Federal Register / Vol. 65, No. 190 / Friday, September 29, 2000 / Notices 58585

11 17 CFR 200.30–3(a)(29).

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

2 17 CFR 240.19b–4.

3See September 1, 2000 letter from Alden S.

Adkins, Senior Vice President and General Counsel,

NASD Regulation to Joseph P. Morra, Special

Counsel, Division of Market Regulation, SEC

(‘‘Amendment No. 1’’). In Amendment No. 1, NASD

Regulation made technical, non-substantive

changes to the original proposal. In addition, NASD

Regulation provided clarifying language to assist in

describing the requirements under Rule 1120.

4See September 19, 2000 letter from Gregory J.

Dean, Jr., Assistant General Counsel, NASD

Regulation to Joseph P. Morra, Special Counsel,

Division of Market Regulation, SEC (‘‘Amendment

No. 2’’). In Amendment No. 2, NASD Regulation

corrected the reference to SEC Rule 19d–1(c)(2) in

the title to IM–9216.

5 17 CFR 240.19d–1.

approved for 120 days, through January

18, 2001.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretay.

[FR Doc. 00–25023 Filed 9–28–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

Sunshine Act Meeting

FEDERAL REGISTER CITATION OF PREVIOUS

ANNOUNCEMENT: [to be published]

STATUS: Closed meeting.

PLACE: 450 Fifth Street NW.,

Washington, DC.

DATE PREVIOUSLY ANNOUNCED: September

20, 2000.

CHANGE IN THE MEETING: Cancellation of

meeting.

The closed meeting scheduled for

Wednesday, September 27, 2000 at

11:00 a.m. has been cancelled.

Dated: September 26, 2000.

Jonathan G. Katz,

Secretary.

[FR Doc. 00–25095 Filed 9–26–00; 4:11 pm]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43330; File No. SR–NASD–

00–39]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change and

Amendment Nos. 1 and 2 by the

National Association of Securities

Dealers, Inc. Relating to an

Amendment to Schedule A of the

NASD By-Laws for the Timely Filing of

Reports, and Amendments to IM–9216,

Minor Rule Violation Plan

September 22, 2000.

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 June 20,

2000, the National Association of

Securities Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’), through its wholly

owned subsidiary, NASD Regulation,

Inc. (‘‘NASD Regulation’’), filed 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 NASD Regulation. NASD

Regulation amended the proposal on

September 5, 2000.3 On September 21,

2000, NASD Regulation again amended

the proposal.4 The Commission is

publishing this notice to solicit

comments on the proposed rule change,

as amended, from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

NASD Regulation proposes to amend

Schedule A of the NASD By-Laws for

the Timely Filing of Reports, and to

amend IM–9216, Minor Rule Violation

Plan of the Association, to permit the

Association to set late fees to encourage

the timely filing of reports and to

expand the Association’s Minor Rule

Violation Plan pursuant to SEC Rule

19d–1.5 Below is the text of the

proposed rule change. Proposed new

language is in italics.

* * * * *

Schedule A to the NASD By-Laws

Assessments and fees pursuant to the

provisions of Article VI of the By-Laws

of the NASD shall be determined on the

following basis:

* * * * *

Section 2—Fees

(a) through (k) No Change.

(l)(1) Unless a specific temporary

extension of time has been granted,

there shall be imposed upon each

member required to file reports, as

designated by this paragraph, a fee of

$100 for each day that such report is not

timely filed. The fee will be assessed for

a period not to exceed 10 business days.

Requests for such extension of time

must be submitted to the Association at

least three business days prior to the

due date; and

(2) Any report filed pursuant to this

Rule containing material inaccuracies

or filed incompletely shall be deemed

not to have been filed until a corrected

copy of the report has been resubmitted.

(3) List of Designated Reports:

(A) SEC Rule 17a–5—Monthly and

quarterly FOCUS reports and annual

audit reports.

* * * * *

IM–9216. Violations Appropriate for

Disposition Under Plan Pursuant to SEC

Rule 19d–1(c)(2)

• Rule 2210(b) and (c) and Rule 2220(b)

and (c)—Failure to have advertisement and

sales literature approved by a principal prior

to use; failure to maintain separate files of

advertisements and sales literature

containing required information; and failure

to file advertisements with the Association

within the required time limits.

