Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto Relating to Extension of NASD's Authority Under the Cease and Desist Pilot Program, 30895-30898 [E7-10681]
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Federal Register / Vol. 72, No. 106 / Monday, June 4, 2007 / Notices
general, to protect investors and the
public interest.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
B. Self-Regulatory Organization’s
Statement on Burden on Competition
1. Purpose
The purpose of this proposed rule
change is to amend the Exchange’s
Constitution and Amended and Restated
LLC Agreement to: (i) Remove the
requirement that the President of the
Exchange also be the Chief Executive
Officer of the Exchange; and (ii) change
the number of directors from 15 to no
less than 15 and no more than 16, so as
to allow for the election, at the
discretion the Sole LLC Member,3 of a
director who was employed by the
Exchange at any time during the prior
three years, but otherwise meets the
definition of a ‘‘Non-Industry Director’’
as provided under the Exchange’s
Constitution. Currently, the Exchange’s
Constitution requires that the President
of the Exchange also be the Chief
Executive Officer of the Exchange 4 and
that the number of directors on the
Board of Directors be fixed at 15.5 The
Exchange believes that the proposed
modifications would provide the
flexibility to structure the Board of
Directors in a way that is most effective
for attracting and keeping the industry’s
most talented people, and in turn
provide the flexibility to attract and
retain the best possible management
team for the Exchange and its members.
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2. Statutory Basis
The basis under the Act for this
proposed rule change is the requirement
under Section 6(b)(1) 6 that an exchange
be so organized as to have the capacity
to be able to carry out the purposes of
the Act and to comply, and (subject to
any rule or order of the Commission
pursuant to Section 17(d) 7 or 19(g)(2) 8
of the Act) to enforce compliance by its
members and persons associated with
its members, with the provisions of the
Act, the rules and regulations
thereunder, and the rules of the
exchange. The Exchange also believes
this proposed rule change furthers the
objective of Section 6(b)(5) 9 that an
exchange have rules that, among other
things, are designed to remove
impediments to and perfect the
mechanism for a free and open market
and a national market system, and, in
3 See Article I, Section 1.1 of the ISE, LLC
Constitution, which defines the term ‘‘Sole LLC
Member’’.
4 Constitution, Section 4.1.
5 Constitution, Section 3.2.
6 15 U.S.C. 78f(g)(1).
7 15 U.S.C. 78q(d).
8 15 U.S.C. 78s(g)(2).
9 15 U.S.C. 78f(b)(5).
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The proposed rule change does not
impose 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
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any
unsolicited written comments from
members or other interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which ISE, LLC consents, the
Commission will:
A. By order approve such proposed
rule change; or
B. institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic comments:
• Use the Commission’s Internet
comment form https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
No. SR–ISE–2007–34 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–ISE–2007–34. 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 Commissions
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30895
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room. Copies of such filing also will be
available for inspection and copying at
the principal office of the ISE. 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–ISE–2007–34 and should be
submitted on or before June 25, 2007.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.10
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–10667 Filed 6–1–07; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–55819; File No. SR–NASD–
2007–033]
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change and Amendment No. 1
Thereto Relating to Extension of
NASD’s Authority Under the Cease and
Desist Pilot Program
May 25, 2007.
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 May 11,
2007, 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 substantially prepared by
NASD. NASD has filed the proposal as
a ‘‘non-controversial’’ rule change
pursuant to Section 19(b)(3)(A) of the
10 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 72, No. 106 / Monday, June 4, 2007 / Notices
seven days of service of the notice will
result in a suspension or cancellation of
membership or a suspension or bar from
associating with any member.
(b) through (h) No Change.
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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
Rules 9556, 9800, 9810, and 9860, to
extend for an additional two-year
period, to June 23, 2009, NASD’s
authority under the cease and desist
pilot program. At this time, NASD is not
proposing any substantive changes to
the rules covered by the pilot program.
