Federal Register / Vol. 63, No. 141 /Thursday, July 23, 1998 / Notices 39619

14 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1) (1994).

2 17 CFR 240.19b–4 (1997).

3The functions of the NAC include hearing

appeals and conducting reviews of disciplinary

proceedings, statutory disqualification proceedings,

and membership proceedings; reviewing offers of

settlement; reviewing exemptions granted or denied

by staff; and making recommendations to the Board

on policy and rule changes relating to securities

business and sales practices and enforcement

policies, including policies with respect to fines

and other sanctions. See Article V, Section 5.1 of

the NASD Regulation By-Laws.

4See Letter from T. Grant Callery, General

Counsel, NASD, to Katherine England, Assistant

Director, SEC, dated May 19, 1998. Several

additional non-substantive textual changes were

also provided by telephone call on June 2, 1998.

Telephone call between Alden Adkins, General

Counsel, NASD Regulation, and Mandy Cohen,

Attorney, SEC.

5Securities Exchange Act Release No. 40062

(June 3, 1998), 63 FR 32033.

6Article V, Section 5.2 of the NASD Regulation

By-Laws.

7 Id.

8Article VI of the NASD Regulation By-Laws.

9Article VII, Section 9 of the NASD By-Laws;

Article VI, Section 6.25 of the NASD Regulation ByLaws.

10 15 U.S.C. 78(b)(6).

equitable principles of trade, prevent

fraudulent and manipulative acts and

practices, and generally provide for the

protection of investors and the public

interest. Specifically, the proposed rule

change is designed to reduce point-ofsale impact of non-cash sales incentives

that may compromise the duty of

registered representatives to match the

investment needs of customers with the

most appropriate investment product.

The Commission believes the proposal

appropriately recognizes that the

interest of those giving investment

advice and those seeking investment

advice can diverge where non-cash

compensation exists as an incentive to

sell specific investment products.

Accordingly, the proposed rule

change is designed to limit

compensation arrangements that may

threaten the mutuality and harmony of

interest between firms, their

representatives, and the investing

public. To that end, the proposal

addresses direct and perceived conflicts

of interest stemming from non-cash

compensation arrangements, such as

contests offering lavish trips and

expensive prizes and gifts for the sale of

investment company and variable

contract securities. Investor confidence

in the operation of the securities

markets is in turn bolstered as a

consequence of the removal of such

conflicts of interest.

The proposal facilitates, moreover, the

ability of NASD members to execute

compliance and supervisory

responsibilities by restricting the

potential for third-party non-cash

incentives to undermine the supervisory

control of an NASD member with

respect to its associated persons. An

NASD member is thus assisted in its

efforts to create unbiased compensation

plans that are arranged with the

approval of, and administered and

recorded by, the member firm. The

Commission believes greater

supervisory and compliance control of

compensation structures of associated

persons will enhance the ability of

NASD members to implement policies

and procedures to ensure that registered

representative compensation structures

align the interests of the firm, the

registered representative, and the

investor.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act, that File No.

SR–NASD–97–35 be, and hereby is,

approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Jonathan G. Katz,

Secretary.

[FR Doc. 98–19567 Filed 7–22–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40213; File No. SR–NASD–

98–36]

Self-Regulatory Organizations;

National Association of Securities

Dealers, Inc.; Order Granting Approval

to Proposed Rule Change and

Amendment 1 Thereto Relating to AtLarge Industry Members of the

National Adjudicatory Council

July 15, 1998.

I. Introduction

On May 12, 1998, 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 to amend the

By-Laws of NASD Regulation, Inc.

(‘‘NASD Regulation’’) to permit one or

more Industry members of the National

Adjudicatory Council (‘‘NAC’’)3 to serve

as at-large Industry members of the

NAC. By letter dated May 19, 1998, the

Association filed Amendment 1 to the

proposed rule change.4 The proposed

rule change and Amendment 1 were

published for comment in the Federal

Register on June 11, 1998.5 No

comments were received. This order

approves the proposal.

II. Description of the Proposal

Currently, the NASD Regulation ByLaws authorize the NASD Regulation

Board to appoint a NAC of 12 to 14

members, and require that the number

of Non-Industry members equal or

exceed the number of Industry

members.6 Thus, the NAC generally will

consist of six or seven Industry

members, depending on the size of the

Board. The By-Laws also require that

beginning in 1999 and thereafter, all

Industry members represent a

geographic region.7 Industry members

must be nominated by a Regional

Nominating Committee and may be

challenged for the nomination.8 The

Regional Nominating Committees then

nominate their candidates to the

National Nominating Committee, which

makes the final determination as to the

nominees who are presented to the

NASD Regulation Board for

appointment to the NAC.9

The proposed rule change would

permit the Board to designate up to two

NAC Industry members who would not

be subject to the regional nominating

process; instead, these members would

be designated as at-large Industry

members of the NAC. The number of atlarge Industry members could vary from

year-to-year depending on the total

number of Industry seats on the NAC

and the number of regions selected by

the Board. For example, if the Board

determined that there should be a 12- or

13-member NAC (which would include

six Industry seats) and five regions, then

the Board could designate one at-large

Industry member. If the Board

determined that there should be a 14-

member NAC (which would include

seven Industry seats) and five regions,

then there could be two at-large

Industry members. If the number of

Industry seats and the number of

regions were equal, then there would be

no at-large Industry seats that year.

