67146 Federal Register / Vol. 60, No. 249 / Thursday, December 28, 1995 / Notices

3Securities Exchange Act Release No. 34961

(November 10, 1994), 59 FR 59590. This provision

of the Rule became effective on July 3, 1995. See

Securities Exchange Act Release No. 35911.

4The effective date of this provision of the Rule

is January 1, 1996.

5The Board also terminated the pilot phase of the

CDI System and filed its Report on the Conclusion

of the CDI Pilot of the Municipal Securities

Information LibraryTM System with the Commission

on August 25, 1995.

6Securities Exchange Act Release No. 35911

(June 28, 1995), 60 FR 35248.

1The proposed rule change was initially filed on

November 8, 1995, but was subsequently amended

on December 11, 1995, and again on December 15,

1995, in order to clarify that the proposed rule

change does not apply to limited partnership

securities that are traded on the Nasdaq Stock

Market or a registered national securities exchange.

municipal securities unless the issuer

commits, among other things, to provide

material events notices to the Board’s

CDI system or to all Nationally

Recognized Municipal Securities

Information Repositories (‘‘NRMSIRs’’)

and to the applicable state information

depository.3 In addition, the Rule

prohibits dealers from recommending

municipal securities without having a

system in place to receive material

events notices.4 To conform to the new

Commission requirements, the Board

revised the CDI system and

implemented an interim system

designed to accept material event

notices while a larger permanent system

is being designed.5 The Commission

approved operation of the interim

system through December 31, 1995.6

The Board is requesting an extension

for the interim system through

September 30, 1996, to gain additional

experience with the new disclosure

scheme of SEC Rule 15c2–12 while the

permanent system is being designed.

The amendments to SEC Rule 15c2–12

regarding material event notices were

effective in July 1995, and will not be

fully effective until January 1, 1996.

Issuers and their agents are still in the

process of adjusting to the amendments.

The current volume of material event

notices has been within the capacity of

the interim system. Additional

experience will allow the Board to

design the permanent system to more

efficiently accommodate the expected

volume of material event notices. In

addition, the permanent system is being

designed to accommodate longer

documents.

The Board believes that an extension

of the operation of the interim CDI

system through September 30, 1996,

will give it sufficient time to determine

the system changes needed, in

consultation with the Commission as

well as potential users of the system,

including NRMSIRs. Prior to that time,

the Board plans to ask the Commission

for approval of the permanent CDI

system, which will be described in a

filing with the Commission.

The Board believes the proposed rule

change is consistent with Section

15B(b)(2)(C) of the Act, which provides

that the Board’s rules:

Be designed to prevent fraudulent and

manipulative acts and practices, to promote

just and equitable principles of trade, to

foster cooperation and coordination with

persons engaged in regulating, clearing,

settling, processing information with respect

to, and facilitating transactions in municipal

securities, to remove impediments to and

perfect the mechanism of a free and open

market in municipal securities, and, in

general, to protect investors and the public

interest.

The MSILTM system is designed to

increase the integrity and efficiency of

the municipal securities market by,

among other things, helping to ensure

that the price charged for an issue in the

secondary market reflects all available

official information about that issue.

The Board will continue to operate the

output side of the CDI system to ensure

that the information is available to any

party who wishes to subscribe to the

service. As with all MSILTM system

services, this service is available, on

equal terms, to any party requesting the

service.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Board does not believe that the

proposed rule change will impose any

burden on competition not necessary or

appropriate in furtherance of the

purposes of the Act.

C. Self-Regulatory Organization’s

Statement of 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

Because the foregoing proposed rule

change: (i) Does not significantly affect

the protection of investors or the public

interest; (ii) does not impose any

significant burden on competition; (iii)

was provided to the Commission for its

review at least five days prior to the

filing date; and (iv) does not become

operative for thirty days from the date

of its filing on November 28, 1995, the

proposed rule change has become

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

of the Act and Rule 19b-4(e)(6)

thereunder. In particular, the

Commission believes the proposed rule

change qualifies as a ‘‘non-controversial

filing’’ in that the proposed standards

do not significantly affect the protection

of investors or the public interest and do

not impose any significant burden on

competition. At any time within sixty

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

purposes of the Act.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing.

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 the filing will also be

available for inspection and copying at

the Board’s principal offices. All

submissions should refer to File No.

SR–MSRB–95–19 and should be

submitted by January 18, 1996.

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. 95–31354 Filed 12–27–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36611; File No. SR–NASD–

95–53]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

National Association of Securities

Dealers, Inc. Requiring Members Who

Participate in the Transfer of Limited

Partnership Securities To Use

Standard Transfer Forms

December 20, 1995.

