26238 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 / Notices

President and Senior Counsel, DTC, and Jeffrey

Mooney, Special Counsel, Division of Market

Regulation (‘‘Division’’), Commission, and Greg

Dumark, Attorney, Division, Commission (March 2,

1998).

6 ISITC is a committee of investment managers,

custodians, and vendors which was established in

1991, has developed standard message formats and

operating protocols for transmitting information

concerning security-related transactions between

and among investment managers and custodians.

ISITC’s goals are to overcome difficulties

encountered by investment managers in

communicating with multiple custodians and to

attain straight-through-processing. Many ISITC

members are DTC participants.

7 17 CFR 200.30–3(a)(12).

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

users may also transmit trade data to

recordkeeping vendors where the

custody and accounting functions are

performed by two different parties.

According to DTC, the HUB Mailbox

was developed in cooperation with the

Industry Standardization for

Institutional Trade Communication

(‘‘ISITC’’) 6 to improve the delivery of

ISITC messages. Therefore, all

information will be entered in an ISITC

approved format initially, but other

formats may be used later if agreed upon

by two or more HUB users.

To use the HUB Mailbox, investment

managers and custodian banks will

place formatted records into bundles for

each addressee with appropriately

coded headers and trailers and DTC will

route the bundles to addresses’

mailboxes for retrieval. Addressees will

acknowledge receipt of bundles through

their mailboxes. All mail messages, both

delivered and undelivered, will be

transferred at the end of each business

day between 2 a.m. and 3 a.m. (ET) to

a separate file which can be accessed

directly on the next day. DTC will store

mail messages for up to five days.

According to DTC, it will not do any

processing other than to direct mail to

appropriate mailboxes.

Excerpts from the separate forms of

agreement to be executed by HUB

Mailbox users are attached as Exhibits

C, D, and E to the filing. Exhibit C lists

the fees to be charged for the service to

investment manager users, and Exhibit

D lists the fees to be charged for the

service to custodians. Liability

provisions, identical in both forms of

agreement, are found in Exhibit E.

DTC believes that the proposed rule

change is consistent with the

requirements of Section 17A(b)(3)(F) of

the Act and the rules and regulations

thereunder because it will increase the

speed of data transmissions between

investment managers and custodians,

thereby promoting efficiencies in the

clearance and settlement of securities

transactions.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

DTC believes that no burden will be

placed on competition as a result of the

proposed rule change.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

Written comments on the proposed

rule change have not been solicited from

DTC participants. Nevertheless, DTC

has tested the HUB Mailbox in a pilot

program with a few investment

managers and custodian banks. One of

the participants in the pilot program

characterized the HUB Mailbox as ‘‘the

most efficient, secure and cost effective

manner to obtain reconciliation data

daily.’’

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within thirty-five 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

ninety 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 DTC 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, 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

Section, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of such

filing also will be available for

inspection and copying at the principal

office of DTC. All submissions should

refer to File No. SR–TDC–98–2 and

should be submitted by June 2, 1998.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–12554 Filed 5–11–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39957; File No. SR–NASD–

98–34]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

National Association of Securities

Dealers, Inc.; Relating to Cancellations

and Suspensions for Failure To

Comply with Arbitration Award

May 5, 1998.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

May 1, 1998, the National Association of

Securities Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’) 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, Inc.

(‘‘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

The Association proposes to amend

that portion of Rule 9514 of the Rules

of the Association relating to review of

non-compliance with arbitration awards

and settlements. The Association

proposes to change the composition of

the hearing panels used in such

proceedings. Below is the text of the

proposed rule change. Proposed new

language is italicized; proposed

deletions are in brackets.

9514. Hearing and Decision.

* * * * *

(b) Designation of Party for the

Association and Appointment of

Hearing Panel

If a member, association person, or

other person subject to a notice under

Rule 9512 or 9513 files a written request

for a hearing, an appropriate department

or office of the Association shall be
Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 / Notices 26239

2See In the Matter of the Application of Bruce M.

Zipper, Securities Exchange Act Release 33376,

Admin. Proc. File No. 3–7908. (Dec. 23, 1993).

designated as a Party in the proceeding,

and a Hearing Panel shall be appointed.

(1) If the President of NASD

Regulation or NASD Regulation staff

issued the notice initiating the

proceeding under Rule 9512(a) or

9513(a), the President of NASD

Regulation shall designate an

appropriate NASD Regulation

department or office as a Party[, and the

NASD Regulation Board shall appoint a

Hearing Panel. The Hearing Panel shall

be composed of two or more members].

