BackText onlyPrint

You need the Flash plugin.

Download Macromedia Flash Player



  • 1986

    • 86-88 Effect of the Tax Reform Act of 1986 on NASD Qualifications Examinations

      TO: All NASD Members and Other Interested Persons

      ATTN: REGISTRATION, TRAINING AND COMPLIANCE PERSONNEL AND BRANCH OFFICE MANAGERS

      The recently enacted Tax Reform Act of 1986 (the "Act") will impact the subject matter of the qualification examinations administered by the NASD. Existing test items affected by these changes will be modified to reflect the new provisions of the Act on January 1, 1987. New questions on relevant areas of the Act will also be added to the appropriate examinations on January 1, 1987.

      The attached chart lists the major substantive areas affected by the Act and identifies the specific examinations and related study outline sections impacted by these changes. Members are advised to ensure that training materials are updated to reflect the new tax law provisions for all representatives and principals who intend to sit for qualification examinations in 1987.

      Questions regarding this notice should be directed to Carole Hartzog, NASD Qualifications Department, at (301) 738-6696.

      Sincerely,

      Frank J. McAuliffe
      Vice President
      Qualifications Department

      TAX REFORM ACT OF 1986

      Effect on NASD Qualification Examinations (Study Outline Sections)

      Substantive Areas Affected by the Act

      Test Series *

       

      2

      4

      6

      7

      8

      22

      24

      26

      39

      52

      INDIVIDUAL TAXATION

                         

      New Tax Rates

      5.9

      1.4

      2.13

      3.3

      Alternative Minimum Tax

      4.1.7

      3.3

      1.4

      RETIREMENT PLANS

                         

      Individual Retirement Account (IRAs)

      5.7

      2.1

      3.3

      12.4

      2.3.2

      3.1

      2.3

      Cash or Deferred Arrangements (401(k) Plans)

      5.7

      3.3

      12.4

      2.3

      3.1

      2.3

      Employee Stock Ownership Plans (ESOPs)

      5.7

      3.3

      12.4

      2.3

      3.1

      2.3

      BUSINESS TAXATION

                         

      Accelerated Cost Recovery System

      4.1.7

      3.2

      Investment Tax Credit

      4.1.7

      3.2

      Research & Development Credit

      3.3

      TAXATION OF INVESTMENTS & TAX SHELTERS

                         

      Municipal Securities

                         

      After-Tax Yields

      5.12

      1.1.3

      4.5

      page 14

      Interest Income

      5.12

      1.1.3

      5.2

      page 4

      Capital Gains

      2.2

      1.6

      2.1

      4.1.7

      3.3

      1.4

      page 4

             

      5.2.2

               

      page 14

      Dividend Exclusion

      2.1

      5.2.1

      Passive Loss Limitation

      4.1.7

      3.3

      Low Income Housing Credit

      4.1.7

      3.2

      At-Risk Rules for Real Estate

      4.1.7

      3.3

      Construction Period Interest

      4.1.7

      3.2

      1.4

      First Year Expensing

      4.1.7

      3.2

      Depreciation Recapture

      4.1.7

      3.2

      Rehabilitation Tax Credit

      4.1.7

      3.2

      Symbol

      Company

      Location

      FFPR

      First Federal Savings Bank

      San Juan, Puerto Rico

      FFBT

      First Federal Savings Bank & Trust

      Pontiac, MI

      GGLF

      Georgia Gulf Corporation

      Atlanta, GA

      KENT

      Kent International, Inc.

      Kearney, NJ

      LAWR

      Lawrence Insurance Group, Inc.

      New York, NY

      MBSX

      MBS Textbook Exchange

      Columbia, MO

      MTCH

      MTech Corp.

      Irving, TX

      MMSB

      Mid Maine Mutual Savings Bank, F.S.B.

      Auburn, ME

      MFSL

      Midland Financial Savings & Loan Association

      Des Moines, IA

      QUIK

      Quiksilver, Inc.

      Newport Beach, CA

      REED

      Reed Jewelers, Inc.

      Wilmington, NC

      SGSI

      SAGE Software, Inc.

      Rockville, MD

      WBST

      Webster Financial Corp.

      Waterbury, CT

      WASC

      Western Auto Supply Company

      Kansas City, MO

      NASDAQ/NMS Interim Additions

      Symbol*

      Security

      Date of Entry

      NAHAK

      North American Holding Corp. (Cl A Non-voting)

      11/24/86

      EDGC

      Edgcomb Corporation

      11/25/86

      PCSI

      PCS, Inc.

      11/25/86

      WSFS

      Wilmington Savings Fund Society Federal Savings Bank

      11/26/86

      EBCO

      Ehrlich Bober Financial Corporation

      12/02/86

      PHBK

      Peoples Heritage Savings Bank

      12/04/86

      LPLI

      LPL Investment Group, Inc.

      12/05/86

      UNMAA

      Uni-Marts, Inc. (Cl A)

      12/05/86

      Special Note: Grove Hall Savings Bank (GROV) and The People's Savings Bank of New Britain (PBNB) did not enter NASDAQ/NMS on December 2, 1986, as previously announced. The firms' entrances into NASDAQ/NMS have been re-scheduled for January 6, 1987.

      The following changes to the list of NASDAQ/NMS securities occurred since November 21, 1986:

      NASDAQ/NMS Symbol* And/Or Name Changes

      New/Old Symbol*

      New/Old Security

      Date of Change

      NOVXW/NOVXW

      Nova Pharmaceutical Corporation (Cl A 02/05/88 Wts)/Nova Pharmaceutical Corporation (Cl A 02/05/87 Wts)

      11/26/86

      ECON/ECON

      Ecolab, Inc./Economics Laboratory, Inc.

      12/01/86

      MASB/MASB

      MASSBANK Corporation/MASSBANK for Savings

      12/02/86

      SCIE/SCIE

      Scicom Data Services, Ltd./ Scientific Computers, Inc.

      12/05/86

      ISBJ/ISBJ

      Interchange Financial Services Corporation/Interchange State Bank

      12/08/86

      NASDAQ/NMS Deletions

      Symbol*

      Security

      Date

      AMSR

      American Medical Services, Inc.

      11/21/86

      NHCC

      National Health Corporation

      11/21/86

      STFL

      Stifel Financial Corporation

      11/24/86

      JNAL

      Jackson National Life Insurance Company

      11/26/86

      CBNJ

      Commercial Bancshares, Inc.

      12/01/86

      PTCCW

      Poly cast Technology Corporation (Wts)

      12/01/86

      INTS

      Intelligent Systems Corporation

      12/02/86

      RBOK

      Reebok International Ltd.

      12/03/86

      FRRI

      Franklin Resources, Inc.

      12/05/86

      PRCLS

      Property Investors of Colorado

      12/05/86

      Any questions regarding this notice should be directed to Kit Milholland, Senior Analyst, NASDAQ Operations, at (202) 728-8281. Questions pertaining to trade reporting rules should be directed to Leon Bastien, Assistant Director, Market Surveillance, at (202) 728-8192.

      Sincerely,

      Gordon S. Macklin
      President

    • 86-87 Christmas Day - New Year's Day: Trade Date-Settlement Date Schedule

      TO: All NASD Members and Municipal Securities Bank Dealers

      ATTN: All Operations Personnel

      Securities markets and the NASDAQ System will be closed on Thursday, December 25, 1986, Christmas Day, and Thursday, January 1, 1987, New Year's Day. "Regular-way" transactions made on the preceding business days will be subject to the settlement date schedule listed below.

      Trade Date-Settlement Date Schedule For "Regular-Way" Transactions

      Trade Date

      Settlement Date

      Regulation T Date*

      December 17, 1986

      December 24, 1986

      December 29, 1986

      18

      26

      30

      19

      29

      31

      22

      30

      January 2, 1987

      23

      31

      5

      24

      January 2, 1987

      6

      25

      MARKETS CLOSED

      26

      5

      7

      29

      6

      8

      30

      7

      9

      31

      8

      12

      January 1, 1987

      MARKETS CLOSED

      2

      9

      13

      The foregoing settlement dates should be used by brokers, dealers, and municipal securities dealers for purposes of clearing and settling transactions pursuant to the NASD's Uniform Practice Code and Municipal Securities Rulemaking Board Rule G-12 on Uniform Practice.

      Questions regarding the application of these settlement dates to a particular situation may be directed to the NASD Uniform Practice Department at (201) 839-6256.


      * Pursuant to Sections 220.8(b)(l) and (4) of Regulation T of the Federal Reserve Board, a broker-dealer must promptly cancel or otherwise liquidate a customer purchase transaction in a cash account if full payment is not received within seven (7) business days of the date of purchase or, pursuant to Sections 220.8(d)(l), make application to extend the time period specified. The date by which members must take such action is shown in the column entitled "Regulation T Date."


    • 86-86 NASDAQ National Market System Grows to 2,709 Securities With 26 Voluntary Additions on December 16, 1986

      TO: All NASD Members and Level 2 and Level 3 Subscribers

      On Tuesday, December 16, 1986, 26 issues are scheduled to join the NASDAQ National Market System, bringing the total number of issues in NASDAQ/NMS to 2,709. These 26 issues, which will begin trading under real-time trade reporting, are entering NASDAQ/NMS pursuant to the Securities and Exchange Commission's criteria for voluntary designation.

      The 26 issues scheduled to join NASDAQ/NMS on Tuesday, December 16, 1986, are:

      Symbol*

      Company

      Location

      FAMB

      1st American Bank for Savings

      Boston, MA

      ADVO

      ADVO System, Inc.

      Hartford, CT

      CIOTS

      Consolidated Capital Income Opportunity Trust/2

      Emeryville, CA

      CIOTW

      Consolidated Capital Income Opportunity Trust/2 (Wts)

      Emeryville, CA

      DMCB**

      Data Measurement Corporation

      Gaithersburg, MD

      DCPY

      Datacopy Corporation

      Mountain View, CA

      DIBK***

      Dime Savings Bank of Wallingford (The)

      Wallingford, CT

      DXYN

      Dixie Yarns, Inc.

      Chattanooga, TN

      FFPC

      First Federal Savings & Loan of Panama City

      Panama City, FL

      HSBK

      Hibernia Savings Bank (The)

      Boston, MA

      LBFC

      Landmark Financial Corporation

      Hartford, CT

      MLXX

      MLX Corp.

      Troy, MI

      METR

      Metrobank, N.A.

      Los Angeles, CA

      MUNI

      Municipal Development Corporation

      New York, NY

      NVIS

      National Video, Inc.

      Portland, OR

      NFSL

      Newnan Federal Savings & Loan Association

      Newnan, GA

      NUTM

      Nutmeg Industries, Inc.

      Tampa, FL

      PEBW

      Peoples Savings Bank

      Worcester, MA

      SIGN

      Plasti-Line, Inc.

      Knoxville, TN

      SGOPP

      Seagull Energy Corporation (Pfd)

      Houston, TX

      SFBM

      Security Federal Savings Bank

      Billings, MT

      SOBK

      Southern Bankshares, Inc.

      Beckley, WV

      SYRA

      Syracuse Supply Company

      Syracuse, NY

      TCEL

      T Cell Sciences, Inc.

      Cambridge, MA

      TLII

      Trans Leasing International, Inc

      Northbrook, IL

      UCFC

      UniCARE Financial Corp.

      Irvine, CA

      The following issues may be included in NASDAQ/NMS prior to the next regularly scheduled phase-in date:

      Pending Additions

      Symbol*

      Company

      Location

      ALNT

      Alliant Computer System Corporation

      Littleton, MA

      BTCI

      Brown Transport Co., Inc.

      Atlanta, GA

      COCR

      Community Credit Co.

      Minneapolis, MN

      COTG

      Cottage Savings Association

      Cincinnati, OH

      DIAL

      Dial REIT, Inc.

      Omaha, NE

      DCPI

      dick dark productions, inc.

      Burbank, CA

      POWR

      Environmental Power Corporation

      Boston, MA

      FFAL

      First Federal of Alabama, F.S.B.

      Joseph, AL

      FCHT

      First Federal Savings and Loan Association of Chattanooga

      Chattanooga, TN

      Once an ineligible person's registration with a member firm has been approved, the person will not be required to undergo eligibility proceedings in connection with any future applications for registration in the capacity in which his registration was approved, assuming that the individual is not otherwise ineligible. An additional eligibility proceeding would be required, for example, if an individual who was previously approved as a registered representative requested registration in a principal capacity.

      The Board of Governors recognizes the significant constraints that the proposed amendments would create for persons subject to its provisions. It believes, however, that the NASD's careful review of such persons' participation in the events and circumstances that led to the liquidation of a broker-dealer as well as their proposed activities, prior to approving their association with another broker-dealer, will prove beneficial to public customers. The Board believes that the proposed amendments will help reduce the number of SIPA liquidations, aid in the preservation of the funds administered by SIPC to meet the obligations of insolvent broker-dealers, and reduce the inconvenience and risk that may be incurred by public customers as a result of SIPA liquidations.

      The NASD encourages all members and other interested persons to comment on the proposed amendments. Comments should be directed to:

      Mr. Lynn Nellius
      Secretary
      National Association of Securities Dealers, Inc.
      1735 K Street, N.W.
      Washington, D.C. 20006-1506

      Comments must be received no later than January 5, 1987. Comments received by this date will be considered by the NASD Qualifications Committee and the NASD Board of Governors. If the proposed amendments are approved by the Board, the amendments must be filed with and approved by the Securities and Exchange Commission before becoming effective.

      Questions concerning this notice may be directed to Mary S. Head, NASD Office of General Counsel, at (202) 728-8284.

      Sincerely,

      Frank J. Wilson
      Executive Vice President
      Legal and Compliance

      Attachment

      Proposed Amendments to Article II, Sections 3, 4 and 5 of the NASD By-Laws*

      Sec. 3 (a) No registered broker, dealer or municipal securities broker or dealer shall be admitted to membership, and no member shall be continued in membership, if such broker, dealer, municipal securities broker or dealer or member fails or ceases to satisfy the qualification requirements under Section 2 of this Article, or if such broker, dealer, municipal securities broker or dealer or member is or becomes subject to a disqualification under Section £ [41 of this Article.

      (b) No person shall become associated with a member, or continue to be associated with a member, or transfer association to another member, if such person fails or ceases to satisfy the qualification requirements under Section 2 of this Article, if such person is or becomes ineligible under Section 4 of this Article, or if such person is or becomes subject to a disqualification under Section j^ [4] of this Article; and no broker, dealer or municipal securities broker or dealer shall be admitted to membership, and no member shall be continued in membership, if any person associated with it is ineligible to be an associated person under this subsection.

      (Remainder of Section 3 is unchanged.)

