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86-39 Request for Comments on Proposed Amendment to the Code of Procedure to Grant Discretion to the NASD to Hold Hearings in Eligibility Proceedings
TO: All NASD Members and Other Interested Persons
LAST DATE FOR COMMENT: JUNE 23 1986
The National Association of Securities Dealers, Inc. (NASD), is publishing for comments by members and other interested persons a proposed amendment to the Code of Procedure that would grant the NASD the discretion to determine whether a hearing should be held in an eligibility proceeding under Article VII, Section 2 of the Code.
The text of the proposed amendment is attached. A discussion of the background of the amendment and the proposed provisions follows.
Any person who is subject to a statutory disqualification, as that term is defined in Article II, Section 4 of the NASD By-Laws, must apply and be approved by the NASD before becoming associated with a member firm. If a person is currently registered with a member firm and subsequently becomes subject to a statutory disqualification, the person must apply and be approved by the NASD to remain associated with the member firm.
The procedure that the NASD uses to determine whether to grant this approval is found in Article VII of the Code of Procedure. Under this section, the NASD may permit the approval of an application without a hearing. When approval is not granted, a hearing is usually held.
A problem has arisen because the NASD receives a number of applications each year from persons who, because their statutory disqualification is recent or because adequate supervision by their employers is lacking, do not provide the minimal evidence that the NASD deems necessary for consideration for approval. The proposed amendment would allow the NASD to avoid hearings that would be of limited use in making a decision on the application.
ANALYSIS OF PROPOSED AMENDMENT
The proposed amendment to the Code of Procedure would give the NASD the discretion to determine whether a hearing is to be held in an eligibility proceeding under Article VII of the Code.
The eligibility proceeding would be unchanged in all other material respects. The firm submitting the application would continue to be entitled to make any written submissions for consideration and the application would continue to be considered by the National Business Conduct Committee (NBCC) and the Board of Governors. The NASD will continue to file its decision to approve or deny any application pursuant to SEC Rule 19h-l or 19d-l. A person whose application is denied will continue to be able to appeal the NASD's decision to the SEC.
* * * *
The NASD encourages all members and other interested persons to comment on this proposed amendment. Comments should be directed to:
Mr. Lynn Nellius
National Association of Securities Dealers, Inc.1735 K Street, N.W.
Washington, D.C. 20006
Comments must be received no later than June 23, 1986. Comments received by the indicated date will be considered by the NBCC and the NASD Board of Governors. If the proposed amendment is approved by the Board it must then be filed with and approved by the Securities and Exchange Commission before becoming effective.
Questions concerning this notice may be directed to Craig L. Landauer, Attorney, NASD Office of the General Counsel, at (202) 728-8291.
Frank J. Wilson
Executive Vice President
Legal and Compliance
PROPOSED AMENDMENT TO NASD CODE OF PROCEDURE*
Article VII, Section 2:
* New language is underlined. Deleted language is in brackets.