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 December 15,

1994,1 the National Association of
Federal Register / Vol. 60, No. 249 / Thursday, December 28, 1995 / Notices 67147

2The contents of the proposed forms are not

reproduced here. Copies of proposed Exhibit A are

available from the NASD by calling (202) 728–6960,

and are available for inspection and copying in the

Commission’s Public Reference Room.

3The Revised Uniform Limited Partnership Act

and the Delaware Revised Uniform Limited

Partnership Act expressly provide for the ability to

recognize transfers and admit new partners under

whatever rules the general partners design.

4The NASD believes these problems are

exacerbated by the fact that general partners relying

on no-action letters issued by the Division of

Market Regulation do not believe they are required

under SEC Rule 10b–17 to publicly disclose the

payment of regular or special distributions.

Securities Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’) 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 NASD. 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 NASD is herewith filing a

proposed rule change to amend Section

1 and add new Section 73 and Exhibit

A to the NASD’s Uniform Practice Code.

Below is the text of the proposed rule

change to Sections 1 and 73 of the Code.

Proposed new language is italicized.

Uniform Practice Code

Scope of Uniform Practice Code

Sec. 1.

(a) All over-the-counter secondary market

transactions in securities between members

shall be subject to the provisions of this Code

except:

(i)–(iv) (No change).

(v) transactions in Direct Participation

Program securities as defined in Article III,

Section 34 of the Association’s Rules of Fair

Practice, except as otherwise provided in this

Code.

* * * * *

Limited Partnership Securities

Sec. 73.

Each member who participates in the

transfer of limited partnership securities, as

defined in Article III, Section 34 of the

Association’s Rules of Fair Practice, shall use

standard transfer forms in the same form as

set forth in Exhibit A of this section. This

section shall not apply to limited partnership

securities which are traded on The Nasdaq

Stock Market or a registered national

securities exchange.

* * * * *

Proposed Exhibit A to Section 73 of

the Uniform Practice Code contains the

standard transfer forms, including a

‘‘Transferor’s (Seller’s) Application For

Transfer,’’ a ‘‘Transferee’s (Buyer’s)

Application For Transfer,’’ a

‘‘Registration Confirmation Form,’’ and

a ‘‘Distribution Allocation Agreement.’’

Briefly, the Transferor and Transferee

forms are each two pages in length and

contain all of the essential information

necessary to perform a valid transfer;

the Registration Confirmation Form

confirms to the buyer/transferee that the

transfer has been completed; the

Distribution Allocation Agreement

contains certain affirmations on which

the transferor/seller and transferee/

buyer agree, and would act as a contract

between them setting forth their

agreement regarding all upaid

distributions.2

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

NASD 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 NASD 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

The Uniform Practice Code (‘‘Code’’)

governs the delivery and settlement of

all over-the-counter secondary market

transactions in securities between

members, with certain exceptions. The

Code provides and exception, among

others, for transactions in Direct

Participation Program securities (‘‘DPP

securities’’) as defined in Article III,

Section 34 of the NASD’s Rules of Fair

Practice, including limited partnership

securities also defined in Article III,

Section 34. The NASD is proposing to

modify and add a new section to the

Code to require members to use

standardized limited partnership

transfer forms when transferring a

limited partnership security.

Historically, limited partnership

securities were not structured to be

freely transferable in secondary market

transactions. Trading markets now exist,

however, for many limited partnership

securities in addition to the large

publicly-traded partnerships which are

traded on The Nasdaq Stock Market and

the national securities exchanges. Quick

and accurate processing of the transfer

of limited partnership securities has,

therefore, become more critical.

The terms and requirements relating

to the assignment and transfer of limited

partnership interests are contained in

and controlled by the partnership

agreement,3 almost all of which state

that assignment or transfer of limited

partnership interests requires the

consent and approval of the general

partner(s). As a result, when transferring

limited partnership interests, NASD

members are currently confronted with

transfer requirements unique to each

partnership which may vary widely on

the type and amount of documents

necessary for the valid transfer of a

partnership interest. Some parternship

agreements require information so

extensive that the transfer documents

sometimes reach 30 to 40 pages in

length. Thus, the transfer of the

partnership interest may take up to six

months, in some cases, to become

finalized.

Partnership terms for record dates and

distribution or dividend payment dates

are equally varied. Transfer delays and

non-standardized payment provisions

have caused or contributed to delays or

mistakes in the allocation of cash

distributions between buyers and

sellers. A seller of a limited partnership

interest, as a recordholder of the

securities, often receives distributions

that rightly should have accrued to the

buyer and subsequently disposes of

such distributions without knowledge of

the claims of purchasers. Particularly

problematic are special distributions

other than cash distributions (such as

proceeds from capital transactions,

capital distributions, sale or refinancing

proceeds, liquidating distributions,

distributions with respect to terminating

transactions) which, under many

partnership agreements, are paid to the

owner of record of the partnership unit

in the prior quarter. Thus, under current

transfer standards and practices, buyers

and sellers of limited partnership

securities in the secondary market are

unable to protect their rights to such

distributions. This leads to disputes

over distributions that often must be

settled by broker/dealers at their own

expense or through arbitration or

litigation.4

The NASD recognizes that the transfer

of limited partnership interests is

controlled by the terms of the

partnership agreement under various

state limited partnership statutes.

