Document ID: SEC-2006-0846-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2006-07-05T04:00Z

[Federal Register: July 5, 2006 (Volume 71, Number 128)]
[Notices]               
[Page 38196-38198]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05jy06-87]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54053; File No. SR-NASD-2003-168]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing of Amendment Nos. 4 and 5 to the 
Proposed Rule Change Relating to the Release of Information Through 
NASD BrokerCheck

June 27, 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 June 6, 2006 and June 22, 2006, the National Association of 
Securities Dealers, Inc. (``NASD'') filed with the Securities and 
Exchange Commission (``Commission'') Amendment Nos. 4 and 5, 
respectively, to the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by NASD. The proposed 
rule change, incorporating Amendment Nos. 1, 2, and 3, was published 
for comment in the Federal Register on June 30, 2005.\3\ The Commission 
received eight comment letters in response to the Notice.\4\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended by Amendment Nos. 4 and 5, from 
interested persons.
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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. 51915 (June 23, 
2005), 70 FR 37880 (``Notice'').
    \4\  See letters from Barry Augenbraun, Senior Vice President 
and Corporate Secretary, Raymond James Financial, Inc., dated July 
8, 2005; Joseph D. Fleming, Managing Director and Chief Compliance 
Officer, Piper Jaffray & Co., dated July 13, 2005; Ronald C. Long, 
Senior Vice President, Regulatory Policy and Administration, 
Wachovia Securities, LLC, dated July 18, 2005; Mario Di Trapani, 
President, Association of Registration Management, dated July 19, 
2005 (``ARM Letter''); John S. Simmers, CEO, ING Advisors Network, 
dated July 19, 2005 (``ING Letter''); Coleman Wortham III, President 
and CEO, Davenport & Company LLC, dated July 20, 2005; Jill Gross, 
Director of Advocacy and Rosario M. Patane, Student Intern, Pace 
Investor Rights Project, dated July 21, 2005; and Ira Hammerman, 
Senior Vice President and General Counsel, Securities Industry 
Association, dated July 27, 2005 (``SIA Letter''). NASD submitted a 
response to comments on June 6, 2006. See letter from Richard E. 
Pullano, Associate Vice President & Chief Counsel, Registration and 
Disclosure, NASD, to Katherine A. England, Assistant Director, 
Division of Market Regulation, Commission, dated June 6, 2006 
(``NASD Response to Comments''). The NASD Response to Comments is 
available on the Commission's Web site (http://www.sec.gov/rules/sro.shtml
).

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

    In response to comments on the Notice, NASD proposes additional 
amendments to NASD Interpretive Material 8310-2 (``IM-8310-2'') \5\ 
regarding disclosures through NASD BrokerCheck.\6\ The discussion 
section of this notice focuses on the changes made in Amendment Nos. 4 
and 5.\7\ The text of the proposed rule change, as amended by Amendment 
Nos. 4 and 5, is available on NASD's Web site (http://www.nasd.com), at 

NASD's principal office, and at the Commission's Public Reference Room.
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    \5\ NASD also proposes to make non-substantive technical changes 
to the proposed rule language, including the text of Interpretive 
Material 8310-3, in Amendment Nos. 4 and 5. In Amendment No. 5, NASD 
also clarifies that the implementation date for the proposed rule 
change would be no later than 90 days following Commission approval.
    \6\ In December 2003, NASD announced that its Public Disclosure 
Program would thereafter be known as ``NASD BrokerCheck.''
    \7\ For an explanation of the Notice, see Securities Exchange 
Act Release No. 51915, supra note 3.
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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, as 
amended, and discussed any comments it received on the proposed rule 
change, as amended. 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 38197]]

