26890 Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Notices

8For purposes only of accelerating the operative

date of this proposal, the Commission has

considered the proposed rule’s impact on

efficiency, competititon, and capital formation. 15

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

9See Securities Exchange Act Release No. 43938

(February 7, 2001), 66 FR 10539 (February 15, 2001)

(approving SR–Amex–01–03); and Securities

Exchange Act Release No. 42455 (February 24,

2000), 65 FR 11388 (March 2, 2000) (approving

application of ISE for registration as a national

securities exchange).

10 15 U.S.C. 78f(b)(8).

11 17 CFR 200.30–3(a)(12).

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

2 15 CFR 240.19b–4

3 Gramm-Leach-Bliley Act of 1999, Pub. L. No.

106–102, 113 Stat. 1338 (1999).

4See letter from Jeffrey S. Holik, Vice President

and Acting General Counsel, NASD Regulation, to

Katherine A. England, Assistant Director, Division

of Market Regulation (‘‘Division’’), Commission,

dated February 28, 2001 (‘‘Amendment No. 1’’).

Amendment No. 1 was filed to address SEC staff

comments and to make certain clarifications.

5See letter from Gary L. Goldsholle, Associate

General Counsel, NASD Regulation, to Katherine A.

England, Assistant Director, Division, Commission,

dated March 14, 2001 (‘‘Amendment No. 2’’).

Amendment No. 2 was filed to address SEC staff

comments and to make further clarifications.

6See Release No. 34–44091 (March 21, 2001), 66

FR 16964 (March 28, 2001).

not impose any significant burden on

competition; and (iii) by its terms, does

not become operative for 30 days after

the date of the filing, or such shorter

times as the Commission may designate

if consistent with the protection of

investors and the public interest; and

the Exchange has given the Commission

written notice of its intent to file the

proposed rule change at least five

business days prior to the filing date of

the proposed rule change, it has become

effective pursuant to Section 19(b)(3)(A)

of the Act and Rule 19b–4(f)(6).

The Exchange has requested that the

Commission accelerate the operative

date of the proposal. In addition, the

Exchange provide the Commission with

notice of its intent to file the proposed

rule change, along with a brief

description and text of the proposed

rule change, more than five business

days prior to the date of the filing of the

proposed rule change.

The Commission finds that it is

appropriate to accelerate the operative

date of the proposal and designate the

proposal to become effective today.8

The Commission has approved similar

proposals filed by the other options

exchange.9 Approval of this proposal on

an accelerated basis will enable the

Exchange to compete on an equal basis

with these other exchanges and thus is

consistent with Section 6(b)(8) of the

Act.10

At any time within 60 days of the

filing of the proposed 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 Act.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning the foregoing,

including whether the proposed rule 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

20549–0609. 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. Copies of such filing will also

be available for inspection and copying

at the principal office of CBOE. All

submissions should refer to file number

SR–CBOE–2001–20 and should be

submitted by June 5, 2001.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–12135 Filed 5–14–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44281; File No. SR–NASD–

00–69]

Self-Regulatory Organizations;

National Association of Securities

Dealers, Inc.; Order Approving

Proposed Rule Change to Establish a

New Registration Category: Limited

Representative—Private Securities

Offerings (Series 82)

May 8, 2001.

I. Introduction

On November 28, 2000, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’), through its

wholly-owned subsidiary, NASD

Regulation, Inc. (‘‘NASD Regulation’’),

filed with the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘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 seeking to amend

rule 1032 of the NASD to establish a

new registration category, Limited

Representative—Private Securities

Offerings (Series 82). The proposed rule

change was developed to implement

Section 203 of the Gramm-Leach-Bliley

Act of 1999 (‘‘GLBA’’), which becomes

effective on May 12, 2001.3 NASD

Regulation also proposed clerical

changes to rule 1032, essentially

replacing the word ‘‘described’’ for the

word ‘‘prescribed.’’ NASD Regulation

filed Amendment No. 1 to the proposed

rule change on February 28, 2001.4

Amendment No. 1 repalces the

proposed rule change in its entirety. On

March 14, 2001, NASD Regulation filed

Amendment No. 2 to the proposed rule

change.5 Notice of the proposed rule

change appeared in the Federal Register

on March 28, 2001.6 The Commission

received no comments on the proposal.

This order approves the proposed rule

change.

II. Description of the Proposal

NASD Regulation is proposing to

amend Rule 1032 of the NASD to

implement Section 203 of GLBA.