• Rule 3360—Failure to timely file reports

of short positions on Form NS–1.

• Rule 3110—Failure to keep and preserve

books, accounts, records, memoranda, and

correspondence in conformance with

applicable laws, rules, regulations and

statements of policy promulgated thereunder,

and with the Rules of the Association.

• Rule 8211, Rule 8212, and Rule 8213—

Failure to submit trading data as requested.

• Article IV of the NASD By-Laws—Failure

to timely submit amendments to Form BD.

• Article V of the NASD By-Laws—Failure

to timely submit amendments to Form U–4.

• Rule 1120—Failure to comply with

continuing education requirements.

• Rule 3010(b)—Failure to timely file

reports pursuant to the Taping Rule.

• Rule 3070—Failure to timely file reports.

• Rule 4619(d)—Failure to timely file

notifications pursuant to SEC Regulation M.

• Rules 4632, 4642, 4652, 6240, 6420,

6550, 6620, And 6720—Transaction

reporting in equity, convertible debt, and

high yield securities.

• Rules 6130 and 6170—Transaction

reporting to the Automated Confirmation

Transaction Service (‘‘ACT’’).

• Rule 6953—Synchronization of member

business clocks.

• Rules 6954 and 6955—Failure to submit

data in accordance with the Order Audit

Trail System (‘‘OATS’’).

• Rule 11870—Failure to abide by

Customer Account Transfer Contracts.

• SEC Exchange Act Rule 11Ac1–4—

Failure to properly display limit orders.

• SEC Exchange Act Rule 11Ac1–1(c)(5)—

Failure to properly update published

quotations in certain Electronic

Communication Networks (‘‘ECN’s’’).

• SEC Exchange Act Rule 17a–5—Failure

to timely file FOCUS reports.

• SEC Exchange Act Rule 17a–11—Failure

to timely file net capital reports.

• MSRB Rule A–14—Failure to pay annual

fee.

• MSRB Rule G–12—Failure to abide by

uniform practice rules.

• MSRB Rule G–14—Failure to submit

reports.

• MSRB Rule G–36—Failure to timely

submit reports.

• MSRB Rule G–37—Failure to timely

submit reports for political contributions.

• MSRB Rule G–38—Failure to timely

submit reports detailing consultant activities.

* * * * *

58586 Federal Register / Vol. 65, No. 190 / Friday, September 29, 2000 / Notices

6See Notice to Members 99–50 (July 1999) (NASD

Will No Longer Impose Censures for Some

Violations); Notice of Members 99–86 (October

1999) (NASD Regulation Adopts Policy Regarding

Imposition And Collection of Monetary Sanctions).

7 17 CFR 240.19d–1(c)(2).

8See Securities and Exchange Act Release No.

21013 (June 1, 1984), 49 FR 23833 (June 8, 1984).

9 17 CFR 240.19d–1(c)(2).

10See Securities Exchange Act Release No. 32076

(March 31, 1993), 58 FR 18291 (April 8, 1993) (SR–

NASD–93–06). See also Notice to Members 93–42

(July 1993) (SEC Approves NASD’s Minor Rule

Violation Plan).

11Recently, the NASD has decided not to impose

censures for certain violations when monetary

sanctions of $5,000 or less are imposed. See Notice

to Members 99–59 (July 1999) (NASD Will No

Longer Impose Censures for Some Violations).

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 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

In 1999, the Association considered

and implemented a number of

significant sanction-related policies

with respect to formal disciplinary

actions.6 These policies were

implemented in response to a request

from members for alternative

mechanisms to achieve regulatory

compliance in an effective and efficient

manner. Citing the time and cost of

defending disciplinary actions and the

consequences of reporting such

violations, member firms have asked

whether certain situations, such as

technical or minor violations, might be

better addressed through alternative

approaches. In response, the NASD

proposes to amend Schedule A of the

NASD By-Laws to establish late fees for

designated filings and reports, and to

amend the list of violations for the

Association’s Minor Rule Violation Plan

set forth in IM–9216. These changes will

allow the Association greater flexibility

in obtaining compliance with violations

considered to be technical in nature,

without having to file complaints and

hold hearings under the disciplinary

procedures.

