[Federal Register Volume 62, Number 157 (Thursday, August 14, 1997)]
[Notices]
[Pages 43571-43573]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-21446]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38909; File No. SR-NASD-96-29; Amendment No. 5]


Notice of Filing and Order Granting Temporary Accelerated 
Approval

August 7, 1997.
    Self-Regulatory Organizations; Notice of Filing and Order 
Granting Temporary Accelerated Approval of Proposed Rule Change by 
National Association of Securities Dealers, Inc. Relating to the 
Allocation and Delegation of Authority and Responsibilities by the 
National Association of Securities Dealers, Inc., to NASD 
Regulation, Inc., and The Nasdaq Stock Market, Inc.

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on August 
5, 1997, the National Association of Securities Dealers, Inc. 
(``NASD'') filed with the Securities and Exchange Commission 
(``Commission'') Amendment No. 5 to the proposed rule change as 
described in Items I, II and III below, which Items have been prepared 
by the NASD.\1\ The Commission is publishing this notice to solicit 
comments on the proposed rule change as further amended by Amendment 
No. 5 from interested persons and is simultaneously granting 
accelerated approval to the proposed rule change for a period of six 
months.
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    \1\ The Commission previously published notice of the proposed 
rule change and granted accelerated approval thereto for periods of 
120 days, six months and six months (Securities Exchange Act Release 
No. 37425 (July 11, 1996), 61 FR 37518 (July 18, 1996) (``Release 
No. 34-37425''), Securities Exchange Act Release No. 37957 (November 
15, 1996), 61 FR 59267 (November 21, 1997) (``Release No. 34-
37957'') and Securities Exchange Act Release No. 38645 (May 15, 
1997), 62 FR 28086 (May 22, 1997) (``Release No. 34-38645''), 
respectively.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NASD is proposing to amend the Plan of Allocation and 
Delegation of Functions by NASD to Subsidiaries (``Delegation Plan'') 
setting forth the purpose, function, governance, procedures and 
responsibilities of the NASD, NASD Regulation, Inc. (``NASD 
Regulation'') and The Nasdaq Stock Market, Inc. (``Nasdaq''), following 
the reorganization of the NASD.
    The initial version of the Delegation Plan (with the implementing 
provisions contained in Rule 0130) was originally filed with the 
Commission in SR-NASD-96-16. It was published for comment and approved 
by the Commission on a temporary basis for a period of 90 days.\2\ On 
July 11, 1996, the Commission issued another release publishing for 
comment three changes to the Delegation Plan and further approving the 
Delegation Plan as amended for a period of 120 days.\3\ On November 15, 
1996 and May 15, 1997, the Commission extended temporary approval of 
the instant proposed rule change for two additional six month 
periods.\4\
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    \2\ Securities Exchange Act Release No. 37107 (April 11, 1996), 
61 FR 16948 (April 18, 1996) (``Release No. 34-37107'').
    \3\ Release No. 34-37425. Release Nos. 34-37107 and 34-37425 
published the complete text of the rule change.
    \4\ Release Nos. 34-37957 and 34-38645, respectively.
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    On April 18, 1997, the NASD filed SR-NASD-97-28, seeking approval 
of, among other matters, certain proposed amendments to the Delegation 
Plan.\5\ The proposed amendments to the Delegation Plan contained 
therein were withdrawn by Amendment No. 3 thereto.\6\
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    \5\ Securities Exchange Act Release No. 38545 (April 24, 1997), 
62 FR 25226 (May 8, 1997) (``Release No. 34-38545''), the Notice of 
Filing of a Proposed Rule Change by the National Association of 
Securities Dealers, Inc. to Proposed Changes in the By-Laws of the 
NASD, NASD Regulation, Inc., The Nasdaq Stock Market, Inc., the Plan 
of Allocation and Delegation of Functions by the NASD to 
Subsidiaries, Membership Application Procedures, Disciplinary 
Proceedings, Other Proceedings, and Other Conforming Changes 
(``Release No. 34-38545''). The comment period for Release No. 34-
38545 expired on June 6, 1997. SR-NASD-97-28 is being approved 
simultaneously with the instant filing, see Securities Exchange Act 
Release No. 38908 (``Release No. 34-38908'').
    \6\ See Letter from Alden S. Adkins, Vice President and General 
Counsel, NASD Regulation, to Katherine A. England, Assistant 
Director, Division of Market Regulation, Commission (dated July 11, 
1997).
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    The NASD hereby files this Amendment No. 5 to the instant rule 
filing, pursuant to Section 19(b)(1) of the Act and Rule 19b-4 
thereunder, to continue temporary approval of the Delegation Plan, 
revised to conform to the Rules of the Association, as amended by 
Release No. 34-38908. Approval until November 15, 1997, the remaining 
effective period of Amendment No. 4 to the instant rule filing, is 
requested. During this interval, there will be no further amendments to 
the Delegation Plan, absent Commission approval of a corresponding Rule 
19b-4 filing.

