Document ID: SEC-2007-1076-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2007-08-07T04:00Z

[Federal Register: August 7, 2007 (Volume 72, Number 151)]
[Notices]               
[Page 44203-44204]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07au07-103]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56179; File No. SR-NASD-2007-034]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Approving Proposed Rule Change as Modified by 
Amendment No. 1 Creating NASD Rule 1160 (Firm Contact Information) 
Regarding the Reporting and Annual Review of Designated Contact 
Information to NASD

August 1, 2007.

I. Introduction

    On May 11, 2007, 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 seeking to adopt new NASD Rule 1160 (Firm Contact 
Information) regarding the reporting of designated contact information 
to NASD and the annual review of such information. The proposed rule 
change also proposed amendments to Rule 1120 (Continuing Education 
Requirements), Rule 1150 (Executive Representative), Interpretive 
Material (IM)-3011-2 (Review of Anti-Money Laundering Compliance Person 
Information), and Rule 3520 (Emergency Contact Information) to 
eliminate the requirement that members review and update, at the end of 
each calendar quarter, the contact information required by these rules.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in the Federal 
Register on May 31, 2007.\3\ The Commission received two comment 
letters on the proposal.\4\ On July 27, 2007, NASD filed Amendment No. 
1 to the proposed rule change.\5\ This order approves the proposed rule 
change, as amended.
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    \3\ See Securities Exchange Act Release No. 55810 (May 24, 
2007), 72 FR 30404.
    \4\ See letter to Nancy Morris, Secretary, Commission, from Lisa 
Roth, Members Advocacy Chairman, National Association of Independent 
Broker-Dealers (``NAIBD''), dated June 13, 2007; letter from Kenneth 
M. Cherrier, JD, Chief Compliance Officer, Fintegra Financial 
Solutions (``Fintegra''), dated June 21, 2007.
    \5\ In Amendment No. 1, NASD responded to comments and made a 
technical correction to the proposed rule text. This is a technical 
amendment and is not subject to notice and comment.
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II. Description of the Proposal

    Currently, there are several NASD rules requiring firms to identify 
and report to NASD certain designated contact persons: Rule 1120 
(Continuing Education Requirements); Rule 1150 (Executive 
Representative); IM-3011-2 (Review of Anti-Money Laundering Compliance 
Person Information); and Rule 3520 (Emergency Contact Information). 
These rules further require firms to review the contact information at 
the end of each calendar quarter, and if necessary, update such 
information within 17 business days after the end of each quarter. 
Members review this information and provide any updates online via the 
NASD Contact System (``NCS'').\6\
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    \6\ NASD also currently requires each firm to report, via NCS, 
contact information for its Executive Officer and the Head of 
Compliance. NCS also includes several optional fields for other 
contact persons.
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    Based on recommendations made by its Small Firm Rules Impact Task 
Force,\7\ NASD has proposed to eliminate these quarterly review 
requirements in favor of a more comprehensive approach for verifying 
and updating all contact information required to be reported. 
Specifically, proposed new Rule 1160 would require members to provide 
the required contact information via NCS or such other means as NASD 
may specify. New Rule 1160 also would require members to update the 
contact information promptly, but in any event not later

[[Page 44204]]

than 30 days following any change in such information, as well as to 
review and, if necessary, update the information within 17 business 
days after the end of each calendar year. In addition, the rule would 
require members to comply with any NASD request for such information 
promptly, but in any event not later than 15 days following the 
request, or such longer period that may be agreed to by NASD staff. The 
proposed rule change would not relieve members from any separate 
requirements to update such information.\8\
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    \7\ NASD established the Small Firm Rules Impact Task Force in 
September 2006 to examine how existing NASD rules affect smaller 
firms. In particular, the Task Force focuses on possible 
opportunities to amend or modernize certain conduct rules that may 
be particularly burdensome for small firms, where such changes are 
consistent with investor protection and market integrity.
    \8\ For example, a firm must identify, among others, its Chief 
Executive Officer and Chief Compliance Officer on Form BD, and 
promptly update such information by submitting an amendment whenever 
the information becomes inaccurate or incomplete for any reason. See 
also Article IV, Section 1(c) of the NASD By-Laws, requiring each 
member to ensure that its membership application is kept current at 
all times by supplementary amendments, and to file any such 
amendment no later than 30 days after learning of the facts or 
circumstances giving rise to the amendment.
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    The proposed rule change also would amend Rule 3520 to eliminate 
the requirement that only a firm's Executive Representative, or his or 
her written designee, be permitted to review and update the firm's 
emergency contact information
    The effective date of these proposed changes would be December 31, 
2007.