However, the NASD also recognizes

that, in most cases, prior to the

recognition by the general partner of the

actual transfer of the partnership

property interest from one holder

(transferor/seller) to another (transferee/

purchaser), a security interest in the

property is created whenever the
67148 Federal Register / Vol. 60, No. 249 / Thursday, December 28, 1995 / Notices

5 In fact, the NASD has worked closely with

transfer agents who specialize in the transfer of

partnership securities, and the Investment Program

Association, a trade organization for the partnership

industry, to reach an informal consensus on the

general applicability of forms throughout the

industry.

6 15 U.S.C. § 78 o–3.

7Copies of the Comment letters received by the

NASD in response to NTM 94–75 are available for

inspection and copying at the NASD or at the

Commission’s Public Reference Room.

purchaser gives, and seller accepts,

economic consideration to secure the

purchaser’s right to have the partnership

interests transferred. The security

interest creates the right for the

purchaser to have the partnership

interest transferred in advance of the

date specified in the partnership

agreement and entitles the purchaser to

legal certainty that his/her ownership

rights can be recognized and protected

until the transfer of the partnership

interest is completed.

In order to provide a uniform way for

member firms engaged in the transfer of

limited partnership interests to receive

and recognize information on the valid

transfer of the security interest separate

and apart from the partnership interest,

and to record such information of valid

transfer on their books and records, the

NASD is proposing to amend Section

1(a)(v) to allow the Code to apply to

over-the-counter secondary market

transfers of direct participation

programs to the extent provided in

individual provisions of the Code and to

add new Section 73 of the Code to

require members to use standardized

transfer forms, as set forth in proposed

Exhibit A to Section 73, when

transferring limited partnership

securities. The proposed forms will

standardize the format for gathering

transfer information by registered

representatives, reduce the amount of

information necessary to perform a valid

transfer, and eliminate delays and

inefficiencies in the transfer and

settlement process. Proposed new

Section 73 will not apply to limited

partnership securities which are traded

on The Nasdaq Stock Market or a

registered national securities exchange.

The proposed standardized transfer

forms include ‘‘Transferor’s (Seller’s)

Application For Transfer,’’ ‘‘Transferee’s

(Buyer’s) Application For Transfer,’’

‘‘Registration Confirmation Form,’’ and

‘‘Distribution Allocation Agreement,’’ as

set forth in proposed Exhibit A to

Section 73. The Transferor and

Transferee forms are each two pages in

length and contain all of the essential

information necessary to perform a valid

transfer, including customer

identification, partnership

identification, tax identification,

quantity transferred, broker/dealer and

registered representative involved and

signature execution. The Registration

Confirmation Form confirms to the

buyer/transferee that the transfer has

been completed and contains

information regarding, among other

things, the partnership’s NASD symbol,

CUSIP number, tax identification

number, number of units transferred

and the effective/admission date.

The Distribution Allocation

Agreement would be completed at the

time the transfer documents are

completed and sent to the general

partner of the limited partnership

security being transferred. The

agreement contains certain affirmations

on which the transferor and transferee

agree and would act as a contract

between the buyer and seller setting

forth their agreement regarding all

unpaid distributions. The agreement

specifies when the unitholder of record

is entitled to cash distributions and

capital distributions, and who is

responsible for correcting a distribution

made to the wrong party. The agreement

requires, among other things, the party

who incorrectly receives a distribution

to promptly endorse and deliver to the

correct party the distribution checks or

otherwise pay to the other party the

amount of such distribution.

Although only NASD members would

be required to use the standardized

forms under the proposed amendments,

the NASD is confident that general

partners and transfer agents engaged in

the transfer of limited partnership

securities will use and honor the

proposed forms so that uniform transfer

practices and procedures could be

established on an industry-wide basis.5

The NASD believes that standardized

forms will significantly reduce the time

and effort required by member firms to

process limited partnership transfers

from approximately 180 days to less

than 30 days. In particular, the use of

the Distribution Allocation Agreement

will provide certainty as to the buyer/

transferee and seller/transferor

regarding distributions not yet

announced or received by

memorializing the agreement among the

buyer and seller as to the method for

handling distributions. The Distribution

Allocation Agreement will also prevent

member broker-dealers representing

such buyers and sellers from effecting

and settling trades without knowledge

of the buyers’ and sellers’ rights to any

distribution.