The only changes regard extending the
pilot’s expiration date to June 23, 2009,
and technical changes to the titles of the
NASD executives who can authorize the
initiation of cease and desist
proceedings and certain cross-references
in rules covered by the pilot program.
Below is the text of the proposed rule
change. Proposed new language is in
italics; proposed deletions are in
[brackets].
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Act 3 and Rule 19b–4(f)(6) thereunder,4
which renders the proposal effective
upon filing with the Commission. On
May 24, 2007, NASD filed Amendment
No. 1 to the proposed rule change. The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as amended, from interested
persons.
(The entire Rule 9800 Series, and
related amendments adopted by SR–
NASD–98–80 to Rule 8310, IM–8310–
3(c)(1) (formerly IM–8310–2(d)(1),
renumbered by SR–NASD–2003–168),
9120(x), 9241(c), 9290, 9311(b), 9312(b),
and 9360, and by SR–NASD–2003–110
to Rule 9556, shall expire on June 23,
[2007]2009, unless extended or
permanently adopted by the Association
pursuant to SEC approval at or before
such date.)
9556. Failure to Comply with
Temporary and Permanent Cease and
Desist Orders
(Rule 9556, and amendments adopted
by SR–NASD–98–80 to Rule 8310, IM–
8310–3(c)(1) (formerly IM–8310–2(d)(1),
renumbered by SR–NASD–2003–168),
9120(x), 9241(c), 9290, 9311(b), 9312(b),
9360 and the Rule 9800 Series, shall
expire on June 23, [2007]2009, unless
extended or permanently adopted by the
Association pursuant to SEC approval at
or before such date.)
(a) Notice of Suspension, Cancellation
or Bar
If a member, person associated with a
member or person subject to NASD’s
jurisdiction fails to comply with a
temporary or permanent cease and
desist order issued under the Rule 9200,
9300 or 9800 Series, NASD staff—after
receiving written authorization from
NASD’s Chairman and CEO or NASD’s
Senior Executive Vice President for
Regulatory Policy and Programs [the
President of NASD Regulatory Policy
and Oversight or the Executive Vice
President for NASD Regulatory Policy
and Programs]—may issue a notice to
such member or person stating that the
failure to comply with the temporary or
permanent cease and desist order within
3 15
4 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
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9800. Temporary Cease and Desist
Orders
9810. Initiation of Proceeding
(a) Department of Enforcement or
Department of Market Regulation
With the prior written authorization
of NASD’s Chairman and CEO or
NASD’s Senior Executive Vice President
for Regulatory Policy and Programs [the
President of NASD Regulatory Policy
and Oversight or the Executive Vice
President for NASD Regulatory Policy
and Programs], the Department of
Enforcement or the Department of
Market Regulation may initiate a
temporary cease and desist proceeding
with respect to alleged violations of
Section 10(b) of the Securities Exchange
Act of 1934 and SEC Rule 10b–5
thereunder; SEC Rules 15g–1 through
15g–9; NASD Rule 2110 (if the alleged
violation is unauthorized trading, or
misuse or conversion of customer assets,
or based on violations of Section 17(a)
of the Securities Act of 1933); NASD
Rule 2120; or NASD Rule 2330 (if the
alleged violation is misuse or
conversion of customer assets). The
Department of Enforcement or the
Department of Market Regulation shall
initiate the proceeding by serving a
notice on a member or associated person
(hereinafter ‘‘Respondent’’) and filing a
copy thereof with the Office of Hearing
Officers. The Department of
Enforcement or the Department of
Market Regulation shall serve the notice
by personal service, overnight
commercial courier, or facsimile. If
service is made by facsimile, the
Department of Enforcement or the
Department of Market Regulation shall
send an additional copy of the notice by
overnight commercial courier. The
notice shall be effective upon service.
(b) through (c) No Change.
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9860. Violation of Temporary Cease and
Desist Orders
A Respondent who violates a
temporary cease and desist order
imposed under this Rule Series may
have its association or membership
suspended or canceled under Rule 9556.
