Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing of Proposed Rule Change and Amendment Nos. 1, 2, and 3 Thereto Relating to the Release of Information Through the Public Disclosure Program, 37880-37887 [E5-3437]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 125 (Thursday, June 30, 2005)]
[Notices]
[Pages 37880-37887]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-3437]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51915: File No. SR-NASD-2003-168]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing of Proposed Rule Change and Amendment 
Nos. 1, 2, and 3 Thereto Relating to the Release of Information Through 
the Public Disclosure Program

June 23, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on November 21, 2003, 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. 
NASD amended the proposed rule change on September 28, 2004, March 8, 
2005, and April 12, 2005. The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, 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 proposing to amend NASD IM-8310-2 to enhance investor 
protection by expanding the types of information NASD makes available 
through its public disclosure program; to address fairness and privacy 
concerns by excluding certain information currently disclosed through 
the program based on the status or disposition of the event; to 
provide, upon written request and subject to terms and conditions 
established by NASD, a compilation of publicly available information 
about NASD members; and to make conforming changes. The text of the 
proposed rule change is set forth below. Proposed new language is in 
italics; proposed deletions are in [brackets].
* * * * *

IM-8310-2. NASD BrokerCheck Disclosure Program [Release of Disciplinary 
and Other Information Through the Public Disclosure Program]

    (a) In response to a written inquiry, electronic inquiry, or 
telephonic inquiry via a toll-free telephone listing, [the Association] 
NASD shall release information [contained in the Central Registration 
Depository] regarding a current or former member, an associated person, 
or a person who was associated with a member within the preceding two 
years, through [the] NASD's [Public Disclosure Program] BrokerCheck 
program. [Such information shall include:]
    [(1) the person's employment history and other business experience 
required to be reported on Form U-4;]
    [(2) currently approved registrations for the member or associated 
person;]
    [(3) the main office, legal status, and type of business engaged in 
by the member; and]
    [(4) an event or proceeding--
    (A) required to be reported under item 14 on Form U-4;
    (B) required to be reported under item 11 on Form BD; or
    (C) reported on Form U-6.]
    [The Association also shall make available through the Public 
Disclosure Program certain arbitration decisions against a member 
involving a securities or commodities dispute with a public customer. 
In addition, the Association shall make available in response to 
telephonic inquiries via the Public Disclosure Program's toll-free 
telephone listing whether a particular member is subject to the 
provisions of Rule 3010(b)(2). The Association shall not release 
through the Public Disclosure Program social security numbers, 
residential history information, or physical description information, 
or information that the Association is otherwise prohibited from 
releasing under Federal law.]
    (b) Except as otherwise provided in paragraph (c) below, NASD shall 
release:
    (1) any information reported on the most recently filed Form U4, 
Form U5, Form U6, Form BD, and Form BDW (collectively ``Registration 
Forms'');
    (2) currently approved registrations;
    (3) certain summary information about arbitration awards against a 
member involving a securities or commodities dispute with a public 
customer;
    (4) the most recently submitted comment, if any, provided to NASD 
by the person who is covered by the BrokerCheck program, in the form 
and

[[Page 37881]]

in accordance with the procedures established by NASD, for inclusion 
with the information provided through the BrokerCheck program. Only 
comments that relate to the information provided through the 
BrokerCheck program will be included;
    (5) information as to qualifications examinations passed by the 
person and date passed. NASD will not release information regarding 
examination scores or failed examinations;
    (6) in response to telephonic inquiries via the BrokerCheck toll-
free telephone listing, whether a particular member is subject to the 
provisions of Rule 3010(b)(2) (``Taping Rule'');
    (7) the information last reported on Registration Forms relating to 
customer complaints that are more than two (2) years old and that have 
not been settled or adjudicated, and customer complaints, arbitrations 
or litigations that have been settled for an amount less than $10,000 
(collectively, ``Historic Complaints''), 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; 
Historic Complaints; or any combination thereof; and
    (8) the name and succession history for current or former members.
    (c) NASD shall not release:
    (1) information reported as a Social Security number, residential 
history, or physical description; information that NASD is otherwise 
prohibited from releasing under Federal law; or information that is 
provided solely for use by regulators. NASD reserves the right to 
exclude, on a case-by-case basis, information that contains 
confidential customer information, offensive or potentially defamatory 
language or information that raises significant identity theft, 
personal safety or privacy concerns that are not outweighed by investor 
protection concerns;
    (2) information reported on Registration Forms relating to 
regulatory investigations or proceedings if NASD has determined that 
the reported regulatory investigation or proceeding was vacated or 
withdrawn by the instituting authority;
    (3) ``Internal Review Disclosure'' information reported on Section 
7 of the Form U5;
    (4) ``Reason for Termination'' information reported on Section 3 of 
Form U5;
    (5) Form U5 information for fifteen (15) days following the filing 
of such information;
    (6) the most recent information reported on a Registration Form, if 
NASD has determined that:
    (A) the information was reported in error by a member, regulator or 
other appropriate authority;
    (B) the information has been determined by regulators, through 
amendments to the uniform registration forms, to be no longer relevant 
to securities registration or licensure, regardless of the disposition 
of the event or the date the event occurred;
    (7) information provided on Schedule E of Form BD.
    (d) Upon written request, NASD may provide a compilation of 
information about NASD members, subject to terms and conditions 
established by NASD and after execution of a licensing agreement 
prepared by NASD. NASD may charge commercial users of such information 
reasonable fees as determined by NASD. Such compilations shall consist 
solely of information selected by NASD from Forms BD and BDW and shall 
be limited to information that is otherwise publicly available from the 
Commission.

