Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing of Proposed Rule Change Relating to Taping Rule “Opt Out” and Exemption Provisions, 17134-17137 [E5-1479]
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17134
Federal Register / Vol. 70, No. 63 / Monday, April 4, 2005 / Notices
call amount of $1,000. Upon review,
FICC has determined that the minimum
margin deficiency call amount creates
unnecessary operational burdens and
allocation of resources for a collection of
margin calls that FICC believes is
insubstantial from a risk perspective. On
average, the MBSD makes 17 margin
calls per day of which approximately
five are for amounts under $250,000.
FICC seeks to harmonize the rules of
its two divisions, the Government
Securities Division (‘‘GSD’’) and
Mortgage-Backed Securities Division
(‘‘MSBD’’), wherever prudent and
possible. The rules of the GSD provide
for a minimum Clearing Fund
deficiency call amount for margin
requirement increases of the lesser of
$250,000 or 25 percent of the value of
the member’s collateral deposits.3
Under the proposed rule, the minimum
margin deficiency call amount for
MBSD participants would be the lesser
of $250,000 or 25 percent of the value
of a participant’s margin deposit. FICC
believes this would eliminate the
operational burdens associated with the
collection of de minimis margin
amounts and would harmonize the rules
of FICC’s two divisions.4
FICC believes that the proposed rule
change is consistent with the
requirements of Section 17A of the Act 5
and the rules and regulations
thereunder applicable to FICC because it
allows for a less burdensome
application of its margin call process
without presenting material risk to FICC
or its participants. As such, FICC
believes the proposed rule assures the
safeguarding of securities and funds that
are in the custody and control of FICC
or for which it is responsible.
(B) Self-Regulatory Organization’s
Statement on Burden on Competition
FICC does not believe that the
proposed rule change will have any
impact or impose any burden on
competition.
(C) Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments relating to the
proposed rule change have not yet been
solicited or received. FICC will notify
3 There is no minimum amount for deficiency
calls where the subject member is subject to
enhanced monitoring on what is known as the
‘‘watch list.’’
4 As proposed and consistent with the applicable
GSD rule, a minimum amount would not apply to
deficiency calls where the subject participant is on
the ‘‘watch list.’’
5 15 U.S.C. 78q–1.
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the Commission of any written
comments received by FICC.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within thirty-five 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 ninety 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 the self-regulatory
organization consents, the Commission
will:
(A) By order approve such proposed
rule change or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
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.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml) or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–FICC–2005–06 on the
subject line.
Section, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such
filings also will be available for
inspection and copying at the principal
office of FICC and on FICC’s Web site,
https://www.ficc.com. 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–FICC–
2005–06 and should be submitted on or
before April 25, 2005.
For the Commission by the Division of
Market Regulation, pursuant to delegated
authority.6
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–1476 Filed 4–1–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51434; File No. SR–NASD–
2005–033]
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc.; Notice of Filing of
Proposed Rule Change Relating to
Taping Rule ‘‘Opt Out’’ and Exemption
Provisions
March 24, 2005.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
Paper Comments
notice is hereby given that on March 22,
• Send paper comments in triplicate
2005, the National Association of
to Jonathan G. Katz, Secretary,
Securities Dealers, Inc. (‘‘NASD’’) filed
Securities and Exchange Commission,
with the Securities and Exchange
450 Fifth Street, NW., Washington, DC
Commission (‘‘Commission’’) the
20549–0609.
proposed rule change as described in
All submissions should refer to File
Items I, II, and III below, which Items
Number SR–FICC–2005–06. This file
have been prepared by NASD. The
number should be included on the
Commission is publishing this notice to
subject line if e-mail is used. To help the
solicit comments on the proposed rule
Commission process and review your
change from interested persons.
