View Whole SectionText only Print Print Manager Link
Previous Next

91-11 SEC Approval of Amendment to Part I of Schedule C to the NASD By-Laws Regarding Written Notification About Certain Events

SUGGESTED ROUTING:*

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

EXECUTIVE SUMMARY

The Securities and Exchange Commission (SEC or "Commission") has approved an amendment that adds a new section to Part I of Schedule C to the NASD By-Laws requiring members to provide notification in writing to the appropriate district office on the occurrence of certain events affecting the ownership or control of a member. Members must comply with the new notification requirement as of February 25, 1991. The text of the amendment follows this notice.

BACKGROUND

Prior to the approval of this amendment by the SEC, Schedule C to the NASD By-Laws permitted an NASD member to experience a change in ownership or control without prior review by the appropriate NASD district office. Pursuant to Section (4) of Part I of Schedule C to the NASD By-Laws, in cases where the ownership or control of an existing member changes, the NASD has the discretion to condition continuance in membership on prompt compliance with the pre-membership interview procedures.

Notice of a change in ownership or control of a member must be filed on a revised Form BD whenever the information previously on file changes. Since the form does not specify a time for filing, a general rule of thumb has developed that filing is required within 30 days. In certain cases, a previously dormant member can become active unexpectedly or can be sold or taken over by new management. While the NASD can conduct a new pre-membership interview, regulatory problems may have occurred already in reference to the merger, purchase, or change of ownership of a member. The NASD believes that prompt written notification of such a change in ownership will allow the NASD to act more expeditiously in determining whether a new pre-membership interview should be scheduled.

EXPLANATION

The amendment requires prompt written notification to the member's district office after a specified significant event, rather than prior notification of such an event. Members must provide notification in writing to the applicable district office no later than five business days after a specific event. Prenotification to the district office by the member is permitted but not required.

The amendment focuses on four significant events the NASD has determined require prompt written notification: (1) a merger of a member; (2) an acquisition by a member; (3) an acquisition of a member or substantially all of its assets; and (4) any change in the equity ownership or partnership capital of the member that results in one person or entity owning 50 percent or more of such equity ownership or partnership capital. The NASD determined that the notification requirement should focus on a change in the ownership structure of the member. A change in the president or chief executive officer of a member does not require prompt written notification unless accompanied by one of the four triggering events.

The Commission approved the new rule on January 9, 1991, in SEC Release No. 34-28757. However, in order to provide sufficient time for members to establish internal procedures to ensure compliance, the NASD is delaying implementation of the notification requirement. Therefore, members' obligation to comply with the new notification requirement shall not start until February 25, 1991.

Questions concerning this notice should be directed to P. William Hotchkiss, Director, Surveillance, at 202-728-8235, or Craig L. Landauer, Assistant General Counsel, Office of General Counsel, at 202-728-8291.

TEXT OF NEW SECTION (5) TO PART I OF SCHEDULE C TO THE NASD BY-LAWS

(Note: New language is underlined.)

(5) Notification to the District Office of Certain Events Members are required to notify in writing the Corporation's District Office for the District in which the member's main office is located no later than ten (10) business days after any of the following specified events: (1) any merger of the member; (2) an acquisition by the member; (3) an acquisition of the member or substantially all of its assets; and (4) any change in the equity ownership or partnership capital of the member which results in one person or entity owning 50% or more of such equity ownership or partnership capital.

Previous Next