NASD’s Chairman and CEO or NASD’s
Senior Executive Vice President for
Regulatory Policy and Programs [The
President of NASD Regulatory Policy
and Oversight or the Executive Vice
President for NASD Regulatory Policy
and Programs] must authorize the
initiation of any such proceeding in
writing.
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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
In May 2003, the Commission
approved, on a two-year pilot basis, a
rule change that gave NASD authority to
issue temporary cease and desist orders
(‘‘TCDOs’’) and made explicit NASD’s
ability to impose permanent cease and
desist orders as a remedy in disciplinary
cases.5 The pilot program also gave
NASD authority to enforce cease and
desist orders. In June 2005, NASD
extended the pilot program for an
additional two-year period.6 The current
two-year pilot expires on June 23, 2007.
NASD is proposing a rule change to
extend the pilot program for an
additional two-year period, to June 23,
2009. Such an extension will enable
NASD to continue to issue and enforce
temporary and permanent cease and
desist orders. NASD’s authority to issue
TCDOs will expire after the additional
two-year period unless the pilot
program is further extended or adopted
5 See Securities Exchange Act Release No. 47925
(May 23, 2003), 68 FR 33548 (June 4, 2003) (SR–
NASD–98–80).
6 See Securities Exchange Act Release No. 51860
(June 16, 2005), 70 FR 36427 (June 23, 2005) (SR–
NASD–2005–061).
E:\FR\FM\04JNN1.SGM
04JNN1
rwilkins on PROD1PC63 with NOTICES
Federal Register / Vol. 72, No. 106 / Monday, June 4, 2007 / Notices
on a permanent basis with Commission
approval.
NASD currently is seeking only to
extend the pilot program period and
make technical changes to the titles of
the NASD executives who can authorize
the initiation of cease and desist
proceedings and certain cross-references
in rules covered by the pilot program.
NASD is not proposing any substantive
changes to the rules covered by the pilot
program at this time. Since the pilot
program was first approved in 2003,
NASD has issued only one TCDO and
one permanent cease and desist order
(in the same case, which is described
below). Consequently, NASD believes
that additional time is needed to make
a meaningful determination about
whether the program should continue
and whether certain specific provisions
should be modified and, if so, to what
extent.
In the one case initiated under the
pilot program, NASD’s Department of
Enforcement (‘‘Enforcement’’) alleged
that the member in question was
engaged in widespread fraud that
included, among other things, making
material misrepresentations and
omissions in connection with the
private offering of its own stock,
effecting unauthorized transactions, and
using customer funds improperly.7
Enforcement showed that not only was
the member attempting to continue the
fraudulent offering, it also was
funneling money and assets to a nonNASD member affiliate. Enforcement
alleged, and a hearing panel found, that
a TCDO was necessary, because the
member’s continuation of the
misconduct was likely to result in
further dissipation or conversion of
assets and other significant harm to
investors before the completion of the
underlying disciplinary proceeding.
After the hearing panel issued a
permanent cease and desist order
following a full disciplinary hearing, the
parties settled the case, resulting in the
expulsion of the member, the bar of its
owner, and the imposition of almost $12
million in fines and restitution.
The proposed extension of the pilot
program for an additional two years will
provide NASD with a mechanism to
continue to take appropriate remedial
action against a member or an
associated person who has engaged (or
is engaging) in violative conduct that
could cause continuing harm to the
investing public if not addressed
expeditiously. At the same time, the
7 See Securities Exchange Act Release No. 51270
(February 28, 2005) (summarizing NASD’s cease
and desist proceedings against former NASD
member L.H. Ross & Company).
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pilot program continues to contain
numerous procedural checks and
safeguards to ensure that cease and
desist proceedings are used prudently,
sparingly, and fairly. In addition, the
extension of the pilot program will
allow NASD to analyze more thoroughly
the pilot program’s overall effectiveness.
