[Federal Register Volume 62, Number 39 (Thursday, February 27, 1997)]
[Notices]
[Pages 9009-9010]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-4862]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83821; File No. SR-NASD-97-06]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by National Association of Securities Dealers, Inc. Relating to 
the Scope of the Uniform Practice Code

February 21, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ notice is hereby given that on February 20, 1997, the 
NASD Regulation, Inc. (``NASD Regulation'') filed with the Securities 
and Exchange Commission (``SEC'' or ``Commission'') the proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared by NASD Regulation.\2\ The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. Sec. 78s(b)(1).
    \2\ The proposed rule change was originally filed on January 29, 
1997. The NASD subsequently submitted Amendment No. 1 that removed 
certain unnecessary text. This document provides notice of the 
proposed rule change as amended. Letter from Suzanne E. Rothwell, 
Associate General Counsel, NASD Regulation, to Katherine A. England, 
Assistant Director, Division of Market Regulation, SEC, dated 
February 20, 1997.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD Regulation is proposing to amend Rule 11100 of the Uniform 
Practice Code (``Code'') of the National Association of Securities 
Dealers, Inc. (``NASD'' or ``Association''), to clarify the scope of 
the Code and the exception for transactions settled through a clearing 
agency. Below is the text of the proposed rule change. Proposed new 
language is in italics.

11100. Scope of Uniform Practice Code

    (a) All over-the-counter secondary market transactions in 
securities (including restricted securities, as defined in Rule 
144(a)(3) under the Securities Act of 1933) between members, including 
the rights and liabilities of the members participating in the 
transaction, and those operational procedures that affect the day-to-
day business of members shall be subject to the provisions of this Code 
except:
    (1) transactions in securities between members which are compared, 
cleared or settled through the facilities of a registered clearing 
agency, except to the extent that the rules of the clearing agency 
provide that rules of other organizations shall apply.
* * * * *

II. Self-Regulatory Organizations Statement of the Purpose of and 
Statutory Basis for, the proposed Rule Change

    In its filing with the Commission, NASD Regulation included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. NASD Regulation has prepared summaries, set 
forth in Sections A, B, and C below, of the most significant aspects of 
such statements.

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

    (a) The Code provides detailed requirements for many procedures and 
practices related to the operational aspects of members' securities 
business, including requirements for deliveries, payments, dividends, 
rights, interest, exchange of confirmations, assignments, powers of 
substitution, computation of interest, due bills, transfer fees, 
``when, as and if issued'' trading, ``when, as and if distributed'' 
trading, market to market, buy-ins, close-outs, accounts transfers, 
settlement of syndicate accounts, etc.
    The introductory language in paragraph (a) of Rule 11100 states the 
general standard that ``all over-the-counter secondary market 
transactions in securities between members shall be subject to the 
provisions of this Code. * * *'' The focus of the language only on 
``transactions in securities'' does not encompass those provisions of 
the current Code that address the rights and liabilities of the members 
participating in the transaction and provide procedures that are not 
related to securities transactions, e.g., the setting of ex-dates and 
the transfer of customer accounts. In addition, the exception in 
subparagraph (a)(1) of Rule 11100 for securities transactions cleared 
through a registered clearing agency does not address the situation 
where the rules of the clearing agency require compliance with the 
rules of the applicable market. In this latter case, the clearing 
agency exception is technically not available since the clearing agency 
requires that

[[Page 9010]]

the Code or the rules of the relevant market apply to the transaction. 
Finally, since the SEC's adoption of Rule 144A in 1991, members have 
inquired as to whether the Code is applicable to transactions in 
restricted securities.
    In order to provide clarity on the applicability of the Code, NASD 
Regulation is proposing to amend the Code to expand the introductory 
language of paragraph (a) of Rule 11100 to state that:
    (i) the application of the Code to secondary market transactions in 
securities includes the regulation of the ``rights and liabilities of 
the members participating in the transaction'';
    (ii) the Code also applies to ``those operational procedures that 
affect the day-to-day business of members'';\3\ and
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    \3\ This language is drawn from Article XV, Section 1 of the 
NASD By-Laws which authorizes the Association to adopt the Uniform 
Practice Code which states that the adoption of such a Code is for 
the purpose that ``the transaction of day-to-day business by members 
may be simplified and facilitated * * * .''
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    (iii) the securities transactions covered by the Code include 
transactions in ``restricted securities, as defined in Rule 144(a)(3) 
under the Securities Act of 1933.''
    As a result of this change, secondary market transactions in 
restricted securities that are not in a depository will be required to 
comply with the Code's operational procedures. In this connection, NASD 
Regulation is also clarifying the securities sold offshore pursuant to 
the exemption from registration provided by Regulation S are considered 
to be subject to the requirements of the Code when those securities are 
traded in the U.S. after the expiration of the restricted period. It is 
not believed any change to the Code is necessary with respect to this 
clarification, as the Code clearly applies to all registered and 
unregistered secondary securities market transactions between members, 
which would include securities formerly sold in a Regulation S 
transaction.
    In addition, NASD Regulation is proposing to amend subparagraph 
(a)(1) of Rule 11100 to clarify that the exception for transactions in 
securities between members that are compared, cleared or settled 
through the facilities of a registered clearing agency does not apply 
where the rules of the clearing agency provide that the rules of other 
organizations shall apply.
    NASD Regulation believes that these changes will make clear the 
broad scope and applicability of the Code and permit members to look to 
the Code for guidance regarding transactions settled through a clearing 
agency, where the clearing agency has adopted a rule directing that the 
rules of the governing market apply to the transaction.
    (b) NASD Regulation believes that the proposed rule change is 
consistent with the provisions of Section 15A(b)(6) of the Act \4\ in 
that the proposed rule change clarifies the application of the Uniform 
Practice Code to establishing the liabilities of parties to a 
transaction, to restricted securities, to the operational procedures 
that affect the day-to-day business of members, and to transactions 
settled through a clearing agency where the rules of the clearing 
agency direct that the rules of the governing market apply to the 
transaction. NASD Regulation believes the proposed rule change is 
consistent with the Association's obligations to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities and, in general, in the public interest.
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    \4\ 15 U.S.C. Sec. 78o-3.
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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 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. 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 File No. SR-NASD-97-06 and should 
be submitted by March 20, 1997.

    For the Commission, by the Division of Market Regulations, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-4862 Filed 2-26-97; 8:45 am]
BILLING CODE 8010-01-M