comments more efficiently, please use
only one method. The Commission will I. Self-Regulatory Organization’s
post all comments on the Commission’s Statement of the Terms of Substance of
the Proposed Rule Change
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
NASD is filing a proposed rule change
submission, all subsequent
to amend paragraph (L) of NASD Rule
amendments, all written statements
3010(b)(2) (‘‘Taping Rule’’ or ‘‘Rule’’) to
with respect to the proposed rule
(1) require member firms that are
change that are filed with the
seeking an exemption from the Rule to
Commission, and all written
submit their exemption requests to
communications relating to the
NASD within 30 days of receiving
proposed rule change between the
notice from NASD or obtaining actual
Commission and any person, other than knowledge that they are subject to the
those that may be withheld from the
provisions of the Rule and (2) clarify
public in accordance with the
provisions of 5 U.S.C. 552, will be
6 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
available for inspection and copying in
2 17 CFR 240.19b–4.
the Commission’s Public Reference
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Federal Register / Vol. 70, No. 63 / Monday, April 4, 2005 / Notices
that firms that trigger application of the
Taping Rule for the first time can elect
to either avail themselves of the onetime ‘‘opt out provision’’ or seek an
exemption from the Rule, but they may
not seek both options. Below is the text
of the proposed rule change. Proposed
new language is in italics; proposed
deletions are in brackets.
*
*
*
*
*
3010. Supervision
(a) No Change.
(b) Written Procedures.
(1) No Change.
(2) Tape recording of conversations.
(A) Each member that either is
notified by NASD [Regulation] or
otherwise has actual knowledge that it
meets one of the criteria in paragraph
(b)(2)(H) relating to the employment
history of its registered persons at a
Disciplined Firm as defined in
paragraph (b)(2)(J) shall establish,
maintain, and enforce special written
procedures for supervising the
telemarketing activities of all of its
registered persons.
(B) The member must establish and
implement the supervisory procedures
required by this paragraph within 60
days of receiving notice from NASD
[Regulation] or obtaining actual
knowledge that it is subject to the
provisions of this paragraph.
A member that meets one of the
criteria in paragraph (b)(2)(H) for the
first time may reduce its staffing levels
to fall below the threshold levels within
30 days after receiving notice from
NASD [Regulation] pursuant to the
provisions of paragraph (b)(2)(A) or
obtaining actual knowledge that it is
subject to the provisions of the
paragraph, provided the firm promptly
notifies the Department of Member
Regulation, NASD [Regulation], in
writing of its becoming subject to the
Rule. Once the member has reduced its
staffing levels to fall below the
threshold levels, it shall not rehire a
person terminated to accomplish the
staff reduction for a period of 180 days.
On or prior to reducing staffing levels
pursuant to this paragraph, a member
must provide the Department of
Member Regulation, NASD [Regulation]
with written notice, identifying the
terminated person(s).
(C) No Change.
(D) The member shall establish
reasonable procedures for reviewing the
tape recordings made pursuant to the
requirements of this paragraph to ensure
compliance with applicable securities
laws and regulations and applicable
rules of [the Association] NASD. The
procedures must be appropriate for the
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member’s business, size, structure, and
customers.
(E) through (F) No Change.
(G) By the 30th day of the month
following the end of each calendar
quarter, each member firm subject to the
requirements of this paragraph shall
submit to [the Association] NASD a
report on the member’s supervision of
the telemarketing activities of its
registered persons.
(H) No Change.
(I) For purposes of this Rule, the term
‘‘registered person’’ means any person
registered with [the Association] NASD
as a representative, principal, or
assistant representative pursuant to the
Rule 1020, 1030, 1040, and 1110 Series
or pursuant to Municipal Securities
Rulemaking Board (‘‘MSRB’’) Rule G–3.
(J) through (K) No Change.
(L) Pursuant to the Rule 9600 Series,
[the Association] NASD may in
exceptional circumstances, taking into
consideration all relevant factors,
exempt any member unconditionally or
on specified terms and conditions from
the requirements of this paragraph. A
member seeking an exemption must file
a written application pursuant to the
Rule 9600 Series within 30 days after
receiving notice from NASD or obtaining
actual knowledge that it meets one of
the criteria in paragraph (b)(2)(H). A
member that meets one of the criteria in
paragraph (b)(2)(H) for the first time
may elect to reduce its staffing levels
pursuant to the provisions of paragraph
(b)(2)(B) or, alternatively, to seek an
exemption pursuant to paragraph
(b)(2)(L), as appropriate; such a member
may not seek relief from the Rule by
both reducing its staffing levels
pursuant to paragraph (b)(2)(B) and
requesting an exemption.