IM-8310-3. Release of Disciplinary Complaints, Decisions and Other 
Information

    [(b)](a) [The Association] NASD shall, in response to a request, 
release to the requesting party a copy of any identified disciplinary 
complaint or disciplinary decision issued by [the Association] NASD or 
any subsidiary or Committee thereof; provided, however, that each copy 
of:
    (1) a disciplinary complaint shall be accompanied by the following 
statement: ``The issuance of a disciplinary complaint represents the 
initiation of a formal proceeding by [the Association] NASD in which 
findings as to the allegations in the complaint have not been made and 
does not represent a decision as to any of the allegations contained in 
the complaint. Because this complaint is unadjudicated, you may wish to 
contact the respondent before drawing any conclusions regarding the 
allegations in the complaint.''
    (2) a disciplinary decision that is released prior to the 
expiration of the time period provided under the Rule 9000 Series for 
appeal or call for review within [the Association] NASD or while such 
an appeal or call for review is pending, shall be accompanied by a 
statement that the findings and sanctions imposed in the decision may 
be increased, decreased, modified, or reversed by [the Association] 
NASD.
    (3) a final decision of [the Association] NASD that is released 
prior to the time period provided under the Act for appeal to the 
Commission or while such an appeal is pending, shall be accompanied by 
a statement that the findings and sanctions of [the Association] NASD 
are subject to review and modification by the Commission; and
    (4) a final decision of [the Association] NASD that is released 
after the decision is appealed to the Commission shall be accompanied 
by a statement as to whether the effectiveness of the sanctions has 
been stayed pending the outcome of proceedings before the Commission.
    [c](b)(1) [The Association] NASD shall release to the public 
information with respect to any disciplinary complaint initiated by the 
Department of Enforcement or the Department of Market Regulation of 
NASD [Regulation, Inc.], the NASD Regulation, Inc. Board of Directors, 
or the NASD Board of Governors containing an allegation of a violation 
of a designated statute, rule or regulation of the Commission, NASD, or 
Municipal Securities Rulemaking Board, as determined by the NASD 
Regulation, Inc. Board of Directors (a ``Designated Rule''), and may 
also release such information with respect to any disciplinary 
complaint or group of disciplinary complaints that involve a 
significant policy or enforcement determination where the release of 
information is deemed by the President of NASD [Regulation, Inc.] 
Regulatory Policy and Oversight to be in the public interest.
    (2) Information released to the public pursuant to subparagraph 
[c](b)(1) shall be accompanied by the statement required under 
subparagraph [(b)](a)(1).
    [(d)](c)(1) NASD shall release to the public information with 
respect to any disciplinary decision issued pursuant to the Rule 9000 
Series imposing a suspension, cancellation or expulsion of a member; or 
suspension or revocation of the registration of a person associated 
with a member; or suspension or barring of a member or person 
associated with a member from association with all members; or 
imposition of monetary sanctions of $10,000 or more upon a member or 
person associated with a member; or containing an allegation of a 
violation of a Designated Rule; and may also release such information 
with respect to any disciplinary decision or group of decisions that 
involve a significant policy or enforcement determination where the 
release of information is deemed by the President of NASD Regulatory 
Policy and Oversight to be in the public interest. NASD also may 
release to the public information with respect to any