Late Fees. Proposed amendments to

Schedule A of the NASD By-Laws

would adopt a late fee for certain filings

and reports designated by the

Association. The late fees would be

assessed on a per-day basis for a period

of no more than 10 business days. The

fees would be administrative rather than

disciplinary in nature, and will help

assist Association staff in achieving

members’ compliance. Where the late

filing is serious, the institution of a

suspension or disciplinary proceedings

will be more appropriate.

Because the late fees would be

assessed on a per-day basis, the total

dollar amount of a late filing fee would

increase for each day the filing is filed

past the deadline. In those instances

where the member knows it is unable to

meet a filing deadline (e.g., technical

difficulties, third party contractor

delays, auditor delays, and other types

of delays outside the control of the

member), the member may apply before

the deadline for an extension. In

addition, inaccurate or incomplete

filings will not be deemed filed until

they are correctly submitted. Once the

Association determines a late fee is due,

the Association will send notice of the

late fee to the member after the

document has been correctly filed, or

after 10 business days have past. When

the notice has been sent, the late fee will

be automatically deducted from the

member’s Central Registration

Depository Account.

The Association belives that the

implementation of late fees would be an

additional incentive for members to

comply with filing requirements.

Because the Association would not

commence disciplinary proceedings

except in serious cases, members benefit

by not having to expend the time and

expense of defending those actions. The

administrative cost to the Association to

compel compliance by those who miss

the filing deadlines will be borne by the

members who file reports late.

Minor Rule Violation Plan. In 1984,

the SEC adopted amendments to Rule

19d–1(c) under the Act 7 to allow selfregulatory organizations to adopt, with

SEC approval, Minor Rule Violation

Plans.8 In 1993, pursuant to Exchange

Act Rule 19d–1(c)(2),9 the NASD

established a Minor Rule Violation Plan

(‘‘Plan’’).10 NASD Rule 9216(b) provides

that the Association may impose a fine

and/or a censure, not to exceed $2,500,

on any member or associated person for

a minor violation of certain specified

Association rules contained in IM–

9216.11 The purpose of NASD Rule

9216(b) is to provide for a meaningful

sanction for a rule violation when the

initiation of disciplinary proceeding

through the formal complaint process

would be more costly and timeconsuming than would be warranted,

given the minor or technical nature of

the violation. In addition, the Rule

provides an efficient, alternative means

by which to deter violations of rules

while maintaining procedural rights for

disciplined persons. Inclusion of a rule

in the Association’s Plan should not be

interpreted to mean it is an unimportant

rule; rather, the technical violation of

the rule may be appropriate for

disposition under the Plan. The

Association retains this discretion to

bring full disciplinary proceedings for

any violation included in the Plan,

including situations where the violation

is egregious or where there is a history

or pattern of repeat violations.

In SR–NASD–93–06, which initially

set forth the provisions and procedures

of NASD Rule 9216(b), the Association

indicated that it would amend the list

of rules from time to time, as it

considered appropriate, to phase in the

implementation of NASD Rule 9216(b).

At this time the Association proposes to

amend IM–9216 to expand the list of

minor rule violations in the Plan that

would be appropriate for disposition

under NASD Rule 9216(b). The

Association proposes to assess fines not

to exceed $2,500 for violations by

individuals, and not to exceed $5,000

for violations by member firms. The

number and seriousness of the

violations, and the previous disciplinary

history of the respondent will be

reviewed to determine the amount of

the fine for a minor rule violation. Once

the Association has brought a minor

rule violation against an individual or

member firm, the Association may, at its

discretion, issue progressively higher

fines for all subsequent minor rule

violations within the next 24-month

period.

Description of Proposed Additions to

the Minor Rule Violation Plan. A

discussion of the NASD’s rationale for

including each of the violations, and the

limitations on the eligibility of such

violations for disposition under the

Plan, follows:

Article IV of NASD By-Laws-Failure to

timely submit amendments to Form BD.

Members are required pursuant to

Article IV, Section (c) of the NASD ByLaws to ensure that their membership

applications are kept current at all times

through amendments to Form BD. All

such amendments must be filed with

the NASD no later than 30 days after

learning of facts or circumstances giving

rise to an amendment. The Association

believes that the failure to amend Form

BD in a timely manner by a member

Federal Register / Vol. 65, No. 190 / Friday, September 29, 2000 / Notices 58587

12 15 U.S.C. 78c(a)(39). 13 15 U.S.C. 78o(b)(4). 14 ‘‘Registered person’’ means any person

registered with the Association as a representative,

principal or assistant representative pursuant to

Rules 1020, 1030, 1040, and the Rule 1110 Series.