For proceedings initiated under Rule

9513(a) concerning failure to comply

with an arbitration award or a

settlement agreement related to an

NASD arbitration or mediation, the

Chief Hearing Officer shall appoint a

Hearing Panel composed of a Hearing

Officer. For any other proceedings

initiated under Rule 9512(a) or 9513(a)

by the President of NASD Regulation or

NASD Regulation staff, the NASD

Regulation Board shall appoint a

Hearing Panel composed of two or more

members: [One] one member shall be a

Director of NASD Regulation, and the

remaining member or members shall be

current or former Directors of NASD

Regulation or Governors. The President

of NASD Regulation may not serve on

[the] a Hearing Panel.

* * * * *

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

The purpose of the proposed rule

change is to change the composition of

the Hearing Panel used for proceedings

under the Rule 9510 Series in which

NASD Regulation seeks to suspend or

cancel the membership of a member or

the registration of a person for failure to

comply with an arbitration award or a

settlement agreement related to an

NASD arbitration or mediation.

Currently, Rule 9514(b) requires that the

Hearing Panel for such proceedings be

composed of two or more members, one

of whom must be a Director of NASD

Regulation, and the remaining member

or members must be a current or former

Director of NASD Regulation or

Governor of the NASD. NASD

Regulation has determined that boardlevel panelists are not necessary for

such hearings because the issues to be

resolved are narrow and largely

administrative. Generally, the only

issues to be addressed are whether: (1)

the member or person paid the award in

full or fully complied with the

settlement agreement; (2) the claimant

agreed to installment payments or has

otherwise settled the matter; (3) the

member or person has filed a timely

motion to vacate or modify the

arbitration award and such motion has

not been denied; (4) the member or

person has filed a petition in

bankruptcy and the bankruptcy

proceeding is pending, or the award or

payment owed under the settlement

agreement has been discharged by the

bankruptcy court; and (5) the member or

person is unable to pay the award. The

Commission has stated that a bona fide

inability to pay an arbitration award is

an important consideration determining

whether any sanction for failure to pay

an arbitration award is excessive or

oppressive.2 NASD Regulation has

determined that it would be more

efficient to have one Hearing Officer

conduct the hearing on these issues and

render a decision. Hearing Officers are

well-suited to resolve the issues

presented in these types of hearings due

to their training and experience in the

NASD’s disciplinary proceedings under

the Rule 9200 Series.

2. Statutory Basis

NASD Regulation believes that the

proposed rule change is consistent with

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

the Act, 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. The

NASD believes that the proposed rule

change will result in a fair and efficient

procedure for suspending or canceling

the membership of a member or the

registration of a person for failure to

comply with an arbitration award or a

settlement agreement related to an

NASD arbitration or mediation so that

where appropriate, such members or

persons are not permitted to continue to

do business with investors.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

NASD Regulation does not believe the

proposed rule change would 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 thirty-five 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

ninety 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,

including whether the proposal is

consistent with the Act. 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 NASD Regulation.

Al submissions should refer to the file

number in the caption above and should

be submitted by May 27, 1998.
26240 Federal Register / Vol. 63, No. 91 /Tuesday, May 12, 1998 / Notices

3 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4

3Letter from T. Grant Callery, Senior Vice

President and General Counsel, NASD to Katherine

A. England, Assistant Director, Division of Market

Regulation, Commission dated April 22, 1998. The

amendment provides the members’ vote and

responses to the comment letters. It is technical in

nature and therefore not subject to a notice and

comment requirement.

4See Securities Exchange Act Release No. 39326

(Nov. 14, 1997), 62 FR 62385 (Nov. 21, 1997); see

also infra text surrounding note 7.

5See Securities Exchange Act Release No. 39539

(January 12, 1998), 63 FR 2709 (January 16, 1998)

(File No. SR–NASD–97–92). Amendment No. 1 to

the proposed rule filing was filed on April 22, 1998.

See supra note 3.

6See Letter from Marc B. Horin, National

Compliance Consultants to Secretary, Commission,

dated January 23, 1998; Letter from John B.

Simmon, Morris Group Inc. to Secretary,

Commission, dated January 22, 1998; and Letter

from Marc B. Horin, National Compliance

Consultants to Secretary, Commission, dated

January 30, 1998.

7Release No. 34–39539, supra note 5.

8See Amendment No. 1, supra note 3. The

membership vote was 1,884 in favor, 876 against.

Id.