[[Page 37882]]

disciplinary decision issued pursuant to the Rule 9550 Series imposing 
a suspension or cancellation of the member or a suspension or bar of 
the association of a person with a member, unless NASD determines 
otherwise. NASD may, in its discretion, determine to waive the 
requirement to release information with respect to a disciplinary 
decision under those extraordinary circumstances where the release of 
such information would violate fundamental notions of fairness or work 
an injustice. NASD also shall release to the public information with 
respect to any temporary cease and desist order issued pursuant to the 
Rule 9800 Series. NASD may release to the public information on any 
disciplinary decision issued pursuant to the Rule 9000 Series, not 
specifically enumerated in this paragraph, regardless of sanctions 
imposed, so long as the names of the parties and other identifying 
information is redacted.
    (A) NASD shall release to the public, in unredacted form, 
information with respect to any disciplinary decision issued pursuant 
to the Rule 9300 Series that does not meet one or more of the criteria 
in [IM-8310-2(d)(1)] IM-8310-2(c)(1) for the release of information to 
the public, provided that the underlying decision issued pursuant to 
the Rule 9200 Series meets one or more of the criteria in [IM-8310-
2(d)(1)] IM-8310-2(c)(1) for the release of information to the public, 
and information regarding such decision has been released to the public 
in unredacted form.
    (B) In the event there is more than one respondent in a 
disciplinary decision issued pursuant to the Rule 9000 Series, and 
sanctions imposed on one or more, but not all, of the respondents meets 
one or more of the criteria in [Rule IM-8310-2(d)(1)] IM-8310-2(c)(1) 
for the release of information to the public, NASD shall release to the 
public, in unredacted form, information with respect to the 
respondent(s) who meet such criteria, and may release to the public, in 
redacted form, information with respect to the respondent(s) who do not 
meet such criteria. Notwithstanding the foregoing, NASD shall release 
to the public, in unredacted form, information with respect to any 
respondent in a disciplinary decision issued pursuant to the Rule 9300 
Series if the sanctions imposed on such respondent in the underlying 
decision issued pursuant to the Rule 9200 Series meet one or more of 
the criteria for release of information to the public, and information 
with respect to that respondent has been released in unredacted form.
    (2) Information released to the public pursuant to subparagraph 
[(d)] [(d)](c)(1) shall be accompanied by a statement to the extent 
required for that type of information under subparagraphs [(b)] (a)(2)-
(4).
    [(e)](d) If a decision issued pursuant to the Rule 9000 Series 
other than by the National Adjudicatory Council is not appealed to or 
called for review by the National Adjudicatory Council, the decision 
shall become effective on a date set by [the Association] NASD but not 
before the expiration of 45 days after the date of decision.
    [(f)](e) Notwithstanding [paragraph e] paragraph (d), expulsions 
and bars imposed pursuant to the provisions of Rules 9216 and 9270 
shall become effective upon approval or acceptance by the National 
Adjudicatory Council, and information regarding any sanctions imposed 
pursuant to those Rules may be released to the public pursuant to 
paragraph [(d)] (c) immediately upon such approval or acceptance.
    [(g)](f) No change in text.
    [(h)](g) If a decision of [the Association] NASD imposing monetary 
sanctions of $10,000 or more or a penalty of expulsion, revocation, 
suspension and/or barring of a member from being associated with all 
members is appealed to the Commission, notice thereof shall be given to 
the membership and to the press as soon as possible after receipt by 
[the Association] NASD of notice from the Commission of such appeal and 
[the Association's] NASD's notice shall state whether the effectiveness 
of the Board's decision has been stayed pending the outcome of 
proceedings before the Commission.
    [(i)](h) In the event an appeal to the courts is filed from a 
decision by the Commission in a case previously appealed to it from a 
decision of [the Association] NASD, involving the imposition of 
monetary sanctions of $10,000 or more or a penalty of expulsion, 
revocation, suspension and/or barring of a member from being associated 
with all members, notice thereof shall be given to the membership as 
soon as possible after receipt by [the Association] NASD of a formal 
notice of appeal. Such notice shall include a statement whether the 
order of the Commission has been stayed.
    [(j)](i) Any order issued by the Commission of revocation or 
suspension of a member's broker/dealer registration with the 
Commission; or the suspension or expulsion of a member from [the 
Association] NASD; or the suspension or barring of a member or person 
associated with a member from association with all broker/dealers or 
membership; or the imposition of monetary sanctions of $10,000 or more 
shall be released to the public through a notice containing the 
effective date thereof sent as soon as possible after receipt by [the 
Association] NASD of the order of the Commission.
    [(k)](j) Cancellations of membership or registration pursuant to 
[the Association's] NASD's By-Laws, Rules and Interpretative Material 
shall be released to the public as soon after the effective date of the 
cancellation as possible.
    [(l)](k) Releases to the public referred to in paragraphs [(c)](b) 
and [(d)](c) above shall identify the NASD Rules and By-Laws [of the 
Association] or the SEC Rules violated, and shall describe the conduct 
constituting such violation. Releases may also identify the member with 
which an individual was associated at the time the violations occurred 
if such identification is determined by [the Association] NASD to be in 
the public interest.
* * * * *