(3) through (4) No Change.
(c) through (g) No Change.
*
*
*
*
*
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 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. NASD has prepared
summaries, set forth in Sections A, B,
and C below, of the most significant
aspects of such statements.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
According to the NASD, the Taping
Rule, which has been in effect since
1998, is designed to ensure that
members with a significant number of
registered persons that previously were
employed by firms that have been
expelled from membership or have had
their registration revoked for sales
practice violations (‘‘Disciplined
Firms’’) have proper supervisory
procedures in place relating to
telemarketing activities to prevent
fraudulent and improper sales practices
or other customer harm.
Under the Rule, member firms that
hire a specified number of registered
persons from Disciplined Firms must
establish, maintain, and enforce special
written procedures for supervising the
telemarketing activities of all their
registered persons. Such procedures
must include tape-recording all
telephone conversations between such
firms’ registered persons and both
existing and potential customers. The
Rule provides firms up to 60 days from
the date they receive notice from NASD
or obtain actual knowledge that they are
subject to the provisions of the Rule to
establish and implement the required
supervisory procedures, including
installing taping systems. Such firms
also are required to review the tape
recordings, maintain appropriate
records, and file quarterly reports with
NASD.
The Taping Rule permits member
firms that become subject to the Rule for
the first time a one-time opportunity to
adjust their staffing levels to fall below
the prescribed threshold levels and thus
avoid application of the Rule (often
referred to as the ‘‘opt out provision’’).
A firm that elects this one-time option
must reduce its staffing levels to fall
below the applicable threshold levels
within 30 days after receiving notice
from NASD or obtaining actual
knowledge that it is subject to the
provisions of the Rule. Once a firm has
made the reductions, the firm is not
permitted to rehire the terminated
individuals for at least 180 days.
NASD also has the authority to grant
exemptions from the Rule in
‘‘exceptional circumstances.’’ In
reviewing exemption requests, NASD
generally has required a firm to
establish that it has alternative
procedures to assure supervision at a
level functionally equivalent to a taping
system. The Rule currently is silent on
the time frame for submitting an
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Federal Register / Vol. 70, No. 63 / Monday, April 4, 2005 / Notices
exemption request. However, because a
firm has a total of 60 days from the date
it receives notice from NASD or obtains
actual knowledge that it is subject to the
provisions of the Rule to implement the
required supervisory procedures, a firm
implicitly has that 60-day period to
submit an exemption request. A firm
that submits an exemption request is not
required to establish and implement the
required supervisory procedures,
including the taping system (i.e., such
requirements are ‘‘tolled’’) while the
staff is reviewing the request and during
the course of any subsequent appeals to
NASD’s National Adjudicatory Council
(‘‘NAC’’).
NASD tolls the Taping Rule’s
requirements during the exemption
appeal process primarily due to the
significant costs involved with
installing a taping system and the
possibility that the staff or NAC will
grant the exemption. At the same time,
it has been NASD’s experience that
firms often wait until the 60th day (or
shortly before) to request the exemption,
which, assuming the exemption is not
granted, only further prolongs the
establishment and implementation of
the required supervisory procedures.
To reduce these possible delays in
implementation of the Taping Rule
requirements, NASD is proposing to
amend NASD Rule 3010(b)(2)(L) to
require firms that are seeking an
exemption from the provisions of the
Rule to submit their exemption requests
to NASD within 30 days of receiving
notice from NASD or obtaining actual
knowledge that they are subject to the
provisions of the Rule. NASD believes
that specifying a time frame for
submitting an exemption request is
consistent with the investor protection
concerns that the Rule is intended to
address, in particular given that the
requirement to establish and implement
the appropriate supervisory procedures
is tolled upon the submission of an
exemption request. Moreover, based on
NASD’s experience, 30 days would
provide ample time for firms to decide
whether to seek an exemption and to
submit their requests to NASD.