      Sec. 4 If a person associated with a member or seeking to become associated with a member was an officer, director, general partner, limited principal — financial and operations, owner of ten (10) percent or more of the voting securities, or a controlling person (or a person performing similar functions) of a member that was the subject of proceedings under the Securities Investor Protection Act of 1970 ("SIPA") instituted during such person's association with the member or within six months after the termination of such person's association with the member, then such person shall be considered ineligible for registration in any capacity. Before such ineligible person may become or continue to be registered in any capacity, he shall make application for registration to the Board of Governors pursuant to Article VII of the NASD Code of Procedure; provided, however, that once such person's registration or continued registration with a member subsequent to the institution of SIPA proceedings has been approved in a particular capacity, no additional application or approval shall be required with respect to any future application for registration in the capacity approved.

      (Renumber Section 4, Definition of Disqualification, as Section 5.)

      NASDAQ NMS TRADE REPORTING RULE SUMMARY

      When To Report

      With the exception of transactions executed through the Computer Assisted Execution System (CAES) and odd lot transactions, all transactions in NASDAQ NMS securities should be reported within 90 seconds of execution. For a more detailed list of these exceptions, refer to Section XIV, Schedule D of the NASD By-Laws.

      Who Reports

      The following charts summarize who reports different types of transactions in NASDAQ NMS securities. In brief, the following rules apply:

      • In transactions between two market makers, only the sell side reports.
      • In transactions between a market maker and a non-market maker, only the market maker reports.
      • In transactions between two non-market makers, only the sell side reports.
      • In transactions between a member and a customer, the member reports.

      Principal Transactions

      Member

      Transaction

      Member Reports When Contra-Party Is

         

      Market Maker

      Non-Market Maker

      Customer

      Market Maker 1/

      buys from:

      No

      Yes

      Yes

       

      sells to:

      Yes

      Yes

      Yes

      Non-Market Maker

      buys from:

      No

      No

      Yes

       

      sells to:

      No

      Yes

      Yes

      Agency Transactions

      Member

      Transaction

      Member Reports When Contra-Party Is

         

      Market Maker

      Non-Market Maker

      Customer2/

      Market Maker

      buys, as agent for customer, from:

      No

      Yes

      Yes

       

      sells, as agent for customer, to:

      Yes

      Yes

      Yes

      Non-Market Maker

      buys, as agent for customer, from:

      No

      Yes

      Yes

       

      sells, as agent for customer, to:

      No

      No

      Yes

      Reporting Requirements for "Riskless" Transactions by Non-Market Makers

      Member

      Transaction

      Member Reports When Contra-Party Is

         

      Market Maker

      Non-Market Maker

      Customer

      Non-Market Maker

      buys from customer and sells to:

      No

      Yes

      Yes

       

      sells to customer and buys from:

      No

      No

      Yes

      What Price To Report

      • For agency transactions, the member should report the number of shares only once, and report the price excluding the commission charged.

      Example: Buy as agent 100 shares at 40 plus a commission of $12.50. Report 100 shares at 40

      • For dual agency transactions, the member should report the number of sharesonly once, and report the price excluding the commission charged.

      Example: Buy as agent 100 shares at 40 plus a commission of $12.50. Sell as agent 100 shares at 40 less a commission of $12.50. Report 100 shares at 40

      • For principal transactions, except as provided below, the members should report each purchase and sale transaction separately and report the number of shares and the price. For principal transactions executed at a price which includes a mark-up, mark-down or service charge, the price reported shall exclude the mark-up, mark-down or service charge. The reported price should be reasonably related to the prevailing market, taking into consideration all relevant circumstances including, but not limited to, market conditions with respect to the security, the number of shares involved in the transaction, the published bids and offers with size at the time of the execution (including the reporting firm's own quotation), the cost of execution and the expenses involved in clearing the transaction.

      Examples: Buy as principal 100 shares from another member at 40 (no mark-down included). Report 100 shares at 40
      Buy as principal 100 shares from a customer at 39 7/8, which includes a 1/8 mark-down from the prevailing market of 40. Report 100 shares at 40
      Sell as principal 100 shares to a customer at 40 1/8, which includes a 1/8 mark-up from the prevailing market of 40. Report 100 shares at 40
      Buy as principal 10,000 shares from a customer at 39 3/4, which includes a 1/4 mark-down or service charge from the prevailing market of 40. Report 10,000 shares at 40

      • A "riskless" principal transaction in which a member that is not a market maker in the security after having received from a customer an order to buy, purchases the security as principal from another member or customer to satisfy the order to buy or, after having received from a customer an order to sell, sells the security as principal to another member or customer to satisfy the order to sell, shall be reported as one transaction in the same manner as an agency transaction,excluding the mark-up or mark-down.

      Examples: Sell as principal 100 shares to another member at 40 to fill an existing order. Buy as principal 100 shares from a customer at 40 minus a mark-down of $12.50. Report one transaction of 100 shares at 40

      Aggregating or "Bunching" Trade Reports

      • For NASDAQ NMSsecurities only, aggregating or "bunching" transaction reports at the same price is permitted for certain simultaneous and non-simultaneous executions. Simultaneous executions are defined to include:

      • Pre-opening orders that are executed at market opening;
      • Orders received during quotation or trading halts and executed once trading begins again;
      • Limit orders that are executed when the limit price is reached; and,
      • A branch office relaying combined customer orders which are executed simultaneously by the trading department.

      • For non-simultaneous executions, bunching is permitted if all of the following four conditions are met:

      • All orders to be bunched must be executed within 60 seconds of the initial execution and effected at the same price.
      • All executions must be reported within 90 seconds of the initial execution;
      • The transaction must not be initiated by the trader; and,

      The individual transactions to be aggregated must involve orders of less than 5,000 shares each.

      SCHEDULE D

      ARTICLE XIV

      Reporting Transactions in NASDAQ National Market System Designated Securities

      This Part has been adopted pursuant to Article XVI of the Corporation's By-Laws and applies to the reporting by all members of transactions in NASDAQ National Market System securities ("designated securities") through the Transaction Reporting System. These securities have been designated pursuant to the "National Market System Securities Designation Plan With Respect to NASDAQ Securities" ("Plan") which has been approved by the Securities and Exchange Commission pursuant to Rule HAa2-l.

      Section 1 — Definitions

      (a) Terms used in this Part shall have the meaning as defined in the Association's By-Laws and Rules of Fair Practice, Rule HAa2-l and the Plan, unless other defined herein.
      (b) "Transaction Reporting System" means the transaction reporting system for the reporting and dissemination of last sale reports in designated securities.
      (c) "Registered Reporting Market Maker" means a member of the Association which is registered as a NASDAQ market maker in a particular designated security. A member is a Registered Reporting Market Maker in only those designated securities for which it is registered as a NASDAQ market maker. A member shall cease being a Registered Reporting Market Maker in a designated security when it has withdrawn or voluntarily terminated its quotations in that security or when its quotations have been suspended or terminated by action of the Corporation.
      (d) "Non-Registered Reporting Member" means a member of the Association which is not a Registered Reporting Market Maker.

      Section 2 — Transaction Reporting

      (a) When and How Transaction Reported
      (1) Registered Reporting Market Makers shall transmit through the Transaction Reporting System, within 90 seconds after execution, last sale reports of transactions in designated securities executed during the hours of the Transaction Reporting System. Transactions not reported within 90 seconds after execution shall be designated as late.
      (2) Non-Registered Reporting Members shall transmit through theTransaction Reporting System, or if such system is unavailable, via Telex,TWX or telephone to the NASDAQ Department in New York City, within 90 seconds after execution, last sale reports of transactions in designated securities executed during the trading hours of the Transaction Reporting System unless all of the following criteria are met:
      (A) The aggregate number of shares of designated securities which the member executed and is required to report during the trading day does not exceed 1,000 shares; and,
      (B) The total dollar amount of shares of designated securities which the member executed and is required to report during the trading day does not exceed $25,000; and,
      (C) The member's transactions in designated securities have not exceeded the limits of (A) or (B) above on five or more of the previous ten trading days.
      Transactions not reported within 90 seconds after execution shall be designated as late. If the member has reason to believe its transactions in a given day will exceed the above limits, it shall report all transactions in designated securities within 90 seconds after execution; in addition, if the member exceeds the above limits at any time during the trading day, it shall immediately report and designate as late any unreported transactions in designated securities executed earlier that day.
      (3) Non-Registered Reporting Members shall report weekly to the NASDAQ Department in New York City, on a form designated by the Board of Governors, last sale reports of transactions in designated securities which are not required by Paragraph (2) to be reported within 90 seconds after execution.
      (4) All members shall report weekly to the NASDAQ Department in New York City, on a form designated by the Board of Governors, last sale reports of transactions in designated securities executed outside the trading hours of the Transaction Reporting System.
      (5) All trade tickets for transactions in designated securities shall be time-stamped at the time of execution.
      (b) Which Party Reports Transaction
      (1) In transactions between two Registered Reorting Market Makers, only the member representing the sell side shall report.
      (2) In transactions between a Registered Reporting Market Maker and a Non-Registered Reporting Member, only the Registered Reporting Market Maker shall report.
      (3) In transactions between two Non-Registered Reporting Members, only the member representing the sell side shall report.
      (4) In transactions between a member and a customer, the member shall report.
      (c) Information To Be Reported
      Each last sale report shall contain the following information:
      (1) NASDAQ symbol of the designated security;
      (2) Number of shares (odd lots shall not be reported);
      (3) Price of the transaction as required by Paragraph (d) below.
      (d) Procedures For Reporting Price and Volume
      Members which are required to report pursuant to Paragraph (b) above shall transmit last sale reports for all purchases and sales in designated securities in the following manner.
      (1) For agency transactions, report the number of shares and the price excluding the commission charged.
      Example: SELL as agent 100 shares at 40 less a commission of $12.50; REPORT 100 shares at 40.
      (2) For dual agency transactions, report the number of shares only once, and report the price excluding the commission charged.
      Example: SELL as agent 100 shares at 40 less a commission of $12.50; BUY as agent 100 shares at 40 plus a commission of $12.50; REPORT 100 shares at 40.
      (3) For principal transactions, except as provided below, report each purchase and sale transaction separately and report the number of shares and the price. For principal transactions which are executed at a price which includes a mark-up, mark-down or service charge, the price reported shall exclude the mark-up, mark-down or service charge. Such reported price shall be reasonably related to the prevailing market, taking into consideration all relevant circumstances including, but not limited to, market conditions with respect to the security, the number of shares involved in the transaction, the published bids and offers with size at the time of the execution (including the reporting firm's own quotation), the cost of execution and the expenses involved in clearing the transaction.
      Example: BUY as principal 100 shares from another member at 40 (no mark-down included);
      REPORT 100 shares at 40.
      Example: BUY as principal 100 shares from a customer at 39-7/8, which includes a 1/8 mark-down from prevailing market of 40;
      REPORT 100 shares at 40.
      Example: SELL as principal 100 shares to a customer at 40-1/8, which includes a 1/8 mark-up from the prevailing market of 40;
      REPORT 100 shares at 40.
      Example: BUY as principal 10,000 shares from a customer at 39-3/4, which includes a 1/4 mark-down or service charge from the prevailing market of 40;
      REPORT 10,000 shares at 40.
      Exception:
      A "riskless" principal transaction in which a member that is not a market maker in the security after having received from a customer an order to buy, purchases the security as principal from another member or customer to satisfy the order to buy or, after having received from a customer an order to sell, sells the security as principal to another member or customer to satisfy the order to sell, shall be reported as one transaction in the same manner as an agency transaction, excluding the mark-up or mark-down.
      Example: SELL as principal 100 shares to another member at 40 to fill an existing order; BUY as principal 100 shares from a customer at 40 minus a mark-down of $12.50; REPORT 100 shares at 40.
      (e) Transactions Not Required To Be Reported
      The following types of transactions shall not be reported:
      (1) transactions executed through the Computer Assisted Execution System ("CAES");
      (2) odd-lot transactions;
      (3) transactions which are part of a primary distribution by an issuer or of a registered secondary distribution (other than "shelf distributions") or of an unregistered secondary distribution;
      (4) transactions made in reliance on Section 4(2) of the Securities Act of 1933;
      (5) transactions where the buyer and seller have agreed to trade at a price substantially unrelated to the current market for the security, e.g., to enable the seller to make a gift;
      (6) purchases or sales of securities effected upon the exercise of an option pursuant to the terms thereof or the exercise of any other right to acquire securities at a pre-established consideration unrelated to the current market.
      (f) Aggregation of Transaction Reports
      (1) Under the following conditions, individual executions of orders in a security at the same price may be aggregated, for transaction reporting purposes, into a single transaction report.
      (A) Orders received prior to the opening of the reporting member's market in the security and simultaneously executed at the opening. Also, orders received during a trading or quotation halt in the security and executed simultaneously when trading or quotations resume. In no event shall a member delay its opening ore resumption of quotations for the purpose of aggregating transactions.
      Example: A firm receives, prior to its market opening, several market orders to sell which total 10,000 shares. All such orders are simultaneously executed at the opening at a reported price of 40. REPORT 10,000 shares at 40.
      (B) Simultaneous executions by the member of customer transactions at the same price, e.g., a number of limit orders being executed at the same time when a limit price has been reached.
      Example; A firm has several customer limit orders to sell which total 10,000 shares at a limit price of 40. That price is reached and all such orders are executed simultaneously. REPORT 10,000 shares at 40.
      (C) Orders relayed to the trading department of the reporting member for simultaneous execution at the same price.
      Example: A firm purchases a block of 50,000 shares from an institution at a reported price of 40. REPORT 50,000 at 40.
      Subsequently, one of the firm's branch offices transmits to the firm's trading department for execution customer buy orders in the security totaling 12,500 shares at a reported price of 40. REPORT 12,500 at 40.
      Subsequently, another branch office transmits to the firm's trading department for execution customer buy orders totaling 15,000 shares in the security at a reported price of 40. REPORT 15,000 at 40.
      Example: Due to a major change in market conditions, a firm's trading department receives from a branch office for execution customer market orders to sell totaling 10,000 shares. All are executed at a reported price of 40. REPORT 10,000 at 40.
      (D) An influx of orders received by the trading department of the reporting member which are impractical to report individually and are executed at the same price within 60 seconds of execution of the initial transaction; provided, however, that no individual order of 5,000 shares or more may be aggregated in a transaction report and that the aggregated transaction report shall be made within 90 seconds of the initial execution reported therein. Furthermore, it is not permissible for a member to withhold reporting a trade in anticipation of aggregating the transaction with other transactions.
      Examples: A reporting member receives and execute the following orders at the following times and desires to aggregate reports to the maximum extent permitted under this rule.
      First Example

      11:01:00

      500 shares at 40

      11:01:05

      500 shares at 40

      11:01:10

      4,000 shares at 40

      11:01:15

      500 shares at 40


      REPORT: 5,500 shares at 40 within 90 seconds of 11:01.
      Second Example

      11:01:00

      100 shares at 40

      11:01:10

      6,000 shares at 40

      11:01:30

      300 shares at 40


      REPORT: 400 shares within 90 seconds of 11:01 and 6,000 shares within 90 seconds of 11:01:10 (individual transactions of 5,000 shares or more must be reported separately).
      Third Example

      11:01:00

      100 shares at 40

      11:01:15

      500 shares at 40

      11:01:30

      200 shares at 40

      11:02:30

      400 shares at 40


      REPORT: 800 shares at 40 within 90 seconds of 11:01 and 400 shares at 40 within 90 seconds of 11:02:30 (the last trade is not within 60 seconds of the first and must, therefore, be reported separately).
      (2) The reporting member shall identify aggregated transaction reports and order tickets of aggregated trades in a manner directed by the Corporation.

