Self Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change Relating to Certification by the Chief Executive Officer Under NASD Interpretive Material 3013, 15238-15240 [E6-4346]
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15238
Federal Register / Vol. 71, No. 58 / Monday, March 27, 2006 / Notices
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(iii) 7 of the Act and Rule
19b–4(f)(4) 8 thereunder because it
effects a change in an existing service of
DTC that does not adversely affect the
safeguarding of securities or funds in
DTC’s control or for which DTC is
responsible and does not significantly
affect DTC’s or its participants’
respective rights or obligations. At any
time within 60 days of the filing of the
proposed rule change, the Commission
may summarily abrogate such rule
change if it appears to the Commission
that such action is necessary or
appropriate in the public interest, for
the protection of investors, or otherwise
in furtherance of the purposes of the
Act.
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:
wwhite on PROD1PC65 with NOTICES
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
No. SR–DTC–2006–01 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File No.
SR–DTC–2006–01. 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
Section, 100 F Street, NE., Washington,
DC 20549. Copies of such filing also will
be available for inspection and copying
at DTC’s principal office and on DTC’s
Web site at <https://www.dtc.org/
impNtc/mor/>. 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 No. SR–DTC–2006–
01 and should be submitted on or before
April 17, 2006.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.9
Nancy M. Morris,
Secretary.
[FR Doc. E6–4345 Filed 3–24–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53509; File No. SR–NASD–
2006–036]
Self Regulatory Organizations;
National Association of Securities
Dealers, Inc.; Notice of Filing and
Order Granting Accelerated Approval
of Proposed Rule Change Relating to
Certification by the Chief Executive
Officer Under NASD Interpretive
Material 3013
March 17, 2006.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 7,
2006, the National Association of
Securities Dealers, Inc. (‘‘NASD’’) filed
with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I and II 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. In
addition, the Commission is granting
accelerated approval of the proposed
rule change for the reasons discussed
below.
9 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
7 15
U.S.C. 78s(b)(3)(A)(iii).
8 17 CFR 240.19b–4(f)(4).
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18:19 Mar 24, 2006
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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
Interpretive Material 3013 (‘‘IM–3013’’)
to clearly establish the timing with
respect to the requirement to submit to
the member’s board of directors and
audit committee a report that evidences
certain processes that form the basis of
a certification by the Chief Executive
Officer (‘‘CEO’’) under Rule 3013. Below
is the text of the proposed rule change.
Proposed new language is in italics;
proposed deletions are in brackets.
*
*
*
*
*
3000. RESPONSIBILITIES RELATING
TO ASSOCIATED PERSONS,
EMPLOYEES, AND OTHERS’
EMPLOYEES
*
*
*
*
*
IM–3013. Annual Compliance and
Supervision Certification
*
*
*
*
*
Annual Compliance and Supervision
Certification
The undersigned is the chief
executive officer (or equivalent officer)
of [name of member corporation/
partnership/sole proprietorship] (the
‘‘Member’’). As required by NASD Rule
3013(b), the undersigned makes the
following certification:
1. through 2. No change.
3. The Member’s processes, with
respect to paragraph 1 above, are
evidenced in a report reviewed by the
chief executive officer (or equivalent
officer), chief compliance officer, and
such other officers as the Member may
deem necessary to make this
certification[[, and]]. The final report
has been submitted to the Member’s
board of directors and audit committee
or will be submitted to the Member’s
board of directors and audit committee
(or equivalent bodies) at the earlier of
their next scheduled meetings or within
45 days of the date of execution of this
certification.
4. No change.
*
*
*
*
*
The report required in paragraph 3 of
the certification must document the
member’s processes for establishing,
maintaining, reviewing, testing and
modifying compliance policies, that are
reasonably designed to achieve
compliance with applicable NASD
rules, MSRB rules and federal securities
laws and regulations, and any principal
designated by the member may prepare
the report. The report must be produced
prior to execution of the certification
and be reviewed by the chief executive
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Federal Register / Vol. 71, No. 58 / Monday, March 27, 2006 / Notices
officer (or equivalent officer), chief
compliance officer and any other
officers the member deems necessary to
make the certification and must be
provided to the member’s board of
directors and audit committee in final
form either prior to execution of the
certification or at the earlier of their
next scheduled meetings or within 45
days of execution of the certification.
