[Federal Register Volume 63, Number 134 (Tuesday, July 14, 1998)]
[Notices]
[Pages 37911-37912]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-18640]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40178; File No. SR-NASD-98-45]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc., Relating to Supervision of Correspondence

July 7, 1998.
    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 July 7, 1998, the NASD Regulation, Inc. (``NASDR'') 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 the NASDR. The NASDR has designated this 
proposal as one constituting a stated policy, practice, or 
interpretation with respect to the meaning of an existing rule under 
Section 19(b)(3)(A)(i) of the Act,\3\ which renders the rule effective 
upon the Commission's receipt of this filing. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19B-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(i).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The NASDR is proposing to further delay the effective date of one 
of the provisions of recently-approved amendments to the National 
Association of Securities Dealers, Inc. (``NASD'' or ``Association'') 
Rules 3010, ``Supervision,'' and 3110, ``Books and Records.''

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the NASDR 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. The NASDR 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
    A proposed rule change to amend NASD Rules 3010 and 3110 was filed 
with the Commission on April 11, 1997.\4\ The purpose of the amendments 
was to allow firms to develop flexible procedures for the review of 
correspondence with the public. In that filing, the NASDR stated that 
it would make the proposed rule change effective within 45 days of 
Commission approval. Amendment No. 1, containing a draft Notice to 
Members to be issued following approval of the proposed rule change, 
was filed with the Commission on December 1, 1997.\5\ The Notice to 
Members described the new rules and provided guidance to NASD members 
on the implementation of the new rules. The Commission approved the 
proposed rule change and Amendment No. 1 to the proposed rule change on 
December 31, 1997.\6\ Notice to Members 98-11 announced approval of the 
proposed rule change and stated that the amendments to Rules 3010 and 
3110 would be effective on February 15, 1998.
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    \4\ The proposed rule change (SR-NASD-97-24) was published for 
comment in the Federal Register on May 2, 1997. See Securities 
Exchange Act Release No. 38548 (April 25, 1997) 62 FR 24147.
    \5\ See Letter from Mary N. Revell, Associate General Counsel, 
NASDR, to Katherine A. England, Assistant Director, Division of 
Market Regulation, Commission, dated December 1, 1997 (``Amendment 
No. 1'').
    \6\ See Securities Exchange Act Release No. 39510 (December 31, 
1997) 63 FR 1131 (January 8, 1998) (``Release No. 39510'').
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    Subsequent to approval of the proposed rule change by the SEC, 
several commenters filed letters with the SEC raising issues regarding 
Amendment No. 1 to the proposed rule change and its accompanying Notice 
to Members.\7\ The NASDR, believing that

[[Page 37912]]