      * NASDAQ symbols are proprietary to the National Association of Securities Dealers, Inc.

      ** This issue is scheduled to commence trading in the NASDAQ System concurrently with its designation as a NASDAQ/NMS security on December 16, 1986.

      *** This company was originally scheduled to enter NASDAQ/NMS on December 2, 1986. It has been rescheduled to enter on December 16, 1986.

      * New language is underscored; deleted language is bracketed.

      1/ Defined as a NASDAQ registered market maker in the security.

      2/ In the case of dual agency transactions where customers are on both sides, the member reports one transaction exclusive of commissions.


    • 86-85 Request for Comments on Proposed Amendments to Article II, Sections 3, 4 and 5 of the NASD By-Laws

      TO: All NASD Members and Other Interested Persons

      LAST DATE FOR COMMENT: JANUARY 5, 1987.

      EXECUTIVE SUMMARY

      The NASD requests comments on proposed amendments to Article II, Sections 3, 4 and 5 of the NASD By-Laws. The amendments would require controlling persons of a firm liquidated under the Securities Investor Protection Act of 1970 (SIPA) to undergo eligibility proceedings pursuant to the NASD Code of Procedure prior to becoming associated, or continuing in association, with an NASD member firm.

      The NASD believes that these amendments would provide an additional measure of protection for public customers and members from possible future misconduct by persons who have had control relationships with firms that have been liquidated under SIP A. The text of the proposed amendments is attached.

      BACKGROUND

      Since the adoption of the Securities Investor Protection Act of 1970, the NASD has been involved in regulating the financial and operational condition of the majority of NASD members. Currently, with an overall membership of approximately 6,700 firms, the NASD is the designated examining authority for financial responsibility pursuant to SEC Rule 17d-l for approximately 6,300 firms. In that capacity, the NASD has established comprehensive early-warning surveillance programs to closely monitor the financial and operational condition of its designated members, including computerized analysis of FOCUS I and n reports.

      In its role as designated examining authority, it has been the NASD's experience that the liquidation of a broker-dealer typically involves violations of net capital and recordkeeping rules. While these violations result in disciplinary proceedings against the firm and its controlling persons and the imposition of appropriate sanctions, which may include suspensions or bars, such sanctions may not be imposed or become effective until well after the controlling persons of the liquidated firm have become associated with other NASD member firms. On several occasions, the Board of Governors and the staff of the Securities Investor Protection Corporation (SIPC) have expressed concern at the ease with which individuals who have had responsibility for the liquidation of a member firm by SIPC become affiliated in a similar responsible role with another member firm.

      Under these circumstances, the Board believes that a close review of the past and proposed activities of the controlling persons of a liquidated broker-dealer, prior to the approval of such person's associations with other member firms, would provide an additional measure of protection for public customers and member firms from possible future misconduct by such persons.

      PROPOSED AMENDMENTS

      The NASD Board of Governors is publishing for comment proposed amendments to Article II, Sections 3, 4 and 5 of the NASD By-Laws that would authorize the NASD to examine the involvement of specified control persons in, and their responsibility for, the activities that led to the liquidation of a broker-dealer, prior to approving the association, or continued association of such persons, with another member firm.

      Under the proposed amendments, a person who was an officer, director, general partner, financial and operations principal, owner of 10 percent or more of the voting securities, or a controlling person (or a person performing similar functions) of a broker-dealer at the time SIPA proceedings were instituted, or whose association with the broker-dealer was terminated within six months prior to the institution of SIPA proceedings, would be ineligible to become associated with an NASD member firm. In the event that a person's association with the liquidated broker-dealer was terminated prior to the institution of liquidation proceedings and he had become associated with another broker-dealer in the interim, he would be ineligible to continue in association with that broker-dealer.

      The proposed amendments would require an ineligible person to undergo eligibility proceedings pursuant to Article VII of the NASD Code of Procedure. Article VII provides for application by an ineligible person for association with a member firm, consideration of the application by a panel designated by the Board of Governors, which may involve a hearing, and the issuance of a written decision by the Board of Governors.

      The purpose of the eligibility proceedings is to determine the ineligible person's fitness to become associated or continue in association with a member firm and in what capacity. For example, a person who exercised supervisory or financial and operational responsibilities at a broker-dealer that was liquidated may be found to be qualified for a retail sales position, but not well suited for additional supervisory or financial and operational responsibilities.

      National Association of Securities Dealers, Inc.
      1735 K Street, N.W.
      Washington, D.C 20006
      (202) 728-8000

      TO: SOES Subscribers

      FROM: SOES Operations

      DATE: December 1, 1986

      SUBJECT: SOES Message Enhancement

      The NASD Market Services, Inc. Board of Directors and the SOES Users Committee are pleased to announce a modification to the Small Order Execution System (SOES) to take effect December 12, 1986.

      SOES Cancellation Message:

      A new on-line screen/print message has been introduced to SOES which identifies a cancelled execution report. Upon the acceptance of a SOES Supervisory Cancellation, a screen/print message will be generated to the B partition of the originating order entry and market making terminals.

      The cancellation message for Order Entry firms will appear as follows:

      SCXO:

      OEID

      11/14

      XYZ

      1234

      B

      1000

      ABCD

      9 3/8

      MMID

      10:50

      The code SCXO identifies a SOES cancellation report for a purchase of 1000 ABCD @ 9 3/8 for the order entry firm OEID. The message will appear on the B partition of the terminal from which the order was entered. XYZ 1234 is the identifier and sequence number of the order. MMID is the market maker with whom the order was executed. The trade was cancelled on 11/14 at 10:50 a.m.

      The cancellation message for Market Makers will appear as shown below:

      SCXM:

      MMID

      11/14

      S

      1000

      ABCD

      9 3/8

      OEID

      10:50

      XYZ

      1234

      The code SCXM identifies a SOES cancellation report for a sale of 1000 ABCD @ 9 3/8 for the market maker MMID. The message will appear on the B partition of the terminal to which the order was routed. OEID is the order entry firm with whom the order was executed. XYZ 1234 is the identifier and sequence number of the execution. The trade was cancelled at 10:50 a.m. on 11/14.

      NOTE: All cancellation reports will continue to appear in the execution file scan (SX). In addition, under the new modification cancellations will now automatically adjust total trade and share data on the trade statistic file (SQ)

      Computer to Computer Interface:

      The CTCI Cancellation message will utilize the same message format used for a SOES execution. The message will repeat the original trade with an indicator on line 3 denoting that the message is a cancellation. Questions regarding CTCI interface should be directed to Jack Donlon, New York Automation, (212) 839-6375.

      If you have any questions regarding the above modification, please contact SOES Operations at (212) 839-6210.

      Symbol*

      Company

      Location

      BFSB

      BFS Bancorp, Inc.

      Bristol, CT

      BOS A

      Boston Acoustics, Inc.

      Peabody, MA

      LTTL

      Carole Little, Inc.

      Los Angeles, CA

      CRES

      Crestmont Federal Savings & Loan Association

      Springfield, NJ

      IT AN

      InterTAN, Inc

      Fort Worth, TX

      PHBK

      Peoples Heritage Savings Bank

      Portland, ME

      PLRS

      Polaris Industries, Inc.

      Minneapolis, MN

      PLTZC

      Pulitzer Publishing Company

      St. Louis, MO

      RFED

      Roosevelt Federal Savings & Loan Association

      Chesterfield, MO

      SGLO

      Sigallo Ltd.

      New York, NY

      TLMN

      Talman Home Federal Savings and Loan Associaton of Illinois

      Chicago, IL

      TRUS

      Trust America Service Corp.

      Petersburg, FL

      UNMAA

      Uni-Marts. Inc. (Cl A)

      State College, PA

      NASDAQ/NMS Interim Additions

      Symbol*

      Security

      Date of Entry

      A Gil

      Argonaut Group, Inc.

      11/13/86

      IRWN

      Irwin Magnetic Systems, Inc

      11/13/86

      HIII

      Harman International Industries, Inc.

      11/14/86

      NSSB

      Norwich Savings Society (The)

      11/14/86

      CLIC

      Clairson International Corporation

      11/18/86

      HDRP

      HDR Power Systems, Inc.

      11/19/86

      FARR

      Farragut Mortgage Company, Inc.

      11/20/86

      HMSB

      Home Savings Bank (The)

      11/20/86

      SPAIB

      Strategic Planning Associates, Inc. (Cl B)

      11/20/86

      MRCH

      Merchants Grouo. Inc.

      11/21/86

      The following changes to the list of NASDAQ/NMS securities occurred since November 7, 1986:

      NASDAQ/NMS Symbol* And/Or Name Changes

      New/Old Symbol*

      New/Old Security

      Date of Change

      IMATW/IMATW

      Imatron, Inc. (11/12/90 Wts)/ Imatron, Inc. (08/02/88 Wts)

      11/10/86

      NASDAQ/NMS Deletions

      Symbol*

      Security

      Date

      PWST

      Paewest Bancorp

      11/10/86

      PHCI

      Peak Health Care, Inc.

      11/10/86

      DPWR

      Datapower, Inc.

      11/11/86

      EPICC

      Environmental Processing, Inc.

      11/11/86

      EPIWC

      Environmental Processing, Inc. (Wts)

      11/11/86

      OLOG

      Offshore Logistics, Inc.

      11/11/86

      UOBI

      United Oklahoma Bancshares, Inc.

      11/11/86

      STWBW

      Statewide Bancorp (Wts)

      11/12/86

      WBBC

      Webb Company (The)

      11/13/86

      ALST

      American List Corporation

      11/14/86

      RHDS

      Rhodes, Inc.

      11/14/86

      CJOCZ

      California Jockey Club (Paired Certificates)

      11/17/86

      CFCC

      Carteret Savings Bank

      11/18/86

      ITELP

      Itel Corporation (Pfd)

      11/18/86

      MUTS

      Mutual Saving's Life Insurance Company

      11/18/86

      Any questions regarding this notice should be directed to Ms. Kit Milholland, Senior Analyst, NASDAQ Operations, at (202) 728-8281. Questions pertaining to trade reporting rules should be directed to Mr. Leon Bastien, Assistant Director, Market Surveillance, at (202) 728-8192.

      Sincerely,

      Gordon S. Macklin
      President

      8.

      Filling of Vacancies on Board

      40

      9.

      Meetings of Board

      41

      10.

      Offices of Corporation

      41

      11.

      District Committees

      41

      12.

      Term of Office of District Committeemen

      42

      13.

      Election of District Committeemen

      42

      14.

      Filling of Vacancies on District Committees

      45

      15.

      Meetings of District Committees

      45

      16.

      Election of Chairmen and Other District Officers

      46

      17.

      Advisory Council

      46

      18.

      Expenses of District Committees

      46

      19.

      District Committees Agencies of Corporation

      46

      20.

      Certain Functions of District Committees

      47

      21.

      Nominating Committees

      47

      22.

      Term of Office of Nominating Committeemen

      48

      23.

      Election of Nominating Committees

      48

      24.

      Filling of Vacancies for Nominating Committees

      50

      25.

      Meetings of Nominating Committees

      51

      26.

      Election of Chairman and Other Nominating Committee Officers

      51

      Article VIII

      Officers and Employees

      1.

      Election of Officers of the Board

      51

      2.

      Officers of the Corporation

      52

      3.

      Absence of President

      52

      4.

      Employment of Counsel

      53

      5.

      Administrative Staff

      53

      6.

      Restrictions on Compensation of Board and Committee Members

      53

      Article IX

      Committees

      1.

      National Standing Committees

      54

      2.

      District Standing Committees

      54

      3.

      Removal of Committeemen

      55

      4.

      Executive Committee

      55

      Article X

      Rules of Fair Practice

      1.

      Authority to Adopt Rules and V Amendments - Submission to Members - Voting on Rules and Amendments

      56

      2.

      Power of the Board

      58

      3.

      Disciplinary Proceedings

      59

      Article XI

      Uniform Practice Code

      1.

      Authority to Adopt Code

      61

      2.

      Administration of Code

      62

      3.

      Transactions Subject to Code

      62

      Article XII

      Limitation of Powers

      1.

      Prohibitions

      68

      2.

      Use of Name of Corporation by Members

      69

      3.