III. Comment Summary

    Two comment letters were received on the proposed rule change.\9\ 
NASD responded to these comment letters in Amendment No. 1.\10\ Both 
commenters endorsed replacing the current quarterly verification 
requirement with an annual obligation. Fintegra praised the 
efficiencies that would result from that aspect of the proposal, while 
NAIBD noted that an annual verification requirement was more consistent 
with the infrequent changes in contact information generally 
experienced at most member firms.
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    \9\ See note 4, supra.
    \10\ See note 5, supra.
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    NAIBD, however, suggested that the requirement to update 
information when a change occurs remain a quarterly requirement, rather 
than the proposed 30-day requirement, stating that some firms' 
electronic filing systems and reminders have been programmed to 
accommodate a systemic quarterly update. In response, NASD noted that, 
at least with respect to Rule 1120, IM-3011-2, and Rule 3520, firms 
currently are required to ``promptly'' update such information in the 
event of a change, in addition to being required to review, and if 
necessary, update the designated contact information on a quarterly 
basis.\11\ In proposing new Rule 1160, NASD explained that it is 
seeking to clarify the requirement that firms both promptly update such 
information upon any change, as well as verify the accuracy of the 
required contact information on an annual basis. Further, NASD noted 
that it is seeking to clarify that any such updates must occur not 
later than 30 days following the change.
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    \11\ See Rule 1120(a)(7) (Regulatory Element Contact Person), 
Rule 3011(d) (Anti-Money Laundering Compliance Program), and Rule 
3520(b) (Emergency Contact Information).
    See also Article IV, Section 3 of the NASD By-Laws, addressing 
procedures for members to change their Executive Representatives.
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    Fintegra objected to proposed Rule 1160's 17-business-day time 
frame for members to verify and update their required contact 
information after the end of each calendar year. Fintegra suggested 
that the time frame be shortened to 15 days to align it with the 
provision in proposed Rule 1160 that would require members to promptly 
comply with any NASD request for such contact information, but no later 
than 15 days following the request. The commenter stated that 
consistent time frames would simplify adherence to the proposed rule 
and that there appeared to be no justification for the differing 
compliance timelines.
    In response to this comment, NASD explained that the two time 
periods serve difference purposes, and that retaining the 17-business-
day window for the annual verification will aid members' compliance 
efforts. NASD stated that firms currently are required to update such 
information within 17 business days following each quarter,\12\ and 
therefore are already familiar with the proposed end of year schedule. 
In addition, NASD noted that the 17-business-day window is consistent 
with the requirement that a member's FOCUS report be submitted within 
17 business days after the end of each calendar quarter. Currently, 
when members file FOCUS reports each quarter, NASD reminds them of the 
need to review and update their designated contact information on NCS. 
NASD represented that it intends to continue this practice, and will 
remind members of the need to verify the required contact information 
at the time they file their fourth quarter FOCUS report.
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    \12\ See Rule 1120(a)(7); Rule 1150; IM-3011-2; Rule 3520(b) 
(all requiring members to update the contact information required by 
the respective rules within 17 business days after the end of each 
calendar quarter).
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IV. Discussion

    After careful consideration of the proposal, the comment letters, 
and NASD's response thereto, the Commission finds that the proposed 
rule change is consistent with the provisions of section 15A of the 
Act,\13\ in general and with section 15A(b)(6) of the Act,\14\ in 
particular, which requires, 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.\15\
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    \13\ 15 U.S.C. 78o-3.
    \14\ 15 U.S.C. 78o-3(b)(6).
    \15\ In approving the proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
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    The Commission believes that the proposed rule change sets forth a 
reasonable approach for member firms to provide and keep current 
required contact information, which should reduce unnecessary burdens 
on firms by eliminating the requirement that firms review and update 
the contact information on a quarterly basis; instead, firms would be 
required to conduct such reviews on an annual basis as well as to 
promptly update the information following any change. The proposed rule 
change should also assure NASD's ability to contact its members in the 
event of an emergency, as well as support members' compliance with 
certain NASD rules, such as continuing education requirements and anti-
money laundering obligations, and facilitate member voting through the 
Executive Representatives.

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-NASD-2007-034), as amended, 
be, and hereby is, approved.
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    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E7-15311 Filed 8-6-07; 8:45 am]

BILLING CODE 8010-01-P