Section 203 adds subsection (j) to

Section 15A of the Act, which requires

that the NASD, as a registered securities

association, create a limited registration

category for any associated person of a

member whose investment banking and

securities business is limited solely to

effecting sales of private securities

offerings. Section 203 also states that

any bank employee who during the sixmonth period prior to the enactment of

GLBA (i.e., from May 12, 1999 to

November 12, 1999) engaged in effecting

such sales shall not be required to pass

a qualification examination in order to

be deemed qualified in the limited

registration category. Section 203

becomes effective on May 12, 2001.

GLBA also establishes functional

regulation, meaning that each industry

segment of a multi-industry

organization will be regulated by the

agency charged by law with the

regulation of that industry. In

connection with functional regulation,

GLBA eliminates the long-standing

general exclusion for banks from the

definitions of ‘‘broker’’ and ‘‘dealer’’

under the Act and instead provides

exclusions for certain bank activities.

With respect to private placement

activity, GLBA permits private

placements to be effected in a bank (that

is not a broker or dealer) where (a) the

bank is not affiliated with a broker or

dealer that is engaged in dealing, market

Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Notices 26891

7See NASD Rule 1032(g).

8See NASD Rule 1032(c).

9See Release No. 34–44228 (April 27, 2001), 66

FR 22624 (May 4, 2001).

10 15 U.S.C. 78o–3(b)(6), 78o–3(g)(3), and 78o–3(j)

(the latter as enacted in 1999 through Section 203

Continued

making, or underwriting, other than

with respect to exempted securities and

(b), if the bank is not affiliated with any

broker or dealer, the aggregate dollar

amount of any private placement

offering (excluding government or

municipal securities) does not exceed

25% of the bank’s capital. A bank that

meets these conditions will be eligible

to engage in private placement activities

without having to register its personnel

with the NASD. Notwithstanding this

exclusion, many banks will be required

to effect private securities offerings in a

registered broker/dealer. For banks that

are not excluded from the definition of

‘‘broker,’’ employees that effect sales of

private securities offerings will be

required to become associated persons

of a registered broker/dealer, and as

such, will be subject to NASD

qualification examination and other

requirements.

As part of the effort to facilitate a

smooth transition of private placement

activities from banks to broker/dealers,

GLBA creates a new limited registration

category for persons engaging solely in

sales of private securities offerings. As

noted above, while certain banks will

still be permitted to engage in private

securities offerings, many others will be

required to effect these sales in a

registered broker/dealer with

appropriately registered personnel.

The proposed rule change effectuates

the provisions of Section 203 by

establishing a new registration category

for persons engaged solely in sales of

private securities offerings through a

registered broker/dealer. Applicants

seeking to register with the NASD under

this limited registration category must

meet the eligibility criteria for

associated persons of a member in the

NASD By-Laws and pass the necessary

qualification examination. However,

consistent with GLBA, the proposed

rule change provides that any person

who engaged in sales of private

securities offerings as an employee of a

bank during the period from May 12,

1999 to November 12, 1999, is not

required to complete the qualification

examination. An applicant seeking

exemption from the qualification

examination pursuant to this provision

will be required to provide such

evidence as NASD Regulation

determines to be appropriate,

demonstrating that he or she was

engaged in effecting sales of private

securities offerings at the bank during

the period from May 12, 1999 to

November 12, 1999.

The new limited registration category

permits a person to effect sales of

private securities offerings. However,

the new limited registration category

does not permit a person to effect sales

of municipal or government securities

or equity interests in or the debt of

direct participation programs (‘‘DPP

securities’’). Although sales of

municipal securities and DPP securities

may involve private securities offerings,

NASD Regulation does not believe that

the limited registration category should

allow persons to sell such securities.

Persons who effect sales of municipal

securities, including bank employees,

currently are required to be qualified in

accordance with the rules of the

Municipal Securities Rulemaking Board

(‘‘MSRB’’). MSRB rules, among other

things, require that persons pass a

specific qualification examination.

NASD Regulation does not believe that

the new limited registration category

was intended to create a subcategory of

persons that are eligible to engage in

certain offerings of municipal securities

without meeting the specific

qualification requirements of the MSRB.

Based upon conversations with SEC

staff, NASD Regulation has included

language in the proposed rule change to

exclude from the scope of the limited

registration category the ability to effect

sales of private placements of

government securities. With respect to

government securities, NASD

Regulation already offers a limited

registration category for persons

involved in the solicitation, purchase or

sale of government securities.7

Moreover, although neither NASD

Regulation nor the SEC staff currently is

aware of any private offerings of

government securities, the SEC believes

that it is important to exclude

government securities from the limited

registration category, similar to the

exclusion for municipal securities given

the manner in which these products are

addressed in the GLBA.