Some firms also have inquired
whether they could elect to use the ‘‘opt
out’’ while simultaneously seeking an
exemption, with the goal being that the
firm would be granted an exemption
and be able to immediately rehire the
persons whose employment was
terminated as part of the ‘‘opt out’’
(rather than waiting the requisite 180
days). It is NASD’s belief, however, that
firms should not be able to pursue these
two alternatives simultaneously. NASD
believes that a core purpose of the ‘‘opt
out provision’’ is to provide relief to
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those firms that may have inadvertently
or unintentionally become subject to the
Taping Rule for the first time due, for
example, to sudden turnover among
registered persons or other events
beyond the firm’s control. In contrast,
exemptions, which are granted only in
‘‘exceptional circumstances,’’ are for
those situations where the firm has
demonstrated that it has supervisory
procedures that are equivalent to a
taping system or is otherwise in a truly
unique situation. NASD believes it
would be inconsistent with the
purposes of these two provisions to
permit a firm to pursue both options
with NASD, either simultaneously or
one after the other. For instance, NASD
believes that it would be inconsistent
with the purposes of these provisions
for a firm that chooses to submit an
exemption request pursuant to NASD
Rule 3010(b)(2)(L) and is denied the
exemption to then employ the NASD
Rule 3010(b)(2)(B) ‘‘opt out’’ as its
second option.
Therefore, NASD also is proposing to
amend NASD Rule 3010(b)(2)(L) to
clarify that firms that trigger application
of the Taping Rule for the first time
must elect to either avail themselves of
the one-time ‘‘opt out provision’’ (i.e.,
make the staff adjustment to fall below
the thresholds of the Rule) or seek an
exemption from the Rule, but they may
not elect to do both. Accordingly, under
the proposed rule change, firms that
become subject to the Taping Rule for
the first time would have 30 days to
decide on one option and may pursue
only that option.
Finally, NASD no longer refers to
itself or its subsidiary, NASD
Regulation, Inc., using its full corporate
name, ‘‘the Association,’’ ‘‘the NASD,’’
or ‘‘NASD Regulation.’’ Instead, NASD
uses the name ‘‘NASD’’ unless
otherwise appropriate for corporate or
regulatory reasons. Accordingly, the
proposed rule change replaces, as a
technical change, several references to
‘‘Association’’ and ‘‘NASD Regulation’’
in NASD Rule 3010(b)(2) with the name
‘‘NASD.’’
NASD will announce the effective
date of the proposed rule change in a
Notice to Members (‘‘NtM’’) to be
published no later than 60 days
following Commission approval. The
effective date will be 30 days following
publication of the NtM announcing
Commission approval.
2. Statutory Basis
NASD believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,3 which
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U.S.C. 78o–3(b)(6).
Frm 00087
Fmt 4703
Sfmt 4703
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.
NASD believes that the proposed rule
change will ensure that members with a
significant number of registered persons
from Disciplined Firms have proper
supervisory procedures over
telemarketing activities to prevent
fraudulent and improper sales practices
or other customer harm, and will ensure
that members use the ‘‘opt out’’ and
exemption provisions in a manner that
is consistent with the intent of the Rule.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
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, as amended.
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
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 the self-regulatory
organization consents, the Commission
will:
(A) By order approve such proposed
rule change; or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
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.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NASD–2005–033 on the
subject line.
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Federal Register / Vol. 70, No. 63 / Monday, April 4, 2005 / Notices
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
450 Fifth Street, NW., Washington, DC
20549–0609.
All submissions should refer to File
Number SR–NASD–2005–033. 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 (https://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 the File
Number SR–NASD–2005–033 and
should be submitted on or before April
25, 2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.4
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–1479 Filed 4–1–05; 8:45 am]
BILLING CODE 8010–01–P
4 17
CFR 200.30–3(a)(12).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51438; File No. SR–NYSE–
2004–32]
Self-Regulatory Organizations; Order
Approving a Proposed Rule Change
and Amendment No. 1 Thereto by the
New York Stock Exchange, Inc.
