[Federal Register Volume 62, Number 73 (Wednesday, April 16, 1997)]
[Notices]
[Pages 18665-18666]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-9715]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38491; File No. SR-NASD-97-06]


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

April 9, 1997.
    On February 20, 1997, the NASD Regulation, Inc., (``NASD 
Regulation'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
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.\2\ No comment 
letters were received. The Commission is approving the proposed rule 
change.
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    \1\ 15 U.S.C. Sec. 78s(B)(1)(1988).
    \2\ The proposed rule change was originally submitted on January 
29, 1997. The NASD subsequently submitted Amendment No. 1 that 
removed certain unnecessary text. Letter from Suzanne E. Rothwell, 
Associate General Counsel, NASD Regulation, to Katherine A. England, 
Assistant Director, Division of Market Regulations, SEC, dated 
February 20, 1997.
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I. Background

    The introductory language in paragraph (a) of Rule 11100 states the 
general standard that ``all over-the-counter secondary market 
transaction in securities between members shall be subject to the 
provisions of this Code. * * *'' According to NASD Regulations, that 
introductory language does not encompass those provisions of the Code 
that address the rights and liabilities of the members participating in 
the transaction or provide procedures that are not related to 
securities transactions, e.g., the setting of ex-dates and the transfer 
of customer accounts. In addition, subparagraph (a)(1) of the Rule 
11100 of the Code excludes securities transactions compared, cleared or 
settled through a registered clearing agency from the provisions of the 
Code. NASD Regulation believes that exception is technically not 
available when the rules of the clearing agency require that the Code 
or the rules of other relevant markets apply to the transaction. 
Finally, since the SEC's adoption of Rule 144A in 1991, NASD Regulation 
believes that members were uncertain as to whether the Code is 
applicable to transactions in restricted

[[Page 18666]]

securities. Thus, NASD Regulation proposes to amend the Code to expand 
the language of paragraph (a) of Rule 11100 to state that the Code 
applies to all secondary market transactions in securities including: 
(i) The ``rights and liabilities of the members participating in the 
transaction''; (ii) ``those operational procedures that affect the day-
to-day business of members'',\3\ (iii) securities transactions 
compared, cleared or settled through a registered clearing agency when 
the rules of the clearing agency require that the Code or the rules of 
other relevant markets apply to the transaction; and (iv) securities 
transactions in ``restricted securities, as defined in Rule 144(a)(3) 
under the Securities Act of 1933.'' According to NASD Regulations, 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. NASD Regulation is also clarifying 
that 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.
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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 Code is for the 
purpose that ``the transaction of day-to-day business by members may 
be simplified and facilitated. . . .''
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II. Discussion

    The Commission believes the proposed rule change is consistent with 
the Association's obligations under Section 15A(b)(6) to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities because the proposed rule 
change clarifies that the Code applies to the liabilities of parties to 
a transaction, transactions in restricted securities, the operational 
procedures that affect the day-to-day business of members and 
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. The Commission believes the proposed rule change 
should clarify the broad scope and applicability of the Code, simplify 
the transaction of day-to-day business by NASD members and guide NASD 
members regarding the application of the Code to transactions settled 
through a clearing agency.
    The Commission also believes the proposed rule change is consistent 
with the NADA's obligations under Section 15A(b)(2) to enforce 
compliance by its members with the provisions of the Act, the rules and 
regulations thereunder and the rules of the NASD in that the proposed 
rule change applies the Code to the liabilities of NASD members that 
are parties to a securities transaction, the operational procedures 
that affect the day-to-day business of NASD members, transactions in 
restricted securities and transactions settled through a clearing 
agency, when the rules of the clearing agency direct that the rules of 
the governing market apply to the transaction.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change SR-NASD-97-06 be, and hereby is, 
approved.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\4\
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    \4\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-9715 Filed 4-15-97; 8:45 am]
BILLING CODE 8010-01-M