Document ID: SEC-2005-0438-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2005-12-27T05:00Z

[Federal Register: December 27, 2005 (Volume 70, Number 247)]
[Notices]
[Page 76483-76485]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27de05-75]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52979; File No. SR-NASD-2005-135]

Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice of Filing of Proposed Rule Change Relating to the
Status of Former Registered Persons Serving in the Armed Forces of the
United States

December 19, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on November 15, 2005, 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 the NASD. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    NASD is proposing to amend NASD IM-1000-2 to toll the two-year
expiration provisions for qualification examination requirements set
forth in NASD Rules 1021(c), 1031(c), and 1041(c) for certain former
registered persons serving in the Armed Forces of the United States,
including persons who commence their active military duty within two
years after they have ceased to be registered with a member and persons
who terminate their registration with a member while on active military
duty.
    Below is the text of the proposed rule change. Proposed new
language is in italics.
* * * * *
IM-1000-2. Status of Persons Serving in the Armed Forces of the United
States
    (a)-(b) No Change.
    (c) Status of Formerly Registered Persons
    (1) If a person who is currently not registered with a member
volunteers for or is called into active duty in the Armed Forces of the
United States at any time within two years after the date the person
ceases to be registered with a member, NASD will defer the lapse of
registration requirements set forth in Rules 1021(c), 1031(c), and
1041(c) (i.e., toll the two-year expiration provisions for
qualification examination requirements). NASD will defer the lapse of
registration requirements commencing on the date the person begins
actively serving in the Armed Forces of the United States, provided
that NASD is properly notified of the person's period of active
military service within 90 days following his or her completion of
active service or upon his or her re-registration with a member,
whichever occurs first. The deferral will terminate 90 days following
the person's completion of active service in the Armed Forces of the
United States. Accordingly, if such person does not re-register with a
member within 90 days following his or her completion of active service
in the Armed Forces of the United States, the amount of time in which
the person must become re-registered with a member without being
subject to the qualification examination requirements shall consist of
the standard two-year period provided in Rules 1021(c), 1031(c), and
1041(c)

[[Page 76484]]

reduced by the period of time between the person's termination of
registration and beginning of active service in the Armed Forces of the
United States.
    (2) If a person placed upon inactive status while serving in the
Armed Forces of the United States ceases to be registered with a
member, NASD will defer the lapse of registration requirements set
forth in Rules 1021(c), 1031(c), and 1041(c) (i.e., toll the two-year
expiration provisions for qualification examination requirements)
during the pendency of his or her active service in the Armed Forces of
the United States. NASD will defer the lapse of registration
requirements based on existing information in the Central Registration
Depository, provided that NASD is properly notified of the person's
period of active military service within two years following his or her
completion of active service or upon his or her re-registration with a
member, whichever occurs first. The deferral will terminate 90 days
following the person's completion of active service in the Armed Forces
of the United States. Accordingly, if such person does not re-register
with a member within 90 days following his or her completion of active
service in the Armed Forces of the United States, the amount of time in
which the person must become re-registered with a member without being
subject to the qualification examination requirements shall consist of
the standard two-year period provided in Rules 1021(c), 1031(c), and
1041(c).
* * * * *

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.