II. Self-Regulatory Organization's Statement of the Purpose of and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the NASD included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any

[[Page 43572]]

comments it received on the proposed rule change. The text of these 
statements may be examined at the places specified in Item V below. The 
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.
    The purpose of this Amendment No. 5 is to ensure continued 
effectiveness of the Delegation Plan while the Commission considers 
whether to grant permanent approval to the instant NASD rule filing.
    Description of Delegation Plan: The Delegation Plan is organized in 
three principal parts, one for each of the three major entities that 
will constitute the reorganized self-regulatory organization: the 
parent corporation, NASD; the regulatory subsidiary, NASD Regulation; 
and the stock market operating subsidiary, Nasdaq.\7\ The Delegation 
Plan, the contents of which are self-explanatory, describes the 
purposes, functions, governance, procedures and responsibilities of 
each of these entities.
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    \7\ The NASD, NASD Regulation and Nasdaq are collectively 
referred to herein as the ``Association.'' The Delegation Plan does 
not discuss other wholly owned subsidiary corporations of the NASD, 
such as the Securities Dealers Risk Purchasing Group, Inc. and the 
Securities Dealers Insurance Co., Ltd. These and any other wholly 
owned subsidiaries of the NASD not described in the Delegation Plan 
do not perform any of the Association's regulatory functions or the 
operating functions related to the operation of Nasdaq. In addition, 
the Delegation Plan does not address the NASD's ownership role in 
corporations such as the National Securities Clearing Corporation or 
the Depository Trust Company.
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    The first part of the Delegation Plan describes the parent 
corporation, the NASD. The Delegation Plan sets forth the purpose and 
function of the NASD; the composition of the Board of Governors, 
including provisions relating to the qualifications for Governors, 
election procedures, creation of a National Nominating Committee,\8\ 
term of office, vacancies and removal from office,; the function, 
composition and reporting structure of the Audit Committee and the 
Office of Internal Review; the function and composition of the 
Management Compensation Committee; and the Commission's access to and 
status of officers, directors, employees, books, records and premises 
of the subsidiaries.
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    \8\ The National Nominating Committee is composed of at least 
six and not more than nine members equally balanced between Industry 
and Non-Industry Committee Members. It is anticipated that there 
will be at least three Non-Industry Members, including at least two 
Public Committee Members.
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    The second part of the Delegation Plan describes the regulatory 
subsidiary, NASD Regulation. The Delegation Plan sets forth the 
delegation of authority to NASD Regulation by the NASD; the purpose, 
function and authority of NASD Regulation; the composition of, and 
qualifications for members of, the Board of Directors, including 
provisions relating to election procedures; the function and 
composition of the National Business Conduct Committee; the Board's 
procedures for reviewing disciplinary actions, statutory 
disqualification decisions and proposed rule change recommendations; 
and the Board's procedures for initiating actions.
    The third part of the Delegation Plan describes the stock market 
operating subsidiary, Nasdaq. The Delegation Plan sets forth the 
delegation of authority to Nasdaq; the purpose and function of Nasdaq; 
the composition of and qualifications for members of the Board of 
Directors, including provisions relating to election procedures and the 
authority of the Board; the Board's procedures for reviewing listing/
delisting decisions, and rule change recommendations; the Board's 
procedures for initiating actions; the functions and composition of the 
Quality of Markets Committee; and functions of the Stockwatch 
Department.
    The Rules of the Association, as amended by Release No. 34-38908, 
include modifications of the time periods for certain procedures 
described in the Delegation Plan. The amendments to the Delegation Plan 
proposed by this Amendment No. 5 conform to these modifications and 
further amplify the delegation of functions and authority to NASD 
Regulation.
2. Statutory Basis for the Proposed Rule Change
    The NASD believes that the proposed rule change as further amended 
by Amendment No. 5 is consistent with the provisions of Section 
15A(b)(2) of the Act \9\ in that the terms of the Delegation Plan will 
provide for the organization of the Association in a manner that will 
permit the NASD, through its operating subsidiaries, to carry out the 
purposes of the Act, to comply with the Act, and to enforce compliance 
by Association members and persons associated with members with the 
Act, the rules and regulations thereunder, the rules of the Association 
and the federal securities laws.
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    \9\ 15 U.S.C. 70o-3
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The NASD does not believe that the proposed rule change as further 
amended by Amendment No. 5 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.\10\ However, 
in connection with the NASD's publication for member vote of proposed 
amendments to the By-Laws to implement the Delegation Plan in Notice 
95-101 (December 11, 1995) (``Notice 95-101''), attached as Exhibit 2 
to proposed rule change SR-NASD-96-02, the NASD received three comments 
which were attached as Exhibit 4 to that proposed rule change. The 
NASD's statement on the comments received with respect to notice 95-101 
is set forth in SR-NASD-96-02 and was published by the Commission in 
Securities Exchange Act Release No. 37106 (April 11, 1996), 61 FR 16944 
(April 18, 1996). SR-NASD-96-02 proposed certain of the By-Law 
amendments issued for member vote in Notice 95-101 in order to permit 
the reorganization of its Board of Governors consistent with the 
Delegation Plan submitted in SR-NASD-96-16.
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    \10\ The comment letters received in connection with Release No. 
34-38545 did not address the Delegation Plan.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The NASD has requested that the Commission find good cause pursuant 
to Section 19(b)(2) of the Act for approving the proposed rule change 
as further amended by Amendment No. 5 prior to the 30th day after 
publication in the Federal Register.

