regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.,
[Federal Register: June 5, 1998 (Volume 63, Number 108)]
[Notices]
[Page 30789-30791]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05jn98-157]
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40026, File No. SR-NASD-98-34]
Self-Regulatory Organizations; Order Granting Accelerated Approval to Proposed Rule Change by the National Association of Securities Dealers, Inc., Relating to Cancellations and Suspensions for Failure To Comply With Arbitration Award
May 26, 1998.
On May 1, 1998, the National Association of Securities Dealers, Inc. (``NASD'' or ``Association'') filedwith the Securities and Exchange Commission (``SEC'' or ``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\ The filing was thereafter amended on May 4, 1998.\3\ In its proposal, the Association sought approval of an amendment to its Code of Procedure, to permit members of the NASD Regulation, Inc. (``NASD Regulation'') Office of Hearing Officers to oversee non-summary proceedings involving cancellations and suspensions related to failure to comply with an arbitration award. Notice of the proposal, including Amendment No. 1 thereto, was published in the Federal Register on May 12, 1998 (``Notice'').\4\ The Commission did not receive comment letters on the filing.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Letter from Joan C. Conley, Corporate Secretary, NASD Regulation, Inc. to Katherine England, Assistant Director, Division of Market Regulation, Commission dated May 4, 1998.
\4\ See Securities Exchange Act Release No. 39957 (May 1, 1998), 63 FR 26238 (File No. SR-NASD-98-34).
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Introduction and Background
In connection with the recent reorganization of the Association following issuance of the SEC Order Instituting Public Proceedings Pursuant to Section 19(h)(1) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions \5\ and the Report Pursuant to Section 21(a) of the Securities Exchange Act of 1934 Regarding the NASD and The Nasdaq
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Stock Market \6\ on August 8, 1997, the Association revised a substantial portion of its Code of Procedure. Among those amendments were included changes to the summary and non-summary proceedings addressing (1) limitations of the activities of members experiencing financial or operational difficulties; (2) summary and non-summary suspension, cancellation, bar, limitation or prohibition on access to NASD services; (3) eligibility; and (4) exemptions from specific NASD rules. In approving these amendments, which consolidated, reorganized and clarified prior rules, the Commission specifically noted that the changes would ``assist the NASD in promulgating and applying on a consistent basis uniform standards for regulatory and other access issues, as well as instituting safeguards to ensure fair and evenhanded access to all services and facilities of the NASD, consistent with the 21(a) Report and the Undertakings [and] the Act * * *.'' \7\ The amendments to the Rules of the Association contained in the Association's current proposal supplement the earlier revisions approved by the Commission in SR-NASD-97-28.\8\
\5\ Securities Exchange Act Release No. 37538 (Aug. 8, 1996) (SEC Order Instituting Public Proceedings Pursuant to Section 19(h)(1) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions, In the Matter of National Association of Securities Dealers, Inc., Administrative Proceeding File No. 3- 9056). The order included fourteen undertakings (``Undertakings'') addressing actions to be taken by the Association in response to the findings of the Order.
\6\ Report and Appendix to Report Pursuant to Section 21(a) of the Securities Exchange Act of 1934 Regarding the NASD and The Nasdaq Stock Market (Aug. 8, 1996).
\7\ Securities Exchange Act Release No. 38908 (August 7, 1987), 62 FR 43385, 43407 (August 13, 1997) (File No. SR-NASD-97-28).
\8\ Id.
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Description of the Proposal
The propose of the Association's proposal is to change the composition of the hearing panels used for non-summary proceedings in which the Association seeks to suspend or cancel the membership of a member or the registration of a person for failure to comply with an arbitration award or a settlement agreement related to NASD arbitration or mediation. Currently, these proceedings must be heard by a hearing panel composed of one current NASD Regulation director plus at least one other current or former NASD or NASD Regulation board member.\9\ Under the proposal, these procedures would instead by heard by a single member of the Office of Hearing Officers, who would be appointed by the Chief Hearing Officer.\10\ The Officer of Hearing Officers is an independent office within NASD Regulation whose purpose is to provide a group of independent and professional hearing officers (comprised of attorneys with appropriate experience and training) to preside over all formal NASD disciplinary proceedings.\11\ Their jurisdiction will be extended to non-summary proceedings upon approval of the current proposal.
\9\ See current Rule 9514.