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

1. Purpose
Rule Filing History
    On November 21, 2003, NASD filed with the Commission a proposed 
rule change to amend IM-8310-2 and amended the proposed rule change in 
Amendment Nos. 1, 2, and 3 on September 28, 2004, March 8, 2005, and 
April 12, 2005, respectively. The Commission published the Notice in 
the Federal Register on June 30, 2005.\8\ The comment period closed on 
July 21, 2005. Based on comments received in response to the Notice, 
NASD is filing Amendment No. 4 to amend the rule language of IM-8310-
2.\9\
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    \8\  Id.
    \9\  See also Amendment No. 5, supra note 5.
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Proposal
    The sole substantive change to the proposed rule language of IM-
8310-2 in Amendment No. 4 concerns the conditions under which NASD 
proposes to release Historic Complaints through BrokerCheck.\10\ As 
provided in Amendment No. 2, NASD proposes to release Historic 
Complaints only if the most recent Historic Complaint or currently 
reported customer complaint, arbitration, or litigation is less than 
ten (10) years old and the person has a total of three (3) or more 
currently disclosable regulatory actions, currently reported customer 
complaints, arbitrations, or litigations, or Historic Complaints, or 
any combination thereof.
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    \10\ For purposes of IM-8310-2, Historic Complaints are defined 
as customer complaints that are more than two years old and have not 
been settled or adjudicated, or customer complaints, arbitrations, 
or litigations that have been settled for an amount less than 
$10,000, and which are no longer reported on a registration form.
    NASD currently calculates the two-year period for disclosure of 
a customer complaint as of the date the customer complaint was first 
reported on Form U4 or Form U5. Under the proposed rule change, and 
consistent with the current interpretation of Form U4 and Form U5, 
NASD will consider this two-year period to begin on the date on 
which the member received the complaint, both for purposes of 
reportability on Form U4 and Form U5 and for purposes of disclosure 
pursuant to IM-8310-2. Accordingly, under the proposed rule change, 
a customer complaint that has not been settled or adjudicated within 
the two-year period beginning on the date on which the member 
received the complaint would cease to be reported on Forms U4 and U5 
and would also become a Historic Complaint.
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    In Amendment No. 4, based on concerns from certain commenters,\11\ 
NASD proposes to change the way in which it determines whether an 
individual's Historic Complaints become eligible for disclosure through 
BrokerCheck. In response to the Notice, commenters contended that firms 
and registered persons made certain decisions with respect to customer 
complaints, arbitrations, or litigations based on the rules under which 
the Central Registration Depository and BrokerCheck currently operate 
(for example, electing to enter into a settlement for what they 
considered to be a nuisance value to maintain good client relationships 
or avoid expensive litigation).
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    \11\  See, e.g., ARM Letter, ING Letter and SIA Letter, supra 
note 4.
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    Accordingly, NASD proposes to amend the proposed rule language to 
provide that Historic Complaints will be eligible for disclosure only 
if the matter becomes a Historic Complaint on or after the 
implementation date of this proposed rule change, i.e., was archived on 
or after the implementation date of this proposed rule change. NASD 
believes that it is in the public interest for those items that are 
available for disclosure through BrokerCheck on or after the 
implementation date of the proposed rule change to be eligible for 
disclosure as Historic Complaints.
    The proposed modification to this rule would continue to provide 
that NASD will disclose through BrokerCheck all of an individual's 
Historic Complaints if: (1) The most recent Historic Complaint or 
currently reported customer complaint, arbitration, or litigation is 
less than ten (10) years old, and (2) the person has a total of three 
(3) or more currently disclosable regulatory actions, currently 
reported customer complaints, arbitrations, or litigations, or Historic 
Complaints (subject to the limitation that they became a Historic 
Complaint on or after the implementation date of the proposed rule 
change), or any combination thereof.
    NASD will announce the effective date of the proposed rule change 
in a Notice to Members to be published no later than 60 days following 
Commission approval. The effective date will be 30 days following 
publication of the Notice to Members announcing Commission 
approval.\12\
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    \12\ See also note 5, supra, clarifying that the implementation 
date for the proposed rule change would be no later than 90 days 
following Commission approval.
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2. Statutory Basis
    NASD believes that the proposed rule change, as amended, is 
consistent with the provisions of section 15A(b)(6) of the Act,\13\ 
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, and section 15A(i),\14\ which 
requires that NASD establish and maintain a toll-free telephone listing 
to receive inquiries regarding disciplinary actions involving its 
members and their associated persons and promptly respond to such 
inquiries in writing. NASD states that the proposed rule change, as 
amended, is designed to accomplish these ends by broadening the types 
of information released to the investing public through NASD 
BrokerCheck. At the same time, the proposed rule change, as amended, 
establishes a principled basis for disclosure that meets NASD's 
investor protection objectives, while fairly addressing the proprietary 
interests of firms and the privacy interests of their associated 
persons.
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    \13\ 15 U.S.C. 78o-3(b)(6).
    \14\ 15 U.S.C. 78o-3(i).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD does not believe that the proposed rule change, as amended, 
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

    NASD has submitted as a separate document its response to comments 
received by the Commission in response to the publication of the Notice 
on June 30, 2005.\15\
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    \15\ See Notice and NASD Response to Comments, supra notes 3 and 
4.
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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 NASD consents, the Commission will:
    (A) By order approve such proposed rule change, as amended, or
    (B) Institute proceedings to determine whether the proposed rule 
change, as amended, should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the filing, as amended by Amendment Nos. 4 and 5, 
including whether the filing is

[[Page 38198]]

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-2003-168 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-2003-168. 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 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-2003-168 and should be submitted on or before July 20, 2006.
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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6-10436 Filed 7-3-06; 8:45 am]

BILLING CODE 8010-01-P