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91-81 Reporting Information on Form BD

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Legal & Compliance
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EXECUTIVE SUMMARY

After several years of discussion, the Securities and Exchange Commission (SEC), NASD, and North American Securities Administrators Association (NASAA) have resolved their differing views regarding disclosure requirements relating to matters reportable on Form BD. This notice explains the background of the matter, as well as the approach that is now being developed to achieve a uniform standard of disclosure.

BACKGROUND

The Central Registration Depository (CRD) was expanded in 1989 to enable firms to file one Form BD for both NASD membership and state licensing requirements. In the operation of this CRD system, it became evident that states and the SEC and NASD differed in their disclosure requirements regarding the reporting of matters classified under the term "proceeding" found on Form BD, Item 7G. Since 1989, these differing interpretations have had a significant impact on members attempting to identify and to comply with a uniform filing standard. This issue was previously reported in Notice to Members 90-46, July 1990.

The NASD has followed the SEC's interpretation of the term "proceeding," first stated by the SEC in release number 12078 (February 6, 1976) and restated in 1985. The SEC interpretation included proceedings brought by the Commission, regulators, and self-regulators and did not include investigations, arrests without convictions, and civil litigation not conducted by a regulatory or self-regulatory body.

Many states had interpreted the term "proceeding" in a different way. In 1989 NASAA issued a resolution that stated the term "proceeding" included pending administrative and civil proceedings initiated by self-regulatory, regulatory, and governmental agencies as well as pending criminal charges and civil litigation.

RESOLUTION OF ISSUE

The SEC, NASD, and NASAA have been meeting since the winter of 1990 to reach agreement on the interpretation of the term "proceeding." The parties have recently agreed to a new interpretation of the term "proceeding" to include formal administrative and civil actions initiated by self-regulatory and governmental agencies and formal criminal charges, including felony indictments, felony criminal informations, and formal felony criminal charges equivalent to a criminal indictment or information, and any formal misdemeanor criminal information (or equivalent charge) involving matters listed in Item 7A(1) of Form BD. The interpretation does not include criminal arrests effected in the absence of a formal written charge, investigations, or civil litigation.

This new interpretation differs from the SEC's 1976 release in that it includes formal criminal charges. The difference between the new interpretation and the NASAA resolution is that the new interpretation does not include private civil litigation, These changes will be reflected in upcoming revisions to Form BD. Questions regarding this notice should be directed to Ellen Badler, Assistant Director, Special Registration Review, at (301) 590-6743, or Craig Landauer, Office of General Counsel, at (202) 728-8291.


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