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Dec 20 2006 - Dec 19 2015Dec 20 2015 onwards

II. NASD Regulation, Inc.

Past version: effective from Dec 20 2006 - Dec 19 2015.
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A. Delegation of Functions and Authority:
1. Subject to Section I.B.11., the NASD hereby delegates to NASD Regulation and NASD Regulation assumes the following responsibilities and functions as a registered securities association:
a. To establish and interpret rules and regulations and provide exemptions for NASD members including, but not limited to fees and membership requirements.
b. To determine Association policy, including developing and adopting necessary or appropriate rule changes, relating to the business and sales practices of NASD members and associated persons with respect to, but not limited to, (i) public and private sale or distribution of securities including underwriting arrangements and compensation, (ii) financial responsibility, (iii) qualifications for NASD membership and association with NASD members, (iv) clearance and settlement of securities transactions and other financial responsibility and operational matters affecting members in general and securities quoted or trade reported through an NASD facility, (v) NASD member advertising practices, (vi) administration, interpretation, and enforcement of Association rules, (vii) administration and enforcement of Municipal Securities Rulemaking Board ("MSRB") rules, the federal securities laws, and other laws, rules and regulations that the Association has the authority to administer or enforce, and (viii) standards of proof for violations and sanctions imposed on NASD members and associated persons in connection with disciplinary actions.
c. To take necessary or appropriate action to assure compliance with Association policy, Association and MSRB rules, the federal securities laws, and other laws, rules and regulations that the Association has the authority to administer or enforce, through examination, surveillance, investigation, enforcement, disciplinary, and other programs.
d. To administer programs and systems for the surveillance and enforcement of NASD rules governing members' conduct and trading activities.
e. To examine and investigate NASD members and associated persons to determine if they have violated Association or MSRB rules, the federal securities laws, and other laws, rules, and regulations that the Association has the authority to administer, interpret, or enforce.
f. To administer Association enforcement and disciplinary programs, including investigation, adjudication of cases and the imposition of fines and other sanctions.
g. To administer the Association's office of professional hearing officers.
h. To conduct qualification examinations and continuing education programs.
i. To operate the Central Registration Depository.
j. To determine whether applicants for NASD membership have met the requirements for membership established by the Association.
k. To place restrictions on the business activities of NASD members consistent with the public interest, the protection of investors, and the federal securities laws.
l. To determine whether persons seeking to register as associated persons of NASD members have met such qualifications for registration as may be established by the Association, including whether statutorily disqualified persons will be permitted to associate with particular NASD members and the conditions of such association.
m. To oversee all District Office activities.
n. To establish the annual budget and business plan for NASD Regulation.
o. To determine allocation of NASD Regulation resources.
p. To establish and assess fees and other charges on NASD members, persons associated with NASD members, and others using the services or facilities of NASD or NASD Regulation.
q. To manage external relations on enforcement, regulatory, and other policy issues with Congress, the Securities and Exchange Commission ("Commission"), state regulators, other self-regulatory organizations, business groups, and the public.
r. To establish internal procedures for considering complaints by members, associated persons, and members of the public who request an investigation or disciplinary action by the Association.
s. To develop and adopt rule changes (i) applicable to the collection, processing, and dissemination of quotation and transaction information for securities traded in the over-the-counter market, and (ii) establishing trading practices with respect to these securities.
t. To develop and adopt rules, interpretations, policies, and procedures and provide exemptions to maintain and enhance the integrity, fairness, efficiency, and competitiveness of the over-the-counter market.
2. All action taken pursuant to authority delegated pursuant to (1) shall be subject to the review, ratification, or rejection by the NASD Board in accordance with procedures established by the NASD Board.
B. NASD Regulation Board Procedures
