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91-82 Proposed Revision of NASD Manual

SUGGESTED ROUTING:*

Senior Management
Legal & Compliance
*These are suggested departments only. Others may be appropriate for your firm.

EXECUTIVE SUMMARY

The NASD, on the recommendation of its Legal Advisory Board (LAB), has undertaken a reorganization of the NASD Manual in order to make the Manual easier to use. As a first step in the Manual revision project, the LAB proposed an outline of the Manual. The LAB contemplates that, ultimately, the text of the Manual will be reorganized to conform to the outline and that the text of the Manual will then be edited to eliminate redundancies and inconsistencies. Because the outline itself is useful in locating relevant provisions contained in the Manual, however, a copy follows this notice for the benefit of NASD members. The outline was distributed as part of the November 1991 supplement to the looseleaf edition of the Manual and will be included in the next paper-bound NASD Manual.

BACKGROUND

In 1988, the NASD's Board of Governors approved the creation of the LAB, a group of attorneys who are prominent members of the securities bar. The LAB offers guidance to the NASD's Board of Governors on legal and policy issues. In 1989, the LAB recommended a project to reorganize the NASD Manual. Members of the LAB were in general agreement that the NASD Manual is currently organized in an awkward manner that makes it difficult for users to locate provisions relevant to a given topic. The NASD proposes to follow a two-step process with respect to the reorganization of the Manual. As a part of step one, the LAB prepared an outline for a proposed reorganization of the Manual. The LAB contemplated that, following the completion of the outline, the NASD, after review by appropriate committees of the Board of Governors, would physically reorder the existing text of the Manual to conform to the outline. As step two, the LAB contemplated that the NASD would undertake a substantive review of the Manual so as to eliminate inconsistencies and redundancies that would become more apparent when the text of the Manual was reordered.

To date, the LAB has completed its proposed outline for the revised Manual and has prepared a mock-up of the reordered text. Because the outline itself is useful in locating relevant sections of the Manual, the NASD has arranged to publish the outline along with the latest update to the Manual. Accordingly, the outline was included in a November 1991 mailing that transmitted updated pages to persons who subscribe to Commerce Clearing House's looseleaf version of the Manual. The outline will also be included in the next edition of the paper-bound Manual reprint. The outline, which is denominated as a "Guide to the Manual," is found on pages 21 through 24 of the looseleaf version of the Manual.

The NASD also decided to publish the outline in this Notice to Members so as to allow the greatest possible number of Manual users to benefit from the outline. Page numbers reflected on the attached outline refer to pages contained in the loose-leaf version of the Manual, as of November 1991.

The NASD and the LAB welcome any suggestions that users of the Manual may wish to offer with respect to improvements to the outline. Written comments or suggestions regarding the outline should be directed to Anne H. Wright, Senior Attorney, Office of General Counsel, National Association of Securities Dealers, Inc., 1735 K Street, NW, Washington, DC 20006-1506. Any comments that the staff receives regarding the outline will be relayed to the members of the LAB.

NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. OUTLINE OF THE MANUAL

   

Pages

ORGANIZATION

 

Certificate of Incorporation

1021

 

By-Laws

1045

 

Schedule A — Assessments and Fees

1501

 

Schedule B — District Boundaries

1521

 

Schedule C — Applications for Membership, Registration of Principals and Representatives, etc

1531

 

Limitations Upon Use of Association Name (Resolution)

1651

 

NASD to Furnish Current List of Membership (Rules of Fair Practice, Article VI, first and last sentences)

2219

 

CONDUCT STANDARDS

 

Adoption and Application (Rules of Fair Practice, Article I)

2011

 

Interpretations and Explanations (Resolution)

1651

 

Definitions (Rules of Fair Practice, Article II)

2012

 

Business Conduct (General)

2014

 

Standards of Honor and Principles of Trade (Rules of Fair Practice, Article III, § 1)

2014

 

Use of Manipulative, Deceptive, or Other Fraudulent Devices (Rules of Fair

 
 

Practice, Article III, § 18)

2079

 

Treatment of Customers

 
 

Advertisements and Sales Literature (Rules of Fair Practice, Article III, § 35)

2156

 

Communications

 
 

Recommendations to Customers Suitability (Rules of Fair Practice, Article HI, §2)

2051

 

Recommending Speculative Low-Priced Securities (Policy)