The NASD is requesting an effective

date for NASD members of 60 days after

the date on which SEC approval of the

proposed rule is announced in an NASD

Notice to Members, which

announcement shall be made no later

than 45 days after Commission

approval.

The NASD believes that the proposed

rule change is consistent with the

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

Act,6 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 customers and the public interest in

that the proposed rule change

standardizes the process and the means

by which limited partnership securities

are transferred on the secondary

markets, thereby significantly

eliminating the delays and inefficiencies

in the transfer process, substantially

improving the accuracy of dividend and

capital distributions and minimizing

litigation in that regard, and facilitating

the transfer of limited partnership

securities.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

The NASD 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

The proposed rule change was

published for comment in Notice to

Members 94–75 (September 1994)

(‘‘NTM 94–75’’). Fourteen comment

letters from thirteen commenters were

received in response thereto.7 Nine

commenters supported the proposed

rule change, two commenters were

opposed and two commenters neither

supported nor opposed the proposed

rule change.

General Comments

One commenter suggested that the

forms be typeset. Two commenters

stated that the forms are too technical,

complicated and cumbersome for the

average investor and that the forms

should be streamlined. One of the

commenters stated that investors would

not have the necessary information to

complete the forms without help from

their registered representative.

The NASD understands the concerns

expressed by these commenters but

emphasizes that the forms were never

intended to be completed by investors.

The forms are intended to be used by

general partners, transfer agents and

financial intermediaries.
Federal Register / Vol. 60, No. 249 / Thursday, December 28, 1995 / Notices 67149

8These initiatives include: (1) the development of

a Direct Participation Program Symbol Directory; (2)

the submission of a petition to the SEC to subject

limited partnerships to the dividend and

distribution reporting requirements of SEC Rule

10b–17; and, (3) the submission of a petition to the

SEC requesting modification of SEC Rule 17Ad–4(a)

to require the application of Rules 17Ad–2

(Turnaround, Processing, and Forwarding of Items),

17Ad–3 (Limitations on Expansion), and 17Ad–6(a)

(1) through (7) and (11) (Recordkeeping) to the

transfer of interests in publicly traded limited

partnerships by transfer agents and to modify Rule

17Ad–10 to establish a limited buy-in provision for

publicly traded partnership interests.

Two commenters stated that the

proposed forms have no ability to

include certain transferor and transferee

representations required by the issuer’s

prospectus or partnership agreement in

conjunction with transfer documents.

One of these commenters suggested that

general partners and sponsors might be

more willing to adopt the proposed

forms if they incorporate certain

additional provisions,

acknowledgements and representations

commonly found in existing transfer

documents (e.g., illiquidity, lack of a

public market, availability of public

information, distribution and tax

allocations, etc.). Another commenter

suggested that general partners should

be allowed to use their own forms.

Similarly, one commenter

recommended that the forms serve as

model guides subject to reasonable

modifications by a general partner or

sponsor.

Three commenters objected to the

requirement that use of the proposed

forms be mandatory for members. One

commenter requested that the proposed

modification to the Uniform Practice

Code requiring members to use the

forms not be made. Another commenter

recommended that the proposal be

clarified to require members only to

accept the proposed documentation and

not that they be required to use it. One

commenter stated that the NASD must

have a strategy for compelling issuers to

adopt the new forms and procedures or

else use by members is meaningless.

The same commenter also stated that

only issuers know the exact number of

units a seller owns and the exact

registration information, and that these

same issuers are often unresponsive,

slow and inaccurate in verifying this

information. The commenter added that

any policy set with regard to dividend

distributions can only be accomplished

if issuers agree to adopt and accept the

proposed new procedures and that the

proposed Registration Conformation

Form would not help members if issuers

and transfer agents do not promptly

notify all parties of the receipt and

approval of a transfer. The commenter

concludes that unless the proposed

forms are adopted by issuers, use of the

forms should not be mandatory for

members.

One commenter, while supporting the

initiative, stated that the standardization

should not be limited to transfer forms,

but also should include signature

verification, authorization and

supporting documentation to insure

uniformity and efficiency in the DPP

transfer process. The commenter stated

that attempting to establish uniformity

without developing procedural

guidelines in these areas would do little

to reduce inefficiencies and delays.