The new limited registration category

also does not qualify a person to engage

in offerings of DPP securities. In general,

DPP securities are specialized programs

that provide for flow-through tax

consequences. Any person who wishes

to effect sales of DPP securities is

required as a general securities

representative or under a limited

registration category for DPP securities.8

Based upon conversations with banking

industry representatives, NASD

Regulation does not believe that

unregistered bank employees generally

effect sales of DPP securities. In view of

the highly specialized nature of DPP

securities, the existence of a limited

registration category for such securities,

and the general lack of experience in

such securities by unregistered bank

personnel, NASD Regulation does not

believe that the new limited registration

category should qualify an associated

person to sell DPP securities. Moreover,

by eliminating DPP securities from the

scope of the new limited registration

category, the qualification examination

will not be burdened with questions on

these highly specialized products.

However, with respect to current bank

employees who may be eligible to

register under the new limited

registration category without taking the

qualification examination pursuant to

paragraph (h)(2) of the proposed rule

change, NASD Regulation staff has

exemptive authority under NASD Rule

1070 and under such authority will

consider on a case-by-case basis

whether a bank employee with

experience in DPP securities registering

with a broker/dealer should be

authorized to effect sales of DPP

securities without having to complete

the general securities representatives or

specific DPP securities limited

qualification examination.

The new limited registration category

permits persons only to effect sales of

private placement securities as part of a

primary offering. As such, persons

registered in this category will not be

permitted to effect resales of or

secondary market transactions in private

placement securities. Any person

wishing to effect resales of or secondary

market transactions in private

placement securities will be required to

register as a General Securities

Representative, or, where appropriate,

as a Limited Representative—Corporate

Securities.

NASD Regulation staff has developed

a qualification examination and has

filed the study outline and

specifications with the Commission

under separate cover.9

NASD Regulation also is making

several clerical changes to Rule 1032,

replacing the word ‘‘described’’ for the

word ‘‘prescribed.’’ This change more

accurately reflects the intended meaning

of the affected paragraphs.

III Discussion

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to the NASD and, in

particular, with the requirements of

Sections 15A(b)(6), 15A(g)(3), and

15A(j) of the Act.10 Section 15A(b)(6)

26892 Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Notices

of GLBA and effective on May 12, 2001. See note,

3, supra.)

11See note 10, supra.

12 15 U.S.C. 78s(b)(2).

13 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3The Commission notes that NASD’s proposal, as

published in the Federal Register for notice and

public comment, contained an erroneous filing

date. The correct date on which NASD filed File

No. SR–NASD–2001–06 with the Commission, as

noted above, was January 18, 2001.

4Letter from T. Grant Callery, Senior Vice

President and General Counsel, NASD, to Katherine

A. England, Assistant Director, Division of Market

Regulation (‘‘Division’’), Commission, dated

February 2, 2001 (‘‘Amendment No. 1’’). In

Amendment No. 1 the NASD provided the final

ballot summary of the membership vote regarding

the proposed amendments to the NASD By-Laws,

indicating that the NASD membership approved the

proposed amendments.

5Letter from T. Grant Callery, Senior Vice

President and General Counsel, NASD, to Katherine

A. England, Assistant Director, Division,

Commission, dated February 23, 2001

(‘‘Amendment No. 2’’). In Amendment No. 2 the

NASD amended proposed Article VII, Section

10(a)(ii) of the By-Laws to state ‘‘(ii) in the case of

petitions in support of more than one person,

petitions in support of the nominations of such

persons duly executed by ten percent of the

members.’’

6Securities Exchange Act Release No. 44004

(February 26, 2001), 66 FR 13601 (March 6, 2001).

7Letter from T. Grant Callery, Senior Vice

President and General Counsel, NASD, to Katherine

A. England, Assistant Director, Division,

Commission, dated April 19, 2001 (‘‘Amendment

No. 3’’). In Amendment No. 3 the NASD amended

proposed Article VII, Section 11(b) of the By-Laws

to clarify its proposed rules regarding National

Nominating Committee (‘‘NNC’’) participation in

contested Board elections by stating that the NNC

may support its nominees by sending up to two

mailings on their behalf ‘‘in lieu of mailings sent

by its candidates under Article VII, Section 12.’’

8Letter from T. Grant Callery, Senior Vice

President and General Counsel, NASD, to Katherine

A. England, Assistant Director, Division,

Commission, dated May 7, 2001 (‘‘Amendment No.