2052

 

Recommending Purchases Beyond Customer Capability (Policy)

2053

 

Confirmations (Rules of Fair Practice, Article HI, § 12) "Third Market" Confirmations (Explanation)

2069

 

Disclosure of Control Relationship With Issuer (Rules of Fair Practice, Article III, § 13)

2078

 

Disclosure of Participation or Interest in Primary or Secondary Distribution (Rules of Fair Practice, Article III, § 14)

2078

 

Forwarding of Proxy Material, Annual Reports, etc. (Interpretation)

2041

 

Disclosure of Financial Condition to Customers (Rules of Fair Practice, Article HI, §22)

2097

 

Availability to Customers of Certificate, By-Laws, Rules, and Codes of Procedure (Rules of Fair Practice, Article IV, § 1)

2203

 

Special Accounts

 
 

Discretionary Accounts (Rules of Fair Practice, Article III, § 15)

2078

 

Margin Accounts (Rules of Fair Practice, Article III, § 30, Appendix A)

2114

 

Options See Special Products, Below

2116

 

Transactions With Customers

 
 

Fair Dealing With Customers (Policy)

2052

 

Excessive Trading Activity ("Churning" or "Overtrading")

2052

 

Trading in Mutual Fund Shares

2052

 

Transactions in Discretionary Accounts in Excess of or Without Actual Authority

2053

 

Unauthorized Transactions

2053

 

Other Fraudulent Activities

2053

 

Guaranteeing Customers Against Loss (Rules of Fair Practice, Article III, § 19(e))

2083

 

Sharing in Customers' Profits or Losses (Rules of Fair Practice, Article III, § 19(f))

2083

 

Best Execution and Interpositioning Execution of Retail Transactions in the Over-the-Counter Market (Interpretation)

2038

 

Commissions, Markups, and Charges

 
 

Net Prices to Person Not in Investment Banking or Securities Business (Rules of Fair Practice, Article III, § 23)

2097

 

Dealing With Nonmembers

2097

 

Charges for Services Performed (Rules of Fair Practice, Article III, § 3)

2055

 

Fair Practice and Commissions (Rules of Fair Practice, Article III, § 4)

2056

 

Markups (Policy)

2056

 

Installment or Partial Payment Sales (Rules of Fair Practice, Article III, § 20)

2094

 

Customers' Securities and Funds

 
 

Prompt Receipt and Delivery of Securities (Interpretation)

2039

 

Customers' Securities and Funds (See Books and Records and Financial Condition)

2095

 

Securities Distributions

 
 

Review of Corporate Financing (Interpretation)

2023

 

Securities of Members and Affiliates (Schedule E)

1611

 

Free-Riding and Withholding (Interpretation)

2043

 

Fixed Price Offerings

 
 

Securities Taken in Trade (Rules of Fair Practice, Article III, § 8 and Interpretation)

2065

 

Selling Concessions, Discounts and Other Allowances (Rules of Fair Practice, Article III, § 24 and Interpretation)

2097

 

Transactions With Related Persons (Rules of Fair Practice, Article III, § 36 and Interpretation)

2177

 

Offerings "At the Market" (Rules of Fair Practice, Article III, § 16)

2079

 

Contents of Selling Group Agreements (Rules of Fair Practice, Article III, § 7)

2065

 

Solicitation of Purchases on an Exchange to Facilitate a Distribution (Rules of Fair Practice, Article III, §17)

2079

 

Special Products

 
 

Direct Participation Programs (Rules of Fair Practice, Article III, § 34)

 
 

Appendix F

2148

 

Insurance Company Variable Contracts (Rules of Fair Practice, Article III, §29)

2113

 

Investment Company Securities (Rules of Fair Practice, Article HI, § 26)

2105

 

Options (Rules of Fair Practice, Article III, § 33)

2127

 

Appendix E

2128

 

Options-Related Communications

2195

 

Rules of Fair Practice, Article III, § 35(f)

2172

 

Government Securities

2263

 

Responsibilities to Other Brokers or Dealers

 
 

Dealing With Nonmember Broker or Dealer (Rules of Fair Practice, Article III, § 25)

2101

 

Transactions Between Members and Nonmembers (Interpretation)

2101

 

Charges for Services Performed (Rules of Fair Practice, Article III, § 3)

2055

 

Disclosure of Financial Condition to Other Members (Resolution Under Rules of Fair Practice, Article III, § 22)..