The report should include the manner
and frequency in which the processes
are administered, as well as the
identification of officers and supervisors
who have responsibility for such
administration. The report need not
contain any conclusions produced as a
result of following the processes set
forth therein. The report may be
combined with any other compliance
report or other similar report required
by any other self-regulatory organization
provided that (1) such report is clearly
titled in a manner indicating that it is
responsive to the requirements of the
certification and this Interpretive
Material; (2) a member that submits a
report for review in response to an
NASD request must submit the report in
its entirety; and (3) the member makes
such report in a timely manner, i.e.,
annually.
*
*
*
*
*
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.
wwhite on PROD1PC65 with NOTICES
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
NASD Rule 3013 requires each
member’s CEO or equivalent officer to
certify annually that the member has in
place processes to establish, maintain,
review, modify, and test policies and
procedures reasonably designed to
achieve compliance with applicable
NASD rules, MSRB rules and the federal
securities laws and regulations. The rule
is accompanied by IM–3013, which sets
forth the actual certification language
and provides additional guidance about
the requirements of the rule and sets
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18:19 Mar 24, 2006
Jkt 208001
forth certain limitations to its scope. On
October 14, 2005, NASD filed for
immediate effectiveness amendments to
Rule 3013 to extend until April 1, 2006,
the date by which members must
execute their first annual certification
pursuant to Rule 3013 and IM–3013.3
The certification consists of four
attestations, each set forth in a separate
numbered paragraph within IM–3013.
In paragraph 3 of the certification, the
CEO attests that the member’s processes
are ‘‘evidenced in a report reviewed by
the chief executive officer (or equivalent
officer), chief compliance officer, and
such other officers as the Member may
deem necessary to make this
certification, and submitted to the
Member’s board of directors and audit
committee.’’
IM–3013 does not clearly specify
whether a member may submit the
report to its board of directors and audit
committee 4 after the CEO makes the
certification, and NASD has interpreted
the certification language to require a
member to submit the report to those
entities prior to certification. However,
it was not NASD’s intent to require the
board of directors or audit committee to
review or consider the report as a
condition to the CEO executing the
certification. Rather, the requirement
that the report be submitted to the
member’s board of directors and audit
committee was intended to ensure that
those governing bodies remain informed
of this aspect of the member’s
compliance system in the context of
their overall responsibility for
governance and internal controls of the
member for which they serve.
Accordingly, NASD sees no compelling
reason to mandate that the report be
submitted to the board of directors and
audit committee prior to the CEO
executing the certification, and therefore
the proposed rule change would permit
submission of the final report to these
governing bodies to take place either
before or after the execution of the
certification, provided that the board of
directors and audit committee receive
the report at the earlier of their next
scheduled meeting or within 45 days
after execution of the certification.5
3 Securities Exchange Act Release No. 52727
(Nov. 3, 2005); 70 FR 68122 (Nov. 9, 2005) (SR–
NASD–2005–121).
4 IM–3013 requires that members that do not
utilize a board of directors or audit committee in
the conduct of their business must, as a part of their
process, have the report reviewed by their
governing bodies and committees that serve similar
functions.
5 New York Stock Exchange (‘‘NYSE’’) Rule
342.30 also requires that each member (or member
organization) file by April 1 of each year a report
that addresses the member organization’s
supervision and compliance efforts during the
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15239
Importantly, the board of directors and
audit committee must receive the report
in its final form regardless of whether
the member elects to submit it to them
before or after certification by the CEO.
2. Statutory Basis
NASD believes that the proposed rule
change is consistent with the provisions
of Section 15A of the Act,6 in general,
and Section 15A(b)(6) of the Act,7 in
particular, which requires, among other
things, that NASD’s rules must be
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, and, in general, to protect
investors and the public interest. NASD
believes that the proposed rule change
will further the investor protection goals
of the CEO certification requirement by
ensuring timely receipt of the Rule 3013
report by a member’s board of directors
and audit committee and by providing
further clarity to the application of the
Rule 3013 in its accompanying
interpretive material.
