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  • 91-82 Proposed Revision of NASD Manual

    SUGGESTED ROUTING:*

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

    EXECUTIVE SUMMARY

    The NASD, on the recommendation of its Legal Advisory Board (LAB), has undertaken a reorganization of the NASD Manual in order to make the Manual easier to use. As a first step in the Manual revision project, the LAB proposed an outline of the Manual. The LAB contemplates that, ultimately, the text of the Manual will be reorganized to conform to the outline and that the text of the Manual will then be edited to eliminate redundancies and inconsistencies. Because the outline itself is useful in locating relevant provisions contained in the Manual, however, a copy follows this notice for the benefit of NASD members. The outline was distributed as part of the November 1991 supplement to the looseleaf edition of the Manual and will be included in the next paper-bound NASD Manual.

    BACKGROUND

    In 1988, the NASD's Board of Governors approved the creation of the LAB, a group of attorneys who are prominent members of the securities bar. The LAB offers guidance to the NASD's Board of Governors on legal and policy issues. In 1989, the LAB recommended a project to reorganize the NASD Manual. Members of the LAB were in general agreement that the NASD Manual is currently organized in an awkward manner that makes it difficult for users to locate provisions relevant to a given topic. The NASD proposes to follow a two-step process with respect to the reorganization of the Manual. As a part of step one, the LAB prepared an outline for a proposed reorganization of the Manual. The LAB contemplated that, following the completion of the outline, the NASD, after review by appropriate committees of the Board of Governors, would physically reorder the existing text of the Manual to conform to the outline. As step two, the LAB contemplated that the NASD would undertake a substantive review of the Manual so as to eliminate inconsistencies and redundancies that would become more apparent when the text of the Manual was reordered.

    To date, the LAB has completed its proposed outline for the revised Manual and has prepared a mock-up of the reordered text. Because the outline itself is useful in locating relevant sections of the Manual, the NASD has arranged to publish the outline along with the latest update to the Manual. Accordingly, the outline was included in a November 1991 mailing that transmitted updated pages to persons who subscribe to Commerce Clearing House's looseleaf version of the Manual. The outline will also be included in the next edition of the paper-bound Manual reprint. The outline, which is denominated as a "Guide to the Manual," is found on pages 21 through 24 of the looseleaf version of the Manual.

    The NASD also decided to publish the outline in this Notice to Members so as to allow the greatest possible number of Manual users to benefit from the outline. Page numbers reflected on the attached outline refer to pages contained in the loose-leaf version of the Manual, as of November 1991.

    The NASD and the LAB welcome any suggestions that users of the Manual may wish to offer with respect to improvements to the outline. Written comments or suggestions regarding the outline should be directed to Anne H. Wright, Senior Attorney, Office of General Counsel, National Association of Securities Dealers, Inc., 1735 K Street, NW, Washington, DC 20006-1506. Any comments that the staff receives regarding the outline will be relayed to the members of the LAB.

    NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. OUTLINE OF THE MANUAL

       

    Pages

    ORGANIZATION

     

    Certificate of Incorporation

    1021

     

    By-Laws

    1045

     

    Schedule A — Assessments and Fees

    1501

     

    Schedule B — District Boundaries

    1521

     

    Schedule C — Applications for Membership, Registration of Principals and Representatives, etc

    1531

     

    Limitations Upon Use of Association Name (Resolution)

    1651

     

    NASD to Furnish Current List of Membership (Rules of Fair Practice, Article VI, first and last sentences)

    2219

     

    CONDUCT STANDARDS

     

    Adoption and Application (Rules of Fair Practice, Article I)

    2011

     

    Interpretations and Explanations (Resolution)

    1651

     

    Definitions (Rules of Fair Practice, Article II)

    2012

     

    Business Conduct (General)

    2014

     

    Standards of Honor and Principles of Trade (Rules of Fair Practice, Article III, § 1)

    2014

     

    Use of Manipulative, Deceptive, or Other Fraudulent Devices (Rules of Fair

     
     

    Practice, Article III, § 18)

    2079

     

    Treatment of Customers

     
     

    Advertisements and Sales Literature (Rules of Fair Practice, Article III, § 35)

    2156

     

    Communications

     
     

    Recommendations to Customers Suitability (Rules of Fair Practice, Article HI, §2)

    2051

     

    Recommending Speculative Low-Priced Securities (Policy)

    2052

     

    Recommending Purchases Beyond Customer Capability (Policy)

    2053

     