15 ‘‘Covered registered person’’ means any person

registered with a member who has direct contact

with customers in the conduct of the member’s

securities sales, trading and investment banking

activities, and to the immediate supervisors of such

persons.

16 17 CFR 242.

17 17 CFR 242.101.

18 17 CFR 242.103

19 17 CFR 242.104.

20NASD Rules 4632, 4642, 4652, 6240, 6420,

6550, 6620 and 6720.

21NASD Rule 6110(a).

firm may be appropriate for disposition

as a minor rule violation.

Article V of NASD By-Laws-Failure to

timely submit amendments to Form U–

4. All registered representatives and

associated persons are required

pursuant to Article V, Section 2(c) of the

NASD By-Laws to ensure that their

applications are kept current at all times

through amendments to Form U–4. All

such amendments must be filed with

the NASD no later than 30 days after

learning of facts or circumstances giving

rise to an amendment. In addition,

registered representatives and

associated persons are required to file

amendments to Form U–4 if they

become statutorily disqualified as

defined in Section 3(a)(39) 12 and

Section 15 (b)(4) 13 of the Act. All

amendments pursuant to statutory

disqualification must be filed no later

than ten days after such disqualification

occurs. The Association believes that

the failure to amend Form U–4 in a

timely manner by a registered

representative or an associated person

may be appropriate for disposition as a

minor rule violation.

Rule 1120—Failure to maintain

continuing education requirements,

regulatory and firm elements.

Regulatory Element. NASD Rule 1120(a)

requires members to oversee the

continuing education requirements of

the ‘‘registered persons’’ 14 and to ensure

that such persons do not continue acting

in a registered capacity if they do not

complete the requirements≤ The

Regulatory Element of the continuing

education requirements requires that

each registered person, who is not

considered exempt from the rule, shall

complete the Regulatory Element, as

established by the member, on three

occasions after the occurrence of their

second registration anniversary and

every three years thereafter. On each

occasion, the training must be

completed within 120 days after the

registered person’s anniversary date. A

registered person will be in violation of

Rule 1120(a) if the person has not

completed the Regulatory Element

within the prescribed time periods, and

will be deemed to be inactive until the

Regulatory has been fulfilled.

The member firm will be considered

to be in violation of the Regulatory

Element if a registered person of the

member firm does not complete the

Regulatory Element requirements, and

the member firm permits a registered

person to continue to perform duties,

despite the fact that the registered

person has not completed the

Regulatory Element requirements. Firm

Element. NASD Rule 1120(b) requires

members to establish, maintain,

evaluate and update continuing

education programs for members and

their ‘‘covered registered persons.’’ 15

Specifically, the Firm Element of the

continuing education requirement

requires that each member firm develop

continuing and current education

programs for covered persons to

enhance their securities knowledge,

skill, and professionalism. The

programs must be held annually, and

must take into consideration each

member’s size, organizational structure,

and scope of business activities, as well

as regulatory developments and the

performance of covered persons in the

Regulatory Element. At a minimum, the

programs must include: general

investment features and associated risk

factors; suitability and sales practice

considerations; and applicable

regulatory requirements. A covered

registered person would be in violation

of the Firm Element if the person fails

to participate in the firm’s educational

programs.

A member firm would violate the

Firm Element of Rule 1120 if the firm

fails to take all appropriate and

reasonable steps to ensure that its

covered registered persons participate in

a continuing education program of the

member; the firm fails to adequately

ensure that covered registered persons

participate in educational programs; the

firm fails to evaluate and prioritize its

training needs annually, an to update its

written training plan when necessary;

and the firm fails to maintain

appropriate record for a written training

plan.

Rule 3010(b)—Failure to timely file

reports pursuant to the Taping Rule.

NASD Rule 3010(b)(2)(vii) requires

members subject to the taping

requirements of the Rule to file

quarterly reports that detail the

member’s supervision of the

telemarketing activities of its registered

persons. Members who fail to file

reports in a timely manner may be

subject to a minor rule violation.

