32690 Federal Register / Vol. 63, No. 114 / Monday, June 15, 1998 / Notices

1Letter from John Ramsey, Vice President,

Deputy General Counsel, NASD Regulation, Inc., to

Katherine A. England, Assistant Director, Division

of Market Regulation, SEC, dated May 13, 1998.

EXHIBIT 1.—PARTICIPANT OPERATING PROCEDURES FEES—Continued

Institutional Delivery (ID) System: [other ID system fees are not reprinted here.]

Present fee Proposed fee

—five .............................. 1,500.00 per year .................... —five ............................ 1,600.00 per year.

—more than five ............ 1,800.00 per year .................... —more than five .......... 1,600.00 per year and an additional $200 per year for each

copy beyond five.

[FR Doc. 98–15828 Filed 6–12–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40074; File No. SR–NASD–

98–32]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

National Association of Securities

Dealers, Inc. Relating to Filing

Requirements for Independently

Prepared Research Reports

June 4, 1998.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’).

ACTION: Notice of Application for

Deregistration under the Investment

Company Act of 1940 (the ‘‘Act’’).

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on April 9, 1998, the

National Association of Securities

Dealers, Inc. (‘‘NASD’’) 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, Inc.

(‘‘NASD Regulation’’). On May 14, 1998,

the NASD filed an amendment, which

has been incorporated in this filing, to

clarify the proposed change and delete

its request for accelerated approval. 1

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 is proposing to

amend Rule 2210 of the Conduct Rules

of the NASD to exclude independentlyprepared research reports from the filing

requirements of Rule 2210. Below is the

text of the proposed rule change.

Proposed new language is in italics.

AMENDMENTS TO NASD CONDUCT

RULE 2210

Paragraph (c)(6) of Conduct Rule 2210

is amended by adding new paragraph

(G), as follows: (6) The following types

of material are excluded from the

foregoing filing requirements and

(except for research reports under

paragraph (G)) the foregoing spot-check

procedures:

* * *

(G) any research report concerning an

investment company registered under

the Investment Company Act of 1940,

provided that:

(i) the report is prepared by an entity

(the ‘‘research firm’’) that is

independent of the investment

company, its affiliates, and the member

using the report;

(ii) in preparing the report, the

services of the research firm have not

been procured by the investment

company, any of its affiliates or any

member using the report;

(iii) the research firm prepares and

distributes similar types of reports with

respect to a substantial number of

investment companies;

(iv) the report is distributed and

updated with reasonable regularity in

the normal course of the research firm’s

business; and

(v) the report has not been materially

altered by the member using the report.

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

(a) Purpose

NASD Conduct Rule 2210 requires

that any ‘‘advertisement’’ or ‘‘sales

literature’’ (as defined by the rule)

concerning a registered investment

company be filed with the Advertising/

Investment Companies Regulation

Department (‘‘Department’’) and meet

the content standards of that rule, as

well as all applicable Commission rules.

The rule defines ‘‘sales literature’’ to

include a research report. Consequently,

Rule 2210 requires that NASD members

file all investment company research

reports, including any research report

that has been prepared by an entity that

is independent of the investment

company and its affiliates and of any

NASD member, and whose services are

not produced by the investment

company or any of its affiliates or any

NASD member to prepare the report

(‘‘independent research firms’’).

As the investment company industry

has grown in recent years, so too has the

coverage of this industry by

independent research firms. Many of

these firms publish reports that analyze

a wide variety of investment companies

and provide information, such as each

investment company’s historical

performance, the investment company’s

fees and expenses, and a description

and narrative analysis of the investment

company’s investment strategies and

portfolio management style.

NASD members use these

independently-prepared research

reports in a number of ways. Some

members may make the entire research

service available to customers at a

branch office. Members may also

distribute an independently-prepared

research report concerning a particular

investment company as part of the

selling process.

The proposed rule change would

clarify the meaning, administration and

enforcement of Rule 2210 insofar as it

may appear to apply to certain types of

independently-prepared research
Federal Register / Vol. 63, No. 114 / Monday, June 15, 1998 / Notices 32691

2 15 U.S.C. 78o–3.

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

2Amendment No. 1 clarified the text of the

proposed rule change. See letter from Michael D.

Pierson, Senior Attorney, to Heidi Pilpel, Special

Counsel, Division of Market Regulations, SEC (June

4, 1998).

reports. The proposed rule change

would clarify that these types of

independently-prepared research

reports would not have to be filed with

the Department. The Department

intends to interpret the term

‘‘independent’’ in (G)(i) of the proposed

rule change in a manner similar to the

use of that term in NASD Rule IM–

2210–3 regarding rankings.

Under the proposed rule change,

these research reports would continue

to be subject to the Department’s spotcheck procedures. Moreover, the

proposed rule change would impose

certain conditions designed to ensure

that the opinions in the research reports

are objective, that the presentation is

balanced, and that investors have access

to regular updates of the reports. In

particular, the proposed rule change

would impose several requirements

derived from an analogous SEC rule,

Rule 139, which provides a safe harbor

from the definition of ‘‘offer for sale’’

and ‘‘offer to sell’’ in the Securities Act

of 1933.

Thus, under the proposed rule

change, a published article that analyzes

only a few funds or that is not regularly

updated in the normal course of

business would have to be filed with the

Department if it is to be distributed or

made generally available to customers

or the public. Moreover, while a

member could distribute an

independently-prepared research report

concerning a particular fund without

filing the report with the Department, if

the member alters the report in any

material way, then the member would

have to file it with the Department if it

is to be distributed or made generally

available to customers or the public.

NASD Regulation believes that the

proposed rule change would not raise

significant investor protection concerns.

In its filing and review program, the

Department rarely has found significant

issues with the types of research reports

that would be expected by the proposed

rule change. Moreover, to ensure that

investors are adequately protected, the

proposed rule change would except

these types of research reports only from

the filing requirements, and not the

content requirements of applicable

NASD rules. Under the proposed rule

change, these research reports would

continue to be subject to the content

requirements of Rule 2210 as well as

Conduct Rule 2110 (requiring that a

member ‘‘observe high standards of

commercial honor and just and

equitable principles of trade’’); Rule

2120 (prohibiting use of manipulative,

deceptive or other fraudulent devices);

and IM–2310–2 (requiring fair dealing

with customers, including an avoidance

of fraud violations). In addition,

Conduct Rule 2210 would continue to

require that these research reports be

approved prior to use by a registered

principal of the member.

The proposed rule change would

apply to independently-prepared

research reports that are contained in

software or that are electronically

communicated, as well as those on

paper.

(b) Statutory Basis

NASD Regulation believes that the

proposed rule change is consistent with

the provisions of Section 15A(b)(6) 2 of

the Act, which require that the

Association adopt and amend its rules

to promote just and equitable principles

of trade, and generally provide for the

protection of investors and the public

interest in that the proposed rule change

allows the dissemination of certain

research reports, subject to the content

requirements of the NASD Conduct

Rules.

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,

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. 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 the file

number in the caption above and should

be submitted by July 6, 1998.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority, 17 CFR 200.30–3(a)(12).

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–15781 Filed 6–12–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40070; File No. SR–PCX–

98–19]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Pacific Exchange, Inc. Relating to

Capital Requirements and Guaranteed

Participation of Lead Market Makers

June 4, 1998.

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

Securities Exchange Act of 1934

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

April 16, 1998, the Pacific Exchange,

Inc. (‘‘PCX’’ or ‘‘Exchange’’) filed with

the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change, and amended

such proposed rule change on June 4,

1998,2 as described in Items I, II, and III

below, which Items have been prepared

by the Exchange. The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested persons.