IV. Discussion

    The Commission finds that the proposed rule change as further 
amended by Amendment No. 5 is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to the NASD 
and, in particular, the requirements of Section 15A of the Act and the 
rules and regulations thereunder. The Commission believes that the 
proposed rule change will allow the NASD to

[[Page 43573]]

carry out the purposes of the Act to comply with, and enforce 
compliance by its members and associated persons with, the provisions 
of the Act, the rules and regulations thereunder, the rules of the NASD 
and the federal securities laws. Furthermore, the amendments are 
designed (with amendments to the Rules of the Association 
simultaneously approved in Release No. 34-38908, as discussed above) to 
insure a fair representation of the NASD's members in the selection of 
its directors and administration of its affairs as well as to comply 
with the public and non-industry participation requirements of the Act. 
It is envisioned that these rules and any subsequent changes that may 
be implemented from time-to-time will enable the NASD to better comply 
with the requirements of Section 15A(b)(2) in particular and the Act in 
general.
    The Commission finds good cause for approving the proposed rule 
change prior to the 30th day after the date of publication of notice of 
filing thereof in that accelerated approval will enhance the NASD's 
ability to carry out its regulatory obligations under the Act. The 
Commission believes that the proposed rule change is intended to 
accomplish certain allocations and delegations of authority necessary 
to reorganize the NASD, and establish as separate subsidiaries NASD 
Regulation and Nasdaq in accordance with the September 1995 
recommendations of The Select Committee on Structure and Governance in 
order to enable the NASD to meet its regulatory and business 
obligations. The Delegation Plan sets forth the purpose, functions, 
governance, procedures, and responsibilities of the NASD, NASD 
Regulation and Nasdaq following the reorganization of the NASD. The 
NASD's Board of Governors, which has been reorganized to be consistent 
with the proposed rule change, has held meetings to carry out the 
business of the Association. The subsidiaries also have held meetings 
of the Board of Directors of NASD Regulation and Nasdaq in order to 
carry out the business of the subsidiaries during the period in which 
the Delegation Plan has been effective.
    The instant proposed rule change was previously published for 
comment and approved by the Commission on a temporary basis for periods 
of 120 days, six months, and six months.\11\ The second six month 
approval period is scheduled to expire on November 15, 1997. No comment 
letters concerning the instant proposed rule change were received by 
the Commission.
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    \11\ Release Nos. 34-37425, 34-37957, and 34-38645, 
respectively.
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    Accordingly, the Commission believes that accelerating the approval 
of the proposed rule change as further amended by Amendment No. 5 will 
benefit members and the public interest by more fully implementing the 
reorganization of the NASD and its subsidiaries.\12\
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    \12\ In approving this rule filing, the Commission has 
considered the proposed rule filing's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
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V. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. 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. 
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 number in the caption 
above and should be submitted by September 4, 1997.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change SR-NASD-96-29, as amended by Amendment 
No. 5, be, and hereby is, approved through November 15, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 97-21446 Filed 8-13-97; 8:45 am]
BILLING CODE 8010-01-M