70852 Federal Register / Vol. 65, No. 229 / Tuesday, November 28, 2000 / Notices

7 15 U.S.C. 78k–1(a)(1)(D).

8 17 CFR 240.11Aa3–2.

9 15 U.S.C. 78–1.

10 15 U.S.C. 78k–1(a)(3)(B).

11 17 CFR 240.11Aa3–2.

12 17 CFR 200.30–3(a)(29).

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

2 17 CFR 240.19b–4.

3The Amex, whose employees are subject to the

NASD Code of Conduct as of October 2000, filed

a rule proposal (No. SR–Amex–00–23) to adopt

Amex Rule 417, which is virtually identical to

proposed NASD Rule 3090. Securities Exchange Act

Release No. 43468 (October 20, 2000), 65 FR 65034

(October 31, 2000); Securities Exchange Act Release

No. 43587 (November 17, 2000).

amended to reflect the new participant;

and (iii) paying the applicable fee.

After careful review, the Commission

finds that the proposed Linkage Plan

amendment is consistent with the

requirements of the Act and the rules

and regulations thereunder.

Specifically, the Commission believes

that the proposed amendment, which

permits the Phlx to become a participant

to the Linkage Plan, is consistent with

Congress’ goal, as set forth in section

11A(a)(1)(D) of the Act,7 in which

Congress found that the linking of all

markets for qualified securities through

communication and data processing

facilities will foster efficiency, enhance

competition, increase the information

available to brokers, dealers, and

investors, facilitate the offsetting of

investors’ orders, and contribute to best

execution of such orders. The

Commission believes the proposed

amendment to include Phlx as a

participant in the Linkage Plan is also

consistent with the Rule 11Aa3–2 8

under the Act in that it will contribute

to the maintenance of fair and orderly

markets and remove impediments to the

perfect the mechanisms of a national

market system by allowing the linked

markets to more easily access better

prices available on the participant

exchanges. The Commission finds,

therefore, that approving the proposed

Linkage Plan amendment is appropriate

and consistent with section 11A of the

Act.9

III. Conclusion

It Is Therefore Ordered, pursuant to

section 11A(a)(3)(B) of the Act 10 and

Rule 11Aa3–2 thereunder,11 that the

proposed Linkage Plan amendment is

approved and the Phlx is authorized to

act jointly with the other participants to

the Linkage Plan in planning,

developing, operating, or regulating the

intermarket linkage plan as a means of

facilitating a national market system.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.12

Jonathan G. Katz,

Secretary.

[FR Doc. 00–30193 Filed 11–27–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43580; File No. SR–NASD–

00–58]

Self Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the National

Association of Securities Dealers, Inc.

Relating to Member Firm Transactions

With Association Employees

November 17, 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

September 25, 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 and II below, which Items have

been prepared by NASD Regulation. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

NASD Regulation proposes to adopt

new NASD Rule 3090 relating to

member firm transactions with NASD

employees. Proposed new language is

italicized.

* * * * *

3090. Transactions Involving

Association and American Stock

Exchange Employees

(a) When a member has actual notice

that an Association or American Stock

Exchange employee has a financial

interest in, or controls trading in, an

account, the member shall promptly

obtain and implement an instruction

from the employee directing that

duplicate account statements be

provided by the member to the

Association.

(b) No member shall directly or

indirectly make any loan of money or

securities to any Association or

American Stock Exchange employee.

Provided, however, that this prohibition

does not apply to loans made in the

context of disclosed, routine banking

and brokerage agreements, or loans that

are clearly motivated by a personal or

family relationship.

(c) Notwithstanding the annual dollar

limitation set forth in Conduct Rule

3060(a), no member shall directly or

indirectly give, or permit to be given,

anything of more than nominal value to

any Association or American Stock

Exchange employee who has

responsibility for a regulatory matter

that involves the member. For purposes

of this subsection, the term ‘‘regulatory

matter’’ includes, but is not limited to,

examinations, disciplinary proceedings,

membership applications, listing

applications, delisting proceedings, and

dispute-resolution proceedings that

involve the member.