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.
preceding calendar year, as well as ongoing
compliance processes and procedures. NYSE Rule
342.30. The report must include, among other
things, a certification by the member or its Chief
Executive Officer (or equivalent officer) that the
member has processes in place, among other things,
to establish and maintain policies and procedures
reasonably designed to achieve compliance with
applicable Exchange rules and federal securities
laws and regulations. NYSE Rule 342.30(e). This
certification must be submitted to the member’s
board of directors and audit committee (if such a
committee exists). NYSE Rule 342.30(e)(iii).
The NYSE interprets the certification delivery
requirement of Rule 342.30 more restrictively than
NASD has proposed to interpret the comparable
requirement in NASD Rule 3013. Specifically, Rule
342.30 requires the submittal of the report to the
board and the audit committee prior to certification.
NYSE Information Memo 06–08 (March 13, 2006).
Firms that are dual members of NASD and the
NYSE are subject to both NASD 3013 and NYSE
Rule 342.30 and must, therefore, comply with the
more restrictive requirements of NYSE Rule 342.30.
Telephone conversation between Patrice Gliniecki,
Deputy General Counsel, NASD, and Richard
Strasser, Acting Assistant Director, Market
Regulation, Commission (March 16, 2006).
6 15 U.S.C. 78o–3.
7 15 U.S.C. 78o–3(b)(6).
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15240
Federal Register / Vol. 71, No. 58 / Monday, March 27, 2006 / Notices
rules and regulations thereunder
applicable to a national securities
Interested persons are invited to
association.8 Specifically, the
submit written data, views and
Commission finds that the proposed
arguments concerning the foregoing,
rule change is consistent with Section
including whether the proposed rule
15A(b)(6) of the Act,9 which requires,
change is consistent with the Act.
among other things, that the rules of a
Comments may be submitted by any of
national securities association must be
the following methods:
designed to prevent fraudulent and
Electronic Comments
manipulative acts and practices, to
• Use the Commission’s Internet
promote just and equitable principles of
comment form (https://www.sec.gov/
trade, and, in general, to protect
rules/sro.shtml); or
investors and the public interest. The
• Send an e-mail to ruleCommission finds that the proposed
comments@sec.gov. Please include File
rule change is consistent with the Act
Number SR–NASD–2006–036 on the
and, in particular, with Section
subject line.
15A(b)(6) of the Act because the
proposal should help to provide clarity
Paper Comments
with respect to the timing for the
• Send paper comments in triplicate
delivery of the report required by Rule
to Nancy M. Morris, Secretary,
3013 while ensuring that the report is
Securities and Exchange Commission,
delivered to the member’s board of
100 F Street, NE., Washington, DC
directors and audit committee (or their
20549–1090.
equivalents) in a timely manner.
All submissions should refer to File
NASD has requested that the
Number SR–NASD–2006–036. This file
Commission find good cause for
number should be included on the
subject line if e-mail is used. To help the approving the proposed rule change
Commission process and review your
prior to the 30th day after publication of
comments more efficiently, please use
notice thereof in the Federal Register.
only one method. The Commission will The Commission finds good cause,
post all comments on the Commission’s pursuant to Section 19(b)(2) of the
Internet Web site (https://www.sec.gov/
Act,10 for approving the proposed rule
rules/sro.shtml). Copies of the
change prior to the 30th day after the
submission, all subsequent
date of publication of notice of filing
amendments, all written statements
thereof in the Federal Register because
with respect to the proposed rule
it believes accelerated approval will
change that are filed with the
reduce the burden of members that are
Commission, and all written
currently in the process of taking the
communications relating to the
necessary steps to execute the first CEO
proposed rule change between the
certification, which is required to be
Commission and any person, other than
made by April 1, 2006.11 Moreover, the
those that may be withheld from the
Commission does not believe that the
public in accordance with the
proposal will reduce the investor
provisions of 5 U.S.C. 552, will be
protections that the certification
available for inspection and copying in
requirement is intended to promote.
the Commission’s Public Reference
Room, 100 F Street, NE., Washington,
V. Conclusion
DC 20549. Copies of such filing also will
be available for inspection and copying
It is therefore ordered, pursuant to
at the principal office of NASD.