Thus, given the limitation on the size of

the NAC and the number of Industry

seats, the proposed rule change would

allow zero, one, or two at-large Industry

members in any given year.

III. Discussion

The Commission finds that the

proposed rule change is consistent with

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

the Act,10 which provides, among other

things, that the rules of a national

securities association be designed to

prevent fradulent and manipulative acts

and practices, to promote just and

equitable principles of trade, and in
39620 Federal Register / Vol. 63, No. 141 /Thursday, July 23, 1998 / Notices

11 In approving this rule, the Commission notes

that it has considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

U.S.C. 78c(f).

12Securities Exchange Act Release No. 39175

(Sept. 30, 1997), 62 FR 53062 (Oct. 10, 1997).

13 15 U.S.C. 78s(b)(2).

14 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See Section 100 of Commission Regulation S–

T.

4The Exchange will submit a request for a ‘‘no

action’’ letter (the ‘‘No Action Letter’’), on behalf of

its listed companies, seeking Commission staff

concurrence in the view that a company’s filing of

a report or other material covered by this rule

change through EDGAR will satisfy the company’s

obligation under the Commission’s rules to file the

material with the Exchange. Although the proposed

rule change is effective immediately upon filing, the

Exchange will not implement the rule change until

the Commission staff grants the No Action Letter.

general, to protect investors and the

public interest.11 The Commission

believes that the proposed rule change

will provide NASD Regulation with

greater flexibility in the nomination and

appointment of Industry members to the

NAC, which serves an important role in

reviewing disciplinary, membership,

and other matters for NASD Regulation.

At the same time, NASD member

involvement in nominating Industry

members for the NAC will be preserved

by requiring most Industry members of

the NAC to represent regions.

The Commission notes that the

proposed rule change is consistent with

the corporate reorganization approved

by the Commission in SR–NASD–97–

7112 in that the number of regions that

may be established by the Board is not

specified in the NASD Regulation ByLaws so that the Board may retain

flexibility in determining the

appropriate number of regions. The

proposed rule change also is consistent

with the regional plan approved by the

Board at its meeting on May 6, 1998,

which proposes a 12-member NAC and

five regions for 1999. The proposed rule

change thus will permit five Industry

members of the NAC to be nominated by

the regions for consideration by the

National Nominating Committee and

one at-large Industry member of the

NAC who would not be subject to the

regional nominating requirements in

Article VI of the NASD Regulation ByLaws. All six Industry members, along

with six Non-Industry members, would

be nominated by the National

Nominating Committee and appointed

by the NASD Regulation Board.

IV. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,13 that the

proposed rule change (SR–NASD–98–

36) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Jonathan G. Katz,

Secretary.

[FR Doc. 98–19568 Filed 7–22–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40220; File No. SR–NYSE–

98–18]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the New

York Stock Exchange, Inc. Relating to

the Filing of Certain Material in

Electronic Format by Listed

Companies

July 16, 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 9,

1998, the New York Stock Exchange,

Inc. (‘‘NYSE’’ or ‘‘Exchange’’) 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 NYSE. 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 Exchange’s rules require listed

companies to file multiple copies of

Commission reports and other materials

with the Exchange. The Exchange is

proposing to permit listed companies to

comply with this obligation by filing

certain material with the Commission

through the Electronic Data Gathering,

Analysis, and Retrieval (‘‘EDGAR’’)

system.

The text of the proposed rule change

is available at the Office of the

Secretary, the NYSE, and at the

Commission.

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

NYSE 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 NYSE 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 streamline filing

requirements for listed companies by

permitting them to file most

Commission-required documents with

the Exchange in electronic format.

The Exchange’s rules required listed

companies to file with it multiple copies

of annual and interim reports, as well as

other Commission filings, such as

registration statements and

prospectuses. The Commission also

requires listed companies to file copies

of Commission reports and registration

statements with any national securities

exchange on which their securities are

listed. Listed companies currently file

these materials with the Exchange in

paper format, even if they file

electronically with the Commission.

Under the Commission’s regulations,

domestic registrants generally are

required to file all material with the

Commission through EDGAR.3

The proposed rule change provides

that, with three exceptions, the EDGAR

filing will satisfy the Exchange filing

requirement.4 The Exchange will have

immediate and complete access to all

filings in the same manner that it

currently does, through its library,

which is operated under contract with

the Exchange by a ‘‘Level’’ EDGAR

subscriber. In addition, the Exchange is

considering additional forms of access

for relevant Exchange personnel, such

as through an EDGAR terminal on-site

in the New Listings and Client Service

offices. The relevant Exchange staff also

has access to much of this information

through the Commission’s EDGAR site

on the World Wide Web.

The three areas in which the

Exchange will continue to require hard

copy filing are:

• Material necessary to support a

listing application. The Exchange

currently accepts listing applications

only in hard copy format. Thus, the

Exchange will continue to require the

exhibits and attachments to listing