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. 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
    The purpose of the proposed rule change is to amend NASD IM-8310-2 
to enhance investor protection by expanding the types of information 
that NASD makes publicly available through its BrokerCheck program and 
to address fairness and privacy concerns by excluding certain 
information that is currently disclosed based on the status or 
disposition of the event. The proposed rule change also addresses 
NASD's release of compilations of publicly available information about 
NASD members. In addition, the proposed rule change makes conforming 
changes to IM-8310-2.

[[Page 37883]]

Background

    IM-8310-2(a) governs the information NASD releases to the public 
via its BrokerCheck program, which NASD established in 1988 to provide 
the public with information on the professional background, business 
practices, and conduct of NASD members and their associated persons. In 
1990, with NASD's support, Congress passed legislation requiring NASD 
to establish and maintain a toll-free telephone number to respond to 
inquiries about members and associated persons. In 1998, NASD began 
providing certain administrative information, such as registration and 
employment history, online via NASD's Web site. In 2000, the Commission 
approved the most recent changes to IM-8310-2(a), which (1) established 
a two-year period for disclosure of information about persons formerly 
registered with NASD; (2) authorized release of information about 
terminated persons and firms that is provided on the Form U6 (the form 
regulators use to report disciplinary actions), if such matters would 
be required to be reported on Form U4 (``Uniform Application for 
Securities Industry Registration or Transfer'') or Form BD (``Uniform 
Application for Broker-Dealer Registration''); and (3) provided for 
delivery of automated disclosure reports, which include information as 
reported by filers on the uniform forms.
    In 2002, NASD initiated a comprehensive review of the information 
that NASD makes publicly available under IM-8310-2. This review 
included an evaluation of NASD's BrokerCheck program from the 
perspective of public investors regarding their experience in obtaining 
information as well as their assessment of the value of the information 
they received. NASD subsequently issued Notice to Members 02-74 
(November 2002), seeking comment on, among other things, the possible 
expansion of information NASD makes available to the public.\3\
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    \3\ See Section C below for a discussion of the comments 
received on Notice to Members 02-74 (November 2002).
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Proposed Rule Change

Information NASD Proposes to Release

    With respect to current or former members, NASD proposes to release 
all administrative information reported on the most recently filed Form 
BD and Form BDW (``Uniform Application for Broker-Dealer Withdrawal''), 
except for social security numbers; residential history information; 
physical description information; information that NASD is otherwise 
prohibited from releasing under Federal law; or information provided 
solely for use by regulators. Additionally, NASD would reserve the 
right to exclude, on a case-by-case basis, administrative or disclosure 
information that contains confidential customer information, offensive 
or potentially defamatory language, or information that raises 
significant identity theft, personal safety or privacy concerns. These 
disclosures would include, in addition to information currently 
released through the BrokerCheck program with respect to current and 
former members, information regarding control persons, direct and 
indirect owners, and information reported on Schedule D of Form BD, as 
well as certain information reported on Form BDW. NASD also proposes to 
release the most recently filed information reported by any regulator 
via the Form U6.
    NASD also proposes to release summary information about certain 
arbitration awards against a member involving a securities or 
commodities dispute with a public customer. NASD currently releases 
summary information concerning arbitration awards issued by NASD 
arbitrators. NASD intends to continue to work with other regulators 
regarding disclosure of arbitration awards issued in other forums.
    With respect to associated persons or persons who were associated 
with a member within the preceding two years, NASD proposes to release 
any administrative information reported on the most recently filed Form 
U4, except for social security numbers; residential history 
information; physical description information; information that NASD is 
otherwise prohibited from releasing under Federal law; or information 
provided solely for use by regulators. Again, NASD would reserve the 
right to exclude, on a case-by-case basis, administrative or disclosure 
information that contains confidential customer information, offensive 
or potentially defamatory language, or information that raises 
significant identity theft, personal safety or privacy concerns. NASD 
also proposes to release information with respect to the qualification 
examinations passed by an associated person and the date passed; 
however, NASD would not release examination scores or information 
regarding failed examinations.
    Also, in the case of associated persons or persons who were 
associated with a member within the preceding two years, NASD proposes 
to release the most recently filed disclosure information reported on 
Form U4 and Form U5, including the most recently filed disclosure 
information reported by any regulator via the Form U6, with certain 
exceptions, as described below.
    NASD also proposes to provide associated persons or persons who 
were associated with a member within the preceding two years with the 
opportunity to provide a brief comment that would be included in the 
information NASD releases through the BrokerCheck program. Only 
comments that relate to the information provided through the 
BrokerCheck program would be included. Any such person who wishes to 
submit a comment would be required to submit a signed, notarized 
affidavit in the form specified by NASD. NASD would publish 
instructions for submitting comments on its Web site for such 
persons.\4\ NASD would review the affidavit to confirm relevance and 
compliance with the established instructions and add the comment (if it 
met these critieria) to the written report provided through the 
BrokerCheck program. The person submitting the comment would be able to 
replace or delete the comment in the same way. These comments also 
would be made available through the CRD system to participating 
regulators, and to any member firms that the person who submitted the 
comment is associated with or is seeking to be associated with, for as 
long as such information is available through the BrokerCheck 
program.\5\ Persons who are currently registered with a member firm 
would continue to be required to amend Form U4, where possible, instead 
of submitting a comment.
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    \4\ Consistent with current practice, NASD would reserve the 
right to reject comments or redact information from a comment or a 
report, on a case-by-case basis, that contains confidential customer 
information, offensive or potentially defamatory language or 
information that raises significant identity theft, personal safety 
or privacy concerns that are not outweighed by investor protection 
concerns. NASD, in rare circumstances, has excluded or redacted 
information in cases involving stalking or terroristic threats.
    \5\ The availability of such comments through the CRD system 
would parallel the availability of a report on a broker through the 
BrokerCheck program. For example, such comments would no longer be 
available through the CRD system if the broker has been out of the 
industry for more than two years.
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Information NASD Proposes Not to Release