Section 19(b)(2) of the Act,12 that the
All comments received will be posted proposed rule change (SR–NASD–2006–
without change; the Commission does
036), is hereby approved on an
not edit personal identifying
accelerated basis.
information from submissions. You
should submit only information that
8 See supra note 6. In approving this proposal, the
you wish to make available publicly. All
Commission has considered its impact on
submissions should refer to the File
efficeincy, competition, and capital formation. 15
Number SR–NASD–2006–036 and
U.S.C. 78c(f).
should be submitted on or before April
9 See supra note 7.
17, 2006.
10
wwhite on PROD1PC65 with NOTICES
III. Solicitation of Comments
IV. Commission’s Findings and Order
Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
VerDate Aug<31>2005
18:19 Mar 24, 2006
Jkt 208001
15 U.S.C. 78s(b)(2).
Exchange Act Release No. 52727 (Nov. 3,
2005), 70 FR 68122 (Nov. 9, 2005) (SR–NASD–
2005–121) (which, among other things, extended
until April 1, 2006 the date by which members
must execute their first annual certification
pursuant to Rule 3013 and IM–3013).
12 See supra note 10.
11 See
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For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.13
Nancy M. Morris,
Secretary.
[FR Doc. E6–4346 Filed 3–24–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53514; File No. SR–Phlx–
2005–80]
Self-Regulatory Organizations;
Philadelphia Stock Exchange, Inc.;
Notice of Filing of a Proposed Rule
Change and Amendment No. 1 Thereto
Relating to the Automated Delivery and
Handling of Stop and Stop-Limit
Orders
March 17, 2006.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
15, 2005, the Philadelphia Stock
Exchange, Inc. (‘‘Phlx’’ or ‘‘Exchange’’)
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 the Exchange.
Phlx filed Amendment No. 1 with the
Commission on March 6, 2006.3 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
The Phlx proposes to amend Phlx
Rules 1066(c)(1) and 1080(b)(i)(A) and
(C), and to delete Options Floor
Procedure Advices (‘‘OFPAs’’) A–5 and
A–6, to permit customer and off-floor
broker-dealer stop 4 and stop-limit 5
orders in options to be delivered via the
13 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Amendment No. 1, which replaced the original
filing in its entirety, adds clarifying language to the
description of the proposed rule change and adopts
a definition of ‘‘agency order’’ in Phlx Rule
1080(b)(i)(A).
4 A stop order is a contingency order to buy or
sell when the market for a particular option contract
reaches a specified price. A stop order to buy
becomes a market order when the option contract
trades or is bid at or above the stop price. A stop
order to sell becomes a market order when the
option contract trades or is offered at or below the
stop price. See Phlx Rule 1066(c)(1).
5 A stop-limit order is a contingency order to buy
or sell at a limited price when the market for a
particular option contract reaches a specified price.
A stop limit order to buy becomes a limit order
executable at the limit price or better when the
option contract trades or is bid at or above the stoplimit price. A stop limit order to sell becomes a
limit order executable at the limit price or better
when the option contract trades or is offered at or
below the stop limit price. See id.
1 15
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]]>Agencies
[Federal Register Volume 71, Number 58 (Monday, March 27, 2006)]
[Notices]
[Pages 15238-15240]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-4346]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53509; File No. SR-NASD-2006-036]
Self Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice of Filing and Order Granting Accelerated Approval
of Proposed Rule Change Relating to Certification by the Chief
Executive Officer Under NASD Interpretive Material 3013
March 17, 2006.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 7, 2006, the National Association of Securities Dealers, Inc.
(``NASD'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I and
II 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. In addition, the Commission is granting
accelerated approval of the proposed rule change for the reasons
discussed below.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NASD is proposing to amend NASD Interpretive Material 3013 (``IM-
3013'') to clearly establish the timing with respect to the requirement
to submit to the member's board of directors and audit committee a
report that evidences certain processes that form the basis of a
certification by the Chief Executive Officer (``CEO'') under Rule 3013.
Below is the text of the proposed rule change. Proposed new language is
in italics; proposed deletions are in brackets.
* * * * *
3000. RESPONSIBILITIES RELATING TO ASSOCIATED PERSONS, EMPLOYEES, AND
OTHERS' EMPLOYEES
* * * * *
IM-3013. Annual Compliance and Supervision Certification
* * * * *
Annual Compliance and Supervision Certification
The undersigned is the chief executive officer (or equivalent
officer) of [name of member corporation/partnership/sole
proprietorship] (the ``Member''). As required by NASD Rule 3013(b), the
undersigned makes the following certification:
1. through 2. No change.