      Unauthorized Expenditures

      69

      Article XIII

      Procedure for Adopting Amendments to By-Laws

      69

      Article XIV

      Corporate Seal

      70

      Article XV

      Checks

      70

      Article XVI

      Annual Financial Statement

      71

      [new language is underlined; deleted language is stricken through]

      BY-LAWS

      ARTICLE I

      Definitions

      Sec:3 When used in these By-Laws, and any rules of the Corporation, unless the context otherwise requires, the term;

      (a) "Act" means the Securities Exchange Act of 1934 as amended;
      (e)
      (c)
      (b) The term 'tank" means (A) (1) a banking institution organized under the laws of the United States, (B) (2) a member bank of the Federal Reserve System, (C) (3) any other banking institution, whether incorporated or not, doing business under the laws of any State or of the United States, a substantial portion of the business of which consists of receiving deposits or exercising fiduciary powers similar to those permitted to national banks under Section ll(k) of the Federal Reserve Act, as amended, and which is supervised and examined by a. State or Federal authority having supervision over banks, and which is not operated for the purpose of evading the provisions of this title the Act, and (D) (4) a receiver, conservator, or other liquidating agent of any institution or firm included in clauses (A) (1) {B) (2) or (C) (3) of this paragraph subsection;
      (c) "branch office," including a corporate subsidiary of a member, means an office located in the United States which is owned or controlled by a member, and which is engaged in the investment banking or securities business.
      (a)
      (d) The term "broker" means any individual, corporation, partnership, association, joint stock company, business trust, unincorporated organization or other legal entity engaged in the business of effecting transactions in securities for the account of others, but does not include a bank;
      (e) "Commission" means the Securities and Exchange Commission;
      (f) "Corporation" means the National Association of Securities Dealers, Inc.;
      "Dealer"
      (b)
      (g) The term "dealer" means any individual, corporation, partnership, association, joint stock company, business trust, unincorporated organization or other legal entity engaged in the business of buying and selling securities for his own account, through a broker or otherwise, but does not include a bank, or any person insofar as he buys or sells securities for his own account, either individually or in some fiduciary capacity, but not as part of a regular business;
      "Investmcnt banking or securities business"
      (e)
      (h) The term "investment banking or securities business" means the business, carried on by a broker, or dealer, or municipal securities dealer (other than a bank or department or division of a bank) of underwriting or distributing issues of securities, or of purchasing securities and offering the same for sale as a dealer therein, or of purchasing and selling securities upon the order and for the account of others; provided, however, that the term "investment banking or securities business" shall shaft not include transactions on regularly organized exchanges, but such term shaft include aft business relating to such transactions to the extent that such business is not conducted by a member of such exchanger or by any person or organization having the privilege of any such exchange for itself or any of its partners or executive officers.
      (d)
      (i) The term "member" means either any broker or dealer admitted to membership in the Corporation; or any officer or partner of such a member or, as provided in section 5 of this Article, the executive representative of such a member or the substitute for such a representative;
      (j) "municipal securities" means securities which are direct obligations of, or obligations guaranteed as to principal or interest by, a State or any political subdivision thereof, or any agency or instrumentality of a State or any political subdivision thereof, or any munieipal corporate instrumentality of one or more States, or any security which is an industrial development bond as defined by Section 3(a)(29) of the Act;
      (k) "municipal securities dealer" means any person, except a bank or department or division of a bank, engaged in the business of buying and selling municipal securities for his own account, through a broker or otherwise, but does not include any person insofar as he buys or sells securities for his own account either individually or in some fiduciary capacity but not as a part of a regular business; "Person associated with a member"
      (f)
      (1) The term "person associated with a member" or "associated person of a member" means every sole proprietor, partner, officer, director, or branch manager of any member, or any natural person occupying a similar status or performing similar functions, or any natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by such member, whether or not any such person is registered or exempt from registration with the Corporation pursuant to these By-Laws;
      "Registered Broker; Dealer or Municipal Securities Dealer"
      (m) "registered broker, dealer or municipal securities dealer means any broker, dealer or municipal securities dealer which is registered with the Commission under the Act;
      (n) "rules of the Corporation" means all rules of the Corporation including the Rules of Fair Practice, Code of Procedure, Uniform Practice Code, and any interpretations thereunder.

      Explanation

      The added language at the beginning of the Article and the new definition of ['rules of the Corporation" in subsection (n) are intended to make clear that the definitions in the By-Laws also apply to terms used in the Rules of Fair Practice and other Association rules.

      The new terms "municipal securities" and "municipal securities dealer" in subsections (j) and (k) parallel the statutory definitions added by the Securities Acts Amendments of 1975 bringing this class of security and type of dealer under regulation by the Commission and the Association. The definition of "registered broker, dealer or municipal securities dealer" is included because under the 1975 Act Amendments only broker/dealers registered with the SEC are eligible for membership. The new definitions in subsections (a), (e) and (f) and amendments to certain existing definitions are for clarity. The definition of "branch office" has been transferred from existing Article I, Section 11 of the By-Laws.

      [All of new Article II is taken from the existing provisions of Sections 1 and 2 of Article I, and has been substantially rewritten for clarity and to conform to the Securities Acts Amendments of 1975.]

      ARTICLE I II

      Membership Qualifications of Members and Associated Persons

      Qualifications for Membership Persons Eligible to become Members and Associated Persons of Members

      Sec. 1. (a) Any registered broker, or dealer or municipal securities dealer authorized to transact, and whose regular course of business consists in actually transacting any branch of the investment banking or securities business in the United States, under the laws of any State and/or the laws of the United States, shall be eligible to for membership in the Corporation, except such registered brokers, or dealers or municipal securities dealers as which are excluded pursuant to Section 2 of this Article under the provisions of Sections 3(a) or (b) of this Article.

      (b) Any person shall also be eligible to become an associated person of a member, except such persons who are excluded under the provisions of Section 3(b) of this Article.

      Explanation

      Subsection (a) is similar to existing Article I, Section 1 of the By-Laws, but incorporates the limitation of Sections 15A(g)(l) of the 1934 Act that only registered broker/dealers are eligible for membership in the Association. The new reference to municipal securities dealers, when read with the definition of the term in proposed Article I, subsection (j) of the By-Laws, makes clear that only non-bank municipal securities dealers are eligible for membership in conformity with the regulatory scheme for municipal securities established under the Securities Acts Amendments of 1975.

      Subsection (b) is entirely new and conforms to the requirement of Section 15A(b)(3) of the 1934 Act that the rules of the Association must provide that, with certain exceptions, any person may become associated with a member.

      Restrictions on Admission to or Continuance in Membership

      Sec (2) (a) No broker or dealer, except with the approval or at the direction of the Securities and Exchange commission (hereinafter referred to in these By-laws as the Commission), in cases m which the commission finds it appropriate m the public interest so to approve or direct pursuant to Section l5A of the Securities Exchange Ac of 1934; as amended (hereinafter referred to as the Act), shall be admitted to or continued in membership in the Corporation if such broker or dealer, whether prior or subsequent to becoming such, (A) has been and is suspended or expelled from a registered national or affiliated securities association, registered pursuant to Section 15A of the Act, or from a national securities exchange, registered pursuant to Section 6 of the Act, or has been and is barred or suspended from being associated with all members of such association or national securities exchange for violation of any rule of such registered securities association or national securities exchange which prohibits any act or transaction constituting conduct inconsistent with just and equitable principles of trade, or requires any act the omission of which constitutes conduct inconsistent with just and equitable princlples of trade; or (B) is subject to an order of the 60m mission denying, suspending or revoking his registration pursuant to Section 15 of the Act, or expelling or suspending him from membership m a registered securities association or a national securities exchange, or barring or suspending hfm from being associated with a broker or dealer; or (C) by his conduct while associated with a broker or dealer, was a cause of any suspension; expulsion; or order of the character described in clauses (A) or (B), which is m effect with respect to such broker or dealer, or (D) has associated with him any person who is known; or in the exercise of reasonable care should be known, to htm to be a person who, if such person were a broker ordealer; would be ineligible for admission to our continuance in membership under clauses (A), (B), or (C) of this section.

      (b) No broker or dealer shall be admitted to or continued in membership in the Corporation if the Board of Governors deems it appropriate, unless the Commission directs otherwise in cases m which the Commission rinds it appropriate m the public interest so to direct, it such broker or dealer, whether prior or subsequent to becoming such, or any person associated with such broker or dealer, whether prior or subsequent to becoming so associated, has been and is suspended or expelled from a national securities exchange or has been and is barred or suspended from being associated with all members of such exchange, for violation of any rule of such exchange.
      (c) In those cases where the Board of Governors deems it appropriate, no broker or dealer shaft be admitted to or continued m membership m the corporation it such broker or dealer, whether prior or subsequent to becoming such, or any person associated with such broker or dealer, whether prior or subsequent to becoming so associated, (A)- has will fully made or caused to be made in any application or report filed with the Corporation, or in any proceeding before the Corporation with respect to membership or registration, any statement which was at the time and in light of the circumstances under which it was made false or misleading with respect to any material fact, or has omitted to state in any such application or report any material fact which is required to be stated therein, or (B) has been convicted within the ten years preceding the filing of an application or at any time thereafter of any felony or misdemeanor which the corporation finds involves the purchase or sale of any security or arises out of the conduct of the business of a broker, dealer or investment adviser, or which involves embezzlement, fraudulent conversion, or misappropriation of funds or securities, or which involves mail fraud, or fraud by wire, radio, or television, or, (C)- is permanently or temporarily enjoined by order, judgment or decree of any court of competent jurisdiction from acting as an investment adviser, underwriter, broker, or dealer, or as an affiliated person or employee of any investment company, bank or insurance company, or from engaging in or continuing any conduct or practice in connection with such activity, or in connection with the purchase or sale of any security.

      Authority of Board to Adopt Qualification Requirements

      (d)Sec. 2 No broker or dealer shaft be admitted to or continued in membership and no natural person shaft become or continue to be associated with a member, except with the approval or at the direction of the commission in cases in which the commission finds it appropriate in the public interest so to approve or direct, unless such broker or dealer or person associated with a member is qualified to become a member or a person associated with a member in conformity with specified and appropriate standards with respect to the training, experience, and such other qualifications as the Board of Governors finds necessary or desirable, and in the case «of a member, the financial responsibility of such member. The Board of Governors shall have authority to adopt rules and regulations applicable to applicants for membership, members and persons associated with applicants or members establishing specified and appropriate standards with respect to the training, experience, competence and such other qualifications as the Board of Governors finds necessary or desirable, and in the case of an applicant for membership or a member, standards of financial responsibility and operational capability.

      In establishing and applying such standards, the Board of Governors may classify members and persons associated with such members, taking into account relevant matters, including the nature, extent and type of business done being conducted and of securities sold, dealt in, or otherwise handled. The Board of Governors may specify that all or any portion of such standards shall be applicable to any such class and may require the persons in any such class to be registered with the Corporation.

      Such classifications, qualifications, registration requirements, standards and exceptions thereto shaft be incorporated in Schedule C attached to and made a part of these By-Laws. Within the limitations provided herein, the Board of Governors shaft have the power to adopt, alter, amend, supplement or modify the provisions of Schedule "C" from time to time without recoarse to the membership for approval as wooid otherwise be required by Article IX hereof, and Schedule "C", as adopted, altered, amended, supplemented or modified, shall become effective as the Board of Governors may prescribe unless disapproved by the Commission. The Board of Governors may from time to time make changes in such rules, regulations and standards as it deems necessary or appropriate. Neither the adoption nor any change in such standards need be submitted to the membership for approval and such rules, regulations and standards as adopted or amended shall become effective at such time as the Board of Governors may prescribe.

      Explanation

      The provision is based upon existing Article I, Section 2(d) of the By-Laws, but has been rewritten primarily for clarity and to be consistent with other provisions of the By-Laws. Article I, Sections 2(a), (b) and (c) have been completely replaced by new sections 3 and 4 below. It is proposed that the content of existing Schedule C will be moved to a different portion of the Manual.

      Ineligibility of Certain Persons for Membership or Association

      Sec. 3. (a) No registered broker, dealer or municipal securities dealer shall be admitted to membership, and no member shall be continued in membership, if such broker, dealer, municipal securities dealer or member fails or ceases to satisfy the qualification requirements under Section 2 of this Article, or if such broker, dealer, municipal securities dealer or member is or becomes subject to a disqualification under Section 4 of this Article.

      (b) No person shall become associated with a member, or continue to be associated with a member, or transfer association to another member, if such person fails or ceases to satisfy the qualification requirements of Section 2 of this Article, or if such person is or becomes subject to a disqualification under Section 4 of this Article; and no broker, dealer or municipal securities dealer shall be admitted to membership, and no member shall be continued in membership, if any person associated with it is ineligible to be an associated person under this subsection.
      (c) If it deems it appropriate, the Board of Governors, upon notice, may cancel the membership of a member if it becomes ineligible for continuance in membership under subsection (a) hereof, may suspend or bar a person from continuing to be associated with any member if such person is or becomes ineligible for association under subsection (b) hereof, and may cancel the membership of any member who continues to associate with any such ineligible person.
      (d) Any broker, dealer or municipal securities dealer which is ineligible for admission into membership, or any member which is ineligible for continuance in membership, may file with the Board of Governors an application requesting relief from the ineligibility pursuant to procedures adopted by the Board of Governors and contained in the Corporation's Code of Procedure. The Board of Governors may, in its discretion, approve the admission or continuance of an applicant or member, or the association of any person, if the Board determines that such approval is consistent with the public interest and the protection of investors. Any approval hereunder may be granted unconditionally or on such terms and conditions as the Board considers necessary or appropriate. In the exercise of the authority granted hereunder, the Board of Governors may:
      (i) conduct such inquiry or investigation into the relevant facts and circumstances as it, in its discretion, considers necessary to its determination, which, in addition to the background and circumstances giving rise to the failure to qualify or disqualification may include the proposed or present business of an applicant for membership or a member, conditions of association of any prospective or presently associated person, among other matters;
      (ii) permit, in limited types of situations, a membership or association with a member pending completion of its inquiry or investigation, and its final determination, based upon a consideration of relevant factors, and may classify situations taking into account the status of brokers, dealers and municipal securities dealers as applicants or existing members and of persons as prospective or presently associated persons of members; the type of disqualification or failure to qualify; whether a member or associated person has been the subject of a previous approval and the terms and conditions thereof; and any other relevant factors; and
      (iii) delegate any of its functions and authority under this subsection (d) to appropriate committees of the Corporation or to Corporation staff members.
      (e) An application filed under subsection (d) hereof shall not foreclose any action which the Board of Governors is authorized to take under subsection (e) hereof until approval has been granted.
      (f) Approval by the Board of Governors of an application made under subsection (d) may not, under certain circumstances, take effect until the Commission has indicated its acquiesence under the Act.

      Explanation

      The provision is a complete revision and consolidation of existing By-law provisions concerning ineligibility for membership or association with a member. The changes are primarily clarifying.

      Subsection (a) carries forward the existing prohibitions of Article I, Section 2 of the By-laws and provides that no applicant or member shall be admitted or continued in membership if there is a failure to satisfy examination and other qualification requirements, or the applicant or member is subject to a disqualification as that term is defined by Section 4. Subsection (b) imposes similar standards of ineligibility upon prospective and presently associated persons, and also carries forward existing language under which a member becomes ineligible for continuance in membership if it allows an ineligible person to become or remain associated with the member.

      Subsection (c) grants authority to the Board of Governors to summarily cancel the membership of a member or suspend or bar a person from continuing to be associated with a member in cases where a member or person becomes ineligible under subsections (a) and (b). The provision carries forward substantially the existing language of Article I, Section 13(b) of the By-laws and is designed to make the ineligibility provisions of subsections (a) and (b) effective in the event of a failure to voluntarily comply with the prohibitions thereunder.

      Subsection (d) is based upon existing Article I, Section 13(c) of the By-Laws, but considerably expands upon and codifies the scope of the Board's authority as it has been carried out in practice. The provision's introductory language states, in substance, that notwithstanding an ineligibility, any applicant for membership or member has a right to make application to the Board requesting approval of its admission or continuance in membership. It carries forward existing practice by requiring an application to be made by a member where an ineligibility concerns an associated person in recognition of the importance of supervision to a determination to approve or deny association. It also makes explicit the Board's authority to impose conditions on any approval where such appears necessary or appropriate.

