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89-47 Notice to Membership of Disciplinary Actions; Publication of Sanctions; Availability of NASD Manual; Last Voting Date: August 11, 1989

SUGGESTED ROUTING*

Senior Management
Legal & Compliance
Operations
Registration

*These are suggested departments only. Others may be appropriate for your firm.

IMPORTANT MAIL VOTE

EXECUTIVE SUMMARY

The NASD invites members to vote on proposed amendments to Article IV, Section 1 and Article VI of the Rules of Fair Practice. The amendments to Article VI would allow 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. The amendments would leave unchanged the current requirement that a list of members be provided to each member, but would permit the member to make distribution within the firm as it deems necessary. The amendments to Article IV,Section 1 would require that the NASD Manual be maintained in each branch office of a member.

NASD members are also advised that the Board of Governors has approved an amendment to the Resolution of the Board of Governors that follows Article V, Section 1. The amendment will 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. The text of the proposed amendments and the Board Resolution follows this notice.

BACKGROUND

Article VI of the Rules of Fair Practice requires the Secretary of the NASD to furnish every office of every member of the NASD with a list of all members 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 has been provided to members of the NASD in monthly updates to the Manual. Members are 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 requires that the NASD Manual be maintained in "every office" of a member.

In addition, a resolution of the Board of Governors that was issued in connection with Article V, Section 1 of the Rules of Fair Practice requires the NASD to provide notice to the membership and publicity for disciplinary actions resulting in suspensions, bars, or monetary sanctions in excess of $10,000. This resolution also contemplates the inclusion of that information in the Changes to the List of Members section of the NASD Manual.

Recently, two changes have occurred that appear to warrant amendments to these provisions. First, the Manual is now being updated quarterly rather than monthly. This change was instituted at the beginning of the fiscal year and will save the NASD and its members a significant amount of money. Second, the NASD is now providing notice of disciplinary actions in the monthly package of Notices to Members that is distributed to all NASD members. This notice contains the text of all press releases relating to disciplinary actions that became final during the previous month.

As currently drafted, the provisions of Article VI require distribution of a list of members to every office of each member. The proposed amendment would require that the list be provided to each member and would further require the member to make such distribution within the firm as may be necessary. This change is designed to allow members to determine which of their offices need such information and to eliminate the need for the NASD to provide the information to thousands of locations where it may serve no useful purpose.

A second aspect of the proposed change to Article VI would allow the NASD to provide notice by means other than Changes to the List of Members. This would include the Notices to Members mechanism, which will substitute for inclusion in Manual updates and will provide the membership with more timely notification of disciplinary actions. It would therefore be duplicative and an unnecessary expense to require such information to be reprinted in the quarterly Manual supplements.

The Board of Governors has also approved a conforming amendment to the Resolution of the Board of Governors appearing after Article V, Section 1 of the Rules of Fair Practice, regarding Notice to Membership and Press of Suspensions, Expulsions, Revocations, and Monetary Sanctions. The amendment eliminates the requirement that notifications to the membership and releases to the press be included in the supplement to the list of members, and permits the notifications to be disseminated to NASD members by way of Notices to Members.

In a related matter, Article IV, Section 1 of the Rules of Fair Practice, which deals with "Availability of the Certificate of Incorporation, By-Laws, Rules and Code of Procedure," currently requires that these documents (i.e., the Manual) be maintained in "every office" of a member. In order to clarify this requirement, particularly in light of the new definition of branch office, which became effective April 13, 1989, the NASD is proposing to amend Article IV, Section 1 of the Rules of Fair Practice, to state that the Manual will be required to be maintained in each branch office of the member.

EFFECTIVE DATE

Prior to becoming effective, the amendments to Article VI and Article IV, Section 1 of the Rules of Fair Practice must be approved by the NASD membership and thereafter by the SEC.

The NASD Board of Governors believes that the proposed amendment is necessary and appropriate and recommends that members vote approval. The text of the amendments follows this notice. The text of the amendment to the Resolution of the Board of Governors also follows for information purposes only and not for vote.

Please mark the attached ballot according to your convictions and return it in the enclosed envelope to The Corporation Trust Company. Ballots must be postmarked no later than August 11, 1989.

Questions concerning this notice can be directed to Shirley Weiss, Attorney, NASD Office of the General Counsel, at (202) 728-8844.

PROPOSED AMENDMENT TO ARTICLE IV, SECTION 1 OF THE NASD RULES OF FAIR PRACTICE

(Note: New text is underlined.)

Availability to Customers of Certificate, By-Laws, Rules and Code of Procedure

Section 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.

PROPOSED 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 NOTICE TO MEMBERSHIP AND PRESS OF SUSPENSIONS, EXPULSIONS, REVOCATIONS AND MONETARY SANCTIONS - ARTICLE V, SECTION 1 OF THE NASD RULES OF FAIR PRACTICE

(Note: Deleted text is in brackets.) (For Information purposes and not for vote)

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.]


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