Document ID: SEC-2006-1618-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2006-12-13T05:00Z

[Federal Register: December 13, 2006 (Volume 71, Number 239)]
[Notices]               
[Page 74970-74971]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13de06-80]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54871; File No. SR-NASD-2006-124]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing of Proposed Rule Change Relating to 
Proposed Rule 2342 Requiring Members To Provide New Customers, and All 
Customers Annually, Specific Information About the Securities Investor 
Protection Corporation (``SIPC'')

December 5, 2006.
    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 November 9, 2006, the National Association of Securities Dealers, 
Inc. (``NASD'') 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 NASD. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD is proposing Rule 2342, which would require members to advise 
all new customers in writing at the opening of an account, and advise 
all customers in writing at least once each year, that they may obtain 
information about SIPC, including the SIPC Brochure,\3\ by contacting 
SIPC. Members would also provide customers with SIPC's telephone number 
and Web site address at those times. Below is the text of the proposed 
rule change. Proposed new language is in italics.
---------------------------------------------------------------------------

    \3\ In brief, the SIPC Brochure describes such things as the 
role of SIPC, what SIPC covers and what it does not, and how to 
avoid investment fraud.
---------------------------------------------------------------------------

* * * * *

2000. Business Conduct

* * * * *

2300. Transactions with Customers

* * * * *

2342. SIPC Information

    Members shall advise all new customers, in writing, at the opening 
of an account, that they may obtain information about the Securities 
Investor Protection Corporation (SIPC), including the SIPC Brochure, by 
contacting SIPC, and also shall provide the Web site address and 
telephone number of SIPC. In addition, members shall provide all 
customers with the same information, in writing, at least once each 
year. In cases where both an introducing firm and clearing firm service 
an account, the firms may assign these requirements to one of the 
firms.
* * * * *

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

    In its filing with the Commission, 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. NASD has prepared summaries, set forth in sections A, B, 
and C below, of the most significant aspects of such statements.

[[Page 74971]]

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

1. Purpose
    In May 2001, the U.S. General Accounting Office (``GAO'') \4\ 
issued a report in which the GAO made recommendations to the SEC and 
SIPC about ways to improve the information available to the public 
about SIPC and the Securities Investor Protection Act (``SIPA'').\5\ 
Among other things, the GAO recommended that self-regulatory 
organizations (``SROs'') explore ways to encourage broader 
dissemination of the SIPC Brochure to customers so that they can become 
more aware of the scope of coverage of the SIPA.\6\
---------------------------------------------------------------------------

    \4\ The GAO has since been renamed the Government Accountability 
Office.
    \5\ GAO, Securities Investor Protection: Steps Needed to Better 
Disclose SIPC Policies to Investors, GAO-01-653 (May 25, 2001). In 
July 2003, the GAO noted that the Commission was working with SROs 
to explore ways in which the GAO's recommendations could be 
implemented. See GAO, Securities Investor Protection: Update on 
Matters Related to the Securities Investor Protection Corporation, 
GAO-03-811 (July 11, 2003).
    \6\ In its report, the GAO also recommended that SROs consider 
requiring firms to include information on periodic statements or 
trade confirmations advising investors that they should document 
account discrepancies in writing. In response to this 
recommendation, NASD amended Rule 2340 to require that account 
statements include a statement advising each customer to report 
promptly any inaccuracy or discrepancy in that person's account to 
his or her brokerage firm and clearing firm (where these are 
different firms). Such statement also must advise the customer that 
any oral communication should be re-confirmed in writing to further 
protect the customer's rights, including rights under SIPA. See 
Securities Exchange Act Rel. No. 54411 (September 7, 2006) 71 FR 
54105 (September 13, 2006) (SR-NASD-2004-171), as corrected by 
Securities Exchange Act Rel. No. 54411A (October 6, 2006) 71 FR 
61115 (October 17, 2006).
---------------------------------------------------------------------------

    In response, NASD is proposing Rule 2342, which would require 
members to advise all new customers, in writing, at the opening of an 
account, that they may obtain information about SIPC, including the 
SIPC Brochure, by contacting SIPC, and to provide SIPC's Web site 
address and telephone number. In addition, proposed Rule 2342 would 
require members to provide all customers with the same information, in 
writing, at least once each year. In cases where both an introducing 
firm and clearing firm service an account, the firms could assign these 
requirements to one of the firms.
    NASD is proposing an effective date of May 31, 2007, and states 
that it will announce this effective date for the proposed rule change 
in a Notice to Members to be published no later than 30 days following 
Commission approval. According to NASD, this will give members time to 
make necessary changes to their customer documentation and systems.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\7\ which provides, among 
other things, that NASD 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. NASD believes that the proposed rule change is 
consistent with this provision of the Act because NASD members will be 
required to provide new customers with SIPC's telephone number and Web 
site address and to provide that same information to all customers, 
annually. This new requirement will further assist investors in 
obtaining information that will help them to understand SIPC and how 
SIPC protects investors.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    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.

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

    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, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

    Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-NASD-2006-124 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASD-2006-124. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). 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, 100 F Street, NE., 
Washington, DC 20549. Copies of such filing also will be available for 
inspection and copying at the principal office of NASD. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to the File Number SR-NASD-2006-124 and should 
be submitted on or before January 3, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E6-21170 Filed 12-12-06; 8:45 am]

BILLING CODE 8011-01-P