Rule 3070—Failure to timely file

reports. NASD Rule 3070 requires

member firms to file a report with the

Association when any of 10 specified

events occur. These events may vary

significantly, ranging from situations

where a court, government agency, or

self-regulatory organization has

determined there has been a violation of

the securities laws, to circumstances

where a firm has received a written

customer complaint alleging theft,

misappropriation of funds or securities,

or forgery. Member firms are required to

report such events within 10 business

days after the member knows, or should

have known, of the existence of the

event. In addition, member firms are

required to collect and report statistical

and summary information regarding

customer complaints by the 15th of the

month following the calendar quarter in

which the customer complaints are

received by the member. Members who

fail to file reports in a timely manner

may be subject to a minor rule violation.

Rule 4619(d)—Failure to timely file

reports pursuant to SEC Regulation M.

NASD Rule 4619(d) requires member

firms to file certain notifications with

the NASD to comply with SEC

Regulation M,16 and SEC Rules 101,17

103,18 and 104 19 (i.e., notification of

withdrawal of quotations and

identification of quotations as those of

a passive market maker). The failure to

timely file such notices may be

considered a minor rule violation by the

Association.

Rules 4632, 4642, 4652, 6240, 6420,

6550, 6620, and 6720—Transaction

reporting in equity, convertible debt,

and high yield securities. The

Association’s trade reporting rules

require member firms to submit reports

of transactions in equity, convertible

debt, and high yield securities.20 The

rules concern trade reporting in certain

Nasdaq securities, listed securities

(commonly known as the ‘‘third

market’’), OTC equity securities, nonNasdaq securities, and high yield

securities. The Association believes that

the failure, in certain circumstances, to

report such transaction data pursuant to

the requirements of these rules may be

appropriate for disposition as a minor

rule violation.

Rules 6130 and 6170—Transaction

reporting to the Automated

Confirmation Transaction Service

(‘‘ACT’’). NASD Rules 6130 and 6170

require member firms to submit

transaction reports of transactions in

‘‘ACT Eligible Securities’’ 21 to the

Automated Confirmation Transaction

58588 Federal Register / Vol. 65, No. 190 / Friday, September 29, 2000 / Notices

22 17 CFR 240.11Ac1–4.

23 17 CFR 240.11Ac1–1(c)(5).

24 17 CFR 240.17a–5.

25 17 CFR 240.17a–11.

26 17 CFR 240.15c3–1.

Service (‘‘ACT’’). The Association

believes that the failure, in certain

circumstances, to submit required

transaction reports to ACT pursuant to

the requirements of these rules may be

appropriate for disposition as a minor

rule violation.

Rules 6953—Synchronization of

member business clocks. NASD Rule

6953 requires member firms to

synchronize all computer and

mechanical time-stamping devices to be

within three seconds of the National

Institute of Standards and Technology

standard. The Association believes that

the failure by a member firm to

synchronize its time-stamping devices

may be appropriate for disposition as a

minor rule violation.

Rules 6954 and 6955—Failure to

submit data in accordance with the

Order Audit Trail System (‘‘OATS’’).

The OATS rules impose obligations on

member firms to record in electronic

form and to report to NASD Regulation

certain items of information with

respect to orders they receive to effect

transactions in equity securities traded

in The Nasdaq Stock Market. The OATS

rules require that each member

receiving an order relating to equity

securities traded in the Nasdaq Stock

Market must capture specific

information and electronically transmit

this information to OATS. The

Association believes that violations

under the OATS rules may be

appropriate for disposition as a minor

rule violation.

Rule 11870—Failure to abide by

Customer Account Transfer Contracts.

NASD Rule 11870 requires members to

follow procedures for the transfer or

closing-out of customer accounts with

the Automated Customer Account

Transfer System (‘‘ACATS’’). The Rule

requires members to validate or object to

a customer account transfer within three

days of receipt of the transfer notice.

Members must complete the transfer

within four days of validation. Failure

to transfer the customer account with

the stated time or failure to properly

transfer a customer account may be

appropriate for disposition as a minor

rule violation.

SEC Rule 11Ac1–4—Failure to

properly display limit orders. SEC Rule

11Ac1–4 22 requires, subject to certain

exceptions, a registered broker or dealer

that acts as an OTC market maker to

‘‘immediately’’ display qualifying

customer limit orders in its published

quotes. Failure to immediately display

qualifying limit orders pursuant to SEC

Rule 11Ac1–4 may be appropriate for

disposition as a minor rule violation.

