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89-71 SEC Approval of Amendments to Article IV, Section 1, and Article VI of the Rules of Fair Practice on Notice to Membership of Disciplinary Actions, Publication of Sanctions, and Availability of NASD Manual — Effective September 19, 1989
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The Securities and Exchange Commission recently approved amendments to Article IV, Section 1, and Article VI of the Rules of Fair Practice. Article VI allows the NASD to provide notice of disciplinary actions in Notices to Members, which are issued monthly, rather than in the NASD Manual, which is updated quarterly. Article VI leaves unchanged the current requirement that a list of members be provided to each member, but permits the member to make distribution within the firm as it deems necessary. Article IV, Section 1 requires that the NASD Manual be maintained in each branch office of a member. The amendments became effective September 19, 1989.
The Board of Governors also approved an amendment to the Resolution of the Board of Governors that follows Article V, Section 1 of the Rules of Fair Practice to permit the NASD to provide notices to the membership and releases to the press of all orders and decisions issued by the NASD by means other than including such notices in the NASD Manual.
BACKGROUND AND SUMMARY
Recently, two changes occurred that warranted amendments to Article IV, Section 1, and Article VI of the Rules of Fair Practice. First, the NASD Manual is now being updated quarterly rather than monthly. Second, the NASD is now providing notice of the previous month's final disciplinary actions on a monthly basis by way of a Notice to Members that is distributed to all NASD members. Prior to the institution of this new procedure, the NASD provided notification to the membership of disciplinary actions and notification of suspensions and expulsions of firms for failure to pay monetary sanctions or failure to file financial information by including these notices in the monthly update to the NASD Manual.
The previous procedure under Article VI of the Rules of Fair Practice required the Secretary of the Association to furnish every office of every member of the Association with a list of all members of the Association and, by amendments to the list, to keep every office of every member advised of all new members and of all suspensions and cancellations of membership. This list was provided to members of the Association in monthly updates to the NASD Manual, and members were entitled to rely on this list as last amended for purposes of complying with Article III, Section 25 of the Rules of Fair Practice. Article IV, Section 1 of the Rules of Fair Practice required "every office" of a member to maintain an NASD Manual.
The resolution of the Board of Governors that was issued in connection with Article V, Section 1 of the Rules of Fair Practice contemplated that notice to the membership and press of any disciplinary action resulting in a suspension, bar, or monetary sanction in excess of $10,000 would be included in the Changes to the List of Members section of the NASD Manual.
Under the amended Article VI of the Rules of Fair Practice, the list of all members of the Association will be provided to each member, but each member will be required to distribute the list within the firm as may be necessary. Article VI as amended also substitutes the words "pertinent Rules of Fair Practice" in place of "Rule 25" to clarify that members may need to rely on a current membership list in order to comply with other Rules of Fair Practice.
The previous Article IV, Section 1 of the Rules of Fair Practice required that the NASD Manual be maintained in "every office" of a member. To clarify this requirement, particularly in light of the new definition of "branch office," effective on April 13, 1989, Article IV, Section 1 of the Rules of Fair Practice was amended to state that the NASD Manual will be required to be maintained in each branch office of the member.
The amendment to the resolution eliminates the requirement that notification to the membership and releases to the press regarding suspensions, expulsions, revocations, and monetary sanctions in excess of $10,000 be included in the supplement to the list of members in the NASD Manual, and permits these notifications to be disseminated by way of Notices to Members. Publication of these matters in Notices to Members will substitute for inclusion in NASD Manual updates and will provide the membership with more timely notification of disciplinary actions.
Questions concerning this notice can be directed to Shirley H. Weiss, Attorney, NASD Office of General Counsel, at (202) 728-8844.
AMENDMENT TO ARTICLE IV, SECTION 1 OF THE NASD RULES OF FAIR PRACTICE
Availability to Customers to Certificate, By-Laws, Rules and Code of Procedure
(Note: New text is underlined.)
Sec. 1. Every member of the corporation shall keep in each branch office maintained by him, in the form to be supplied by the Board of Governors, a copy of the Certificate of Incorporation, By-Laws, Rules of Fair Practice, and Code of Procedure of the corporation and all additions and amendments from time to time made thereto, and of all published interpretive rulings made by the Board of Governors, all of which shall be available for the examination of any customer who makes requests therefore.
AMENDMENT TO ARTICLE VI OF THE NASD RULES OF FAIR PRACTICE
(Note: New text is underlined; deleted text is in brackets.)
Current Membership List
The Secretary of the Corporation shall furnish every [office of every] member of the Corporation a list of all members of the Corporation, and shall currently keep every [office of every] member advised, by amendments to the list or otherwise, of all new members and of all suspensions and cancellations of membership. Each member shall be responsible for providing such information to its offices and associated persons as appropriate. For purposes of complying with [Rule 25] pertinent Rules of Fair Practice, a member shall be entitled to rely on [such list as last amended] the information provided by the Corporation.
AMENDMENT TO RESOLUTION OF THE BOARD OF GOVERNORS ARTICLE V, SECTION 1 OF THE NASD RULES OF FAIR PRACTICE
Note: (Deleted text is in brackets.)
Notice to Membership and Press of Suspensions, Expulsions and Revocations
Paragraphs 1-8 — No change.
Notices to the membership and releases to the press referred to above shall identify the section of the Association's Rules and By-Laws or the Securities and Exchange Commission Rules violated, and shall describe the conduct constituting such violation. Notices may also identify the member with which an individual was associated at the time the violations occurred if such identification is determined by the Association to be in the public interest. [Notice of all orders and decisions referred to above shall be included in the supplement to the list of members next published.]