34950 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 / Notices

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

2 17 CFR 240.19b–4.

3 NYSE Rule 344 states that supervisory analysts

must be acceptable to, and approved by, the NYSE.

NYSE Rule 344, Supplementary Material .10 sets

forth examination and other requirements for

supervisory analysts.

4 See Securities Exchange Act Release No. 39985

(May 12, 1998), 63 FR 27608.

5See NYSE Rule 344, Supplementary Material

.10.

6The NASD principal examination referred to

here is the Series 24 Qualification Examination for

Principals.

7NYSE Rule 472, Supplementary Material .10

defines ‘‘research reports’’ as ‘‘* * * an analysis of

individual companies, industries, market

conditions, securities or other investment vehicles

which provide information reasonably sufficient

upon which to base an investment decision.’’

8 15 U.S.C. 78o–e.

9This representation was made by Robert J. Smith

of the Office of General Counsel, NASD Regulation,

Commissioner Hunt, as duty officer,

voted to consider the items listed for the

closed meeting in a closed session.

The closed meeting scheduled for

Wednesday, July 1, 1998, at 2:30 p.m.,

will be:

Institution of injunctive actions.

Institution of administrative

proceedings of an enforcement nature.

At times, changes in Commission

priorities require alterations in the

scheduling of meeting items. For further

information and to ascertain what, if

any, matters have been added, deleted

or postponed, please contact:

The Office of the Secretary at (202)

942–7070.

Dated: June 23, 1998.

Jonathan G. Katz,

Secretary.

[FR Doc. 98–17149 Filed 6–23–98; 4:11 pm]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40105; File No. SR–NASD–

98–28]

Self-Regulatory Organizations;

National Association of Securities

Dealers, Inc.; Order Approving

Proposed Rule Change Relating to

Approval of Research Reports

June 22, 1998.

I. Introduction

On April 27, 1998, 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

thereunder,2 a proposed rule change to

amend Rule 2210, ‘‘Communications

with the Public,’’ of the Conduct Rules

of the National Association of Securities

Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’). The proposed rule

change will permit the approval of

research reports by a supervisory

analyst acceptable to the New York

Stock Exchange (‘‘NYSE’’) under NYSE

Rule 344, ‘‘Supervisory Analysts,’’ 3 to

satisfy the requirement under NASD

Rule 2210 that research reports be

approved by a registered principal.

The proposed rule change was

published for comment in the Federal

Register on May 19, 1998.4 No

comments were received on the

proposal. This order approves the

proposal.

II. Description of the Proposal

Currently, NASD Rule 2210(b)(1)

requires each item of advertising and

sales literature to be approved by

signature or initial of a registered

principal of an NASD member prior to

use or filing with NASD Regulation.

Under NASD Rule 2210(a)(2), ‘‘sales

literature’’ includes research reports. A

joint NASD/NYSE member asked the

NASD whether the approval of research

reports by a supervisory analyst

approved by the NYSE under NYSE

Rule 344 could satisfy the requirement

under NASD Rule 2210 that a registered

principal approve research reports prior

to use or filing with NASD Regulation.

In order to become a supervisory

analyst under NYSE Rule 344, an

applicant may present evidence of

appropriate experience and either (i)

pass an NYSE Supervisory Analyst

Examination, or (ii) successfully

complete a specified level of the

Chartered Financial Analysts

Examination prescribed by the NYSE

and pass only that portion of the NYSE

Supervisory Analysts Examination

dealing with NYSE rules on research

standards and related matters.5 The

NASD Regulation staff reviewed the

NYSE content outline for the NYSE’s

Supervisory Analysts Examination and

found that the particular categories of

securities addressed in the ‘‘securities

analysis’’ section of the content outline

are fixed income securities and equity

securities. The NASD Regulation staff

concluded that the coverage of the

NYSE communication rules in NYSE’s

Supervisory Analysts Examination is

comparable to the communication

materials covered in the NASD

principal examination.6 Accordingly,

NASD Regulation believes that, with

respect to the level of training and

experience necessary for review of

research reports on debt and equity

securities, the level of supervisory

analyst registration is comparable to the

level of NASD principal registration.