Despite the concerns expressed, the

NASD believes the proposed forms will

become the standard forms used by the

industry. Since 1990, the NASD’s Direct

Participation Program Committee and

the special Ad Hoc Committee on

Uniform Settlement and Transfer

Procedures for Direct Participation

Program Securities have gathered and

assessed information from the major

market participants that act as principal

or agent for customers in the fragmented

limited partnership secondary market

and consulted with the major limited

partnership issuers in order to develop

limited partnership transfer forms that

have universal applicability. Both the

staff and the members of the NASD’s

Direct Participation Program Committee,

some of whom represent major limited

partnership sponsors, are committed,

through supporting a number of

initiatives undertaken by the NASD in

addition to the standardized transfer

forms, to developing a broad, accessible

framework through which the transfer

and distribution process for limited

partnership securities becomes

streamlined and efficient for issuers,

transfer agents and NASD members.8

While it is true that the NASD cannot

compel non-member limited

partnership issuers to use the proposed

forms, many of these issuers have had

significant input into the development

of the proposed forms and generally

agree that the forms are workable.

Limited partnership issuers also

understand that, once the proposed

forms are approved by the SEC, member

firms, transfer agents and other limited

partnership secondary market

intermediaries will begin using the

forms as part of their standard transfer

process. Therefore, the NASD is

confident that issuers will generally not

be adverse to using the proposed forms

and that, in fact, it will be in their best

interest to do so.

The NASD believes that the proposed

forms contain all the essential

information to effect a valid transfer of

the security interest in a timely fashion.

To allow the forms to be used as mere

models or guides would defeat the

fundamental aim of standardizing the

limited partnership transfer process.

Nonetheless, nothing precludes a

particular general partner, member or

transfer agent from requesting

additional information in order to

complete certain books, records or

documentation requirements of the

partnership agreement. However, the

failure to obtain such additional

information should not prevent a valid

transfer of the security interest from

taking effect where the transfer forms

are complete and contain all of the

required information for a valid transfer.

Specific Comments

Transferor/Transferee Forms

One commenter suggested that the

terms ‘‘Buyers’’ and ‘‘Seller’’ be deleted

from the proposed applications for

transfer forms since transfers are not

limited to buy/sell transactions.

The ‘‘Reasons For Transfer’’ section in

the transferor’s form contains fields for

‘‘reregistration,’’ ‘‘sale,’’ ‘‘death,’’ ‘‘gift’’

and ‘‘other.’’ Thus, the forms do

recognize that a transfer can be effected

in ways other than a purchase and sale.

Partnership ID Information

Three commenters suggested

modifications to the Partnership ID

Information section of the proposed

forms. Once commenter stated that the

tax Shelter Identification Number is a

unique number to each partnership and,

therefore, problematic in its application,

that not all partnerships have a tax

number and that it is not clear whether

transfer agents track such a number for

identification purposes. The other

commenter suggested that the additional

partnership identifiers, such as the

CUSIP #, the NASD Symbol, the

Partnership Tax ID and the Tax Shelter

ID, are not particularly helpful to the

average investor and should be replaced

with information to be completed by the

secondary market intermediary

completing the form. Finally, one

commenter stated that the symbols in

the NASD symbol directory were

confusing and should be changed

suggesting a different format for the

symbols.

The proposed forms were designed to

accommodate not any particular DPP

secondary market participant but the

transfer processing in general. Thus,

some information required by the forms

may be unnecessary for certain

transfers. Regarding confusion to the

average investor, the NASD wishes to

emphasize again that the proposed

forms were never intended to be

completed by investors; the forms are
67150 Federal Register / Vol. 60, No. 249 / Thursday, December 28, 1995 / Notices

intended to be used by general partners,

transfer agents and financial

intermediaries. The NASD does not

view the symbols in the proposed

symbol directory as confusing or

difficult to use.

Quantity

One commenter suggested that the

quantity section of the proposed forms

include either the original investment

amount or the original cost per unit. The

commenter claims that some general

partners use a ‘‘dollar for dollar’’

investment amount rather than a unit

amount, which creates confusion when

different secondary markets randomly

assigned unit values to these

partnerships. The commenter also stated

that investors are more likely to know

how much money they initially invested

rather than how many units they

purchased. The commenter concluded

that this additional information would

eliminate confusion and would ensure

that all involved parties are ‘‘speaking

the same language.’’

The NASD believes that since most

partnership documents offer an initial

unit value of measurement to the

investor and continue to use such a

measurement for books and records and

tax allocation purposes, a unit value is

the best measure of quantity transferred.

Required Representations and

Acknowledgments

One commenter suggested that both

the proposed transferor and transferee

forms contain certain representations

and acknowledgments that (1) specify

an ‘‘effective date’’ for the right to

receive distributions of cash and

allocations or profits and losses, (2)

recognize certain restrictions in the

partnership agreement and stateimposed suitability requirements, and

(3) recognize the general partner as the

designated person to maintain the list

required under Section 6112 of the

Internal Revenue Code. The same

commenter stated that in order to clarify

the enforcement and interpretation of

the parties’ agreement for the transfer of

the interests, both the transferor’s and

transferee’s forms should state that the

application for transfer is irrevocable

and specify the governing law.

