Document ID: SEC-2007-0823-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2007-06-14T04:00Z

[Federal Register: June 14, 2007 (Volume 72, Number 114)]
[Notices]               
[Page 32936-32937]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14jn07-103]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55878; File No. SR-NASD-2006-074]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Approving Proposed Rule Change Relating to the 
Application of NASD Rule 2790 to Issuer-Directed Securities

 June 7, 2007.
    On June 12, 2006, the National Association of Securities Dealers, 
Inc. (``NASD'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ to amend NASD Rule 2790 as described below. The proposed 
rule change was published for comment in the Federal Register on 
January 25, 2007.\3\ The Commission received one comment on the 
proposal.\4\ On June 4, 2007, the NASD submitted a response to the 
comment.\5\ This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 55128 (January 18, 
2007), 72 FR 3453.
    \4\ See letter from Morgan, Lewis Bockius LLP to Nancy M. 
Morris, Secretary, Commission, dated February 15, 2007.
    \5\ See letter from Afshin Atabaki, Assistant General Counsel, 
NASD, to Nancy M. Morris, Secretary, Commission, dated June 4, 2007 
(``Response Letter'').
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I. Description of the Proposal

    NASD Rule 2790 provides that a member or a person associated with a 
member may not sell a new issue to any account in which a restricted 
person has a beneficial interest, or purchase a new issue in any 
account in which such member or associated person has a beneficial 
interest. Currently, Rule 2790(d)(1) provides that these prohibitions 
do not apply to new issues that are specifically directed by the issuer 
to restricted persons, provided that issuer-directed securities are not 
sold to or purchased by an account in which broker-dealer personnel, 
finders and fiduciaries, or certain members of their immediate family, 
have a beneficial interest, unless such persons, or members of their 
immediate family, are employees or directors of the issuer, the 
issuer's parent, or a subsidiary of the issuer or the issuer's parent. 
The NASD is proposing to amend Rule 2790(d)(1) to prohibit issuer-
directed allocations of new issues to broker-dealers.
    The NASD is also proposing to amend Rule 2790(d) by adding a new

[[Page 32937]]

subparagraph to Rule 2790(d), to be numbered Rule 2790(d)(2), which 
would provide that the prohibitions on the purchase and sale of new 
issues do not apply to securities that are specifically directed by the 
issuer to restricted persons, provided that a broker-dealer: (A) Does 
not underwrite any portion of the offering; (B) does not solicit or 
sell any new issue securities in the offering; and (C) has no 
involvement or influence, directly or indirectly, in the issuer's 
allocation decisions with respect to any of the new issue securities in 
the offering.

II. Comments

    The Commission received one comment on the proposal, which 
expressed support for the proposal, but requested clarification 
regarding two points under proposed NASD Rule 2790(d)(2).\6\
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    \6\ See supra note 4.
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    First, the commenter requested clarification that a new issue 
undertaken by an issuer may qualify for the exception provided for by 
proposed Rule 2790(d)(2), notwithstanding that the issuer has engaged a 
broker-dealer to provide advisory services, including advice regarding 
capital structure and capital raising, so long as no broker-dealer has 
engaged in the conduct specified in proposed Rule 2790(d)(2)(A)-(C) set 
forth above. The NASD noted in the Response Letter that nothing in 
proposed subparagraph (d)(2) would prevent an issuer from engaging a 
broker-dealer to provide such advisory services or other limited 
services, so long as the conditions set forth in the subparagraph 
continue to be satisfied.
    Second, the commenter requested clarification that a purchaser may 
reasonably rely on a representation from an issuer to the effect that 
no broker-dealer has engaged in any of the conduct specified in 
proposed Rule 2790(d)(2)(A)-(C) with respect to the offering, so long 
as the purchaser neither knows, nor has reason to know, that the 
representation is false. In the Response Letter, the NASD stated that 
it believes that, for purposes of compliance with proposed Rule 
2790(d)(2), a member or associated person that wishes to purchase new 
issues in such offerings may rely on a written representation obtained 
in good faith from the issuer that the conditions in proposed 
subparagraph (d)(2) are satisfied, so long as the member or associated 
person does not believe, or have reason to believe, that such 
representation is inaccurate.

III. Discussion

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
association,\7\ the requirements of Section 15A of the Act,\8\ in 
general, and Section 15A(b)(6) of the Act,\9\ in particular, which 
requires that the NASD's rules 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. The Commission believes that the proposed rule change 
strikes a reasonable balance between providing issuers with flexibility 
in directing shares and improving the capital raising process while 
also preserving the objectives of NASD Rule 2790.
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    \7\ In approving the proposed rule change, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78o-3.
    \9\ 15 U.S.C. 78o-3(b)(6).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-NASD-2006-074) be, and it 
hereby is, approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E7-11505 Filed 6-13-07; 8:45 am]

BILLING CODE 8010-01-P