      The remaining language of the provision is entirely new to the By-laws, but reflects existing practice. Subsection (d)(i) authorizes the Board to conduct an investigation in such depth as it deems necessary to any determination to approve. Subsection (d)(ii) gives the Board authority to deal with the variety of ineligibility situations which experience has demonstrated are likely to occur and to adopt policies or guidelines therefor concerning such matters as employment, admission and continuance in membership during the time period involved in reaching a final determination. Subsection (d)(iii) recognizes the substantial number of ineligibility situations which must be handled in the course of a year and authorizes the Board to delegate some of its responsibility to appropriate committees or the Association's staff.

      Subsection (e) is intended to clarify that a pending application for approval does not, by itself, foreclose the Board from exercising its authority to summarily cancel a membership or bar an association if it deems such action necessary or appropriate. Subsection (f) incorporates the provisions of Section 15A(g)(2) of the Act, and Commission rules and regulations thereunder, that under certain circumstances the Association is required to notify the Commission of any approval with respect to persons who are ineligible by virtue of a disqualification.

      Definition of Disqualification

      See. 4. A person is subject to a "disqualification" with respect to membership, or association with a member, if such person;

      Commission and Self-Regulatory Organizaton Disciplinary Sanctions

      (a) has been and is expelled or suspended from membership or participation in, or barred or suspended from being associated with a member of, any self-regulatory organization,
      (b) is subject to an order of the Commission denying, suspending or revoking its registration as a broker, dealer, or municipal securities dealer or barring his being associated with a broker, dealer, or municipal securities dealer;
      (c) by his conduct while associated with a broker, dealer, or municipal securities dealer has been found to be a cause of any effective suspension, expulsion or order of the character described in subsections (a) or (b) of this Section; or
      (d) has associated with him any person who is known, or in the exercise of reasonable care should be known, to him to be a person described in subsections (a), (b), or (c) of this Section.

      Misstatements

      (e) has willfully made or caused to be made in any application for membership in the Corporation, or to become associated with a member of the Corporation, or in any report required to be filed with the Corporation, or in any proceeding before the Corporation, any statement which was at the time, and in light of the circumstances under which it was made, false or misleading with respect to any material fact, or has omitted to state in any such application, report, or proceeding any material fact which is required to be stated therein;

      Convictions

      (f) has been convicted within ten years preceding the filing of any application for membership in the Corporation, or to become associated with a member of the Corporation, or at any time thereafter, of any felony or misdemeanor which;
      (i) involves the purchase or sale of any security, the taking of a false oath, the making of a false report, bribery, perjury, burglary, or conspiracy to commit any such offense;
      (ii) arises out of the conduct of the business of a broker, dealer, municipal securities dealer, investment adviser, bank, insurance company or fiduciary;
      (iii) involves the larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion, or misappropriation of funds or securities; or
      (iv) involves the violation of Sections 152, 1341, 1342, or 1343 or Chapters 25 or 47 of Title 18, United States Code; or

      Injunctions

      (g) is permanently or temporarily enjoined by order, judgment, or decree of any court of competent jurisdiction from acting as an investment adviser, underwriter, broker, dealer, or municipal securities dealer, or as an affiliated person or employee of any investment company, bank, or insurance company, or from engaging in or continuing any conduct or practice in connection with any such activity, or in connection with the purchase or sale of any security.

      Explanation

      The provision parallels the definition of statutory disqualification in Section 3(a)(39) of the 1934 Act, added by the Securities Acts Amendments of 1975. It is somewhat broader than the types of disqualifications in existing Article I, Sections 2(aMc) of the By-Laws because of the broader language of the statute.

      ARTICLE I III

      Membership

      Application for Membership

      Sec. 4 1. (a) Application for membership in the Corporation, properly signed by the applicant, shall be made to the Board of Governors Corporation, on the form to be prescribed by the Board and shall contain: Membership agreement

      (1) Aan acceptance of and an agreement to comply with all the provisions of By-Laws, the rules of the Corporation as they are or may from time to time be adopted or amended, and all rulings, orders, directions and decisions of, and penalties sanctions imposed by, the Board of Governors or any duly authorized committee,, the provisions of the federal securities laws, including the rules and regulations adopted thereunder, and the rules of the Municipal Securities Rulemaking Board; provided, however, that such an agreement shall not be construed as a waiver by the applicant of any right to appeal as provided in the Act.;
      (2) Aan agreement to pay such dues, assessments, and other charges in the manner and amount as shall from time to time be fixed by the Board of Governors pursuant to these By-Laws.;
      (3) Aan agreement that neither the Corporation, nor any officer or employee thereof, nor any member of the Board of Governors or of any Ddistrict or othere eommittee, shall be liable, except for willful malfeasance, to the applicant or to any member of the Corporation or to any other person, for any action taken by such officer or member of the Board of Governors or of any Ddistrict or other Ccommittee, in his official capacity, or by any employee of the corporation while acting within the scope of his employment or under instruction of any officer, board, or committee of the Corporation, in connection with the administration or enforcement of any of the provisions of the By-Laws, and any of the rules and regulations of the Corporation as they are or may from time to time be adopted, changed or amended, or any ruling, order, directive, decision of, or penalty imposed by, the Board of Governors or any duly authorized committee, the provisions of the federal securities laws, including the rules and regulations adopted thereunder, and the rules of the Municipal Securities Rulemaking Board; and
      (4) Ssuch other reasonable information with respect to the applicant as the Board of Governors may require.

      Action on Application for Membership

      (b) Any application received by the Board of Governors Corporation shall be referred to the District Committee of the district in which the applicant has his principal place of business, and if a majority of the members of such District Committee are satisfied determine that the applicant ts qualified for membership pursuant to the provisions has satisfied all of the admission requirements of this Article II of the By-Laws, its hall recommend the applicant's admission to membership and promptly notify the Secretary of the Corporation of such recommendation.
      (c) If a majority of the members of such District Committee are not satisfied determine that the applicant is qualified for membership under any provision fails to satisfy all of the admission requirements of this Article II of the By-Laws, it shall promptly notify the Secretary of the Corporation who shall thereafter take appropriate action pursuant to Article I Section ta of these By-Laws.

      Signing of the By-Laws

      (d) Every applicant whose admission to membership is accepted by the Board of Governors shaft sign the By-Laws of the Corporation, provided that the signature of any such appiicant may be affixed to an instrument incorporating the By-Laws by reference and shaft become a member of the Corporation as at of the date when posted to the membership roll.
      (d) Each member is required to insure that its membership application with the Corporation is kept current at all times by supplementary amendments to its original application.

      Explanation of Proposed Changes

      Subsection (a) has been amended to conform to Sections 15A(b)(7) and 19(g) of the 1934 Act, added by the Securities Acts Amendments of 1975 which provide that the Associaton shall enforce compliance by its members with, in addition to its own rules, the 1934 Act, Commission rules and regulations thereunder and rules of the Municipal Securities Rulemaking Board. The amendments to subsections (b) and (c) are intended to more clearly express the existing procedure followed by the District Committees in reviewing membership applications. New subsection paragraph (d) simply makes explicit that members have an obligation to keep their membership applications current. This obligation is implicit under existing requirements.

      Similarity of Membership Names

      Sec. 2. (a) No person or firm shall be admitted to or continued in membership in the Corporation having a name which is idential to the name of another member appearing on the membership roll of the Corporation or a name so similar to any such name as to tend to confuse or mislead;

      (b) No member may change its name without the prior approval of the Corporation.

      Explanation

      The effect is to convert an existing resolution of the Board of Governors into a By-Law provision.

      Executive Representative

      Sec. 5 3. (a) Each member shall appoint and certify to the Secretary of the Corporation one "executive representative" who shall represent, vote and act for the member in all the affairs of the Corporation, except that other executives of a member may also hold office in the Corporation, serve on the Board of Governors or committees of the Corporation, or otherwise take part in the affairs of the Corporation. A member may change its executive representative at wtli upon giving written notice thereof to the Secretary, or may, when necessary, appoint, by written notice to the Secretary, a substitute for its executive representative. An executive representative of a member or a substitute shall preferably be an executive officer of the member, if a corporation, a partner in case of a partnership, and the member himself if an individual, but he may be an employee of the member, if given authority to act for the member in the course of the Corporation's activities.

      (b) Each member shall appoint and certify to the Secretary of the Corporation one "district executive representative" for each district other than the one in which the main office is located in which the member maintains a registered branch office who shall represent, vote and act for the member in all the affairs of the Corporation in such district, except that other executives of a member may also serve on a district committee or district business conduct committee, or otherwise take part in the affairs of the Corporation. A member may change its district executive representative by giving written notice thereof to the Secretary, or may, when necessary, appoint by written notice to the Secretary, a substitute for its district executive representative.

      Explanation

      New subsection (b) concerning appointment by members of a "district executive representative" is a reworded and slightly more detailed statement of a part of the Explanation of the Board of Governors which appears under Article I, Section n of the present By-Laws.

      Membership Roll

      Sec. 6 4. The Secretary of the Corporation shall keep a currently accurate and complete membership roll, containing the name and address of each member, and the name and address of the executive representative of each member and the district executive representatives, if any, of each member. In any case where a membership has been terminated, such fact shall be recorded, together with the date on which the membership ceased. The membership roll of the Corporation shall at all times be available to all members of the Corporation, to all governmental authorities, and to the general public.

      Explanation

      The section is amended to conform to new subsection 2(b) above.

      Resignation of Members—Effective Date

      Sec. 75

      (a) Membership in the Association may be voluntarily terminated only by formal resignation. Resignations of members must be in writing and addressed to the Board of Governors, Corporation which shall immediately notify the appropriate District Committee. Any member may resign from the Corporation at any time. Such resignation shall not take effect until thirty (30) days after receipt thereof by the Board of Governors Corporation and until all indebtedness due the Corporation from such members shall have been paid in full and so long as any complaint or action is pending against the member and so long as any examination of such member is in process. The Board of Goverernors, Corporation, however, may in its discretion declare a resignation effective at any time.
      (b) Retention of Jurisdiction - A resigned member shall continue to be subject to the filing of a complaint by the Corporation based upon conduct which commenced prior to the effective date of the member's resignation from the Corporation. Any such complaint, however, shall be filed within one year after the effective date of the resignation.

      Transfer and Termination of Membership

      Sec 8 6. (a) No individual, corporation or partnership which is a member of the Corporation may sell or transfer his or its membership or any right arising therefrom as a result of any consolidation, merger, reorganization, change of partners, name change, or otherwise, except that the consolidation, merger, change of name, or reorganization of any corporation which is a member of the corporation or any change in the name or membership of a partnership which is a member of the Corporation, shafi not be deemed to constitute a transfer, except as otherwise herein provided. Aft rights of a member in the Corporation or in its property shall cease apon the termination of his membership. In the case of an individaai member, his membership shall forthwith cease apon his death. In the case of the liquidation or winding ap of a corporation or partnership whieh is a member of the Corporation, its membership shatt forthwith cease provided that att obligations of membership ander the By-Laws and Roles of Fair Practice have been fulfilled, and unless except where the business of any such individual or corporation or partnership is to be carried on by a successor organization or organizations, and the predecessor corporation organization shall so represent to the Board of Governors, Corporation in which case the membership of any such individual or corporation or partnership shall be extended to such successor organization or organizations with the consent of the Board of Governors Corporation and subject to such terms and conditions as the Board deems equitable and appropriate in the circumstances.

      (b) All rights of a member in the Corporation shall cease upon termination of membership. The membership of an individual shall terminate upon his death and the membership of a corporation or partnership shall terminate upon its liquidation or winding up provided that all obligations of membership under the By-Laws and rules of the corporation have been fulfilled, unless the business of the member is to be carried on by a successor organization, and the predecessor organization shall so represent to the Corporation, in which case the membership shall be extended to such successor organization with the consent of the Corporation and subject to such terms and conditions as the Corporation deems equitable and appropriate in the circumstances. The membership of an individaai may be extended to a successor organization with the consent of the Board of Governors and subject to sach conditions as the Board deems suitable and appropriate in the circumstances. The membership of any partnership shall not terminate by reason of the death or withdrawal of any partner, the addition of any new partner, or any change of namet provided, however, that the new partnership formed thereby shatt continue in the investment banking or securities business and shaft possess the qualifications required for membership in the Gorportren. The consolidation or reorganization or merger or change of name of any corporate member shaft not terminate the membership of such corporate member, provided, however, that the new corporation formed thereby shatt continue in the investment banking or securities business and shatt possess the qualifications required for membership in the Corporation. The Board of Governors, however, shatt have the right to require any successor firm or firms, whether corporations or partnerships, to sign or execute the By-Laws, or otherwise confirm their membership in the Corporation.

      Explanation

      This section is largely rewritten in order to clarify the intent. Subsection (a) prohibits a member from transferring its membership unless this occurs in connection with a merger, consolidation, reorganization or similar event and the business of the member is to be carried on by a successor organization. Subsection (b) provides that all rights of a member in the Corporation shall cease upon termination of membership unless the business of the member is carried on by a successor organization in which case the successor shall succeed to the rights and obligations of the member.

      Registration of Branch Offices

      Sec. 9 7(a) Each branch office of a member of the Corporation shall register be registered with, and be listed upon the membership roll of, the Corporation, and shall pay such dues, assessments and other charges as shall be fixed from time to time by the Board of Governors pursuant to Article III hereof of the By-Laws.

      (b) Each member of the Corporation shall promptly advise the Board of Governors of the opening or closing of any branch office of such member.

      Explanation

      Subsection (b) is new and incorporates the Board of Governors Resolution under Article I, Section 9 of the existing By-Laws. The other changes are for clarity.

      Vote of Branch Offices

      Sec. 10 8 A registered branch office of a member of the Corporation shatt entitle such member Each member of the Corporation having a registered branch office shall be entitled to one vote on all matters pertaining solely to the district in which such registered branch office is located (including the election of members to the Board of Governors from such district); provided, however, that if any member of the Corporation shall have more than one registered branch office in a district, or its principal office and one or more registered branch offices in a district, such member shall be entitled to only one vote in such district.

      Explanation

      The changes are for clarity.

      Definition of "Branch Office"

      Sec11 The term "branch office" as used in Section 9 of this Article, including a corporate subsidiary of a member, is defined to be an office which is located in the United States which is owned or controlled by the member, and which is engaged in the investment banking or securities business as defined.

      Explanation

      The definition has been transferred to new Article I, subsection (c) of the By-Laws.

      District Committees' Right to Classify Branches

      Sec. 12 9 A District Committee may classify any branch or corporate subsidiary of a member not meeting the requirements of Section 11 9 of this Article as a "branch office" if such Committee is satisfied that the requirements of Section 11 9 of this Article are substantially met and that the business of said branch or subsidiary in the district is of sufficient importance to justify such a classification.