Relating to NYSE Liquidity QuoteSM
March 28, 2005.
I. Introduction
On June 24, 2004, the New York Stock
Exchange, Inc. (‘‘NYSE’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘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 include
additional display requirements to the
existing terms and conditions pursuant
to which vendors may distribute to their
customers NYSE Liquidity QuoteSM
information. On July 16, 2004, the NYSE
filed Amendment No. 1 to the proposed
rule change.3 The proposed rule change,
as amended, was published for public
comment in the Federal Register on July
27, 2004.4 The Commission has received
one comment letter on the proposed
rule change 5 and two responses from
the NYSE.6 This order approves the
proposed rule change, as amended.
II. Background
The NYSE Liquidity Quote represents
aggregated Exchange trading interest at
a specific price interval below the NYSE
best bid (in the case of a liquidity bid)
or at a specific price interval above the
NYSE best offer (in the case of a
liquidity offer). The specific price
interval above or below the NYSE best
bid and offer (‘‘BBO’’), as well as the
minimum size of the liquidity bid or
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See letter from Darla C. Stuckey, Corporate
Secretary, NYSE, to Nancy J. Sanow, Assistant
Director, Division of Market Regulation
(‘‘Division’’), SEC, dated July 16, 2004
(‘‘Amendment No. 1’’). In Amendment No. 1, the
NYSE clarified that the entire proposed Exhibit C
represented new text.
4 Securities Exchange Act Release No. 50040 (July
20, 2004), 69 FR 44701.
5 See letters from Thomas F. Secunda, Bloomberg,
L.P. (‘‘Bloomberg’’) to Annette L. Nazareth, Director,
Division, SEC, (‘‘Bloomberg Letter) dated July 7,
2004; and Jonathan G. Katz, Secretary, SEC, dated
August 13, 2004. The letter dated August 13, 2004
merely resubmitted the July 7, 2004 Bloomberg
Letter for Commission consideration.
6 See letter from Mary Yeager, Assistant Secretary,
NYSE, to Jonathan G. Katz, Secretary, SEC (‘‘NYSE
Response Letter’’) dated November 11, 2004, and
letter from Ronald Jordan, Senior Vice President,
Market Data, NYSE, to Kelly Riley, SEC, dated
January 26, 2005 (‘‘NYSE 2nd Response Letter’’).
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2 17
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17137
offer, is established by the specialist in
the subject security. Liquidity bids and
offers include orders on the limit order
book, trading interest of brokers in the
trading crowd, and the specialist’s
dealer interest, at prices ranging from
the best bid (offer) to the liquidity bid
(liquidity offer).
NYSE distributes Liquidity Quote
data as part of its OpenBook data feed
service 7 and requires recipients to
execute existing NYSE vendor
agreements and subscriber agreements.
Specifically, in order for a vendor to
receive NYSE Liquidity Quote data from
the Exchange for redistribution to its
customers or subscribers, the Exchange
requires the vendor to enter into its
standard form of ‘‘Agreement for
Receipt and Use of Market Data’’ (i.e.,
‘‘Consolidated Vendor Form’’).
According to the Exchange, the
Consolidated Vendor Form is the same
form that vendors must execute to
receive market data under the
Consolidated Tape Association (‘‘CTA’’)
Plan and the Consolidated Quotation
(‘‘CQ’’) Plan. The Exchange describes
the Consolidated Vendor Form as a
generic, one-size-fits-all agreement that
consists of a standard set of basic
provisions that apply to all data
recipients and accommodates a number
of different types of market data, a
number of different means of receiving
access to market data, and a number of
different uses of market data. Because
the Consolidated Vendor Form is not
specific to types and uses of certain
market data, paragraph 19(a) of the
Consolidated Vendor Form provides
that ‘‘Exhibit C, if any, contains
additional provisions applicable to any
non-standard aspects of Customer’s
Receipt and Use of Market Data.’’