9A firm would be able to access only its own

Member Questionnaire; the information would be

password-protected to prevent any public access.

10See Letter from Marc B. Horin, National

Compliance Consultants to Secretary, Commission,

dated January 30, 1998.

11 Id.

12Amendment No. 1, supra note 3 at 2.

13 Id.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.3

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–12456 Filed 5–11–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39958; File No. SR–NASD–

97–92]

Self-Regulatory Organizations;

National Association of Securities

Dealers, Inc.; Order Approving

Proposed By-Law Amendment

Requiring Members to Update Firm

Contact Information Electronically, to

Maintain Electronic Mail Account and

for Other Purposes

May 5, 1998.

On December 19, 1997, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’) filed with

the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)

a proposed rule change pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’),1 and

Rule 19b–4 thereunder.2 The filing was

thereafter amended on April 22, 1998.3

In this filing, as amended, the

Association proposed amendments to

the NASD By-laws, to require members

to communicate with the Association

electronically. Under this proposal,

members will be required to set up and

maintain an electronic mail account and

must update their firm contact

information through the Internet. In

addition, the Association has included a

technical amendment to the

composition of the NASD National

Nominating Committees, correcting a

misprint from an earlier filing.4 Notice

of the proposal was published in the

Federal Register on January 16, 1998

(‘‘Notice’’).5 The Commission received

three comment letters on the filing.6

I. Introduction and Background

On August 5, 1997, the Membership

Committee of the NASD Regulation, Inc.

(‘‘NASD Regulation’’) Board of Directors

recommended requiring each member’s

executive representative to maintain an

Internet electronic mail account for

communication with the NASD and to

update firm contact information via

NASD Regulation’s Internet web site.

Following approval by the NASD

Regulation Board of Directors and the

NASD Board of Governors, the Notice

was filed with the Commission and

published in the Federal Register.7

When polled on this proposal, as

required by the NASD By-laws, the

NASD membership voted more than two

to one in favor of requiring maintenance

of electronic mail accounts.8

II. Description of the Proposal

A. Electronic Mail Accounts and

Updating of Member Information

The Proposal promotes Internet use

by the Association and its members as

a communication tool. As revised, the

NASD By-laws will require each

member to acquire and maintain an

Internet electronic mail address on

behalf of its executive representative

before January 1, 1999.

In addition to maintaining electronic

mail accounts, members will also be

required to update firm contact

information electronically. In its filing,

the NASD maintained that the present

method of collecting firm contact

information (which is used for member

balloting, compliance purposes and

targeting key individuals for

informational mailings, etc.) through

physical filing of an NASD Member

Firm Questionnaire (‘‘Member

Questionnaire’’) needs improvement.

There are significant problems with

current procedures. First, information is

often stale, because members rarely

update the filings. Second, the Member

Questionnaire information, which is

currently stored and made available

through the Central Registration

Depository or ‘‘CRD,’’ is not readily

available for use in other computer

programs and systems. Finally, the

planned system enhancements to the

CRD do not contemplate inclusion of

Member Questionnaire data. Using the

new electronic mailboxes, the NASD

intends to transmit e-mail reminders to

members to update their Membership

Questionnaires on a periodic basic.

Member firms can then easily access

their respective Member Questionnaire

via the NASD Regulation Web Site for

updating.9 The Association has

indicated that information provided in

this manner is more readily interfaced

to the internal NASD Regulation

systems requiring the data.

The three comment letters received by

the Commission on this rule filing all

react negatively to required use of the

Internet and electronic mail accounts.

The main objections relate to the costs

involved in setting up and maintaining

such services. One commentator

suggested that the decision to maintain

an electronic mail account should be

discretionary, rather than mandatory.10

Concerns about lack of member of

NASD control over the Internet and

internet functionality, reliability, access,

integrity and security were also noted11

The Association’s response argues that

the minimal costs involved in

connecting to the Internet (as little as

ten dollars a month for an account and

less than one thousand dollars for a

computer and modem) are ‘‘reasonable

in light of the tremendous benefits that

electronic mail and Internet

communication will bring to the

membership.’’12 The NASD also

stressed its belief that all, rather than

some, members should have an

electronic mail account, to ‘‘strive for

uniformity of notice and enable speedy

and relatively inexpensive

communication with all members.’’13

B. Technical Amendment to Nominating

Committee Composition

The NASD also proposes a technical

amendment to Article VII, Section 9(b)

of the NASD By-Laws. In November,

1997, the Commission approved a

comprehensive revision to the

Association By-Laws, implementing a