      Membership Continuance Proceeding

      Sec 13 (a) A member shaH retain its membership in the Corporation only so long as the Board of Governors deems that it possesses all of the qualifications for membership, and a broker or dealer seeking membership may, if the Board of Governors deems it appropriate, be denied admission therein if it is subject to any of the disqualifications provided in this Article.

      (b) If the corporation has reason to believe there is a disqualification) the member or broker or deaier shaft be promptly notified in writing of the specific grounds of such disqualification from or denial of membership, if it deems it approptate, the Board of Govenors may summarily cancel the membership of a member if it becomes subject to any or the disqualifications provided vi this Article or if it continues to associate with a person who puts subject to any or the same disquaiiiicaxions.
      (c) Any member or broker or dealer may make an application to the Corporation requesting continuance in or admission to membership notwithstanding the disqualification* tt an application ts filed wrth the fe-orporation* the applicant and any person whose association with the applicant gives or would give rise to the disqualification shaft be given an opportunity to be heard with respect to the application and shaft demonstrate why the application should be granted. If requested, or if directed by the Corporation, a hearing shaft be held before a committee comprised of at least one member of the appropriate Distict Committee and at least one member of the Board of Governors, and a record shaft be kept. Such committee shaft make a recommendation as to the application which shaft be forwarded to the Board of Governors together with the record.
      (d) The Board of Governors shaft make a written determination upon the record before it, setting forth therein the specific grounds upon which such determination is based and the conditions, if any, as to the continuance in or admission to membership it considers appropriate.
      (e) The Board of Governors shaft promptly notify the applicant of any action taken. When appropriate, an application shaft be promptly filed with the Commission pursuant to Section t&A of the Act. Any applicant or person who is aggrieved by the action of the Board of Governors may make application for review of such action to the Commission pursuant to Section r&A of the Act.

      Explanation

      The existing provisions have been incorporated into proposed Article II, Section 3 of the By-Laws and the proposed Code of Procedure previously circulated to the membership for comment and currently on file with the Commission for approval.

      ARTICLE XV IV

      Registration of Registered Representatives and Associated Persons

      "Registered Representative"

      Sec1. The term "registered representative" means any person associated with a member who has demonstrated his qualifications to engage in the investment banking or securities business regardless or his designation as either a principal or a representative of the member pursuant to the provisions of Schedule "C" of these By-Laws.

      Explanation

      The definition is being eliminated because portions of this Article are applicable to unregistered associated persons and because the persons required to be registered are already defined by Schedule C to the By-Laws.

      eompHanee with Schedule "C"

      Qualification Requirements

      Sec. 2 1. No member shall permit any person associated with such member to engage in the investment banking or securities business unless the member determines that such person has complied with the applicable provisions of Schedule "C" if applicabie Article II of the By-Laws.

      Explanation

      The changes are primarily for clarity and to reflect the broadened scope of this Article to the By-Laws as noted in the comment above.

      Application for Registration

      Sec 32. (a) Application by any person for registration with the Corporation, properly signed by the applicant, shall be made to the Board of Governors, Corporation, on the form to be prescribed by the Board of Governors and shall contain:

      (1) A an acceptance of and an agreement to abide by, comply with, and adhere to, all the provisions, conditions and covenants of the Sertifieate of incorporation, the By-Laws, the rates and regtriations rules of the Corporation as they are or mayfrom time to time be adopted, changed or amended, and all rulings, orders, directions and decisions of, and penalties imposed by, the Board of Governors or any duly authorized committee, the provisions of the federal securities laws, including the rules and regulations adopted thereunder, and the rules of the Municipal Securities Rulemaking Board; provided, however,that such an agreement shall not be construed as a waiver by the applicant of any right to appeal as provided in the Act.;
      (2) A an agreement that neither the Corporation, nor any officer or employee thereof, nor any member of the Board of Governors or of any District or other Committee, shall be liable except for willful malfeasance, to the applicant or to any member of the Corporation or to any other person, for any action taken by such officer, or member of the Board of Governors or of any District or other Committee in his official capacity, or by any employee of the Corporation while acting within the scope of his employment, or under instruction of any officer, board, or committee of the Corporation, in connection with the administration or enforcement of any of the provisions of the By-Laws, any of the rates or regulations rules of the Corporation as they are or may from time to time be adopted, changed or amended, as any ruling, order, direction, decision of, or penalty imposed by, the Board of Governors or any duly authorized committee, the provisions of the federal securities laws, including the rules and regulations adopted thereunder, or the rules of the Municipal Securities Rulemaking Board.; and
      (3) Ssuch other reasonable information with respect to the applicant asthe Board of Governors Corporation may require.
      (b) The Board of Governors Corporation shall not accept an application for registration of any person who would not be qualified to be a member under the provisions of Section 2 of Article I Section 3(b) of Article II of these By-Laws or who has failed to comply with the applicable requirements of Schedule "C."
      (c) Every applicant whose application for registration is accepted by the Board of Governors shall sign the By-Laws of the Corporation provided that the signature of any such applicant may be affixed to an instrument incorporating the By-Laws by reference and shall become registered as of the date of any sach acceptances
      (c) Each registered person is required to insure that the application for registration with the Corporation is kept current at all times by supplementary amendments to the original application.

      Explanation

      The section has been amended to conform to sections 15A(b)(7) and 19(g) of the 1934 Act, added by the Securities Acts Amendments of 1975 which provide that the Association shall enforce compliance by associated persons of members with, in addition to its own rules, the '34 Act, Commission rules and regulations thereunder and rules of the Municipal Securities Rulemaking Board. Subsection (c) is deleted because persons associated with members are required to comply with the By-Laws irrespective of whether they have signed them.

      Voluntary Resignation of Registered Representative

      Sec 4(a) Registration with the Corporation of any person associated with a member may be voluntarily terminated at any time but only by formal resignation in writing and addressed to the Board of Governors. The Board of Governors shall immediately notify the member employing such person. Such resignation (subject to Section - shall not take effect until 3-& days after receipt by the Board of Governors of such written resignation or so long as any complaint or action is pending against a member and to which complaint or action such person associated with the member is also a respondent, or so long as any complaint or action is pending against such person individually or so long as any examination of the member or person associated with such member is in process. The Board of Governors, however, may in its discretion declare the resignation effective at any timer

      (b) A person whose association with a member has been voluntarily terminated pursuant to subsection (a)- hereof, shaH continue to be subject to the filing of a complaint by the Corporation based upon conduct which commenced prior to the effective date of voluntary termination. Any such complaint, however, shall be filed within one year after the effective date of such termination.

      Explanation

      The provision is no longer consistent with existing practice. Although the Association forwards resignations from registered persons to an employer-member, it will only process terminations received directly from members.

      Notification by Member to Board Corporation of Termination

      Sec 5 (a)3 No person associated with a member who is registered with the corporation may transfer his registration or any right arising therefromT Promptly upon, but in no event later than thirty (30) calendar days after Following the termination of the association with a member of a person who is registered with it, such member shall promptly, but in no event later than thirty (30) calendar days after such termination, give written notice to the Association on a form designated by the Board of Governors of the termination of such association. A member who does not submit such notification in writing within the time period prescribed shall be assessed a late filing fee as specified by the Board of Governors. Termination of registration (subject to Section 6) of such person associated with a member shall not take effect until thirty O& days after receipt thereof by the Board of Governors nor so long as any complaint or action is pending against a member and to which complaint or action such person associated with a member is also a respondent, or so long as any complaint or action is pending against such person individually or so long as any examination of the member or person associated with such member is in process. The Board of Governors, however, may in its discretion declare the resignation termination effective at any time.

      (b) A person whose association with a member is terminated pursuant to subsection tar hereof, shaft continue to be subject to the filing of a complaint by the corporation based upon conduct which commenced prior to the effective date of termtn-attonv Any such complaint, however, shall be filed within one year after the effecive date of such termination.

      Explanation

      The deleted language under existing subsection (b) has been moved to new Section 4.

      subject to oomplaint or Action

      Sec 6 Any person associated with a member of the Gorporation shall be subject to any complaint or action brought against such person individually and/or against any member with whom he has at any time been associated.

      Explanation

      The provision appears redundant in light of other provisions of the By-Laws. [New Section 4 is a complete rewording of existing Sections 4(b) and 5(b) of Article XV of the By-Laws. ]

      Retention of Jurisdiction

      Sec. 4. A person whose association with a member has been terminated shall continue to be subject to the filing of a complaint by the Corporation based upon conduct which commenced prior to the termination, but any such complaint shall be filed within one (1) year after the effective date of termination. For purposes hereof, the effective date of termination shall mean the effective date of termination of registration pursuant to Sections 3 or 4 above or, in the case of an unregistered person, the date upon which such person ceased to be associated with any member.

      Explanation

      The new section incorporates the provisions of present Sections 4(b) and 5(b) which authorize the Association to file complaints against former registered persons of members within a year of the effective date of termination of registration. The provision has also been extended to apply to complaints filed against former associated persons who were never required to be registered because of the nature of their duties with a member.

      ARTICLE II V

      Affiliates

      Qualifications for Affiliation

      Sec. 1. Any association of brokers or dealers, registered with the Commission as an affiliated securities association under the provisions of Section 15A of the Act, may become an affiliate of the Corporation as hereinafter provided in this Article.

      Application for Admission as Affiliate

      Sec. 2. Application for admission as an affiliate shall be made to the Board of Governors in writing, in such form as the Board of Governors may prescribe, and shall contain a certified copy of the application to the Commission for registration as an affiliated securities association, a certified copy of the order of the Commission granting such registration, and such other reasonable information as the Board of Governors may require.

      Agreement of Affiliate

      Sec. 3. No applicant may become an affiliate of the Corporation unless it agrees:

      (a) That it will classify its members, for purposes of levying dues and assessments, on the same basis as that applicable to members of the corporation and that the amount of dues or assessments payable by each of its members for any given period, based on such classification, shall not be lower than that payable by a member of the Corporation in the same class for the comparable period; provided, however, that if by reason of the special type of business conducted by members of an applicant, the foregoing agreement is impracticable of application to such applicant, such applicant shall agree that it will fix and levy dues or assessments payable by its members on some other basis to be agreed upon by the applicant and the Board of Governors of the Corporation, which shall be fair and equitable in view of the dues and assessments payable by members of the Corporation.
      (b) That it will pay the Corporation annually, in the form of dues or otherwise, for services to be rendered by the Corporation to the applicant, the amount to be agreed upon by the applicant and the Board of Governors of the Corporation annually in advance, and that should the applicant and the Corporation be unable to reach an agreement as to an appropriate amount, the applicant will consent to the submission of the controversy to the Commission for arbitration, and that if submitted, it will abide by the Commission's decision thereon;
      (c) That, after affiliation, it will at all times keep its charter, by-laws, rules of fair practice and code of procedures so integrated with the corresponding Charter, By-Laws, Rules of Fair Practice and Code of Procedure of the Corporation as not to conflict in any way therewith; and
      (d) That the Board of Governors, in accordance with the provisions of Section 6 of this Article, may at any time suspend or cancel its affiliation with the Corporation.

      Conditions of Affiliation

      Sec. 4. No applicant may become an affiliate of the Corporation unless it appears to the Board of Governors:

      (a) That such applicant is so organized and is of such a character as to be able to comply with and carry out its purposes, and those of the Corporation and of Section 15A of the Act; and
      (b) That the charter, by-laws, rules of fair practice and code of procedure of the applicant are so integrated with the corresponding Charter, By-Laws, Rules of Fair Practice and Code of Procedure of the Corporation as not to conflict in any way therewith.

      Approval of Admission as an Affiliate

      Sec 5. If it appears to the Board of Governors that the foregoing requirements of this Article are met by the applicant, it shall approve such applicant's admission as an affiliate; otherwise, after appropriate notice and opportunity for hearing, it shall disapprove such application in writing and shall set forth therein the specific grounds upon which such disapproval is based.

      Suspension or Cancellation of Affiliation

      Sec 6. The Board of Governors may at any time suspend or cancel the affiliation of an affiliate with the Corporation if the Board of Governors finds that the affiliate has ceased to be of such a character as to be able to or has failed to carry out its purposes or the purposes of Section t&A of the Act, or has failed to carry out any of the conditions of affiliation. In any proceeding, however, under this Section to determine whether the affiliation of an affiliate should be suspended or canceled, specific charges shall be brought; such affiliate shall be notified of, and be given an opportunity to defend against, such charges; a record shall be kept; and any determination that the affiliation of an affiliate shall be suspended or canceled shall be in writing and shall set forth therein the specific grounds upon which such determination is based. Such suspension or expulsion shall take effect upon the 60th day after the filing with the Commission of notice thereof and a copy of the record of the proceedings before the Board of Governors, unless within thirty days after such filing such suspension or cancellation is disapproved by the Commission.

      Exclusion of Territory Covered by Affiliated Association

      Sec. 7. The Board of Governors shall, if it deems such action to be in the interest of efficient and economical administration and desirable in carrying out the purposes of Section t&A of the Act, recommend appropriate changes in the By-Laws to exclude the territory covered by an affiliate association from the geographical area covered by the Corporation.

      ARTICLE III VI

      Dues, Assessments and Other Charges

      Power of Board to Fix and Levy Assessments

      Sec 1. The Board of Governors shall prepare an estimate of the funds necessary to defray reasonable expenses of administration in carrying on the work of the Corporation each fiscal year, and on the basis of such estimate, shall fix and levy the amount of admission fees, dues, assessments and other charges to be paid by members of the Corporation and issuers and any other persons using any facility or system which the Corporation operates or controls. Fees, dues, assessments and other charges shall be called and payable as determined by the Board of Governors from time to time; provided, however, that such charges shall be equitably allocated among members and issuers and any other persons using any facility or system which the Corporation operates or controls. In the event of termination of membership or the extension of any membership to a successor organization during any fiscal year for which an assessment has been levied and become payable, the Board of Governors may make such adjustment in the fees, dues, assessments or other charges payable by any such member or successor organization or organizations during such fiscal years as it deems fair and appropriate in the circumstances. The amount of admission fees, dues, assessments and other charges to be paid by the membership to the Corporation shall be set forth in Schedule A attached to and made a part of these By-fcaws. The Board of Governors may from time to time make such changes in Schedule A such fees, dues, assessments and other charges as it deems necessary or appropriate to assure equitable allocation of dues among members. Neither the adoption nor any No such change in Schedule A such fees, dues, assessments and other charges need be submitted to the membership for approval to become effectivey as would otherwise be required by Article IX hereof, but any such proposed change shall be filed with the bom mission tn accordance with section t&A of the Acty and unless it is disapproved by the Commission as therein provided, it and such fees, dues, assessments and other charges as adopted or amended shall become effective at such time as the Board of Governors may prescribe.

