[Federal Register: December 30, 2002 (Volume 67, Number 250)]
[Notices]
[Page 79674-79675]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30de02-128]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-47054; File No. SR-NASD-2002-171]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the National Association of
Securities Dealers, Inc. Relating to NASD's Minor Rule Violation Plan
December 19, 2002.
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 November 29, 2002 the National Association of Securities Dealers,
Inc. (``NASD'') filed a proposed rule change with the Securities and
Exchange Commission (``SEC'' or ``Commission''). The proposed rule
change is described in Items I, II, and III below, which Items have
been prepared by the NASD. The NASD filed the proposed rule change
pursuant to section 19(b)(3)(A) of the Act,\3\ and Rule 19b-4(f)(6)
thereunder,\4\ which renders the proposed rule change effective upon
filing with the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The NASD is proposing to amend Interpretative Material 9216 (``IM-
9216'') to clarify that a failure to timely file annual audit reports
is eligible for disposition under the NASD's Minor Rule Violation Plan
(``MRVP'' or the ``Plan''). The text of the proposed rule change is
available at the office of the secretary of the NASD, and at the
Commission.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the NASD included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The NASD has prepared summaries, set forth in sections
A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to clarify that a
failure to timely file annual audit reports is appropriate for
disposition under the NASD's MRVP. As described in more detail herein,
the NASD believes that the current rule language in IM-9216 referring
to Rule 17a-5 under the Act does not clearly reflect that a failure to
timely file annual audit reports is included in the NASD's MRVP.
In 1984, the SEC adopted amendments to Rule 19d-1(c) under the Act
\5\ to allow self-regulatory organizations to adopt, with SEC approval,
plans for the disposition of minor violations of rules.\6\ In 1993,
pursuant to Rule 19d-1(c), the NASD established an MRVP,\7\ which is
currently set forth in NASD Rule 9216. In 2001, the SEC approved
amendments to the NASD's MRVP.\8\
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\5\ 17 CFR 240.19d-1(c).
\6\ See Securities Exchange Act Release No. 21013 (June 1,
1984), 49 FR 23833 (June 8, 1984).
\7\ See Securities Exchange Act Release No. 32076 (March 31,
1993), 58 FR 18291 (April 8, 1993). See also Notice to Members 93-42
(July 1993).
\8\ See Securities Exchange Act Release No. 44512 (July 3,
2001), 68 FR 36812 (July 13, 2001).
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NASD Rule 9216(b) authorizes the NASD to impose a fine of $2,500 or
less on any member or associated person of a member for a violation of
any of the rules specified in NASD IM-9216. The number and seriousness
of the violations, as well as the previous disciplinary history of the
respondent, is reviewed to determine if a matter is
[[Page 79675]]
appropriate for disposition under the MRVP and to determine the amount
of the fine. Once the NASD has brought a minor violation of a rule
against an individual or member firm, the NASD may, at its discretion,
issue progressively higher fines for all subsequent minor violations of
rules within the next 24-month period or initiate more formal
disciplinary proceedings.
The purpose of the MRVP is to provide for a meaningful sanction for
the minor or technical violation of a rule when the initiation of a
disciplinary proceeding through the formal complaint process would be
more costly and time-consuming than would be warranted. Inclusion of a
rule in the NASD's MRVP does not mean it is an unimportant rule;
rather, a minor or technical violation of the rule may be appropriate
for disposition under the MRVP. The NASD retains the discretion to
bring full disciplinary proceedings.
As stated above, in 2001, the NASD amended the MRVP to include
additional violations. One of these violations is listed in IM-9216 as
``SEC Exchange Act Rule 17a-5--failure to timely file FOCUS reports.''
In the Notice of Filing of Proposed Rule Change adding SEC Rule 1a-5 to
the NASD's MRVP, the SEC, referring to language in the NASD's filing,
stated that the NASD ``proposes to institute minor rule violations for
failure of a member to timely file monthly, quarterly, and annual
reports required by SEC Rule 17a-5, also known as FOCUS reports.'' \9\
Rule 17a-5 requires that firms file both FOCUS reports and annual audit
reports; however, for purposes of the NASD's MRVP, an annual audit
report currently is defined as being included in the term ``FOCUS
reports.'' As a result, the NASD believes that the MRVP may not clearly
reflect that a failure to timely file annual audit reports, as well as
FOCUS reports, under Rule 17a-5 is proper for disposition as a minor
rule violation. The NASD therefore is proposing this rule change to
clarify that a failure to timely file annual audit reports is
encompassed within the MRVP.
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\9\ See Securities Exchange Act Release No. 43330 (September 22,
2000), 65 FR 58585 (September 29, 2000). This statement is also
repeated in Notice to Members 01-54 (August 2001), which announced
the SEC approval order.
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2. Statutory Basis
The NASD believes that the proposed rule change is consistent with
the provisions of section 15A(b)(6) of the Act,\10\ which requires,
among other things, that the NASD's 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. The NASD believes that this proposed rule
change is necessary to clarify that a failure to timely file annual
audit reports is included in the NASD's MRVP.
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\10\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The NASD does not believe that the proposed rule change 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
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective upon filing pursuant
to section 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) \12\
thereunder because the proposed rule change does not (i) significantly
affect the protection of investors or the public interest; (ii) impose
any significant burden on competition; and (iii) become operative for
30 days from the date on which the proposed rule change was filed, or
such shorter time as the Commission may designate. At any time within
60 days of the filing of a rule change pursuant to section 19(b)(3)(A)
of the Act,\13\ the Commission may summarily abrogate the rule change
if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6).
\13\ 15 U.S.C. 78s(b)(3)(A).
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As required, the NASD filed its notice of intent to file the
proposed rule change on November 12, 2002. The NASD also requested that
the Commission waive the 30-day operative date. The Commission believes
waiving the 30-day operative delay is consistent with the protection of
investors and the public interest because it will allow the NASD to
continue to proceed under its MRVP for failure to file annual audit
reports without interruption. Thus, the foregoing rule change has
become effective pursuant to section 19(b)(3)(A) of the Act \14\ and
subparagraph (f)(6) of Rule 19b-4.\15\ At any time within 60 days of
the filing of such proposed rule change, the Commission may summarily
abrogate such rule change if it appears to the Commission that such
action is necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the purposes of
the Act.
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4.
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609.
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 at the
Commission's Public Reference Room. Copies of such filing will also be
available for inspection and copying at the principal office of the
NASD. All submissions should refer to the File No. SR-NASD-2002-171 and
should be submitted by January 21, 2003.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-32915 Filed 12-27-02; 8:45 am]
BILLING CODE 8010-01-M