3. The Member's processes, with respect to paragraph 1 above, are
evidenced in a report reviewed by the chief executive officer (or
equivalent officer), chief compliance officer, and such other officers
as the Member may deem necessary to make this certification[[, and]].
The final report has been submitted to the Member's board of directors
and audit committee or will be submitted to the Member's board of
directors and audit committee (or equivalent bodies) at the earlier of
their next scheduled meetings or within 45 days of the date of
execution of this certification.
4. No change.
* * * * *
The report required in paragraph 3 of the certification must
document the member's processes for establishing, maintaining,
reviewing, testing and modifying compliance policies, that are
reasonably designed to achieve compliance with applicable NASD rules,
MSRB rules and federal securities laws and regulations, and any
principal designated by the member may prepare the report. The report
must be produced prior to execution of the certification and be
reviewed by the chief executive
[[Page 15239]]
officer (or equivalent officer), chief compliance officer and any other
officers the member deems necessary to make the certification and must
be provided to the member's board of directors and audit committee in
final form either prior to execution of the certification or at the
earlier of their next scheduled meetings or within 45 days of execution
of the certification. The report should include the manner and
frequency in which the processes are administered, as well as the
identification of officers and supervisors who have responsibility for
such administration. The report need not contain any conclusions
produced as a result of following the processes set forth therein. The
report may be combined with any other compliance report or other
similar report required by any other self-regulatory organization
provided that (1) such report is clearly titled in a manner indicating
that it is responsive to the requirements of the certification and this
Interpretive Material; (2) a member that submits a report for review in
response to an NASD request must submit the report in its entirety; and
(3) the member makes such report in a timely manner, i.e., annually.
* * * * *
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
NASD Rule 3013 requires each member's CEO or equivalent officer to
certify annually that the member has in place processes to establish,
maintain, review, modify, and test policies and procedures reasonably
designed to achieve compliance with applicable NASD rules, MSRB rules
and the federal securities laws and regulations. The rule is
accompanied by IM-3013, which sets forth the actual certification
language and provides additional guidance about the requirements of the
rule and sets forth certain limitations to its scope. On October 14,
2005, NASD filed for immediate effectiveness amendments to Rule 3013 to
extend until April 1, 2006, the date by which members must execute
their first annual certification pursuant to Rule 3013 and IM-3013.\3\
---------------------------------------------------------------------------
\3\ Securities Exchange Act Release No. 52727 (Nov. 3, 2005); 70
FR 68122 (Nov. 9, 2005) (SR-NASD-2005-121).
---------------------------------------------------------------------------
The certification consists of four attestations, each set forth in
a separate numbered paragraph within IM-3013. In paragraph 3 of the
certification, the CEO attests that the member's processes are
``evidenced in a report reviewed by the chief executive officer (or
equivalent officer), chief compliance officer, and such other officers
as the Member may deem necessary to make this certification, and
submitted to the Member's board of directors and audit committee.''
IM-3013 does not clearly specify whether a member may submit the
report to its board of directors and audit committee \4\ after the CEO
makes the certification, and NASD has interpreted the certification
language to require a member to submit the report to those entities
prior to certification. However, it was not NASD's intent to require
the board of directors or audit committee to review or consider the
report as a condition to the CEO executing the certification. Rather,
the requirement that the report be submitted to the member's board of
directors and audit committee was intended to ensure that those
governing bodies remain informed of this aspect of the member's
compliance system in the context of their overall responsibility for
governance and internal controls of the member for which they serve.
Accordingly, NASD sees no compelling reason to mandate that the report
be submitted to the board of directors and audit committee prior to the
CEO executing the certification, and therefore the proposed rule change
would permit submission of the final report to these governing bodies
to take place either before or after the execution of the
certification, provided that the board of directors and audit committee
receive the report at the earlier of their next scheduled meeting or
within 45 days after execution of the certification.\5\ Importantly,
the board of directors and audit committee must receive the report in
its final form regardless of whether the member elects to submit it to
them before or after certification by the CEO.