Given that the scope of approval

authority is limited to research reports

on debt and equity securities and that

the material in the NYSE’s Supervisory

Analysts Examination and the NASD’s

principal examination is comparable,

the NASD Regulation staff concluded

that the investor protection goals that

the NASD’s principal review

requirement are designed to serve could

be satisfied by the NYSE’s requirements

in this area.

Accordingly, the proposed rule

change amends NASD Rule 2210(b)(1)

to state that the requirement that

advertising and sales literature be

approved by a registered principal of an

NASD member firm may be met, with

respect to corporate debt and equity

securities that are the subject of research

reports as that term is defined in NYSE

Rule 472, ‘‘Communications with the

Public,’’ 7 by the signature or initial of

a supervisory analyst approved

pursuant to NYSE Rule 344. Any other

material requiring supervisory approval

would continue to require approval by

an NASD registered principal.

III. Discussion

After careful review, the Commission

finds that the proposed rule change is

consistent with the provisions of

Section 15A(b)(6) 8 of the Act, which

require that the rules of the Association

be designed to promote just and

equitable principles of trade and to

protect investors and the public interest.

The proposal amends NASD Rule

2210(b)(1) to state that the requirement

that advertising and sales literature be

approved by a registered principal of an

NASD member firm may be met, with

respect to corporate debt and equity

securities that are the subject of research

reports, as defined in NYSE Rule 472,

by the signature or initial of a

supervisory analyst approved pursuant

to NYSE Rule 344. NASD Regulation

staff states that it has reviewed the

content outline for the NYSE

Supervisory Analysts Examination and

concluded that the coverage of the

NYSE communication rules in the

Supervisory Analysts Examination is

comparable to the communication

materials covered in the NASD

principal examination. Additionally, the

NASD Regulation staff has represented

that any change to NYSE Rule 344 or the

NYSE Supervisory Analysts

Examination would be cause for the

NASD to review NASD Rule 2210 to

ensure that NASD and NYSE

requirements for approval of research

reports remain comparable.9 Given that
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 / Notices 34951

to Heidi Pilpel, Special Counsel, Division of Market

Regulation, on May 12, 1998.

10 15 U.S.C. 78s(b)(2).

11 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3Section 15C of the Act, 15 U.S.C. 78o–5, governs

the registration of government securities broker/

dealers. Since 1986, when Section 15C was adopted

as part of the Government Securities Act,

government securities broker/dealers have been

required to become members of an exchange or the

NASD.

4Section 15B of the Act, 15 U.S.C. 78o–4, governs

the registration of municipal securities dealers.

Municipal securities dealers are not required to

become members of an exchange or the NASD.

Nevertheless, some NASD members which are

engaged in a general securities business are

registered as municipal securities dealers, and some

firms which are exclusively municipal securities

dealers have become members of the NASD.

5The NASD previously asked claimants in these

cases if they wanted the claim referred to the

Municipal Securities Rulemaking Board (‘‘MSRB’’)

for arbitration. However, the Commission recently

approved an MSRB proposed rule change

terminating the MSRB’s arbitration program and

requiring the financial institutions that are subject

to its rules to submit to arbitration in the NASD’s

forum as if they were NASD members. See

Securities Exchange Act Release No. 39378

(December 1, 1997), 62 FR 64417 (December 5,

1997). The Commission believes that compelling

NASD members to arbitrate municipal securities

claims would be consistent with the intent of the

MSRB’s rule filing eliminating its arbitration

program and sending its arbitration cases to the

NASD. The Commission notes that NASD members

engaged in municipal securities transactions

already are required to arbitrate their claims

because they are either general securities broker/

dealers that are otherwise required to arbitrate all

of their other claims, or because they voluntarily

became NASD members. The Commission notes

that this filing does not affect the arbitration of

municipal securities.

6The NASD is still barred from establishing

regulations covering the municipal securities

activities of broker/dealers; that authority is

reserved to the MSRB.

the proposed rule change permits the

approval of research reports by a

supervisory analyst approved pursuant

to NYSE Rule 344 in limited

circumstances and according to

standards comparable to current NASD

requirements, the Commission believes

that the proposed rule change preserves

the investor protection goals of the

NASD principal review requirement

rules and eliminates duplicative

regulatory requirements.