the letters raise important issues that should be fully addressed 
before the effectiveness of the rule change, filed a proposed rule 
change to postpone the effective date of the amendments to Rules 3010 
and 3110 approved in Release No. 39510.\8\
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    \7\ See Letters from Carl B. Wilkerson, American Council of Life 
Insurance, to Jonathan G. Katz, Secretary, SEC, dated January 9, 
1998; Beverly A. Byre, BenefitsCorp Equities, Inc., to Jonathan G. 
Katz, Secretary, SEC, dated January 26, 1998; Michael S. Martin, The 
Equitable Life Assurance Society of the United States, to Jonathan 
G. Katz, SEC, dated January 29, 1998; Janet G. McCallen, 
International Association for Financial Planning, to Jonathan G. 
Katz, Secretary, SEC, dated February 13, 1998; W. Thomas Boulter, 
Jefferson Pilot Financial, to Jonathan G. Katz, Secretary, SEC, 
dated January 28, 1998; Leonard M. Bakal, Metropolitan Life 
Insurance Company and MetLife Securities, Inc., to Jonathan G. Katz, 
Secretary, SEC, dated January 28, 1998; Michael L. Kerley, MML 
Investors Services, Inc. to Secretary, SEC, dated January 26, 1998; 
Mark D. Johnson, The National Association of Life Underwriters, to 
Jonathan G. Katz, Secretary, SEC, dated February 5, 1998; Theodore 
Mathas, NYLIFE Securities, to Jonathan G. Katz, Secretary, SEC, 
dated January 16, 1998 and January 29, 1998; Beverly A. Byrne, One 
Orchard Equities, Inc., to Jonathan G. Katz, Secretary, SEC, dated 
January 26, 1998; Dodie Kent, Pruco Securities Corporation, to 
Jonathan G. Katz, Secretary, SEC, dated January 29, 1998; and James 
T. Bruce, Wiley, Rein & Fielding, on behalf of the Electronic 
Messaging Association, to Jonathan G. Katz, SEC, dated January 30, 
1998.
    \8\ The proposed rule change (SR-NASD-98-10) became effective on 
filing. See Securities Exchange Act Release No. 39665 (February 13, 
1998) 63 FR 9032 (February 23, 1998).
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    The concerns raised by the commenters include issues concerning the 
effect of the rules on the review of incoming correspondence and the 
scope of the obligation of member firms to control the use of 
electronic communications systems that registered persons use to 
communicate with their customers. After considering these issues, the 
NASDR filed a proposed rule change to implement the amendments to Rules 
3010 and 3110 approved in Release No. 39510 immediately, including the 
requirements set forth in Notice to Members 98-11, with the exception 
of the provision in the Notice stating that members must review ``all 
incoming correspondence received in non-electronic format directed to 
registered representatives and related to a member's investment banking 
or securities business.'' \9\ The effective date of this provision was 
delayed until July 7, 1998 to allow NASDR a further opportunity to 
consider comments on this issue.
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    \9\ See Securities Exchange Act Release No. 39866 (April 14, 
1998) 63 FR 19778 (April 21, 1998) (Notice of filing and immediate 
effectiveness of File No. SR-NASD-98-31).
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    The NASDR proposes a further delay in the effective date of the 
provision in the Notice addressing the review of incoming, non-
electronic correspondence until September 30, 1998. At its meeting on 
June 25, 1998, the NASDR Board of Directors approved revisions to Rule 
3010 and to the Notice to Members that are intended to address the 
regulatory concerns necessitating the review of incoming, non-
electronic correspondence and at the same time to respond to concerns 
raised by member firms about the difficulty of conducting such review. 
The NASDR Board also approved submission of a rule filing to the SEC. 
The NASDR anticipates that the rule filing will be submitted to the SEC 
prior to July 30, 1998. When that proposed rule change is filed, the 
NASDR will request an indefinite extension of this provision until the 
SEC has acted on the rule filing. In the meantime, to ensure continuity 
of the requirements applicable to member firms, the NASDR proposes a 
delay in the effective date of the provision. Prior to the September 
30, 1998 effective date, however, members will be required to review 
and report customer complaints as required by Rule 3070(a)(2); keep and 
preserve all written customer complaints as required by Rule 3110(d); 
and establish procedures for the review of incoming and outgoing 
written and electronic correspondence consistent with new Rules 3010(d) 
(1) and (2).
2. Statutory Basis
    The NASDR believes the proposed rule change is consistent with 
Section 15A(b)(6) of the Act,\10\ 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 delaying the effective date of 
one of the provisions of the new rules is consistent with these 
requirements.
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    \10\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The NASDR does not believe that the proposed rule change will 
impose a 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

    The foregoing rule change constitutes a stated policy, practice, or 
interpretation with respect to the meaning, administration or 
enforcement of an existing rule of the Association and, therefore, has 
become effective pursuant to Section 19(b)(3)(A) of the Act \11\ and 
subparagraph (e) of Rule 19b-4 thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 19b-4(e).
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    At any time within 60 days of the filing of such rule change, the 
Commission may summarily abrogate such rule change if it appears to the 
Commission that such action is necessary or appropriate in the public 
interest, for the protection of investors, or otherwise in furtherance 
of the purposes of the Act.

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 submissions, 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, 450 Fifth Street, NW, Washington 
DC. Copies of such filing also will be available for inspection and 
copying at the NASD. All submissions should refer to File No. SR-NASD-
98-45 and should be submitted by August 4, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-18640 Filed 7-13-98; 8:45 am]
BILLING CODE 8010-01-M