* * * * *

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 III 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

The NASD Code of Conduct imposes

detailed ethics and conflict-of-interest

requirements on Association employees

(i.e., employees of the NASD and all of

its subsidiary and affiliated companies).

The NASD is proposing a new rule,

NASD Conduct Rule 3090, that will

impose parallel requirements on NASD

members in their dealings with

Association and American Stock

Exchange (‘‘Amex’’) employees.3

Proposed NASD Rule 3090 addresses

three areas: (1) Providing duplicate

statements for brokerage accounts in

which Association or Amex employees

have a financial interest or can control

trading; (2) loans by NASD members to

Association or Amex employees; and (3)

gifts by NASD members to Association

or Amex employees.

Federal Register / Vol. 65, No. 229 / Tuesday, November 28, 2000 / Notices 70853

4NASD Code of Conduct, Section VIII, Paragraph

E.

5See Letter from Lori Richards, Director, OCIE,

SEC, to Richard Syron, Chairman and Chief

Executive Officer, Amex, November 6, 1998.

6NASD Code of Conduct, Section IX, Paragraph

C.3.

7 Id.

8NASD Code of Conduct, Section IX.

a. Employees’ Brokerage Accounts.

The NASD Code of Conduct imposes

significant restriction on employees’

investments. Among other things,

employees may not own stock of broker/

dealers or companies that derive more

than 25% of their gross revenues from

broker/dealer activities, or stock

purchased as part of an initial public

offering.4 The NASD reviews duplicate

statements for employees’ brokerage

accounts to ensure that employees have

abided by these restrictions. NASD

Regulation represents that New NASD

Rule 3090(a) will help ensure that an

NASD member receives and implements

an instruction to send duplicate account

statements to the NASD whenever the

member has actual notice that an

Association or Amex employee has a

financial interest in, or controls trading

in, an account. Currently, NASD

employees are required to request the

broker/dealers with which they

maintain accounts to send duplicate

account statements to the NASD.

However, NASD rules currently do not

impose a corresponding obligation on

NASD members to obtain and

implement such an instruction.

In administering the NASD Code of

Conduct, the NASD routinely runs

exception reports to determine whether

duplicate statements are being received

for all reported employee accounts.

Employees for whom the NASD has not

received duplicate account statements

are reported to their department heads

for follow-up. Each time exception

reports are run, numerous employee

accounts are listed as delinquent. In

following up on such accounts, the

NASD has frequently encountered

instances in which NASD employees

have repeatedly instructed their broker/

dealer in writing that duplicate

statements are to be sent to the NASD,

but the broker/dealer has failed to

implement the instruction. In addition,

there have been instances in which

broker/dealers have refused to

implement the instruction on the

ground that they were not required to do

so.

When employees’ duplicate statement

instructions are not implemented, the

NASD has no means of monitoring

trading in employee accounts.

Currently, there is no rule that

specifically requires member firms to

implement such instructions. NASD

Regulation believes that new NASD

Rule 3090(a) will remedy this deficiency

by imposing on member firms an

affirmative obligation to promptly

obtain and implement a duplicate

statement instruction when they have

actual notice that an Association or

Amex employee has a financial interest

in, or controls trading in, an account.

The information necessary to give

members such actual notice is already

included on the new account forms

used by most broker/dealers, and on a

standardized duplicate instruction form

that Association and Amex employees

can provide to their broker/dealers.

NASD Regulations believes that new

NASD Rule 3090(a) imposes

requirements that are analogous to those

that other self-regulatory organizations

already impose (e.g., New York Stock

Exchange Rule 407). In addition, NASD

Regulation believes that the proposed

requirements are similar to those

currently imposed by NASD Rule 3050,

which applies when an NASD member

firm carries an account for a person

associated with another broker/dealer.

