through (D) of the rule. As noted above, 

because this reference is in Rule 

10308(a)(5)(A)(vii), arbitrators who have 

an immediate family member engaged 

in the conduct or activities described in 

paragraphs (a)(4)(A) through (D) of the 

rule will continue to be ineligible to 

serve as public arbitrators. Arbitrators, 

who do not have immediate family 

members engaged in the conduct or 

activities described in paragraphs 

(a)(4)(A) through (D) of the rule, still 

may be subject to new paragraphs 

(a)(5)(A)(v) and (vi) of Rule 10308, 

which governs public arbitrators. 

In deleting the references to 

paragraphs (a)(4)(A) through (D), 

discussed above, NASD has rearranged 

phrases to provide additional clarity. In 

so doing, NASD does not intend to make 

any change in the substance of the 

definitions or in how they are 

construed. 

Finally, NASD proposes to correct a 

grammatical error in Rule 10308(a)(5)(B) 

by replacing the term ‘‘for the purpose 

of’’ with the more common phrase ‘‘for 

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