Accordingly, NYSE has drafted a
proposed Liquidity Quote Exhibit C to
provide certain display requirements for
Liquidity Quote data.
In the original approval order, the
Commission conditionally approved
NYSE Liquidity Quote 8 because the
Commission had substantial concerns
about the display restrictions NYSE had
drafted in its Exhibit C to the
Consolidated Vendor Form for Liquidity
Quote.9 Specifically, as originally
7 See Securities Exchange Act Release No. 45138
(December 7, 2001) 66 FR 66491 (December 14,
2001).
8 See Securities Exchange Act Release No. 47614
(April 2, 2003), 68 FR 17140 (April 8, 2003) (SR–
NYSE–2002–55) (‘‘April Order’’).
9 The NYSE did not file the original Exhibit C to
the Consolidated Vendor Form for Liquidity Quote
with the Commission. However, as described above,
the Commission did consider the terms of the
original Liquidity Quote Exhibit C and the issues
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Agencies
[Federal Register Volume 70, Number 63 (Monday, April 4, 2005)]
[Notices]
[Pages 17134-17137]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-1479]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51434; File No. SR-NASD-2005-033]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice of Filing of Proposed Rule Change Relating to
Taping Rule ``Opt Out'' and Exemption Provisions
March 24, 2005.
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 March 22, 2005, the National Association of Securities Dealers, Inc.
(``NASD'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by NASD. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NASD is filing a proposed rule change to amend paragraph (L) of
NASD Rule 3010(b)(2) (``Taping Rule'' or ``Rule'') to (1) require
member firms that are seeking an exemption from the Rule to submit
their exemption requests to NASD within 30 days of receiving notice
from NASD or obtaining actual knowledge that they are subject to the
provisions of the Rule and (2) clarify
[[Page 17135]]
that firms that trigger application of the Taping Rule for the first
time can elect to either avail themselves of the one-time ``opt out
provision'' or seek an exemption from the Rule, but they may not seek
both options. Below is the text of the proposed rule change. Proposed
new language is in italics; proposed deletions are in brackets.
* * * * *
3010. Supervision
(a) No Change.
(b) Written Procedures.
(1) No Change.
(2) Tape recording of conversations.
(A) Each member that either is notified by NASD [Regulation] or
otherwise has actual knowledge that it meets one of the criteria in
paragraph (b)(2)(H) relating to the employment history of its
registered persons at a Disciplined Firm as defined in paragraph
(b)(2)(J) shall establish, maintain, and enforce special written
procedures for supervising the telemarketing activities of all of its
registered persons.
(B) The member must establish and implement the supervisory
procedures required by this paragraph within 60 days of receiving
notice from NASD [Regulation] or obtaining actual knowledge that it is
subject to the provisions of this paragraph.
A member that meets one of the criteria in paragraph (b)(2)(H) for
the first time may reduce its staffing levels to fall below the
threshold levels within 30 days after receiving notice from NASD
[Regulation] pursuant to the provisions of paragraph (b)(2)(A) or
obtaining actual knowledge that it is subject to the provisions of the
paragraph, provided the firm promptly notifies the Department of Member
Regulation, NASD [Regulation], in writing of its becoming subject to
the Rule. Once the member has reduced its staffing levels to fall below
the threshold levels, it shall not rehire a person terminated to
accomplish the staff reduction for a period of 180 days. On or prior to
reducing staffing levels pursuant to this paragraph, a member must
provide the Department of Member Regulation, NASD [Regulation] with
written notice, identifying the terminated person(s).
(C) No Change.
(D) The member shall establish reasonable procedures for reviewing
the tape recordings made pursuant to the requirements of this paragraph
to ensure compliance with applicable securities laws and regulations
and applicable rules of [the Association] NASD. The procedures must be
appropriate for the member's business, size, structure, and customers.
(E) through (F) No Change.