In response to the comments above,

the NASD has added a field to the

Registration Confirmation Form for

‘‘Effective/Admission Date.’’ The NASD

does not believe that the inclusion in

the proposed forms of the additional

suggested representations and

acknowledgements is necessary in order

to effect a valid transfer.

Sale Price

Two commenters suggested including

in the proposed applications for transfer

a space to insert the sale price or other

consideration paid for the interests

being transferred (Comments 7,10). One

Commenter explained that, with this

information, general partners or

sponsors could maintain data on current

sales transactions for prospective buyers

or sellers to obtain current market prices

of interests or for others to use in

valuing interests held by estates.

NASD research indicates that

knowledge or recordation of the sales

price is not necessary for a general

partner to effect the transfer of a limited

partnership interest. In any case, the

NASD is actively working to permit

certain public limited partnerships to be

listed or quoted on the NASD’s OTC

Bulletin Board. Transactional data,

including price, would be available for

a nominal fee for general partners who

would be interested in such

information.

Fees

Three commenters commented on the

instructions in the proposed transfer

forms requiring the transferor and

transferee form to be submitted together

with the required fees. One commenter

requested authority for the issuer to

implement its own fee structure.

Another commenter stated that advance

notice of fee changes to members by

issuers should be mandatory. Another

commenter stated that transfer fees

ought to be standardized.

The NASD believes that,

notwithstanding the proposed

standardization of transfer forms, the

amount of resources expended in the

transfer process by secondary market

intermediaries in what is still a

fragmented and somewhat disorganized

marketplace may vary significantly from

one entity to another. It is therefore

inappropriate to impose a standard fee

structure as part of the proposed forms.

Signature Execution

Two commenters suggested changes

regarding signature execution. One

commenter also recommend that the

application for transfer forms should

include a signature block and date line

for the general partner or sponsor to

execute or acknowledge, either by

manual signature of an officer or partner

or by a generic signature stamp to

alleviate confusion and possible

disagreements as to whether

applications for transfer have been

accepted. The other commenter

suggested, when applicable, adding an

explanation that the custodian’s

signature is required, noting that most

partnerships require the custodian’s and

the client’s signatures. The commenter

stated that there are numerous limited

partnership units held in custodial

accounts (e.g., IRA, pension plans etc.)

and investors are often confused as to

whose signature is required on these

forms. The commenter also suggested

that Instruction #7 on the proposed

forms state that satisfactory evidence of

the custodian’s authority be

represented.

In response to the comments above,

the NASD has changed the forms to

incorporate the use of the medallion

stamp, and believes that this proposed

change will help to alleviate concerns

about signature verification.

Transferor Form

Application to Transfer: New Language

One commenter suggested that the

first full paragraph of the transferor form

be modified as shown (new language is

underlined).

‘‘The transferor hereby makes

application to transfer and assign,

subject to the general partner’s rights, to

the transferee all rights, title and interest

in and to the profits, losses, and

distributions of the partnership, as set

forth in the partnership below and for

the transferee to succeed to such interest

as a Substitute Limited partner,

successor in interest or assignee.’’

Under the assumption that the intent

of the above commenter’s suggested

changes was to make the forms more

consistent, the NASD has, in response,

changed the first full paragraph of the

proposed transferee’s form by deleting

the words ‘‘and assign’’ and ‘‘title’’ to

correct the form and to make the

language more consistent with the

proposed transferor’s form.

Quantity

Two of the fourteen commenters

suggested modifications to the quantity

section of the proposed form. One

commenter suggested that the number of

units to be held after transfer be labeled

on the transferor’s form as ‘‘must be

completed’’ rather than ‘‘optional.’’

Another commenter believes that

requesting information on the number of

units to be held after transfer may result

in delays when attempting to verify this

information.

The NASD has included the field for

number of units to be held after transfer

as an optional field for informational

purposes only. Verification of the

information should not result in delays,

since the information is optional.
Federal Register / Vol. 60, No. 249 / Thursday, December 28, 1995 / Notices 67151

Transferee Form

Required Representations and

Acknowledgements

One commenter suggested adding

certain acknowledgements and

representations regarding liquidity and

tax status to the proposed transferee

form. The commenter suggested adding

to the proposed transferee form: (1) the

acknowledgement that there may not be

a public market in the future through

which the transferee can liquidate his/

her investment in the partnership, (2)

the representation that the taxpayer

identification number is correct and that

the transferee is not subject to backup

withholding, and (3) if a resident is a

non-alien, the representation that IRS

form 4224 is correct.

The NASD does not believe that the

inclusion in the proposed forms of the

additional suggested representations

and acknowledgements is necessary in

order to effect a valid transfer.

