Document ID: SEC-2006-1044-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2006-08-14T04:00Z

[Federal Register: August 14, 2006 (Volume 71, Number 156)]
[Notices]               
[Page 46533-46534]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14au06-115]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54279; File No. SR-NASD-2006-070]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Approving a Proposed Rule Change To Amend the Safe 
Harbor for Business Expansions

August 7, 2006.
    On June 2, 2006, 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 to amend NASD Interpretative Material 1011-1 (Safe 
Harbors for Business Expansions) (``IM-1011-1'') to limit the types of 
violations of Rule 2110 (Standards of Commercial Honor and Principles 
of Trade) that would result in a member being ineligible to use the 
safe harbor for business expansions and to make certain technical 
changes.\3\ The proposed rule change was published for comment in the 
Federal Register on July 5, 2006.\4\ The Commission received no 
comments on the proposal. 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\ The safe harbor permits a member to expand its business 
operations without having to submit an application pursuant to Rule 
1017 to receive NASD approval before acting.
    \4\ See Securities Exchange Act Release No. 54051 (June 27, 
2006), 71 FR 38194 (SR-NASD-2006-070).
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    The Commission finds that the proposed rule change is consistent 
with Section 15A of the Act \5\ and the rules and regulations 
thereunder.\6\ Specifically, the Commission finds the proposal to be 
consistent with Section 15A(b)(6) of the Act,\7\ in that it is designed 
to promote just and equitable principles of trade, and, in general, to 
protect investors and the public interest. The NASD has stated that 
when a member or individual is charged with violating an NASD rule, 
NASD frequently charges a violation of Rule 2110 as part of NASD's 
action. Thus, the inclusion of Rule 2110 in IM-1011-1, without any 
limitation, often results in members being ineligible to use the safe 
harbor if they (or any of their principals) have violated any other 
NASD rule, which was not the intended effect. The proposed rule change 
would deem a member ineligible to use the safe harbor only where the 
finding of a violation of Rule 2110 by the member or a principal of the 
member raises significant investor protection issues because the 
violation involves unauthorized trading, churning, conversion, material 
misrepresentations or omissions to a customer, front-running, trading 
ahead of research reports, or excessive markups.\8\ Limiting the types 
of violations of Rule 2110 that constitute ``disciplinary history'' for 
purposes of IM-1101-1 would allow additional firms to rely on the safe 
harbor, consistent with the original intent of the safe harbor 
provision and the promotion of just and equitable principles of trade, 
while at the same time ensuring the protection of investors and the 
public interest by deeming a member ineligible to use the safe harbor 
where the violation of Rule 2110 by the member or a principal presents 
significant investor protection issues.
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    \5\ 15 U.S.C. 78o-3.
    \6\ In approving this 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).
    \7\ 15 U.S.C. 78o-3(b)(6).
    \8\ A member would not be eligible to rely on the safe harbor 
for material changes in business operations if the member or any of 
its principals have been found, within the past five years, to have 
violated Rule 2110 in the context of one or more of these enumerated 
activities (or to have violated any of the other rules specified in 
IM-1011-1). The proposed limits on violations of Rule 2110 mirror 
the limits on Rule 2110 with respect to the public release of 
disciplinary complaints. See IM-8310-2 (Release of Disciplinary and 
Other Information Through BrokerCheck) and the related Notice to 
Members 97-42 (July 1997).

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[[Page 46534]]

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-NASD-2006-070), be, and it 
hereby is, approved.
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    \9\ 15 U.S.C. 78s(b)(2).
    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
Nancy M. Morris,
Secretary.
[FR Doc. E6-13220 Filed 8-11-06; 8:45 am]

BILLING CODE 8010-01-P