IV. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act 10 that the

proposed rule change (SR–NASD–98–

28) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–17080 Filed 6–25–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40103; File No. SR–NASD–

98–04]

Self-Regulatory Organizations;

National Association of Securities

Dealers, Inc.; Order Granting Approval

to Proposed Rule Change Relating to

Mandatory Arbitration of Claims

Involving Exempted Securities.

June 19, 1998.

I. Introduction

On January 27, 1998, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’) submitted

to 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 thereunder,2 a proposed rule

change to amend the interpretation of

the NASD’s Code of Arbitration

Procedure (‘‘Code’’) such that all claims

relating to transactions in exempted

securities, including government and

municipal securities, may be submitted

to the Office of Dispute Resolution

(‘‘Office’’) for arbitration under the Code

without limitation. Accordingly, when

such claims arise involving public

customers, Rule 10301 of the code will

require member firms and associated

persons to arbitrate them at the request

of the customer. In addition, when such

claims arise between members and other

members or associated persons, Rule

10201 (which governs intra-industry

disputes) will require them to be

arbitrated at the request of one of the

parties. Finally, when such claims arise

between a member firm and a customer,

customers can be required under the

terms of a predispute arbitration

agreement to arbitrate the claims.

Notice of the proposed rule change,

together with the substance of the

proposal, was published for comment in

Securities Exchange Act Release No.

39880 (April 16, 1998), 63 FR 20230

(April 23, 1998). No comments were

received on the proposal.

II. Description

Since at least 1989, the Office had

declined to accept claims for mandatory

arbitration involving transactions in

government securities naming member

firms that were registered solely under

Section 15C of the Act as government

securities broker/dealers.3 By contrast, if

a claim involves a government securities

transaction by a general securities

broker/dealer member firm, the Office

will accept the claim for mandatory

arbitration. If the claim involves a

municipal securities transaction by a

member firm,4 the Office will accept the

claim for arbitration.5 In addition, the

Office will accept claims where both

parties agree to submit the claim to

arbitration.

Rule 10101 of the Code provides that

disputes ‘‘arising out of or in connection

with the business of any member’’ are

eligible for submission to arbitration

under the Code. The definition of

‘‘investment banking or securities

business’’ in Article I, paragraph (l) of

the By-Laws means ‘‘the business

carried on by a broker, dealer, or

municipal securities dealer * * *.’’

Rule 10301(a) provides that eligible

disputes ‘‘arising in connection with the

business of [a] member or in connection

with the activities of [an] associated

person’’ must be arbitrated pursuant to

any enforceable arbitration agreement or

upon the demand of a customer. While

these rules (and the definition) sweep in

a very broad range of disputes, Rule

10301(b) permits the Office to decline to

arbitrate certain matters.

In reliance on Rule 10301(b), and the

NASD’s limited regulatory jurisdiction

over government securities-only

member firms the Office has for many

years declined to accept for arbitration

claims that involved transactions in

government securities by member firms

engaged only in activities involving

government securities unless both

parties voluntarily agreed to submit the

claim. The Office’s position means that

these claims cannot be compelled into

arbitration under either a demand for

arbitration or a presidpute arbitration

agreement. The Office’s decision to

decline to mandate arbitration of

government securities claims was based

on the following rationale: (1) the NASD

only regulated the exempted securities

activities of member firms to the limited

extent permitted in Section 15A(f)(2) of

the Act; and, (2) the subject matter

jurisdiction of the arbitration forum

should not be significantly different

from the NASD’s regulatory jurisdiction

over its members and associated

persons.

In response to the passage of the

Government Securities Act

Amendments of 1993, which amended

Section 15A(f)(2) of the Act and granted

the NASD the authority to regulate

broadly the business practices of

members with respect to government

securities,6 NASD Regulation amended

its rules to consolidate the Government

Securities Rules it had adopted

pursuant to Section 15A(f)(2) of the Act

with its more generally applicable