4’’). In Amendment No. 4, the NASD amended the

following sections of its By-laws to remove

proposed deletions to the term ‘‘Nasdaq’’ contained

in its original filing: Article IV, Section 1(a)(1);

Article V, Section 2(a)(1); Article VI, Section 1;

Article VII, Section 1(c); Article XIII, Section 1(b);

and Article XV, Section 4(b), In addition, NASD

withdrew its proposed modification to Article VII,

Section 3(a) in its entirety.

9The Commission was forwarded one item of

email correspondence relating to the substance of

this proposal. See email from Robert Glauber, CEO

and President, NASD to Arthur Levitt, Chairman,

Commission, on December 26, 2000, incorporating

email from Alan Davidson, President, Independent

Broker-Dealer Association, dated December 21,

2000, responding to the NASD’s correspondence to

its members about the proposed changes to its ByLaws referenced in this proposal. The commenter

opposed the NASD’s proposed rule change, as

originally proposed, specifically the portion of the

proposal allowing limited NNC participation in

contested elections. The commenter argued that the

purpose of the NNC is to nominate, not to use its

official capacity to support candidates for the NASD

Board. The commenter argued that the NASD Board

was effectively manipulating the election process

by allowing an appointed (as opposed to an elected)

committee to campaign in favor of certain

candidates.

requires, in relevant part, that the rules

of a registered securities association be

designated to prevent fraudulent and

manipulative acts and practices, to

promote just and equitable principles of

trade, and to protect investors and the

public interest. Section 15A(g)(3)

provides that a registered securities

association may deny membership to, or

condition the membership of, a

registered broker or dealer if such broker

or dealer does not meet the requisite

levels of knowledge and competence.

Section 15A(j) (as enacted) 11 provides

that a registered securities association

shall create a limited qualification

category for any associated person of a

member who effects sales as part of a

primary offering of securities not

involving a public offering, pursuant to

Section 3(b), 4(2), or 4(6) of the

Securities Act of 1933 and the rules and

regulations thereunder, and shall deem

qualified in such limited qualification

category, without testing, any bank

employee who, within the six month

period preceding the date of the

enactment of the GLBA, engaged in

effecting such sales.

IV. Conclusion

For the above reasons, the

Commission finds that the proposed

rule change is consistent with the

provisions of the Act, in general, and

with Sections 15A(b)(6), 15A(g)(3), and

15A(j) in particular.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,12 that the

proposed rule change, SR–NASD–00–

69, be and hereby is, approved.

For the Commission, by the Division

of Market Regulation, pursuant to

delegated authority.13

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–12134 Filed 5–14–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44280; File No. SR–NASD–

2001–06]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change and

Notice of Filing and Order Granting

Accelerated Approval to Amendments

No. 3 and No. 4 by the National

Association of Securities Dealers, Inc.

Amending the NASD By-Laws

May 8, 2001.

I. Introduction

On January 18, 2001, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’) 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 amending the

NASD By-Laws.3 On February 5, 2001,

the NASD submitted Amendment No. 1

to the proposed rule change.4 On

February 26, 2001, the NASD submitted

Amendment No. 2 to the proposed rule

change.5 The proposed rule change was

published for comment in the Federal

Register on March 6, 2001.6 On April

20, 2001, the NASD submitted

Amendment No. 3 to the proposed rule

change.7 On May 7, the NASD

submitted Amendment No. 4 to the

proposed rule change.8

The Commission received no

comments on the proposal.9 This order

approves the proposed rule change, as

amended. In addition, the Commission

is publishing this notice to solicit

comments on Amendments No. 3 and

No. 4 and is simultaneously approving

Amendments No. 3 and No. 4 on an

accelerated basis.

II. Description of the Proposal

In its proposed rule change, NASD

proposed amendments to its By-Laws to

address several corporate governance

issues, including the treatment of staff

Governors as ‘‘neutral’’ for purposes of

Industry/Non-Industry balancing on the

NASD’s Board of Governors (the

‘‘Board’’); the role of the national

Nominating Committee (‘‘NNC’’) in

contested elections; the petition process

by which individuals and slates can be

included in the election process; the

Industry classifications that must be

represented on the Board; and other

clarifying amendments, including the

addition of certain definitions and

changes to conform certain provisions of

the NASD By-Laws to Delaware law and

the deletion of terms that are no longer

applicable. Additionally, the

amendments reflect the new NASD

corporate structure, including the

creation of NASD Dispute Resolution,

Inc., a wholly owned subsidiary of the

NASD.