Accordingly, NASD believes it is
appropriate to extend the pilot period
regarding cease and desist orders for
two years.
The proposed rule change will
become effective upon filing, will be
operative on June 23, 2007, and will
expire on June 23, 2009, unless
extended or permanently adopted by
NASD pursuant to Commission
approval at or before such date.
2. Statutory Basis
NASD believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,8 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. The proposed rule
change also is consistent with the
provisions of Section 15A(b)(7) of the
Act,9 which provides that NASD
members, or persons associated with its
members, are appropriately disciplined
for violations of any provisions of the
Act or NASD’s rules. The extension of
the pilot program is consistent with
NASD’s obligations under the Act,
because cease and desist orders are
designed to stop violative conduct that
is likely to cause dissipation or
conversion of assets or other significant
harm to investors.
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.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
8 15
9 15
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U.S.C. 78o–3(b)(6).
U.S.C. 78o–3(b)(7).
Frm 00155
Fmt 4703
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 10 and Rule 19b–
4(f)(6) thereunder.11
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 is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NASD–2007–033 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–2007–033. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro/shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
10 15
11 17
Sfmt 4703
30897
E:\FR\FM\04JNN1.SGM
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
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Federal Register / Vol. 72, No. 106 / Monday, June 4, 2007 / Notices
Room. Copies of the 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 File
Number SR–NASD–2007–033 and
should be submitted on or before June
25, 2007.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.12
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–10681 Filed 6–1–07; 8:45 am]
BILLING CODE 8010–01–P
(‘‘NASD’’), NYSE Regulation will cease
to provide an arbitration program, and
its existing arbitration department
(‘‘NYSE Arbitration’’) will be
consolidated with that of NASD Dispute
Resolution, Inc. (‘‘NASD DR’’). The
proposed amendments provide that the
arbitration rules of the Exchange shall
apply only to NYSE arbitration cases
pending prior to the effective date of the
consolidation, and that, thereafter,
claims involving member organizations,
and/or associated persons, and/or other
related parties will be arbitrated under
the Codes of Arbitration Procedure of
NASD DR. The text of the proposed rule
is set forth below. Proposed new
language is underlined.
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Rule 600
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SECURITIES AND EXCHANGE
COMMISSION
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Proposed Rule Change
Relating to Proposed Amendments to
Rule 600 to Provide Guidance
Regarding New and Pending
Arbitration Claims in Light of the
Consolidation of NYSE Regulation into
NASD DR
May 25, 2007.
rwilkins on PROD1PC63 with NOTICES
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on May 23,
2007, the New York Stock Exchange
LLC (‘‘NYSE’’ or the ‘‘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 substantially prepared by the
NYSE. The Commission is publishing
this notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The NYSE proposes to amend current
Rule 600 and adopt a new Rule 600A.
As part of the consolidation of the
member firm regulation function of
NYSE Regulation, Inc. (‘‘NYSE
Regulation’’) with the National
Association of Securities Dealers, Inc.
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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Supplementary Material
[Release No. 34–55818; File No. SR–NYSE–
2007–48]
12 17
Arbitration
Rules 600 through 639, with the
exception of Rule 600A, apply only to
arbitrations commenced prior to [insert
effective date of the consolidation] and
are otherwise of no force or effect.
Notwithstanding the foregoing,
arbitrations filed with NYSE Arca on or
prior to January 31, 2007 continue to be
governed by the NYSE Arca Rule 12 in
effect on or prior to January 31, 2007,
and arbitrations filed with NYSE Arca
Equities on or prior to January 31, 2007
continue to be governed by the NYSE
Arca Equities Rule 12 in effect on or
prior to January 31, 2007. On and after
[insert effective date of the
consolidation] all such arbitrations
shall, until concluded, be administered
by NASD Dispute Resolution, Inc.
(‘‘NASD DR’’) pursuant to a Regulatory
Services Agreement with the Exchange.