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\4\ IM-3013 requires that members that do not utilize a board of
directors or audit committee in the conduct of their business must,
as a part of their process, have the report reviewed by their
governing bodies and committees that serve similar functions.
\5\ New York Stock Exchange (``NYSE'') Rule 342.30 also requires
that each member (or member organization) file by April 1 of each
year a report that addresses the member organization's supervision
and compliance efforts during the preceding calendar year, as well
as ongoing compliance processes and procedures. NYSE Rule 342.30.
The report must include, among other things, a certification by the
member or its Chief Executive Officer (or equivalent officer) that
the member has processes in place, among other things, to establish
and maintain policies and procedures reasonably designed to achieve
compliance with applicable Exchange rules and federal securities
laws and regulations. NYSE Rule 342.30(e). This certification must
be submitted to the member's board of directors and audit committee
(if such a committee exists). NYSE Rule 342.30(e)(iii).
The NYSE interprets the certification delivery requirement of
Rule 342.30 more restrictively than NASD has proposed to interpret
the comparable requirement in NASD Rule 3013. Specifically, Rule
342.30 requires the submittal of the report to the board and the
audit committee prior to certification. NYSE Information Memo 06-08
(March 13, 2006). Firms that are dual members of NASD and the NYSE
are subject to both NASD 3013 and NYSE Rule 342.30 and must,
therefore, comply with the more restrictive requirements of NYSE
Rule 342.30. Telephone conversation between Patrice Gliniecki,
Deputy General Counsel, NASD, and Richard Strasser, Acting Assistant
Director, Market Regulation, Commission (March 16, 2006).
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2. Statutory Basis
NASD believes that the proposed rule change is consistent with the
provisions of Section 15A of the Act,\6\ in general, and Section
15A(b)(6) of the Act,\7\ in particular, which requires, among other
things, that NASD's rules must be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. NASD believes that the proposed rule change will
further the investor protection goals of the CEO certification
requirement by ensuring timely receipt of the Rule 3013 report by a
member's board of directors and audit committee and by providing
further clarity to the application of the Rule 3013 in its accompanying
interpretive material.
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\6\ 15 U.S.C. 78o-3.
\7\ 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.
[[Page 15240]]
III. 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-2006-036 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASD-2006-036. 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, 100 F Street, NE.,
Washington, DC 20549. 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-2006-
036 and should be submitted on or before April 17, 2006.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities association.\8\
Specifically, the Commission finds that the proposed rule change is
consistent with Section 15A(b)(6) of the Act,\9\ which requires, among
other things, that the rules of a national securities association must
be designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, and, in general, to
protect investors and the public interest. The Commission finds that
the proposed rule change is consistent with the Act and, in particular,
with Section 15A(b)(6) of the Act because the proposal should help to
provide clarity with respect to the timing for the delivery of the
report required by Rule 3013 while ensuring that the report is
delivered to the member's board of directors and audit committee (or
their equivalents) in a timely manner.
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\8\ See supra note 6. In approving this proposal, the Commission
has considered its impact on efficeincy, competition, and capital
formation. 15 U.S.C. 78c(f).
\9\ See supra note 7.
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NASD has requested that the Commission find good cause for
approving the proposed rule change prior to the 30th day after
publication of notice thereof in the Federal Register. The Commission
finds good cause, pursuant to Section 19(b)(2) of the Act,\10\ for
approving the proposed rule change prior to the 30th day after the date
of publication of notice of filing thereof in the Federal Register
because it believes accelerated approval will reduce the burden of
members that are currently in the process of taking the necessary steps
to execute the first CEO certification, which is required to be made by
April 1, 2006.\11\ Moreover, the Commission does not believe that the
proposal will reduce the investor protections that the certification
requirement is intended to promote.
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\10\ 15 U.S.C. 78s(b)(2).
\11\ See Exchange Act Release No. 52727 (Nov. 3, 2005), 70 FR
68122 (Nov. 9, 2005) (SR-NASD-2005-121) (which, among other things,
extended until April 1, 2006 the date by which members must execute
their first annual certification pursuant to Rule 3013 and IM-3013).
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\12\ that the proposed rule change (SR-NASD-2006-036), is hereby
approved on an accelerated basis.
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\12\ See supra note 10.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-4346 Filed 3-24-06; 8:45 am]
BILLING CODE 8010-01-P