    Confirmations (Rules of Fair Practice, Article HI, § 12) "Third Market" Confirmations (Explanation)

    2069

     

    Disclosure of Control Relationship With Issuer (Rules of Fair Practice, Article III, § 13)

    2078

     

    Disclosure of Participation or Interest in Primary or Secondary Distribution (Rules of Fair Practice, Article III, § 14)

    2078

     

    Forwarding of Proxy Material, Annual Reports, etc. (Interpretation)

    2041

     

    Disclosure of Financial Condition to Customers (Rules of Fair Practice, Article HI, §22)

    2097

     

    Availability to Customers of Certificate, By-Laws, Rules, and Codes of Procedure (Rules of Fair Practice, Article IV, § 1)

    2203

     

    Special Accounts

     
     

    Discretionary Accounts (Rules of Fair Practice, Article III, § 15)

    2078

     

    Margin Accounts (Rules of Fair Practice, Article III, § 30, Appendix A)

    2114

     

    Options See Special Products, Below

    2116

     

    Transactions With Customers

     
     

    Fair Dealing With Customers (Policy)

    2052

     

    Excessive Trading Activity ("Churning" or "Overtrading")

    2052

     

    Trading in Mutual Fund Shares

    2052

     

    Transactions in Discretionary Accounts in Excess of or Without Actual Authority

    2053

     

    Unauthorized Transactions

    2053

     

    Other Fraudulent Activities

    2053

     

    Guaranteeing Customers Against Loss (Rules of Fair Practice, Article III, § 19(e))

    2083

     

    Sharing in Customers' Profits or Losses (Rules of Fair Practice, Article III, § 19(f))

    2083

     

    Best Execution and Interpositioning Execution of Retail Transactions in the Over-the-Counter Market (Interpretation)

    2038

     

    Commissions, Markups, and Charges

     
     

    Net Prices to Person Not in Investment Banking or Securities Business (Rules of Fair Practice, Article III, § 23)

    2097

     

    Dealing With Nonmembers

    2097

     

    Charges for Services Performed (Rules of Fair Practice, Article III, § 3)

    2055

     

    Fair Practice and Commissions (Rules of Fair Practice, Article III, § 4)

    2056

     

    Markups (Policy)

    2056

     

    Installment or Partial Payment Sales (Rules of Fair Practice, Article III, § 20)

    2094

     

    Customers' Securities and Funds

     
     

    Prompt Receipt and Delivery of Securities (Interpretation)

    2039

     

    Customers' Securities and Funds (See Books and Records and Financial Condition)

    2095

     

    Securities Distributions

     
     

    Review of Corporate Financing (Interpretation)

    2023

     

    Securities of Members and Affiliates (Schedule E)

    1611

     

    Free-Riding and Withholding (Interpretation)

    2043

     

    Fixed Price Offerings

     
     

    Securities Taken in Trade (Rules of Fair Practice, Article III, § 8 and Interpretation)

    2065

     

    Selling Concessions, Discounts and Other Allowances (Rules of Fair Practice, Article III, § 24 and Interpretation)

    2097

     

    Transactions With Related Persons (Rules of Fair Practice, Article III, § 36 and Interpretation)

    2177

     

    Offerings "At the Market" (Rules of Fair Practice, Article III, § 16)

    2079

     

    Contents of Selling Group Agreements (Rules of Fair Practice, Article III, § 7)

    2065

     

    Solicitation of Purchases on an Exchange to Facilitate a Distribution (Rules of Fair Practice, Article III, §17)

    2079

     

    Special Products

     
     

    Direct Participation Programs (Rules of Fair Practice, Article III, § 34)

     
     

    Appendix F

    2148

     

    Insurance Company Variable Contracts (Rules of Fair Practice, Article III, §29)

    2113

     

    Investment Company Securities (Rules of Fair Practice, Article HI, § 26)

    2105

     

    Options (Rules of Fair Practice, Article III, § 33)

    2127

     

    Appendix E

    2128

     

    Options-Related Communications

    2195

     

    Rules of Fair Practice, Article III, § 35(f)

    2172

     

    Government Securities

    2263

     

    Responsibilities to Other Brokers or Dealers

     
     

    Dealing With Nonmember Broker or Dealer (Rules of Fair Practice, Article III, § 25)

    2101

     

    Transactions Between Members and Nonmembers (Interpretation)

    2101

     

    Charges for Services Performed (Rules of Fair Practice, Article III, § 3)

    2055

     

    Disclosure of Financial Condition to Other Members (Resolution Under Rules of Fair Practice, Article III, § 22)..