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Rule 600A
(a) Duty to Arbitrate. (i) Any dispute,
claim or controversy between a member
organization and another member
organization shall be arbitrated
pursuant to the Codes of Arbitration
Procedure of NASD DR; and, (ii) any
dispute, claim or controversy between a
customer or non-member and a member
organization and/or associated person
and/or other related party, or between
an associated person and a member
organization and/or an associated
person arising in connection with the
business of such member organization
and/or associated person in connection
with his or her activities as an
associated person, shall be arbitrated
pursuant to NASD DR Codes of
Arbitration Procedure as provided by
any duly executed and enforceable
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written agreement, or upon the demand
of the customer or non-member.
However, such obligation to arbitrate
shall not extend to any controversy that
is not permitted to be arbitrated under
NASD DR Codes of Arbitration
Procedure.
(b) Referrals. The Exchange may
receive, investigate and take
disciplinary action with respect to any
referral it receives from an NASD DR
arbitrator of any matter which comes to
the attention of such arbitrator during
and in connection with the arbitrator’s
participation in a proceeding, either
from the record of the proceeding or
from material or communications
related to the proceeding, that the
arbitrator has reason to believe may
constitute a violation of the Exchange’s
Rules or the federal securities laws.
(c) Failure to Arbitrate or to Pay an
Arbitration Award. Any member
organization or associated person who
fails to submit to arbitration a matter
required to be arbitrated pursuant to
this Rule, or that fails to honor an
arbitration award made pursuant to the
Codes of Arbitration Procedure of NASD
DR, or made under the auspices of any
other self-regulatory organization, shall
be subject to disciplinary proceedings in
accordance with Exchange Rule 476.
(d) Other Actions. The submission of
any matter to arbitration as provided for
under this Rule shall in no way limit or
preclude any right, action or
determination by the Exchange that it
would otherwise be authorized to adopt,
administer or enforce.
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
NYSE included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. The NYSE 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 provide guidance regarding
both new and pending arbitration
claims in light of the consolidation of
NYSE Regulation into NASD DR. NYSE
E:\FR\FM\04JNN1.SGM
04JNN1
]]>Agencies
[Federal Register Volume 72, Number 106 (Monday, June 4, 2007)]
[Notices]
[Pages 30895-30898]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-10681]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-55819; File No. SR-NASD-2007-033]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change and Amendment No. 1 Thereto Relating to Extension of NASD's
Authority Under the Cease and Desist Pilot Program
May 25, 2007.
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 May 11, 2007, 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 substantially prepared by NASD.
NASD has filed the proposal as a ``non-controversial'' rule change
pursuant to Section 19(b)(3)(A) of the
[[Page 30896]]
Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal
effective upon filing with the Commission. On May 24, 2007, NASD filed
Amendment No. 1 to the proposed rule change. 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NASD is proposing to amend NASD Rules 9556, 9800, 9810, and 9860,
to extend for an additional two-year period, to June 23, 2009, NASD's
authority under the cease and desist pilot program. At this time, NASD
is not proposing any substantive changes to the rules covered by the
pilot program. The only changes regard extending the pilot's expiration
date to June 23, 2009, and technical changes to the titles of the NASD
executives who can authorize the initiation of cease and desist
proceedings and certain cross-references in rules covered by the pilot
program.
Below is the text of the proposed rule change. Proposed new
language is in italics; proposed deletions are in [brackets].
* * * * *
9556. Failure to Comply with Temporary and Permanent Cease and Desist
Orders
(Rule 9556, and amendments adopted by SR-NASD-98-80 to Rule 8310,
IM-8310-3(c)(1) (formerly IM-8310-2(d)(1), renumbered by SR-NASD-2003-
168), 9120(x), 9241(c), 9290, 9311(b), 9312(b), 9360 and the Rule 9800
Series, shall expire on June 23, [2007]2009, unless extended or
permanently adopted by the Association pursuant to SEC approval at or
before such date.)