      Explanation

      The amendments conform to Section 15A(b)(5) of the 1934 Act, added by the Securities Acts Amendments of 1975, which authorizes the Association to impose charges upon, in addition to its members, issuers and persons using any facility or system operated or controlled by the Association. It is proposed that Schedule A will be moved to a new portion of the Manual.

      Reports of Members

      Sec. 2. (a) Each member, issuer or other person shall promptly furnish all information or reports requested by the Board of Governors in connection with the determination of the amount of admission fees, dues, assessments or other charges payable by members during any given fiscal year.

      (b) Each member shall report promptly such information in connection with securities for which quotations are displayed on the NASDAQ System as the Board of Governors deems appropriate.

      Explanation

      The provision has been expanded to reflect NASDAQ issuer fees.

      Suspension or Cancellation of Membership for Non-Payment of Dues

      Sec. 3. The Board of Governors, after fifteen (15) days notice in writing, may suspend or cancel the membership of any member in arrears in the payment of any fees, dues, assessments or other charges or for failure to furnish any information or reports requested pursuant to Section 2 of this Article.

      Reinstatement of Membership

      Sec. 4 4. Any membership suspended or canceled under this Article may be reinstated by the Board of Governors upon such terms and conditions as it shall deem just; provided, however, that any applicant for reinstatement shall possess the qualifications required for membership in the Corporation.

      Membership List Showing Dues-Paying Classification

      Sec. 5 5. As soon as practicable after the annual levy provided for in Section 1 of this Article, the Secretary of the Corporation shall prepare a list of the members of the Corporation which shall disclose the dues-paying classification of each member and such list shall be available for inspection by any member of the Corporation or his duly authorized representative during business hours at the main office of the Corporation.

      Explanation

      The change is purely grammatical.

      ARTICLE IV VII

      Organization and Administration

      Administrative Districts

      Sec. 1. For the purpose of administration, the several states of the United States are is hereby divided into districts, the boundaries of which are set forth in Schedule B, appended hereto shall be established by the Board of Governors. The Board of Governors may from time to time make such changes in Schedule B the boundaries as it deems necessary or appropriate. Neither the establishment nor any No such change in Schedule B the boundaries need be submitted to the membership for approval, as would otherwise be required by Article IX hereof, and the boundaries, as established or changed, but a copy of any such proposed change shall be filed with the Commission in accordance with Section 15A ofthe Act and unless it is disapproved by the Commission as therein provided, it shall become effective as at such time as the Board of Governors may prescribe.

      Explanation

      The changes are largely technical. It is also proposed that the content of Schedule B will be transferred to a new portion of the Manual where all the By-Law schedules will appear together.

      Powers and Authority of Board of Governors

      Sec 2. (a) The management and administration of the affairs of the Corporation shall be vested in a Board of Governors composed of thirty-one members, twenty-one to be elected by the members of the various district in accordance with the provisions of Sections 3(a) through (e), of this Article, nine to be elected by the Board of Governors in accordance with the provisons of Sections 3(f), (g) and (h) of this Article, and the President of the Corporation to be selected by the Board of Governors in accordance with the provisions of Article V VIII, Section 2.

      (b) The Board of Governors shall be the governing body of the Corporation and, except as otherwise provided by these By-Laws, shall be vested with all powers necessary for the management and administration of the affairs of the Corporation and the promotion of the Corporation's welfare, objects and purposes. In the exercise of such powers, the Board of Governors may, shall have the authority to:
      (1) adopt for submission to the membership, as hereinafter provided, such By-Laws, Rules of Fair Practice and changes or additions thereto as it deems necessary or appropriate;
      (2) make such regulations, issue such orders, resolutions, interpretations and directions, and make such decisions as it deems necessary or appropriate;
      (3) prescribe maximum penalties for violations of the provisions of these By-Laws, the roles and regulations and rules of the Corporation, for neglect or refusal to comply with orders, directions and decisions of the Board of Governors or of any District Committee or other Committee,, or for violation of any rule or regulation adopted by any Bistriet Sommttteer as provided in Section 2 of Article VII hereof, and
      (4) prescribe a code of arbitration procedure providing for the required or voluntary arbitration of controversies between members and between members and customers or others as it shall deem necessary or appropriate to the extentconsistent with law, and neither the adoption nor any amendments to the code need be submitted to the membership for approval and the code and any amendments thereto shall become effective as the Board of Governors may prescribe;
      (5) establish rules and procedures to be followed by members in conneetion with the distribution of securities issued by members and affiliates thereof ,and neither the adoption nor any amendments to such rules and procedures need be submitted to the membership for approval and such rules and procedures and any amendments thereto shall become effective as the Board of Governors may prescribe;
      (6) require all over-the-counter transactions in securities between members to be cleared and settled through the facilities of a clearing agency registered with the Commission pursuant to the Act, which clears and settles such over-the-counter transactions in securities;
      (7) engage in any activities or conduct necessary or appropriate to carry out the Corporation's purposes under its Certificate of Incorporation and the federal securities laws; and
      (c) The Board of Governors shaft have the authority to establish rules and procedures to be followed by members in connection with the distribution of issues of securities in a member corporation and affiliates thereof- as defined by the Board of Governors, Such rules and procedures shall be incorporated into Schedule E to be attached to and made a part of these By-Lawsr The Board of- Governors shall have the power to adopt, alter, amend, supplement or modify the provisions of Schedule E from time to time without recourse to the membership for approval as would otherwise be required by Article tK hereof- and Schedule E, as adopted, altered, amended, supplemented or modified shaft become effective as the Board of Govenors may prescribe unless disapproved by the Commission.
      (8) organize and operate automated systems to provide qualified subscribers with securities information and automated services. The systems may be organized and operated by a division or subsidiary company of the Corporation or by one or more independent firms under contract with the Corporation as the Board of Governors may deem necessary or appropriate. The Board of Governors may adopt rules for such automated systems, establish reasonable qualifications and classifications for members and other subscribers, provide standards for securities, and establish charges to be collected from subscribers and others. The Board of Governors shall have power to adopt, amend, supplement or modify such rules, qualifications, classifications, standards and charges from time to time without recourse to the membership for approval, and such rules, qualifications, classifications, standards and charges shall become effective as the Board of Governors may prescribe.
      (d) In the event of the refusal, failure, neglect or inability of any member of the Board of Governors to discharge his duties, or for any cause affecting the best interests of the Corporation the sufficiency of which the Board of Governors shall be the sole judge, the Board shall have the power, by the affirmative vote of two-thirds of the Governors then in office, to remove such member and declare his position vacant and that it shall be filled in accordance with the provisions of Section 7 of this Article.

      Explanation

      The authority of the Board to establish automated systems in new subsection (c) has been transferred from existing Article XVI and new subsection (b)(6) concerning use of clearing agencies has been transferred from existing Article XVII of the By-Laws. New subsection (b)(7) is intended to clarify that the Board has full power to engage in any lawful activities as prescribed by its Certificate of Incorporation and the provisions of the federal securities laws.

      Authority to Suspend for Failure to File Regulatory Reports

      Sec. 3(a) The Board of Governors shall have authority to cancel or suspend the membership of any member or suspend the association of any person associated with a member for failure to file, or to submit on request, any report, document or other information required to be filed with or requested by the Corporation. Before such cancellation or suspension shall become effective, the member or person associated with a member shall be given fifteen (15) days notice in writing thereof.

      (b) The Board of Governors is authorized to delegate the authority herein-above granted to the President of the Corporation; provided, however, that the Executive Committee of the Board of Governors shall be notified in writing of any such contemplated action by the President.

      Explanation

      New subsection (a) makes clear that the Board has authority to suspend or cancel the membership of a firm and suspend the association of a person associated with a member for failure to file any report or other information required to be filed or for failure to honor a request for information. New subsection (b) authorizing the Board to delegate its authority to suspend or cancel parallels the existing procedure under Article IV, Section 5 of the Rules of Fair Practice respecting suspension for refusal by a member to permit inspection of its books and records.

      Representation of Bistriets on Board

      Composition of Board

      Sec. 3 4. The several districts shall be represented on the Board of Governors. The elected members of the Board of Governors shall be chosen as follows:

      (a) Three members of the Board of Governors shall be elected from and by the members of the Corporation having places of business in District No. 2;
      (b) Two members of the Board of Governors shall be elected from and by the members of the Corporation having places of business in District No. 8;
      (c) Five members of the Board of Governors shall be elected from and by the members of the Corporation having places of business in District No. 12;
      (d) Two members of the Board of Governors shall be elected from and by the members of the Corporation having places of business in District No. 13.
      (e) One member of the Board of Governors shall be elected from and by the members of the Corporation having places of business in each of the remaining districts not referred to in paragraphs subsections (a), (b), (c) and (d) of this Section.
      (f) One member of the Board of Governors shall be elected by the Board of Governors from among the principal underwriter members of investment company shares, and he shall be designated Governor-at-Large.
      (g) One member of the Board of Governors shall be elected by the Board of Governors from among insurance company members or insurance company affiliated members of the Association Corporation and he shall be designated Governor-at-Large.
      (h) Seven members of the Board of Governors shall be elected by the Board of Governors and they shall be designated Governors-at-Large. Any Governor-at-Large initially filling a Governor-at-Large office shall be elected at such time as the Board of Governors in its discretion deems appropriate.
      (i) At least one member of the Board of Governors shall be representative of issuers and investors and not be associated with a member, broker or dealer.
      (j) The President of the Corporation shall also serve as a member of the Board of Governors.
      (i)
      (k) The Board of Governors shall, from time to time, consider the fairness of the representation of the various districts on the Board of Governors, and whenever it finds any unfairness in such representation to exist, it shall recommend appropriate changes in these By-laws to assure fair representation of all districts.

      Explanation

      In subsection (g) the word "Association" is deleted and replaced with the word "Corporation" for purposes of consistency. The proposed new subsection (i) implements Section 15A(b)(4) of the Act requiring that at least one member of the Board of Governors shall be representative of issuers and one of investors and shall not be affiliated with a broker/dealer. New subsection (j) has been transferred from existing Article V, Section 2 of the By-Laws.

      Term of Office of Governors

      Sec. 4 5. Each elected member of the Board of Governors, including the Governors-at-Large, except as otherwise herein provided, shall hold office for a term of three years, and until his successor is elected and qualified, or until his death, resignation or removal. The President of the Corporation shall serve as a member of the Board of Governors until his successor is selected and qualified, or until his death, resignation or removal.

      Succession to Office

      Sec. 5 6. The office of a retiring member of the Board of Governors elected under Section 3 subsections (a) through (e) of Section 4 of this Article shall be filled by the election of a member from the same disrict as that of the retiring member. The office of a retiring Governor-at-Large shall be filled by election by the Board of Governors as provided in Section 3 subsections (f), (g) and/or (h) of Section 4 of this Article, as the case may be.

      Election of Board Members

      Sec. 6 7. The elected members of the Board of Governors shall be chosen as follows:

      Procedure for Nominations by Nominating Committees

      (a) Before June 1 of each year, the Secretary of the Corporation shall eause notice to be given to notify in writing the Chairman of the respective District Committees of the expiration of the term of office of any member of the Board of Governors elected under Section 3 subsections (a) through (e) of Section 4 of this Article which will expire during the next calendar year. The said Chairman shall thereupon notify the Nominating Committee elected for such District pursuant to the provisions of Section 2223 of this Article and such Nominating Committee shall proceed to nominate a candidate from such District for the office of each such member of the Board of Governors whose term is to expire. Nominating Committees in nominating candidates for the office of member of the Board of Governors shall endeavor, as nearly as practicable, to secure appropriate and fair representation on the Board of Governors, of all classes and types of firms engaged in the investment banking and securities business,. nNo Nominating Committee shall nominate an incumbent member of the Board of Governors to succeed himself unless it first takes appropriate action (by a written ballot sent to the entire membership within the District) to ascertain that such nomination is acceptable to a majority of the members voting on such ballot in the District except where the incumbent member of the Board of Governors is serving pursuant to the provisions of Section 8(a) of this Article. Each candidate nominated by the Nominating Committee shall be certified to the District Committee by September 1 and within five (5) days thereafter a copy of such certification shall be sent by the District Committee to each member of the Corporation having a place of business in the district. Such candidate shall be designated the "regular candidate."

      Nomination of additional candidates

      (b) Ten per cent or more of the members of the Corporation having places of business in the district may nominate a An additional candidate or candidates may be nominated for the office of any member elected under Section 3 subsections (a) through (e) of Section 4 of this Article, and whose term is to expire, if written notice thereof in writing of the nomination, signed by the required number of members at least ten percent of the members of the Corporation having places of business in the district, is filed with the District Committee within thirty (30) days from the date of the notice of the action taken by the Nominating Committee. If no additional candidate or candidates are nominated within such thirty-day period, the candidate or candidates nominated by the Nominating Committee shall be considered duly elected, and the District Committee shall certify the election to the Board of Governors.

      Contested elections

      (c) If any additional candidate or candidates are nominated, as provided in paragraph subsection (b) of this Section, the District Committee shall forthwith cause the names of the regular candidate and of all other duly nominated candidates for each office to be placed upon a ballot, which shall be sent to all members of the Corporation having places of business in the district. Each member of the Corporation having its principal place of business in the district shall be entitled to one vote, and each member having one or more registered branch offices in the district shall be entitled to vote as provided in Section 10 7 of Article I III. The District Committee shall fix a date before which ballots must be returned to be counted. All ballots shall be opened and counted by such officer or employee of the District Committee as its Chairman may designate and in the presence of a representative of each of the candidates if such representation is requested in writing by any candidate voted upon. The candidate for each office to be filled receiving the largest number of votes cast shall be declared elected to membership on the Board of Governors, and certification thereof shall be made forthwith to the Board of Governors. In the event of a tie, there shall be a run-off election. In all elections held under this paragraph subsection voting shall be made by secret ballot, the procedure for which shall be prescribed by the Board of Governors.

      Explanation

      Subsection (a) would be amended to eliminate the requirement of an advance ballot to the membership before a District Nominating Committee may nominate an incumbent member of the Board to succeed himself in the case where the incumbent is filling a vacancy with an unexpired term of less than one year. The other changes are clarifying.