SEC Rule 11Ac1–1(c)(5)—Failure to

properly update published quotations in

certain Electronic Communication

Networks (‘‘ECN’s’’). SEC Rule 11Ac1–

1(c)(5) 23 requires an OTC market maker

to update its published quotation to

reflect qualifying priced orders that it

enters into a specific type of Electronic

Communication Network (‘‘ECN’’). The

failure to display such priced orders

pursuant to SEC Rule 11Ac1–1(c)(5)

may be considered a minor rule

violation by the Association.

SEC Rule 17a–5—Failure to timely file

FOCUS reports. The Association

proposes to institute minor rule

violations for failure of a member to

timely file monthly, quarterly and

annual reports required by SEC Rule

17a–5,24 also known as FOCUS reports.

Reports not filed in a timely manner

may be appropriate for disposition as a

minor rule violation.

SEC Rule 17a–11—Failure to timely

file net capital reports. SEC Rule 17a–

1125 requires members to file reports if

their net capital falls below a certain

level as defined in SEC Rule 15c3–1,26

or in other instances that indicate the

existence of financial or operational

difficulties. The Association believes

that the failure to timely file the reports

may be appropriate for disposition as a

minor rule violation.

MSRB Rule A–14—Failure to pay

annual fee. MSRB Rule A–14 requires

each broker, dealer and municipal

securities dealer to pay an annual fee to

the MSRB Board in each fiscal year in

which the broker, dealer and municipal

securities dealer conducts municipal

securities activities. The fee must be

received by the Board no later than

October 31 of the fiscal year in which

the fee is due. Failure to pay the annual

fee may be considered by the

Association to be a minor rule violation.

MSRB Rules G–12 and G–14—Failure

to Report Transactions or Inaccurate

Reporting of Transactions. MSRB Rule

G–14, in part, requires the accurate and

timely reporting of each transaction in

municipal securities. The Association

believes that failure to report

transactions may be appropriate for

disposition as a minor rule violation. In

addition, inaccurate and/or untimely

transaction reporting is measured and

assessed based on the following

benchmarks, which are derived from

industry compliance statistics:

• National Securities Clearing

Corporation ‘‘T-Input Percentage.’’ An

industry goal is a T-Input Percentage of

95 percent.

• Effecting Broker Symbol (‘‘EBS’’)

percentage. For the past six months, the

industry EBS compliance percentage

has been over 99 percent.

• Customer Trade Ineligibility

(‘‘CTI’’) percentage. For the past year,

the industry CTI percentage has been

about ten percent.

The Association believes that

inaccurate or untimely transaction

reporting under these rules may be

appropriate for disposition as a minor

rule violation. More significant noncompliance with MSRB Rule G–14 is

generally evident in instances when the

T-Input Percentage is below 90 percent

for a 6-month period, or for EBS and

CTI, when firm non-compliance

statistics are 5 percent or more below

the industry average for a 6-month

period. In these instances, formal

complaint proceedings may be brought

by the Association. Subsequent noncompliance using these criteria would

warrant a formal complaint.

MSRB Rule G–36—Failure to timely

submit reports. MSRB Rule G–36

concerns the delivery of Official

Statements, Advance Refunding

Documents and Forms G–36(OS) and G–

36(ARD) to the MSRB. MSRB Rule G–

36, in part, requires the sending—within

certain specified time frames—of two

copies of certain issuer documents to

the MSRB. Failure to file Form G–

36(OS) or G–36(ARD) within the

published time frames may be

appropriate for disposition as a minor

rule violation.

MSRB Rule G–37—Failure to timely

submit reports for political

contributions and MSRB Rule G–38—

Failure to timely submit reports

detailing consultant activities. MSRB

Rules G–37 and G–38 require, in part,

the disclosure on MSRB Form G–37/38

of certain political contributions,

solicitation of municipal securities

business, and the use of consultants by

municipal securities dealers. Due dates

for these required disclosures are

January 31, April 30, July 31, and

October 31. The late filing of reports

pursuant to MSRB Rules G–37 and G–

38 may be appropriate for disposition as

a minor rule violation.