(a) Notice of Suspension, Cancellation or Bar
If a member, person associated with a member or person subject to
NASD's jurisdiction fails to comply with a temporary or permanent cease
and desist order issued under the Rule 9200, 9300 or 9800 Series, NASD
staff--after receiving written authorization from NASD's Chairman and
CEO or NASD's Senior Executive Vice President for Regulatory Policy and
Programs [the President of NASD Regulatory Policy and Oversight or the
Executive Vice President for NASD Regulatory Policy and Programs]--may
issue a notice to such member or person stating that the failure to
comply with the temporary or permanent cease and desist order within
seven days of service of the notice will result in a suspension or
cancellation of membership or a suspension or bar from associating with
any member.
(b) through (h) No Change.
* * * * *
9800. Temporary Cease and Desist Orders
(The entire Rule 9800 Series, and related amendments adopted by SR-
NASD-98-80 to Rule 8310, IM-8310-3(c)(1) (formerly IM-8310-2(d)(1),
renumbered by SR-NASD-2003-168), 9120(x), 9241(c), 9290, 9311(b),
9312(b), and 9360, and by SR-NASD-2003-110 to Rule 9556, shall expire
on June 23, [2007]2009, unless extended or permanently adopted by the
Association pursuant to SEC approval at or before such date.)
9810. Initiation of Proceeding
(a) Department of Enforcement or Department of Market Regulation
With the prior written authorization of NASD's Chairman and CEO or
NASD's Senior Executive Vice President for Regulatory Policy and
Programs [the President of NASD Regulatory Policy and Oversight or the
Executive Vice President for NASD Regulatory Policy and Programs], the
Department of Enforcement or the Department of Market Regulation may
initiate a temporary cease and desist proceeding with respect to
alleged violations of Section 10(b) of the Securities Exchange Act of
1934 and SEC Rule 10b-5 thereunder; SEC Rules 15g-1 through 15g-9; NASD
Rule 2110 (if the alleged violation is unauthorized trading, or misuse
or conversion of customer assets, or based on violations of Section
17(a) of the Securities Act of 1933); NASD Rule 2120; or NASD Rule 2330
(if the alleged violation is misuse or conversion of customer assets).
The Department of Enforcement or the Department of Market Regulation
shall initiate the proceeding by serving a notice on a member or
associated person (hereinafter ``Respondent'') and filing a copy
thereof with the Office of Hearing Officers. The Department of
Enforcement or the Department of Market Regulation shall serve the
notice by personal service, overnight commercial courier, or facsimile.
If service is made by facsimile, the Department of Enforcement or the
Department of Market Regulation shall send an additional copy of the
notice by overnight commercial courier. The notice shall be effective
upon service.
(b) through (c) No Change.
* * * * *
9860. Violation of Temporary Cease and Desist Orders
A Respondent who violates a temporary cease and desist order
imposed under this Rule Series may have its association or membership
suspended or canceled under Rule 9556. NASD's Chairman and CEO or
NASD's Senior Executive Vice President for Regulatory Policy and
Programs [The President of NASD Regulatory Policy and Oversight or the
Executive Vice President for NASD Regulatory Policy and Programs] must
authorize the initiation of any such proceeding in writing.
* * * * *
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
In May 2003, the Commission approved, on a two-year pilot basis, a
rule change that gave NASD authority to issue temporary cease and
desist orders (``TCDOs'') and made explicit NASD's ability to impose
permanent cease and desist orders as a remedy in disciplinary cases.\5\
The pilot program also gave NASD authority to enforce cease and desist
orders. In June 2005, NASD extended the pilot program for an additional
two-year period.\6\ The current two-year pilot expires on June 23,
2007. NASD is proposing a rule change to extend the pilot program for
an additional two-year period, to June 23, 2009. Such an extension will
enable NASD to continue to issue and enforce temporary and permanent
cease and desist orders. NASD's authority to issue TCDOs will expire
after the additional two-year period unless the pilot program is
further extended or adopted
[[Page 30897]]
on a permanent basis with Commission approval.