Partnership Information

One commenter suggested

modification to the Partnership Tax I.D.

number on the Transferee’s Form. The

commenter indicated that for those

Direct Participation Programs that have

obtained from the Internal Revenue

Service tax shelter registration numbers,

the transferee’s application should also

contain the tax shelter registration

notification required by the Internal

Revenue Service regulations. However,

the commenter stated that in order to

limit the length of the form, such

notification could be included as part of

the Registration Confirmation Form.

The IRS tax notification requirements

was intended, in part, to provide some

federal oversight, through tax law, for

partnerships that were intentionally

constructed to have little or no

economic value and generate excessive

tax losses. The NASD believes that the

universe of public partnerships traded

in the secondary markets with which it

is concerned contains, for the most part,

partnerships which were designed to

return some real economic value to the

investor and which do not generally

make use of the IRS notification

requirement.

Registration Type

One commenter suggested adding the

categories ‘‘Money Purchase Pension

Plan’’ and ‘‘Profit Sharing Plan’’ to the

‘‘Tax Deferred’’ section under

‘‘Registration Type.’’ In response to the

comments above, the NASD has added

the categories ‘‘Money Purchase Pension

Plan’’ and ‘‘Profit Sharing Plan’’ to the

‘‘Tax Deferred’’ section under

‘‘Registration Type.’’

Secondary Address Information

Two commenters suggested

modifications to the Secondary Address

Information Section on the Transferee’s

Form. One commenter stated that

distribution payment instructions are

very important to partnership

processing and sending distributions to

the wrong address is costly both in

processing time and bank fees. The

same commenter stated that the form

does not make it clear where

distribution payment is to be made, and

suggested that a statement could be

added such as: ‘‘If the secondary

address field is not filled in, then

payment will be made to the legal

address,’’ as well as an additional field

to solicit the custodian account number

so that distribution payments can be

accurately audited. The second

commenter suggested adding a space for

the buyer to include distribution

instructions, with a note to the effect

that if no instructions are given, all

distributions will be paid to the

registered transferee. The commenter

stated that adding such space and

instructions will enable the buyer to

direct distributions to a brokerage

account or mutual fund account.

The NASD agrees that the correct

payment of distributions is an important

part of the transfer process. In response

to the comments above, the NASD has

added space to the proposed

Registration Conformation Form entitled

‘‘Distribution Address (if different than

address of record),’’ and, in addition,

has developed a Distribution Allocation

Agreement to allow transferor and

transferee to agree to specify how and to

whom distributions will be paid.

Suitability

One commenter, a registered transfer

agent, suggested revising the

Transferee’s (Buyer’s) Form to include

suitability standards. The commenter

stated that many partnerships are

required to limit transfers to buyers who

satisfy the suitability standards

established at the time of each

partnership’s initial offering. The

commenter suggested the following

suitability information be added to the

form:

Please indicate your annual net

income, and your current net worth

(exclusive of home, automobiles, and

home furnishings).

Income Net worth

$35,000–$44,999 $35,000–$44,999

$45,000–$59,999 $45,000–$59,999

$60,000 or above $60,000–$74,999

$75,000–$149,999

$150,000–$174,999

Income Net worth

$175,000–$249,999

$250,000 or above.

In researching this issue, the NASD

found that only California required a

suitability determination when a

partnership security was sold or

transferred in a secondary market

transaction. The forms contain the

necessary disclosure requiring the prior

written consent of the Commissioner of

Corporations of the State of California.

Registration Confirmation Form

Four commenters suggested

modifications to the Registration

Confirmation Form. One commenter

stated that an apparent unintentional

consequence of the proposed

confirmation form is to notify the client

that he/she has actually been admitted

into the partnership when in fact

completion of the closing documents

can take a considerable amount of time.

The commenter favors a two-step

process that first confirms receipt of the

documents in a timely fashion and then

later confirms the actual acceptance of

the client into the partnership.

Another commenter stated that the

language in the first paragraph, ‘‘You

have been, or will be admitted as a

Limited Partner in the Partnership

indicated below’’ was confusing and

suggested more simple wording that

would state, ‘‘Your transfer request has

been processed. The effective date or

admission date as a limited partner in

the partnership is indicated below.’’ The

same commenter also believes that a

field should be added to the form

requesting a date processed.

Another commenter stated that the

confirmation form was similar to forms

already in use and it was not likely that

a standardized confirmation form would

replace certificates. The commenter

suggested that, since investors are not

satisfied with a confirmation and want

a certificate, issuers should be required

to issue only non-negotiable certificates

so that investors would not be required

to pay for lost certificates.