In addition, form filings that are

incomplete or inaccurate, or inaccurate

record keeping as required under MSRB

Rules G–37 and G–38, may also be

appropriate for disposition by the

Association as minor rule violations.

Federal Register / Vol. 65, No. 190 / Friday, September 29, 2000 / Notices 58589

27 15 U.S.C. 78o–3(b)(6).

28 15 U.S.C. 78o–3(b)(7).

29 15 U.S.C. 78o–3(b)(8).

30 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. 42958

(June 20, 2000), 65 FR 39457.

4A non-Nasdaq security is any equity security

that is neither included in the Nasdaq Stock Market

nor traded on a national securities exchange. See

NASD Rule 6710(c).

5Currently, if three firm quotations are displayed,

a broker-dealer is not required to call the three

market makers to verify the firm quotations that are

displayed on the screen. A broker-dealer need note

on the order ticket only the identity of the brokerdealers and the firm quotations displayed.

6The proposed rule change defines the term interdealer quotation system as any system of general

circulation to brokers or dealers that regularly

disseminates quotations of identified brokers or

dealers.

2. Statutory Basis

NASD Regulation believes that the

proposal is consistent with the

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

Act,27 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. NASD

Regulation believes that the proposed

rule change is consistent with Section

15A(b)(7) of the Act,28 in that it is

intended to safeguard the interests of

investors while establishing fair and

reasonable rules for its members and

persons associated with its members.

NASD Regulation also believes that the

proposed rule change is consistent with

Section 15A(b)(8) of the Act,29 in that it

furthers the statutory goals of providing

a fair procedure for disciplining

members and associated persons.

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 NASD 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, NW.,

Washington, DC 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 file number

SR–NASD–00–39 and should be

submitted by October 20, 2000.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.30

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–25022 Filed 9–28–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43319; File No. SR–NASD–

00–20]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change by

the National Association of Securities

Dealers, Inc. To Amend the Three

Quote Rule for Transactions in NonNasdaq Securities

September 21, 2000.

I. Introduction

On April 13, 2000, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’), through its subsidiary,

NASD Regulation, Inc. (‘‘NASD

Regulation’’), filed with the Securities

and Exchange Commission

(‘‘Commission’’), pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’) 1 and Rule 19b–4 2

thereunder, a proposed rule change that

amends the Three Quote Rule for

transactions in non-Nasdaq securities

and its corresponding recordkeeping

provision. The proposal was published

for comment in the Federal Register on

June 25, 2000.3 The Commission

received no comments on the proposal.

This order approves NASD Regulations’

proposed rule change.

II. Description of the Proposal

NASD Regulation has proposed three

amendments to the NASD’s rules.

First NASD Regulation has proposed

to amend NASD Rule 2320(g)—

commonly known as the ‘‘Three Quote

Rule’’—to relieve members of the

current obligation to obtain three quotes

for a transaction in a non-Nasdaq

security 4 when there are two or more

priced quotations for that security

displayed in an inter-dealer quotation

system (such as the OTC Bulletin Board

(‘‘OTCBB’’) or the Electronic Quotation

Service operated by Pink Sheets LLC

(‘‘Pink Sheets’’)) that permits quotation

updates on a real-time basis.

Currently, the rule requires members

that execute a transaction in a nonNasdaq security on behalf of a customer

to contact and obtain quotations from

three dealers (or all dealers if three or

less) to determine the best inter-dealer

market for that security.5 The intent of

the Three Quote Rule is to help ensure

that members fulfill their

responsibilities to customers to provide

best execution for transactions in nonNasdaq security, particularly illiquid

securities with non-transparent prices.

NASD Regulation now believes that

the existing Three Quote Rule often

hinders, rather than furthers, investor

protection by causing significant delays

in obtaining executions of customer

orders. Therefore, NASD Regulation is

proposing that Rule 2320(g) be amended

to require that members obtain

quotations from three dealers (or all

dealers if three or less) only when there

are fewer than two priced quotations

displayed in an inter-dealer quotation

system that permits quotation updates

on a real-time basis (such as the OTCBB

or the Pink Sheets).6

Second, NASD Regulation has

proposed to amend one of its

recordkeeping requirements for

members to correspond with the

proposed amendment to the Three

Quote Rule. Currently, NASD Rule