NASD Regulation represents that new

NASD Rule 3090(a) would work as

follows with respect to new accounts:

When a new account form indicates that

an NASD employee has an interest in a

proposed new account, the NASD

member firm would instruct the

employee to obtain a duplicate

instruction form (available on the

NASD’s corporate Intranet), complete

the form, and provide it to the member

before the account is opened. The NASD

expects that most employees will

anticipate this request and provide the

member with the instruction at the time

they seek to open the account. It would

not be necessary for NASD officials to

issue a letter authorizing the opening of

each account.

With respect to existing accounts,

new NASD Rule 3090(a) contemplates

that Association and Amex employees

will use the above-referenced duplicate

instruction form to give NASD members

actual notice of their interest in an

existing account. A member receiving

such a form would be expected to

promptly implement the duplicate

statement instruction.

NASD Regulation represents that the

proposed rule would apply

prospectively to new accounts, and to

those existing accounts as to which an

NASD member has actual notice that an

Association or Amex employee has

financial interest or controls trading.

NASD members will not be required to

review existing accounts to identify

those in which Association or Amex

employees may have an interest or

control trading.

b. Loans to Employees. NASD

Regulation represents that new NASD

Rule 3090(b) is intended to implement

an SEC staff recommendation that the

NASD adopt a rule prohibiting NASD

members from making loans to

Association or Amex employees outside

routine brokerage or banking

relationships.5 The NASD Code of

Conduct already prohibits employees

from accepting loans from NASD

members, Nasdaq issuers, or any person

with whom the NASD transacts

business.6 NASD Regulation believes

that new NASD Rule 3090(b) will

simply prevent NASD members from

making loans to employees. Consistent

with existing NASD Code of Conduct

provisions, the prohibition on loans

would not apply to loans that are clearly

motivated by a family or personal

relationship. Thus, for example, a

registered representative would not be

precluded from making a personal loan

to an adult child who works at the

NASD or Amex.

c. Gifts to Employees. NASD

Regulation represents that new NASD

Rule 3090(c) also implements an SEC

staff recommendation.7 The proposed

rule change will parallel NASD Code of

Conduct provisions that permit

employees to accept business gifts with

an aggregate annual value of $100 when

no conflict of interest exists, but

prohibit employees from accepting a

business gift or courtesy from persons

involved in regulatory matters in which

the employee is involved.8 Specifically,

the proposed amendment will state that,

notwithstanding NASD Rule 3060(a)

(which generally permits NASD

members to give business gifts with an

aggregate annual value of $100 to

employees of others), members may not

give business gifts or courtesies of more

than nominal value to an Association or

Amex employee who has responsibility

for a specific regulatory matter that

involves the member. A ‘‘regulatory

matter’’ would encompass such matters

as examinations, disciplinary

proceedings, membership applications,

listing applications, delisting

proceedings, and dispute-resolution

proceedings involving a member. The

proposed rule would permit members to

give items of nominal value to

employees responsible for regulatory

matters affecting the member, NASD

Regulation represents that, for example,

a member would be permitted to offer

minor refreshments, such as a soft drink

or coffee, to NASD Regulation

employees conducting an on-site

examination.

70854 Federal Register / Vol. 65, No. 229 / Tuesday, November 28, 2000 / Notices

9 15 U.S.C. 78o(b)(6).

10 In approving this proposal, the Commission has

considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

U.S.C. 78c(f).

11 15 U.S.C. 78o–3(b)(6).

12See Securities Exchange Act Release No. 43587

(November 17, 2000) (Order approving SR–Amex–

00–23).

13 15 U.S.C. 78s(b)(2).