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

1. Purpose
    Since the September 11, 2001 attacks, NASD has provided tailored
regulatory relief to securities industry professionals who volunteer
for or are called into active military duty. In January 2002, NASD
filed with the SEC for immediate effectiveness a rule change that
amended NASD IM-1000-2 to codify the staff's position regarding the
relief from NASD Rule 1120 (Continuing Education Requirements) for
securities industry professionals who volunteer for or are called into
active military duty.\3\ In addition, in conjunction with the current
filing, NASD has filed with the SEC for immediate effectiveness a rule
change \4\ that amends NASD IM-1000-2 to clarify its scope with respect
to registered persons and sole proprietors and to codify NASD's
existing guidance relating to the receipt of transaction-related
compensation by registered persons actively serving in the Armed Forces
of the United States.
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    \3\ See Securities Exchange Act Release No. 45259 (January 9,
2002), 67 FR 2256 (January 16, 2002) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change to Relieve Registered
Representatives Serving in the Armed Forces From Continuing
Education Requirements) (SR-NASD-2002-03).
    \4\ See SR-NASD-2005-134.
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    Recently, members have requested that NASD toll the two-year
expiration period for securities licenses (``two-year licensing
expiration provisions'') \5\ in certain cases, such as where a person
commences active military duty within two years of his or her having
been registered with a member or where a person on active military duty
ceases to be registered with a member, but seeks employment in the
industry following completion of active service.
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    \5\ NASD Rules 1021(c), 1031(c), and 1041(c) provide that if a
person does not register with a member within two years of his or
her last registration, his or her qualification as a principal,
representative, or assistant representative will lapse and the
person must then retest to function as a principal, representative,
or assistant representative.
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    In response, NASD is proposing to amend NASD IM-1000-2 to toll the
``two-year licensing expiration provisions'' for a person previously
registered with a member who commences his or her active military duty
within two years after he or she has ceased to be registered with the
member. Under the proposal, the tolling would start on the date such
person enters active military service and would terminate 90 days
following the person's completion of active service in the Armed Forces
of the United States. The proposal requires that NASD be properly
notified of the person's period of active military service within 90
days following his or her completion of active service or upon his or
her re-registration with a member, whichever occurs first. The proposal
also provides that if such person does not re-register with a member
within 90 days following his or her completion of active service in the
Armed Forces of the United States, the amount of time in which the
person must become re-registered with a member without being subject to
the ``two-year licensing expiration provisions'' will consist of the
standard two-year period reduced by the period of time between the
person's termination of registration and beginning of active service in
the Armed Forces of the United States.\6\
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    \6\ For instance, under the proposal, if a person terminates his
registration with a firm on August 1, 2005, is called into active
military duty on November 1, 2005, and returns from active military
duty on May 1, 2006, NASD would toll the ``two-year licensing
expiration provisions'' beginning on November 1, 2005, until July
30, 2006 (which is 90 days following completion of his active
military duty). In this example, NASD would have to be notified of
his period of active military service by no later than July 30,
2006. Further, if he does not re-register with a member by July 30,
2006, he would then have 21 months remaining (24 months less the
three months that ran prior to his entering active service) to re-
register with a firm without having to re-take a qualification exam
or seek a waiver.
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    In addition, NASD is proposing to amend NASD IM-1000-2 to toll the
``two-year licensing expiration provisions'' for a person placed upon
``inactive'' status pursuant to NASD IM-1000-2 who while serving in the
Armed Forces of the United States ceases to be registered with a
member.\7\ Under the proposal, the tolling would start on the date such
person ceases to be registered with the member and would terminate 90
days following the person's completion of active service in the Armed
Forces of the United States. The proposal requires that NASD be
properly notified of the person's period of active military service
within two years following his or her completion of active service or
upon his or her re-registration with a member, whichever occurs first.
NASD is proposing to toll the ``two-year licensing expiration
provisions'' for such persons based on available information in the
Central Registration Depository (CRD) regarding their active military
status. The proposal further provides that if such person does not re-
register with a member within 90 days following his or her completion
of active service in the Armed Forces of the United States, the person
would have 90 days plus two years following the end of the person's
active service in the Armed Forces of the United States to become re-
registered with a member.\8\
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    \7\ Persons on ``inactive'' status due to active military duty
who do not cease their registration with a member while serving in
the Armed Forces of the United States are not subject to the ``two-
year licensing expiration provisions'' because they are considered
registered for purposes of NASD Rules. See NASD IM-1000-2.
    \8\ For example, under the proposal, assume a person registered
with Firm A, enters active military duty on January 1, 2006, and is
placed on ``inactive'' status for purposes of NASD registration. He
then terminates his registration with Firm A on July 1, 2006 while
still on active military duty. He returns from active military duty
on December 1, 2006. In this example, NASD would remove his
``inactive'' status designation on July 1, 2006 because he has
ceased to be registered with a member. However, NASD would toll the
``two-year licensing expiration provisions'' beginning on July 1,
2006, until March 1, 2007 (which is 90 days following completion of
his active military duty). NASD would have to be notified of his
period of active military service by no later than December 1, 2008
(which is two years following completion of his active military
duty).

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[[Page 76485]]

    NASD will announce the effective date of the proposed rule change
in a Notice to Members (``NTM'') to be published no later than 60 days
following Commission approval. The effective date will be 30 days
following publication of the NTM announcing Commission approval.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\9\ which requires, among
other things, that NASD's rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. NASD believes that the proposed rule change provides
appropriate tailored relief to persons actively serving in the Armed
Forces of the United States in a manner consistent with NASD's goals of
investor protection and market integrity.
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    \9\ 15 U.S.C. 78o-3(b)(6).
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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 No. SR-NASD-2005-135 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-9303.
All submissions should refer to File Number SR-NASD-2005-135. 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. Copies of such
filing also will be available for inspection and copying at the
principal office of the 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
File Number SR-NASD-2005-135 and should be submitted on or before
January 17, 2006.
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    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
Jonathan G. Katz,
Secretary.
[FR Doc. E5-7864 Filed 12-23-05; 8:45 am]

BILLING CODE 8010-01-P