2097

 

Responsibilities Relating to Associated Persons, Employees, and Others' Employees

 
 

Supervision (Rules of Fair Practice, Article III, § 27)

2177

 

Fidelity Bonds (Rules of Fair Practice, Article III, § 32) Appendix C

2124

 

Employment of Disciplined Associated Persons (Interpretation Under Rules of Fair Practice, Article V, § 1)

2215

 

Associated Persons' Outside Business Activities (Rules of Fair Practice, Article III, §43)

2191

 

Associated Persons' Participation in Private Securities Transactions (Rules of Fair Practice, Article III, §40)

2189

 

Transactions for or by Associated Persons (Rules of Fair Practice, Article III, § 28)

2178

 

Notice of Disciplinary Action (Schedule C, Part V)

1543

 

Influencing or Rewarding Employees of Others (Rules of Fair Practice, Article III, § 10)

2068

 

Books and Records and Financial Condition

 
 

Books and Records (Rules of Fair Practice, Article III, § 21)

2095

 

General

2095

 

Customer Order Tickers

2095

 

Accounts

2095

 

Written Complaints

2095

 

Predispute Arbitration Agreements With Customers

2095

 

Fictitious Accounts (Policy Fair Dealing With Customers)

2052

 

Use of Information as to Ownership of Securities Obtained in Fiduciary Capacity (Rules of Fair Practice, Article III, § 9)

2068

 

Customers' Securities or Funds (Rules of Fair Practice, Article III, § 19(a)-(d))

2083

 

Explanation of Segregation (Rules of Fair Practice, Article 111, § 19(a)-(d))

2083

 

Unauthorized Use or Borrowing of Customers' Funds (Policy Fair Dealing With Customers)

2052

 

Members Experiencing Financial and/or Operational Difficulties (Rules of Fair Practice, Article III, § 38 and Explanation)

2179

 

Change in Exempt Status Under Exchange Act Rule 15c3-3 (Rules of Fair Practice, Article III, § 39)

2186

 

Providing NASD Membership List to Offices and Associated Persons (Rules of Fair Practice, Article VI, second sentence)

2219

 

Settlements

 
 

Uniform Practice Code

3501

 

Securities "Failed to Receive" and "Failed to Deliver" (Rules of Fair Practice, Article III, §31)

2123

 

Appendix B

2123

 

Trading (General)

 
 

Publication of Transactions and Quotations (Rules of Fair Practice, Article III, § 5)

2063

 

Manipulative and Deceptive Quotations (Interpretation)

2063

 

Offers at Stated Prices (Rules of Fair Practice, Article III, § 6)

2064

 

Firmness of Quotations (Policy)

2064

 

Payments Designed to Influence Market Price (Rules of Fair Practice, Article III, § 11)

2069

 

Transactions During Trading Halt (Rules of Fair Practice, Article III, § 42)

2190

 

Short Positions — Recording and Reporting (Rules of Fair Practice, Article III, §41)

2190

 

Reporting Certain OTC Transactions to Consolidated Tape (Schedule G)

1631

 

Reporting Transactions in Certain Non-Nasdaq Securities (Schedule H)

1653

 

TRADING SYSTEMS

 

Nasdaq (Schedule D)

1561

 

Member Requirements

1580

 

Issuer Requirements

1564

 

Small Order Execution System (SOES)

2303

 

Intermarket Trading System/Computer Assisted Execution System (ITS/CAES) (Rules of Fair Practice, Article III, § 37 and Rules of Practice and Procedure for ITS/CAES)

2501

 

PORTAL (Schedule I)

1671

 

Member Requirements

1675

 

Issuer Requirements

1673

 

OTC Bulletin Board (Schedule H)

1653

 

PROCEDURE

 

Complaints (Rules of Fair Practice, Article IV, §§ 2-4)

2203

 

Investigation (Rules of Fair Practice, Article IV, § 5)

.2205

 

Suspension of Members for Failure to Furnish Information Duly Requested (Resolution)

2205

 

Sanctions (Rules of Fair Practice, Article V, §§ 1-3)

2215

 

Notice of Penalties (Resolution)

2215

 

Code of Procedure

3001

 

Code of Arbitration Procedure

3701


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