(G) By the 30th day of the month following the end of each calendar
quarter, each member firm subject to the requirements of this paragraph
shall submit to [the Association] NASD a report on the member's
supervision of the telemarketing activities of its registered persons.
(H) No Change.
(I) For purposes of this Rule, the term ``registered person'' means
any person registered with [the Association] NASD as a representative,
principal, or assistant representative pursuant to the Rule 1020, 1030,
1040, and 1110 Series or pursuant to Municipal Securities Rulemaking
Board (``MSRB'') Rule G-3.
(J) through (K) No Change.
(L) Pursuant to the Rule 9600 Series, [the Association] NASD may in
exceptional circumstances, taking into consideration all relevant
factors, exempt any member unconditionally or on specified terms and
conditions from the requirements of this paragraph. A member seeking an
exemption must file a written application pursuant to the Rule 9600
Series within 30 days after receiving notice from NASD or obtaining
actual knowledge that it meets one of the criteria in paragraph
(b)(2)(H). A member that meets one of the criteria in paragraph
(b)(2)(H) for the first time may elect to reduce its staffing levels
pursuant to the provisions of paragraph (b)(2)(B) or, alternatively, to
seek an exemption pursuant to paragraph (b)(2)(L), as appropriate; such
a member may not seek relief from the Rule by both reducing its
staffing levels pursuant to paragraph (b)(2)(B) and requesting an
exemption.
(3) through (4) No Change.
(c) through (g) No Change.
* * * * *
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 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. 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
According to the NASD, the Taping Rule, which has been in effect
since 1998, is designed to ensure that members with a significant
number of registered persons that previously were employed by firms
that have been expelled from membership or have had their registration
revoked for sales practice violations (``Disciplined Firms'') have
proper supervisory procedures in place relating to telemarketing
activities to prevent fraudulent and improper sales practices or other
customer harm.
Under the Rule, member firms that hire a specified number of
registered persons from Disciplined Firms must establish, maintain, and
enforce special written procedures for supervising the telemarketing
activities of all their registered persons. Such procedures must
include tape-recording all telephone conversations between such firms'
registered persons and both existing and potential customers. The Rule
provides firms up to 60 days from the date they receive notice from
NASD or obtain actual knowledge that they are subject to the provisions
of the Rule to establish and implement the required supervisory
procedures, including installing taping systems. Such firms also are
required to review the tape recordings, maintain appropriate records,
and file quarterly reports with NASD.
The Taping Rule permits member firms that become subject to the
Rule for the first time a one-time opportunity to adjust their staffing
levels to fall below the prescribed threshold levels and thus avoid
application of the Rule (often referred to as the ``opt out
provision''). A firm that elects this one-time option must reduce its
staffing levels to fall below the applicable threshold levels within 30
days after receiving notice from NASD or obtaining actual knowledge
that it is subject to the provisions of the Rule. Once a firm has made
the reductions, the firm is not permitted to rehire the terminated
individuals for at least 180 days.
NASD also has the authority to grant exemptions from the Rule in
``exceptional circumstances.'' In reviewing exemption requests, NASD
generally has required a firm to establish that it has alternative
procedures to assure supervision at a level functionally equivalent to
a taping system. The Rule currently is silent on the time frame for
submitting an
[[Page 17136]]
exemption request. However, because a firm has a total of 60 days from
the date it receives notice from NASD or obtains actual knowledge that
it is subject to the provisions of the Rule to implement the required
supervisory procedures, a firm implicitly has that 60-day period to
submit an exemption request. A firm that submits an exemption request
is not required to establish and implement the required supervisory
procedures, including the taping system (i.e., such requirements are
``tolled'') while the staff is reviewing the request and during the
course of any subsequent appeals to NASD's National Adjudicatory
Council (``NAC'').
NASD tolls the Taping Rule's requirements during the exemption
appeal process primarily due to the significant costs involved with
installing a taping system and the possibility that the staff or NAC
will grant the exemption. At the same time, it has been NASD's
experience that firms often wait until the 60th day (or shortly before)
to request the exemption, which, assuming the exemption is not granted,
only further prolongs the establishment and implementation of the
required supervisory procedures.