    2097

     

    Responsibilities Relating to Associated Persons, Employees, and Others' Employees

     
     

    Supervision (Rules of Fair Practice, Article III, § 27)

    2177

     

    Fidelity Bonds (Rules of Fair Practice, Article III, § 32) Appendix C

    2124

     

    Employment of Disciplined Associated Persons (Interpretation Under Rules of Fair Practice, Article V, § 1)

    2215

     

    Associated Persons' Outside Business Activities (Rules of Fair Practice, Article III, §43)

    2191

     

    Associated Persons' Participation in Private Securities Transactions (Rules of Fair Practice, Article III, §40)

    2189

     

    Transactions for or by Associated Persons (Rules of Fair Practice, Article III, § 28)

    2178

     

    Notice of Disciplinary Action (Schedule C, Part V)

    1543

     

    Influencing or Rewarding Employees of Others (Rules of Fair Practice, Article III, § 10)

    2068

     

    Books and Records and Financial Condition

     
     

    Books and Records (Rules of Fair Practice, Article III, § 21)

    2095

     

    General

    2095

     

    Customer Order Tickers

    2095

     

    Accounts

    2095

     

    Written Complaints

    2095

     

    Predispute Arbitration Agreements With Customers

    2095

     

    Fictitious Accounts (Policy Fair Dealing With Customers)

    2052

     

    Use of Information as to Ownership of Securities Obtained in Fiduciary Capacity (Rules of Fair Practice, Article III, § 9)

    2068

     

    Customers' Securities or Funds (Rules of Fair Practice, Article III, § 19(a)-(d))

    2083

     

    Explanation of Segregation (Rules of Fair Practice, Article 111, § 19(a)-(d))

    2083

     

    Unauthorized Use or Borrowing of Customers' Funds (Policy Fair Dealing With Customers)

    2052

     

    Members Experiencing Financial and/or Operational Difficulties (Rules of Fair Practice, Article III, § 38 and Explanation)

    2179

     

    Change in Exempt Status Under Exchange Act Rule 15c3-3 (Rules of Fair Practice, Article III, § 39)

    2186

     

    Providing NASD Membership List to Offices and Associated Persons (Rules of Fair Practice, Article VI, second sentence)

    2219

     

    Settlements

     
     

    Uniform Practice Code

    3501

     

    Securities "Failed to Receive" and "Failed to Deliver" (Rules of Fair Practice, Article III, §31)

    2123

     

    Appendix B

    2123

     

    Trading (General)

     
     

    Publication of Transactions and Quotations (Rules of Fair Practice, Article III, § 5)

    2063

     

    Manipulative and Deceptive Quotations (Interpretation)

    2063

     

    Offers at Stated Prices (Rules of Fair Practice, Article III, § 6)

    2064

     

    Firmness of Quotations (Policy)

    2064

     

    Payments Designed to Influence Market Price (Rules of Fair Practice, Article III, § 11)

    2069

     

    Transactions During Trading Halt (Rules of Fair Practice, Article III, § 42)

    2190

     

    Short Positions — Recording and Reporting (Rules of Fair Practice, Article III, §41)

    2190

     

    Reporting Certain OTC Transactions to Consolidated Tape (Schedule G)

    1631

     

    Reporting Transactions in Certain Non-Nasdaq Securities (Schedule H)

    1653

     

    TRADING SYSTEMS

     

    Nasdaq (Schedule D)

    1561

     

    Member Requirements

    1580

     

    Issuer Requirements

    1564

     

    Small Order Execution System (SOES)

    2303

     

    Intermarket Trading System/Computer Assisted Execution System (ITS/CAES) (Rules of Fair Practice, Article III, § 37 and Rules of Practice and Procedure for ITS/CAES)

    2501

     

    PORTAL (Schedule I)

    1671

     

    Member Requirements

    1675

     

    Issuer Requirements

    1673

     

    OTC Bulletin Board (Schedule H)

    1653

     

    PROCEDURE

     

    Complaints (Rules of Fair Practice, Article IV, §§ 2-4)

    2203

     

    Investigation (Rules of Fair Practice, Article IV, § 5)

    .2205

     

    Suspension of Members for Failure to Furnish Information Duly Requested (Resolution)

    2205

     

    Sanctions (Rules of Fair Practice, Article V, §§ 1-3)

    2215

     

    Notice of Penalties (Resolution)

    2215

     

    Code of Procedure

    3001

     

    Code of Arbitration Procedure

    3701