    NASD proposes not to release information about current or former 
members, associated persons or persons who were associated with a 
member within the preceding two years that has been reported on Forms 
U4, U5, U6, BD, and BDW relating to regulatory proceedings and 
investigations if the

[[Page 37884]]

reported regulatory proceeding or investigation was vacated or 
withdrawn by the instituting authority. Additionally, NASD proposes not 
to release the most recent information reported on Forms U4, U5, U6, 
BD, and BDW if: (1) the information was reported in error by a member, 
regulator or other appropriate authority; or (2) the information has 
been determined by regulators, through amendments to the uniform 
registration forms, to be no longer relevant to securities registration 
or licensure, regardless of the disposition of the event or the date 
the event occurred.
    With respect to information reported on the Form U5, NASD proposes 
not to release Form U5 information for 15 days following the filing of 
such information with NASD, in order to give persons on whose behalf 
the Form U5 was submitted an opportunity to file a Form U4 or submit a 
comment to NASD for inclusion with the information released pursuant to 
the BrokerCheck program regarding disclosure information reported on 
Form U5 and any amendments thereto. NASD would then release both the 
Form U5 disclosure and the person's comment, if any, to a requestor. 
NASD also proposes to continue its current practice of not releasing 
``Internal Review Disclosure'' information reported by members, 
associated persons, or regulators on the most recently filed Form U5 
\6\ or the reason for termination provided in response to Question 3 on 
Form U5. However, under proposed IM-8310-2, information regarding 
certain terminations for cause (i.e., those that meet the criteria in 
current Question 7F on Form U5) would be disclosed through the program. 
NASD currently does not release information reported on Schedule E of 
the Form BD. Under the proposed rule change, NASD would continue not to 
release this information.
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    \6\ Although the response to the internal review question and 
related information reported on the associated disclosure reporting 
page would not be released, if the matter subject to the internal 
review is or becomes reportable under the investigation, termination 
or other disclosure questions, the disclosure made pursuant to these 
other disclosure questions would be released.
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Customer Complaint Information

    The proposed rule change also would address the reporting of 
Historic Complaints, i.e., customer complaints that are more than two 
years old and have not been settled or adjudicated, or customer 
complaints, arbitrations, or litigation that have been settled for an 
amount less than $10,000. NASD proposes to release Historic Complaints 
only when the person has a total of three or more currently disclosed 
regulatory actions; currently reported customer complaint, arbitration, 
or litigation disclosures; or Historic Complaint disclosures, or any 
combination thereof.\7\ Even then, if the most recent Historic 
Complaint or currently reported customer complaint disclosure 
(including any arbitration or litigation disclosure) is more than 10 
years old, NASD proposes not to release any Historic Complaint 
information.
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    \7\ 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 would 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 past two years from 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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    When the criteria for releasing Historic Complaints is met, i.e., 
the person has a total of three or more currently reported regulatory 
action disclosures; currently reported customer complaint, arbitration, 
or litigation disclosures; Historic Complaint disclosures; or any 
combination thereof, all Historic Complaints, regardless of age, would 
be released provided that at least one of the currently reported 
customer complaint, arbitration, or litigation disclosures (if any) or 
Historic Complaints was filed within the past 10 years. Under such an 
approach, public investors would be able to determine for themselves 
whether a particular broker has demonstrated a pattern of conduct over 
the years and the significance, if any, they should attach to the 
Historic Complaint information.