To reduce these possible delays in implementation of the Taping
Rule requirements, NASD is proposing to amend NASD Rule 3010(b)(2)(L)
to require firms that are seeking an exemption from the provisions of
the Rule to submit their exemption requests to NASD within 30 days of
receiving notice from NASD or obtaining actual knowledge that they are
subject to the provisions of the Rule. NASD believes that specifying a
time frame for submitting an exemption request is consistent with the
investor protection concerns that the Rule is intended to address, in
particular given that the requirement to establish and implement the
appropriate supervisory procedures is tolled upon the submission of an
exemption request. Moreover, based on NASD's experience, 30 days would
provide ample time for firms to decide whether to seek an exemption and
to submit their requests to NASD.
Some firms also have inquired whether they could elect to use the
``opt out'' while simultaneously seeking an exemption, with the goal
being that the firm would be granted an exemption and be able to
immediately rehire the persons whose employment was terminated as part
of the ``opt out'' (rather than waiting the requisite 180 days). It is
NASD's belief, however, that firms should not be able to pursue these
two alternatives simultaneously. NASD believes that a core purpose of
the ``opt out provision'' is to provide relief to those firms that may
have inadvertently or unintentionally become subject to the Taping Rule
for the first time due, for example, to sudden turnover among
registered persons or other events beyond the firm's control. In
contrast, exemptions, which are granted only in ``exceptional
circumstances,'' are for those situations where the firm has
demonstrated that it has supervisory procedures that are equivalent to
a taping system or is otherwise in a truly unique situation. NASD
believes it would be inconsistent with the purposes of these two
provisions to permit a firm to pursue both options with NASD, either
simultaneously or one after the other. For instance, NASD believes that
it would be inconsistent with the purposes of these provisions for a
firm that chooses to submit an exemption request pursuant to NASD Rule
3010(b)(2)(L) and is denied the exemption to then employ the NASD Rule
3010(b)(2)(B) ``opt out'' as its second option.
Therefore, NASD also is proposing to amend NASD Rule 3010(b)(2)(L)
to clarify that firms that trigger application of the Taping Rule for
the first time must elect to either avail themselves of the one-time
``opt out provision'' (i.e., make the staff adjustment to fall below
the thresholds of the Rule) or seek an exemption from the Rule, but
they may not elect to do both. Accordingly, under the proposed rule
change, firms that become subject to the Taping Rule for the first time
would have 30 days to decide on one option and may pursue only that
option.
Finally, NASD no longer refers to itself or its subsidiary, NASD
Regulation, Inc., using its full corporate name, ``the Association,''
``the NASD,'' or ``NASD Regulation.'' Instead, NASD uses the name
``NASD'' unless otherwise appropriate for corporate or regulatory
reasons. Accordingly, the proposed rule change replaces, as a technical
change, several references to ``Association'' and ``NASD Regulation''
in NASD Rule 3010(b)(2) with the name ``NASD.''
NASD will announce the effective date of the proposed rule change
in a Notice to Members (``NtM'') to be published no later than 60 days
following Commission approval. The effective date will be 30 days
following publication of the NtM announcing Commission approval.
2. Statutory Basis
NASD believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\3\ 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. NASD believes that the proposed rule change will
ensure that members with a significant number of registered persons
from Disciplined Firms have proper supervisory procedures over
telemarketing activities to prevent fraudulent and improper sales
practices or other customer harm, and will ensure that members use the
``opt out'' and exemption provisions in a manner that is consistent
with the intent of the Rule.
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\3\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
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, as amended.
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
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 the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change; or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
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. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASD-2005-033 on the subject line.
[[Page 17137]]
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609.
All submissions should refer to File Number SR-NASD-2005-033. 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 (https://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 the File
Number SR-NASD-2005-033 and should be submitted on or before April 25,
2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\4\
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\4\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-1479 Filed 4-1-05; 8:45 am]
BILLING CODE 8010-01-P