14 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See letter from Alden S. Adkins, Senior Vice

President and General Counsel, NASD Regulation,

to Jack Drogin, Assistant Director, Division of

Market Regulation (‘‘Division’’), Commission, dated

July 28, 2000 (‘‘Amendment No. 1’’); and see letter

from Alden S. Adkins, Senior Vice President and

General Counsel, NASD Regulation, to Jack Drogin,

Assistant Director, Division, dated September 11,

2000 (‘‘Amendment No. 2’’). Among other things,

Amendment No. 1 revises the proposal to: (1)

Provide technical corrections for various provisions

within NASD Rules 2520 and 2522; (2) revise the

cash account provisions of NASD Rule

2520(f)(2)(M)(ii)d to indicate that a long warrant or

option that is not listed must be guaranteed by the

carrying broker-dealer to serve as an offset for a

short position, or the short position will not be

eligible for the cash account and must be margined

separately pursuant to NASD Rule 2520(f)(2)(D); (3)

amend NASD Rule 2520(f)(2) to provide that the

margin for a long over-the-counter (‘‘OTC’’) option

or warrant with over nine months until expiration

will be 75% of the option’s or warrant’s in-themoney amount; (4) amend NASD Rules

2520(f)(2)(D)(i) and 2520(f)(2)(G)(v) to clarify that

the minimum amount of margin that must be

maintained on certain positions is a percentage of

the aggregate exercise price; (5) provide definitions

of ‘‘stock index warrant’’ and ‘‘escrow agreement’’

in connection with cash-settled options or warrants;

2. Statutory Basis

NASD Regulation believes that the

proposed rule change is consistent with

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

the Act,9 which requires, among other

things, that the Association’s rules 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.

Specifically, the NASD believes that, by

assisting the NASD in ensuring

employee compliance with NASD

ethical standards, the proposed rule

change serves the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

NASD Regulation does not believe

that the proposed rule change will

impose 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

NASD Regulation did not solicit or

receive written comments on the

proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

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 at

the Commission’s Public Reference

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of the Exchange. All

submissions should refer to File No.

SR–NASD–00–58 and should be

submitted by December 19, 2000.

IV. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

association,10 and in particular, the

requirements of section 15A(b)(6) 11 of

the Act, because it is designed to foster

cooperation and coordination with

persons engaged in processing

information with respect to securities, to

remove impediments to and perfect the

mechanism of a free and open market

and a national market system, and, in

general, to protect investors and the

public interest.

The proposed rule change is based

upon recommendations made by SEC

staff to the SROs. The amendments to

the rules are designed to promote a high

level of professional and personal

ethical conduct by NASD members and

employees and to ensure that NASD

members and employees do not place

their own personal and financial

interests above the regulatory interests

of the NASD. The proposal also helps to

bring the NASD’s conflict of interest and

ethical conduct provisions in line with

those of the NASD Code of Conduct and

the Amex (a subsidiary of the NASD)

and helps eliminate any confusion

regarding the application of these

provisions to employees of both selfregulatory organizations.

The Commission finds good cause for

approving the proposed rule change

(SR–NASD–00–58) prior to the thirtieth

day after the date of publication of

notice thereof in the Federal Register.

The Commission approved a proposal

by the Amex to adopt Amex Rule 417,

which is virtually identical to new

NASD Rule 3090.12

It Is Therefore Ordered, pursuant to

section 19(b)(2) of the Act,13 that the

proposed rule change (SR–NASD–00–

58) is hereby approved on an

accelerated basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Jonathan G. Katz,

Secretary.

[FR Doc. 00–30195 Filed 11–27–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43581; File No. SR–NASD–

00–15]

Self-Regulatory Organizations;

National Association of Securities

Dealers, Inc.; Notice of Filing and

Order Granting Accelerated Approval

of Proposed Rule Change and

Amendment Nos. 1 and 2 to the

Proposed Rule Change Relating to

NASD Rule 2520, ‘‘Margin

Requirements’’

November 17, 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 March 31,

2000, the National Association of

Securities Dealers, Inc. (‘‘NASD’’),

through its wholly owned subsidiary,

NASD Regulation, Inc. (‘‘NASD

Regulation’’) filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’), the proposed rule

change as described in Items I and II

below, which Items have been prepared

by NASD Regulation. NASD Regulation

amended its proposal on July 31, 2000,

and September 13, 2000.3 The