Compilation of Information

    The rule change also proposes that, upon written request, NASD may 
provide a compilation of information about NASD members, subject to 
terms and conditions established by NASD, and after execution of a 
licensing agreement prepared by NASD. NASD would be permitted to charge 
commercial users of such compilations reasonable fees as determined by 
NASD. Such compilations of information would consist of information 
selected by NASD from Forms BD and BDW and would be limited to 
information that is otherwise publicly available from the Commission.

Conforming Changes

    The proposed rule change would conform subparagraph numbers in NASD 
IM-8210-2 as required by these amendments. 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, Inc.'' Instead, NASD uses ``NASD'' unless otherwise 
appropriate for corporate or regulatory reasons. Accordingly, the 
proposed rule change would replace several references to 
``Association'' in the text of the proposed rule change with ``NASD.''

Electronic Delivery of Written Reports

    In connection with the proposed changes to NASD IM-8310-2, and the 
overall objectives of the public information review, NASD also 
considered the manner in which it releases information to the public 
via the BrokerCheck program. Currently, NASD makes written reports 
available by U.S. mail in printed (hard copy) form and by email in an 
electronic format upon receipt of a request via email or the 
established toll-free number. However, a number of practical issues 
have arisen regarding email delivery. For example, many Internet 
service providers limit the size of attachments that can be received by 
an individual via email. This limit effectively prevents NASD from 
providing written reports on the largest NASD-registered firms via 
email. Instead, NASD must send the reports via U.S. mail. As a result, 
investors are required to wait, sometimes for several days, before 
receiving the requested reports. The email limit also restricts NASD's 
opportunity to include explanatory material that would tend to increase 
the size of the report beyond the email size limits.
    Accordingly, NASD plans to enhance the electronic delivery of 
written reports sent in response to inquiries via email or through the 
established toll-free number by replacing the current delivery approach 
with a link to a controlled-access server that would allow access to 
the requested report through a secure Internet session. Access to the 
information would be limited to the written report requested, and only 
the individual making the request would be granted access to the 
database. A requestor also would be able to view investor education 
materials that would aid him or her in understanding the written 
report. This planned electronic distribution system would allow NASD to 
provide investors with more immediate access to the requested 
information. This change would eliminate the additional step of 
emailing the requestor a passcode and requiring the requestor to 
reenter that passcode. Additionally, this change

[[Page 37885]]

should enable NASD to have the flexibility it needs to provide a report 
delivery solution that is more user-friendly, and that more efficiently 
meets investor needs in light of changing technology, while still 
providing safeguards against data piracy. NASD also would continue to 
accept requests for reports via the existing toll-free number and 
provide hard copy reports to those requestors.
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,\8\ 
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), 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 is designed to 
accomplish these ends by broadening the types and, on balance, the 
amount of information released to the investing public through NASD's 
BrokerCheck program. At the same time, it would establish a principled 
basis for disclosure that would meet 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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    \8\ 15 U.S.C. 78o-3(b)(6).
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    NASD would announce adoption of the proposed rule change in a 
Notice to Members to be published no later than 60 days following 
Commission approval. Because the proposed rule change would require 
changes to the software application supporting NASD's BrokerCheck 
program, NASD would announce the effective date in a subsequent Notice 
to Members.