1. Rule Filings—The NASD Board shall review and ratify a rule change adopted by the NASD Regulation Board before the rule change becomes the final action of the Association if the rule change: (a) imposes fees or other charges on persons or entities other than NASD members; (b) raises significant policy issues in the view of the NASD Regulation Board, and the NASD Regulation Board refers the rule change to the NASD Board; or (c) is materially inconsistent with a recommendation of the National Adjudicatory Council. If the NASD Regulation Board does not refer a rule change to the NASD Board for review, the NASD Regulation Board action shall become the final action of the Association unless called for review by any member of the NASD Board not later than the NASD Board meeting next following the NASD Regulation Board's action.
2. Petitions for Reconsideration
a. If the NASD Regulation Board or NASD Board takes action on a rule change relating to the business and sales practices of NASD members or associated persons or enforcement policies, including policies with respect to fines and other sanctions, and such action is materially inconsistent with the recommendation of the National Adjudicatory Council, the NASD Regulation Board or the NASD Board, as applicable, shall provide written notice of its action to the National Adjudicatory Council within one calendar day.
b. Within two calendar days after receipt of such notice, the National Adjudicatory Council, by majority vote, may petition the NASD Board for reconsideration. Such petition shall be in writing and include a statement explaining in detail why the National Adjudicatory Council believes that the NASD Regulation Board's or NASD Board's action should be set aside.
c. The NASD Executive Committee shall act on a timely and complete petition for reconsideration within three calendar days after its receipt. If the NASD Executive Committee grants reconsideration, the matter shall be added to the agenda of the next regularly scheduled meeting of the NASD Board. If the NASD Executive Committee denies reconsideration, the NASD Regulation Board's or NASD Board's previous action on the rule shall be final, and staff shall submit the necessary rule filing to the Commission.
C. Supplemental Delegation Regarding Committees
1. Market Regulation Committee
a. The Market Regulation Committee shall advise the NASD Regulation Board on regulatory proposals and industry initiatives relating to quotations, execution, trade reporting, and trading practices; advise the NASD Regulation Board in its administration of programs and systems for the surveillance and enforcement of rules governing NASD members' conduct and trading activities in the over-the-counter market; provide a pool of panelists for those hearing panels that the Chief Hearing Officer or his or her designee determines should include a member of the Market Regulation Committee pursuant to the Rules of the Association; participate in the training of hearing panelists on issues relating to quotations, executions, trade reporting, and trading practices; and review and recommend to the National Adjudicatory Council changes to the Association's Sanction Guidelines.
b. The NASD Regulation Board shall appoint the Market Regulation Committee by resolution. The members of the Market Regulation Committee shall be balanced between Industry and Non-Industry committee members.
c. At all meetings of the Market Regulation Committee, a quorum for the transaction of business shall consist of a majority of the Market Regulation Committee, including not less than 50 percent of the Non-Industry committee members. If at least 50 percent of the Non-Industry committee members are (i) present at or (ii) have filed a waiver of attendance for a meeting after receiving an agenda prior to such meeting, the requirement that not less than 50 percent of the Non-Industry committee members be present to constitute the quorum shall be waived.
2. Uniform Practice Code Committee
a. The Uniform Practice Code Committee shall have the following functions:
i. to issue interpretations or rulings with respect to the Uniform Practice Code ("UPC");
ii. to advise the NASD Regulation Board with respect to the clearance and settlement of securities transactions and other financial responsibility and operational matters that may require modifications to the UPC or other Rules of the Association; and
iii. to exercise the functions contained in Rule 11890 of the Rules of the Association in accordance with the procedures specified therein.
b. The NASD Regulation Board shall appoint the Uniform Practice Code Committee by resolution. The Uniform Practice Code Committee shall have not more than 50 percent of its members directly engaged in market-making activity or employed by a member firm whose revenues from market-making activity exceed ten percent of its total revenues.
Amended by SR-NASD-2006-104 eff. Dec. 20, 2006.
Amended by SR-NASD-2006-135 eff. Dec. 20, 2006.
Amended by SR-NASD-2005-087 eff. Aug. 1, 2006.
Amended by SR-NASD-2005-089 eff. Oct. 1, 2005.
Amended by SR-NASD-99-21 eff. July 9, 2000.

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