\10\ See proposed Rule 9514.
\11\ Release No. 34-38908.
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Discussion
As discussed below, the Commission has determined at this time to approve the Association's proposal. The standard by which the Commission must evaluate a proposed rule change is set forth in Section 19(b) of the Act. The Commission must approval a proposed NASD rule change if it finds that the proposal is consistent with the requirements of the Act and the rules and regulations thereunder that govern the NASD.\12\ In evaluating a given proposal, the Commission examines the record before it and all relevant factors and necessary information. In addition, Section 15A of the Act establishes specific standards for NASD rules against which the Commission must measure the proposal.\13\
\12\ 15 U.S.C. 78s(b).
\13\ 15 U.S.C. 78o-3.
The Commission has determined that substitution of a single hearing officer instead of two board members is warranted because of the advantages to such substitution. First, the proposed rule change does not alter the right to a hearing concerning a failure to pay an arbitration award; it merely alters the composition of the hearing panel. Moreover, it would be considerably more efficient to have one hearing officer conduct the hearing on these issues and render a decision, rather than the multiple Board members required by the current version of Rule 9514. The members of the Board, who serve the Association on a part-time basis, have many constraints upon their time. The attorneys comprising the Office of Hearing Officers, however, are full-time Association employees who primarily focus on NASD Regulation proceedings. In addition, the members of the Office of Hearing Officers are well-suited to resolve the issues presented in these types of hearings due to the training and experience gained in oversight of the NASD's disciplinary proceedings under the Rule 9200 Series. Finally, the issues to be resolved in the proceedings underlying this proposal are somewhat narrow, and generally limited to (i) whether the member or person paid the award in full or fully complied with the settlement agreement, (ii) whether the claimant has agreed to installment payments or has otherwise settled the matter, (iii) whether the member or person has fileda timely motion to vacate or modify the arbitration award and such motion has not been denied, (iv) whether the member or person has fileda petition in bankruptcy and the bankruptcy proceeding is pending, or the award or payment owed under the settlement agreement has been discharged by the bankruptcy court, and (v) whether the member or person is unable to pay the award.\14\ All of these reasons indicate that the proposal is consistent with the Act, and ``should enhance both the fair and efficient operation of the NASD, and the dispassionate and fair application of the rules in the NASD's regulatory activities.\15\
\14\ The Commission has recognized that a bona fide inability to pay an arbitration award is an important consideration determining whether any sanction for failure to pay an arbitration award is excessive or oppressive. See In the Matter of the Application of Bruce M. Zipper, Securities Exchange Act Release No. 33376, Admin. Proc. File No. 3-7908. (Dec. 23, 1993).
\15\ Release No. 34-38908.
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Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
In its filing, the NASD requested that the Commission find good cause pursuant to Section 19(b)(2) for approving the proposed rule change prior to the 30th day after publication in the Federal Register. As discussed above, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to the NASD and, in particular, the requirements of Section 15A and the rules and regulations thereunder. In addition, the Commission finds good cause for approving the proposed rule change prior to the 30th day after the date of publication of notice of filing thereof in that accelerated approval will benefit public interest and the protection of investors by enhancing the efficiency of the Association's procedures for suspending or canceling the membership of a member or the registration of a person for failure to comply with an arbitration award or a settlement agreement related to an NASD arbitration or mediation. The current rule requiring current or former NASD Governors or NASD Regulation Directors to serve on such Hearing Panels is imposing a burden on the process due to the part-time nature of service on the governing boards and the amount of time necessary to resolve these types of disputes. The procedure needs to be changed quickly so that such persons will no longer be called upon to resolve these relatively narrow
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disputes. Thus, the commission finds good causes to accelerate approval of the Association's proposal.
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Conclusion
The Commission believes that the proposed rule change is consistent with the Act, and, particularly, with Section 15A thereof.\16\ In approving the proposal, the Commission has considered its impact on efficiency, competition, and capital formation.\17\
\16\ U.S.C. 78o-3.
\17\ 15 U.S.C. 78c(f).
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\18\ that the proposed rule change (SR-NASD-98-34), as amended, is approved.
\18\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\19\
\19\ 17 CFR 200.30-3(a)(12).
Margaret H. McFarland, Deputy Secretary.
[FR Doc. 98-14920Filed6-4-98; 8:45 am]
BILLING CODE 8010-01-M