B. Self-Regulatory Organization's Statement on Burden on Competition

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

Notice to Members 02-74: Proposed Amendments Relating to Types of 
Information NASD Makes Public

    In NASD Notice to Members 02-74 (November 2002), NASD requested 
comment on a broad range of issues relating to information NASD makes 
public. This discussion will be limited to the comments that were 
received in connection with NASD's public disclosure program. There 
were a total of 58 commenters. Those who commented on NASD's public 
disclosure program were generally in favor of timely and accurate 
disclosure to the investing public, but they were also concerned about 
striking a fair balance between the need for quality disclosure and the 
legitimate privacy interests of firms and associated persons. NASD 
believes that it has addressed those concerns in the proposed rule 
change.
    For example, NASD would not release social security numbers, 
residential history information, physical description information, 
information that NASD is otherwise prohibited from releasing under 
Federal law, or information provided solely for use by regulators. NASD 
would reserve the right to exclude, on a case-by case-basis, 
information that contains confidential customer information, offensive 
or potentially defamatory language, or information that raises 
significant identity theft, personal safety or privacy concerns. With 
respect to qualification examination information, NASD proposes to 
release information only as to examinations passed by an associated 
person and date passed and would not release information regarding 
examination scores or failed examinations. In addition, NASD proposes 
not to release ``Internal Review Disclosure'' information reported on 
the most recently filed Form U5.
    Further, under proposed IM-8310-2, NASD would not release 
information reported by members, associated persons, or regulators, 
including information relating to regulatory proceedings, 
investigations, civil judicial actions, customer complaints, 
arbitrations, or litigation if the member or associated person 
prevailed in a final, adjudicatory proceeding as to the matter 
reported; the reported regulatory action, investigation, or criminal 
proceeding was dismissed, vacated or withdrawn by the authority 
instituting the action or proceeding; the information was reported in 
error by a member, regulator, or the appropriate authority; or the 
information was determined by regulators, through amendments to the 
uniform registration forms, to be no longer relevant to securities 
registration or licensure, regardless of the disposition of the event 
or the date the event occurred. With respect to criminal proceedings, 
NASD would not release information reported by members, associated 
persons, or regulators if the information was reported in error by a 
member, regulator, or the appropriate authority; or the information was 
determined by regulators, through amendments to the uniform 
registration forms, to be no longer relevant to securities registration 
or licensure, regardless of the disposition of the event or the date 
the event occurred.
    A number of commenters were concerned about the potential release 
of information that is no longer reportable on the current uniform 
forms. Under the proposed rule change, NASD would not release any 
disclosure that is no longer reportable on the current uniform forms 
such as bankruptcies that are more than 10 years old or liens that have 
been satisfied, except for Historic Complaints where the stated 
criteria, as further discussed below, have been met.
    With respect to Historic Complaints, proposed IM-8310-2 would 
define ``Historic Complaints'' as the last filed information relating 
to customer complaints reported on a Form U4, Form U5, or Form U6 that 
are more than two years old that have not been settled or adjudicated, 
or customer complaints, arbitrations, or litigation that have been 
settled for an amount less than $10,000. Among other things, commenters 
expressed the view that releasing Historic Complaints would be 
unhelpful and potentially misleading, on the basis that such 
information was outdated and no longer relevant.
    In response to these commenters, NASD proposes to release historic 
customer complaint information only where the individual's record has 
demonstrated a pattern, as defined in proposed IM-8310-2. Proposed IM-
8310-2 would provide that an individual must have a total of three or 
more currently disclosed regulatory actions; currently reported 
customer complaint, arbitration, or litigation disclosures; Historic 
Complaints; or any combination thereof, before NASD would consider 
releasing Historic Complaint information. If an individual has three or 
more disclosures, as described above, NASD would examine the age of any 
currently reported customer complaint, arbitration or litigation 
disclosure(s) and the age of any Historic Complaints. If the most

[[Page 37886]]