Another commenter recommended

four modifications to the form. First, the

seller’s name should be added to the

form to eliminate any confusion

regarding the parties involved in the

transaction. Second, the form should

contain space to add the name of the

individual at the general partner

processing the paperwork, so that an

NASD member would have a contact

person should any questions come up

concerning the transaction. Third,

information should be provided on the

form indicating when the first
67152 Federal Register / Vol. 60, No. 249 / Thursday, December 28, 1995 / Notices

9 17 CFR 200.30–3(a)(12).

distribution would take place, including

any information available with regard to

the amount of that distribution and the

date it would be paid. Finally, a

specified time period in which a general

partner or transfer agent must respond

to a transfer request should be indicated

on the form.

In response to the comments above,

the NASD added changes to the

Registration Confirmation Form. The

first sentence of the first full paragraph

on the form was changed to state, ‘‘Your

transfer request has been processed. The

effective date or admission date as a

limited partner in the partnership is

indicated below.’’ In addition, the

portion of the form which asks for the

date of admission to the partnership has

been changed to state ‘‘Effective/

Admission Date.’’ Finally, space was

provided at the bottom of the form to

indicate an address for distributions if

different than the address of record.

Distribution Affirmation Form

Four commenters responded to the

request for comment in NTM 94–75 on

whether a dividend distribution

affirmation/agreement should be used in

conjunction with the proposed transfer

forms or should be optional. One

commenter requested that the

affirmation requirement be optional.

Another commenter believes that the

affirmation that a seller gives up all

distributions not yet declared or paid

can only work if issuers will uniformly

adopt such practices. The same

commenter added that the agreement by

a member with a seller to such a

contractual term, followed by the issuer

not honoring such term, creates a legal

conflict and a contractual term which

becomes pragmatically unenforceable.

The commenter concluded that the

affirmation should only be included if

the issuer will uniformly agree to it.

One commenter stated that while it is

important to include distribution

allocation language to the proposed

documentation, it would also be

important to include language with

respect to tax allocations to facilitate

investors understanding as to whether

they will or will not be allocated gains

or losses for tax purposes.

Another commenter stated that

distribution procedures were so

important that they should be

standardized in the industry and a

statement should be included on the

form for the seller to affirm that it agrees

to give up any undeclared or unpaid

distributions.

In response to the comments above,

the NASD has developed a proposed

distribution allocation agreement that

would be executed by the parties at the

time the transfer documents are

completed and sent to the general

partner of the limited partnership

security being transferred. The

agreement contains certain affirmations

on which the transferor and transferee

agree and would act as a contract

between the buyer and seller setting

forth their agreement regarding all

unpaid distributions. The agreement

specifies when the transferee becomes

the unitholder of record, when a

unitholder of a record is entitled to cash

distributions and capital distributions,

and who is responsible for correcting a

distribution made to the wrong party.

The agreement requires, among other

things, the party who incorrectly

receives a distribution to promptly

endorse and deliver to the correct party

the distribution checks or otherwise pay

to the other party the amount of such

distribution. Thus, the distribution

allocation agreement, which

incorporates this information, would

evidence the parties’ agreement as to the

treatment of distributions and make it

clear that they have agreed to all

material terms of the transaction.

As mentioned above, while it is true

that the NASD cannot compel nonmember DPP issuers to use the proposed

forms, major DPP issuers, working in

conjunction with the NASD’s Direct

Participation Program Committee and

the special Ad Hoc Committee on

Uniform settlement and Transfer

Procedures for Direct Participation

Program Securities, have had an

opportunity for input into the

development of the agreement. The

NASD believes that issuers will

uniformly use the proposed agreement

in conjunction with the proposed

transfer forms.

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.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, D.C. 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 file number

SR–NASD–95–53 and should be

submitted by January 18, 1996.

For the Commission, by the Division

of Market Regulation, pursuant to

delegated authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–31356 Filed 12–27–95; 8:45 am]

BILLING CODE 8010–01–M

Issuer Delisting; Notice of Application

To Withdraw From Listing and

Registration; (Excel Industries, Inc.,

Common Stock, No Par Value) File No.

1–8684

December 20, 1995.

Excel Industries, Inc. (‘‘Company’’)

has filed an application with the

Securities and Exchange Commission

(‘‘Commission’’), pursuant to Section

12(d) of the Securities Exchange Act of

1934 (‘‘Act’’) and Rule 12d2–2(d)

promulgated thereunder, to withdraw

the above specified security (‘‘Security’’)

from listing and registration on the

American Stock Exchange, Inc.

(‘‘Amex’’).

The reasons alleged for striking the

Security from listing and registration

include the following:

According to the Company, trading in

the Security on the New York Stock

Exchange, Inc. commenced at the

opening of business on December 12,

1995 and, concurrently therewith,

trading on the Amex was suspended. At

its October 19, 1995 meeting, the

Company’s Board of Directors

considered the direct and indirect costs

and expenses attendant with

maintaining a dual listing of the

Security. The Board determined that

there was no particular advantage in the