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\5\ See Securities Exchange Act Release No. 47925 (May 23,
2003), 68 FR 33548 (June 4, 2003) (SR-NASD-98-80).
\6\ See Securities Exchange Act Release No. 51860 (June 16,
2005), 70 FR 36427 (June 23, 2005) (SR-NASD-2005-061).
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NASD currently is seeking only to extend the pilot program period
and make technical changes to the titles of the NASD executives who can
authorize the initiation of cease and desist proceedings and certain
cross-references in rules covered by the pilot program. NASD is not
proposing any substantive changes to the rules covered by the pilot
program at this time. Since the pilot program was first approved in
2003, NASD has issued only one TCDO and one permanent cease and desist
order (in the same case, which is described below). Consequently, NASD
believes that additional time is needed to make a meaningful
determination about whether the program should continue and whether
certain specific provisions should be modified and, if so, to what
extent.
In the one case initiated under the pilot program, NASD's
Department of Enforcement (``Enforcement'') alleged that the member in
question was engaged in widespread fraud that included, among other
things, making material misrepresentations and omissions in connection
with the private offering of its own stock, effecting unauthorized
transactions, and using customer funds improperly.\7\ Enforcement
showed that not only was the member attempting to continue the
fraudulent offering, it also was funneling money and assets to a non-
NASD member affiliate. Enforcement alleged, and a hearing panel found,
that a TCDO was necessary, because the member's continuation of the
misconduct was likely to result in further dissipation or conversion of
assets and other significant harm to investors before the completion of
the underlying disciplinary proceeding. After the hearing panel issued
a permanent cease and desist order following a full disciplinary
hearing, the parties settled the case, resulting in the expulsion of
the member, the bar of its owner, and the imposition of almost $12
million in fines and restitution.
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\7\ See Securities Exchange Act Release No. 51270 (February 28,
2005) (summarizing NASD's cease and desist proceedings against
former NASD member L.H. Ross & Company).
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The proposed extension of the pilot program for an additional two
years will provide NASD with a mechanism to continue to take
appropriate remedial action against a member or an associated person
who has engaged (or is engaging) in violative conduct that could cause
continuing harm to the investing public if not addressed expeditiously.
At the same time, the pilot program continues to contain numerous
procedural checks and safeguards to ensure that cease and desist
proceedings are used prudently, sparingly, and fairly. In addition, the
extension of the pilot program will allow NASD to analyze more
thoroughly the pilot program's overall effectiveness. Accordingly, NASD
believes it is appropriate to extend the pilot period regarding cease
and desist orders for two years.
The proposed rule change will become effective upon filing, will be
operative on June 23, 2007, and will expire on June 23, 2009, unless
extended or permanently adopted by NASD pursuant to Commission approval
at or before such date.
2. Statutory Basis
NASD believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\8\ 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. The proposed rule change also is consistent with the
provisions of Section 15A(b)(7) of the Act,\9\ which provides that NASD
members, or persons associated with its members, are appropriately
disciplined for violations of any provisions of the Act or NASD's
rules. The extension of the pilot program is consistent with NASD's
obligations under the Act, because cease and desist orders are designed
to stop violative conduct that is likely to cause dissipation or
conversion of assets or other significant harm to investors.
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\8\ 15 U.S.C. 78o-3(b)(6).
\9\ 15 U.S.C. 78o-3(b)(7).
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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.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-
4(f)(6) thereunder.\11 \
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6).
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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 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-2007-033 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-2007-033. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (https://www.sec.gov/
rules/sro/shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for inspection
and copying in the Commission's Public Reference
[[Page 30898]]
Room. Copies of the 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 File Number SR-NASD-2007-033 and should be submitted on
or before June 25, 2007.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-10681 Filed 6-1-07; 8:45 am]
BILLING CODE 8010-01-P