recent Historic Complaint or currently reported customer complaint 
disclosure (including arbitration or litigation disclosure) is more 
than 10 years old, NASD proposes not to release any Historic Complaint 
information.
    NASD would release Historic Complaints only when the person has a 
total of three or more currently disclosed regulatory actions; 
currently reported customer complaint, arbitration, or litigation 
disclosures; Historic Complaint disclosures; or any combination 
thereof, and at least one of the currently reported customer complaint 
disclosures (including arbitration or litigation disclosures) or 
Historic Complaints was filed within the past 10 years. In that case, 
all Historic Complaints, regardless of age, would be released. 
Releasing Historic Complaint disclosures on this basis would enable 
public investors to make an informed assessment as to whether a 
particular broker has demonstrated a pattern of conduct over the years. 
NASD believes that providing this information would allow public 
investors to determine for themselves the significance, if any, of the 
Historic Complaint(s).
    NASD has also taken into account some commenters' concern about 
releasing Form U5 information, given the potential for public 
disclosure of allegedly defamatory material and the possibility that a 
broker may be in the process of suing his or her previous member firm 
over information reported on a Form U5 in connection with a wrongful 
termination or a defamation claim. Commenters also expressed the view 
that reasons for release from employment should not be public 
information unless the reason is reportable on the Form U4. NASD notes 
that proposed IM-8310-2 proposes to release only disclosure information 
reported on the Form U5. This means that under the proposed rule 
change, responses to current Question 3 (Full Termination) on the Form 
U5, regarding ``Reason for Termination,'' would not be released, but 
information regarding terminations for cause that meet the criteria in 
current Question 7F on the Form U5 or current Question 14J on the Form 
U4 would be released.
    A number of commenters suggested that brokers should be given the 
opportunity to respond before the information is released to the 
public. NASD has addressed commenters' concerns by proposing to delay 
the release of Form U5 information for 15 days, in order to give the 
broker an opportunity to file a Form U4 or submit a comment to NASD 
regarding any such disclosure. Both the Form U5 disclosure and the 
broker's response would then be released to the public.
    NASD proposes to provide associated persons or persons who were 
associated with a member within the preceding two years with the 
opportunity to provide a brief comment that would be included in the 
information NASD releases through the BrokerCheck program. Only 
comments that relate to the information provided through the 
BrokerCheck program would be included. Any such person who wishes to 
submit a comment would be required to submit a signed, notarized 
affidavit in the form specified by NASD. NASD would publish 
instructions for submitting comments on its Web site for such 
persons.\9\ The person submitting the comment would be able to replace 
or delete the comment in the same way. These comments would be made 
available through the CRD system to participating regulators, and to 
any member firms that the person who submitted the comment is 
associated with or is seeking to be associated with, for as long as 
such information is available through the BrokerCheck program. Persons 
who are currently registered with a member firm would be required to 
amend Form U4, where possible, instead of submitting a comment.
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    \9\ Consistent with current practice, NASD would reserve the 
right to reject comments or redact information, on a case-by-case 
basis, that contains confidential customer information, offensive or 
potentially defamatory language or information that raises 
significant identity theft, personal safety or privacy concerns that 
are not outweighed by investor protection concerns.
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    Notice to Members 02-74 also asked for comment on publishing 
comparative information, i.e., putting information released to the 
public in context. The Notice stated that expanding the information 
available through the BrokerCheck program to include certain 
comparative information would help an investor better understand and 
evaluate the information on the specific broker or firm he or she may 
be interested in or how his or her broker or firm compares to the rest 
of the industry. This comparative information would not rate brokers or 
firms or specifically advise an investor whether or not to conduct 
business with a particular broker or firm. The commenters generally 
opposed this concept, stating that comparative information would 
confuse or potentially mislead the public.
    In response, NASD notes that it does not intend to include 
comparative information with respect to particular persons or members 
in reports that would be available through the program and, therefore, 
publication of comparative information would not be part of the 
proposed rule change to IM-8310-2. NASD plans instead to make 
educational materials and/or explanatory information available via the 
NASD Web site and through other means that would help investors 
understand the information they are receiving. This informational 
material may include generic statistical or comparative information.

Notice to Members 03-76: NASD Seeks Comments on Enhanced Access to NASD 
BrokerCheck (Formerly Known as NASD's Public Disclosure Program)

    In Notice to Members 03-76 (December 2003), NASD sought comment on 
proposed enhancements to the existing approach for the electronic 
delivery of written reports (email) used by the BrokerCheck program and 
received six comment letters in response. Generally, commenters 
expressed support for the proposed approach. Four commenters supported 
enhancing access in the manner described in the Notice. Another 
commenter supported enhancing access, but requested that NASD provide 
limited, direct Internet access to the information through a system 
that would allow persons to see limited portions of each member's 
records. One commenter did not support the proposed enhancement, 
stating that NASD should correct existing limitations in the current 
system, and specifically noting that, in his experience, the system's 
search engine appears to work better if the searcher has less 
information than more. This commenter also stated that the system was 
not helpful in finding information on branches and non-branch 
locations. NASD believes that its proposed enhancement to the 
electronic delivery of reports through the BrokerCheck program would 
improve the delivery of information through the BrokerCheck program and 
also give investors the opportunity to request and review a greater 
number of reports in a shorter period of time. The proposed delivery 
system also would give NASD the flexibility to more easily provide 
contextual and other investor education material as part of the 
program. NASD continues to consider additional ways to improve the 
delivery of information through BrokerCheck in response to investor 
needs.

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)

[[Page 37887]]

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, 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 foregoing, including whether the proposed rule 
change, as amended, 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-2003-168 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9309.
    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 (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 the 
filing also will be available for inspection and copying at the 
principal office of the 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 
21, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5-3437 Filed 6-29-05; 8:45 am]
BILLING CODE 8010-01-P