      Filling of Vacancies on Board

      Sec 7 8. All vacancies in the Board of Governors other than those caused by the expiration of a Governor's term of office, shall be filled as follows:

      (a) If the unexpired term of a Governor elected under Sections 3 subsections (a) through (e) of Section 4 of this Article, is for less than twelve months, such vacancy shall be filled by appointment by the District Committee of a member of the Corporation having a place of business in the same district.
      (b) If the unexpired term of a Governor, elected under Sections 3 subsections (a) through (e) of Section 4 of this Article, is for twelve months or more, such vacancy shall be filled by election, which shall be conducted as nearly as practicable in accordance with the provisions of Section 67 of this Article.
      (c) If the unexpired term is that of a Governor-at-Large, such vacancy shall be filled in accordance with the provisions of Section 3 subsections (f), (g) and/or (h) of Section 4 of this Article as the case may be.

      Meetings of Board

      Sec. 8 9. Meetings of the Board of Governors shall be held at such times and places, upon such notice, and in accordance with such procedure as the Board of Governors in its discretion may determine. A quorum of the Board of Governors shall consist of fourteen a majority of the members, and any action taken by a majority vote at any meeting at which a quorum is present, except as otherwise provided in these By-Laws, shall constitute the action of the Board. Meetings of the Board of Governors may be held by mail, telephone or telegraph, in which case any action taken by a majority vote of the Board of Governors shall constitute the action of the Board. Any action taken by telephonic vote shall be confirmed in writing at a regular meeting of the Board of the Governors.

      Explanation

      The change in the quorum requirement to a majority of the Board members is intended to reflect the fact that the number of Board members has increased in recent years. The other changes are clarifying and to conform to existing practice.

      Offices of Corporation

      Sec.9 10. The Corporation shall maintain such offices as the Board of Governors may from time to time deem necessary or appropriate.

      District Committees

      Sec. 10 11. (a) For the purpose of effectuating a maximum degree of local

      administration of the affairs of the Corporation, each of the districts created under Section 1 of this Article shall elect a District Committee, as hereinafter provided. Each such District Committee shall determine the number of its members so to be elected, but in no event shall any District Committee consist of more than twelve members; provided, however, that the Board of Governors by resolution may increase, upon request, any such District Committee to a larger number.

      (b) In the event of the refusal, failure, neglect or inability of any member of any District Committee to discharge his duties, or for any cause affecting the best interests of the Corporation the sufficiency of which shall be decided by the District Committee, the District Committee shall have the power by the affirmative vote of two-thirds of the members of the District Committee then in office, to remove such member and declare his position vacant and that it shall be filled in accordance wih the provisions of Section 1314 of this Article; provided, however, that any member of any District Committee who has had his position declared vacant in the manner provided herein shall have the right to appeal the determination of the District Committee to the Board of Governors within 30 days after the date he is notified of the action of the District Committee. The Board of Governors shall thereafter have the authority to affirm, reverse or modify the determination of the District Committee. Any such action by the Board shall be by the affirmative vote of at least two-thirds of the governors then in office.
      (c) The District Committees shall also serve as the District Business Conduct Committees for their respective districts.

      Explanation

      The language added by new subsection (c) reflects the fact that the persons who comprise the District Committees and the District Business Conduct Committees are the same persons. The change is made in conjunction with the elimination of existing Section 3 of Article VI of the By-Laws requiring that the District Committees go through the procedure of appointing District Business Conduct Committees.

      Term of Office of District Committeemen

      Sec. 11 12. Each regularly elected member of a District Committee shall hold office for a term of three (3) years, and until his successor is elected and qualified, or until his death, resignation or removal.

      Election of District Committeemen

      Sec. 12 13. Members of the District Committees shall be elected as follows: Procedure for Nominations by Nominating Committees

      (a) Before June 1 of each year, the Secretary of the Corporation shall cause notice to be given to notify in writing the Chairman of the each respective District Committees of the expiration of the term of office of any member of that District Committee which shall expire during the next calendar year. The said Chairman shall thereafter, but not later than July 1, advise the Nominating Committee, which shall proceed to nominate a candidate from their District for the office of each member of the District Committee whose term is to expire. Nominating Committees in nominating candidates for the office of member of the District Committee shall endeavor, as nearly as practicable, to secure appropriate and fair representation on the District Committee of the various sections of the District and of all classes and types of firms engaged in the investment banking or securities business within such District, and.N no Nominating Committee shall nominate an incumbent member of the District Committee to succeed himself unless it first takes appropriate action (by a written ballot of the entire membership within the District) to ascertain that such nomination is acceptable to a majority of the members in the District except where the incumbent member of the District Committee is serving pursuant to the provisions of Section 14(a) of this Article. Each candidate nominated by the Nominating Committee shall be certified to the District Committee, by September 1, and within five (5) days thereafter a copy of such certification shall be sent by the District Committee to each member of the Corporation having a place of business in the District. Such candidate shall be designated the "regular candidate." Nomination of additional candidates
      (b) Ten per cent or more of the members of the Gorporation having places of business in the district may nominate a An additional candidate or candidates may be nominated for the office of any member whose term is to expire or for any new office created by the District Committee pursuant to Section 10 of this Article, if written notice thereof in writing of the nomination, signed by the required number of members at least ten percent of the members of the Corporation having places of business in the district, is filed with the District Committee within thirty (30) days from the date of the notice of the action taken by the Nominating Committee. If no additional candidate or candidates are nominated within such thirty-day period, then the candidate or candidates nominated by the Nominating Committee shall be considered duly elected and the District Comittee shall certify the election to the Board of Governors.

      Contested elections

      (c) If any additional candidate or candidates are nominated, as provided in paragraph (b) of this Section, the District Committee shall forthwith cause the names of the regular candidate for any contested office and of all other candidates for such office to be placed upon a ballot, which shall be sent to all members of the Corporation having places of business in the district. Each member of the Corporation having its principal place of business in the district shall be entitled to one vote, and each member having one or more registered branch offices in the district shall be entitled to vote as provided in Section 10 8 of Article IIII. The District Committee shall fix the date before which ballots must be returned to be counted. All ballots shall be opened by such officer or employee of the District Committee as its Chairman may designate, and in the presence of a representative of each of the candidates if such representation is requested in writing by any candidate voted upon. The candidate for each office to be filled receiving the largest number of votes cast shall be declared elected to membership on the District Committee, and certification therof shall be made forthwith to the Board of Governors. In the event of a tie, there shall be a run-off election. In all elections held under this Section, voting shall be by secret mail ballot, the procedure for which shall be prescribed by the Board of Governors.

      Explanation

      Subsection (a) would be amended to eliminate the requirement for an advance ballot to the membership before a District nominating Committee may nominate an incumbent member of the District Committee to succeed himself in the case where the incumbent is filling a vacancy with an unexpired term of less than one year. The other changes are clarifying.

      Filling of Vacancies on District Committees

      Sec. 13 14. All vacancies in any District Committee other than those caused by the expiration of a member's term of office, shall be filled as follows:

      (a) If the unexpired term of the member causing the vacancy is for less than she twelve months, such vacancy shall be filled by appointment by the remaining members of the District Committee of some member of the Corporation having a place of business in the same distrsict.
      (b) If the unexpired term of the member causing the vacancy is for six twelve months or more, such vacancy shall be filled by election, which shall be conducted as nearly as practicable in accordance with the provisions of Section 1213 of this Article.

      Explanation

      The change in the authority of the District Committees to fill vacancies by appointment is extended to cases where the unexpired term is for less than one year in order to be consistent with the existing authority of the Board to fill vacancies under Article IV, Section 7 of the present By-Laws.

      Meetings of District Committees

      Sec. 14 15. Meetings of each District Committee shall be held at such times and places, upon such notice, and in accordance with such procedure as each District Committee in its discretion may determine. A quorum of a District Committee shall consist of a majority of its members, and any action taken by a majority at any meeting at which a quorum is present, except as otherwise provided in the By-Laws, shall constitute the action of the Committee. Action by a District Committee may be taken by mail, telephonic or telegraphic vote, in which case any action taken by a majority of the Committee shall constitute the action of the Committee. Any action taken by telephonic vote shall be confirmed in writing at a regular meeting of the District Committee.

      Explanation

      The change incorporates desirable practice with respect to confirmation of telephone votes.

      Election of Chairmen and Other District Officers

      Sec. 15 16. Following the annual election of members of the District Committee pursuant to Section 1213 of this Article, each District Committee shall elect from its members a Chairman and such other officers as it deems necessary for the proper performance of its duties under these By-Laws and shall prescribe their powers and duties.

      Advisory Council

      Sec.16 17. (a) The Chairman Chairmen of the several District Committees, elected pursuant to Section 1516 of this Article, shall constitute an Advisory Council to the Board of Governors,.

      (b) Such Advisory Council shall be advised of and entitled to attend such meetings of the Board of Governors as the Board may designate and the Board shall designate at least one such meeting annually, but such The Advisory Council shall not there be entitled to vote at meetings of the Board of Governors.

      Explanation

      The changes are clarifying.

      Expenses of District Committees

      Sec. 17 18. Funds to meet the regular expenses of each District Committee elected pursuant to Section 1213 of this Article, shall be provided by the Board of Governors out of funds collected by it under the provisions of Article III VI hereof, and all such expenses shall be subject to the approval of the Board of Governors.

      District Committees Agencies of Corporation

      Sec. 18 19. The District Committees shall act as the agencies of the Corporation for the administration of its affairs in their respective districts and as such shall have such powers and duties as are provided in the By-Laws or from time to time delegated by the Board of Governors.

      Certain Functions of District Committees

      Sec. 19 20. District Committee shall endeavor, in such manner or through such media as they deem appropriate, to educate members and other dealers in their respective districts as to the objects, purposes and work of the Corporation in order to foster their interest and friendly cooperation. District Committees shall consider the practical operation of all provisions of the Certificate of incorporation, By-Laws, Rules of Fair Practice and Sode of Procedare of the Corporation and rules of the Corporation and shall report to the Secretary any which do not work satisfactorily in their respective districts.

      Explanation

      The changes are primarily to incorporate the new definition of "rules of the Corporation" appearing in Article I, Section (n) hereof.

      Nominating Committees

      Sec.20 21. (a) Each of the Districts created under Section 1 of this Article shall elect a Nominating Committee, as provided in Section 22 23 hereafter of this Article. Each such Nominating Committee shall consist of five members; provided, however, that the Board of Governors by resolution may increase any such Nominating Committee to a larger number. Members of the Nominating Committee in each District shall be members of the Corporation having places of business in the respective District, but shall not be members of the District Committee. All Nominating Committees shall include a majority of persons who have previously served on the District Committee and/or on the Board of Governors and shall, insofar as practicable, include at least one former member of the Board of Governors.

      (b) In the event of the refusal, failure, neglect or inability of any member of any Nominating Committee to discharge his duties, or for any cause effecting the best interest of the Corporation, the sufficiency of which shall be decided by the Nominating Committee, the Nominating committee shall have the power, by the affirmative vote of 3/5 three-fifths of the members of the Nominating Commitee then in office, to remove such member and declare his position vacant and that it shall be filled in accordance with the provisions of Section 2223 of this Article; provided, however, that any member of any Nominating Committee who has had his positon declared vacant in the manner provided herein shall have the right to submit a written appeal in respect to the determination of the Nominating Committee to the Board of Governors within 30 thirty (30) days after the date he is notified in writing of the action of the Nominating Committee. The Board of Governors shall thereafter have the authority to affirm, reverse or modify the determination of the Nominating Committee. A vote of 2/3's two-thirds of the Governors then in office shall be required to reverse or modify the action of the Nominating Committee.

      Explanation

      The changes are proposed for purposes of clarity and to codify a resolution of the Board of Governors adopted at the September 1982 meeting.

      Term of Office of Nominating Committeemen

      Sec. 21 22. Each regularly elected member of a Nominating Committee shall hold office for a term of one (1) calendar year, and until his successor is elected and qualified, or until his death, resignation or removal.

      Election of Nominating Committees

      Sec. 22 23. Members of the Nominating Committee shall be elected as follows: Procedures for Nominations by Nominating Committees

      (a) Before June 1 of each year the Secretary of the Corporation shall cause notice to be given to notify in writing the Chairmen of the respective District Committees as to those members of the District Nominating Committee who were elected for the present year and as to the offices of that Committee that are to be filled by the next election. The said Chairman shall thereupon notify the Nominating Committee elected for such District and the Nominating Committee shall proceed to nominate a candidate from such District for the offices of that Committee which are to be filled by the next election. The Nominating Committee in nominating candidates for the office of member of the Nominating Committee shall endeavor, as nearly as practicable, to secure appropriate and fair representation on the Nominating Committee of the various sections of the District and of all classes and types of firms engaged in the investment banking or securities business within such District and shall assure that the composition of the Nominating Committee meets the standards contained in Section 21(a) of this Article; and.nNo Nominating Committee shall nominate more than two incumbent members of the Nominating Committee to succeed themselves. No member of any Nominating Committee may serve more than two consecutive terms. Each candidate nominated by the Nominating Committee shall be certified to the District Committee, by September 1, and within five (5) days thereafter a copy of such certification shall be sent by the District Committee to each member of the Corporation having a place of business in the District. Such candidate shall be designated the "regular candidate."

      Nomination of Additional Candidates

      (b) Ten percent or more of the members of the eorporatton having places of business in the district may nominate an aAdditional candidate candidates may be nominated for the office of any member whose term is to expire or for any new office created by the Board of Governors pursuant to Section 2021(a) of this Article, provided that election of such candidates would be consistent with the requirements of Section 21(a) of this Article, if written notice thereof in writing of the nomination, signed by the required number of at least ten percent of the members of the Corporation having places of business in the district, is filed with the District Committee within thirty (30) days from the date of the notice to the members of the action taken by the Nominating Committee. If no additional candidate or candidates are nominated within such thirty-day period, then the candidate or candidates nominated by the nominating Committee shall be considered duly elected and the District Committee shall certify the election to the Board of Governors.

      Contested Elections

      (c) If any additional candidate or candidates are nominated, as provided in paragraph (b) of this section, the District Committee shall forthwith cause the names of the regular candidate and all other candidates for any contested office and of att other candidates for sach to be placed upon a ballot, which shall be sent to all members of the Corporation having places of business in the District. Each member of the Corporation having its principal place of business in the District shall be entitled to one vote, and each member having one or more registered branch offices in the District shall be entitled to vote as provided in Section 10 7 of Article IIII. The District Committee shall fix the date before which ballots must be returned to be counted. All ballots shall be opened by such officer or employee of the District Committee as its Chairman may designate, and in the presence of a representative of each of the candidates, if such representation is requested in writing by any candidate voted upon. The candidate for each office to be filled receiving the largest number of votes cast shall be declared elected to membership on the Nominating Committee and certification thereof shall be made forthwith to the Board of Governors. In the event of a tie, there shall be a runoff election. In all elections held under this Section, voting shall be by secret mail ballot, the procedure for which shall be prescribed by the Board of Governors.

      Explanation

      The proposed changes are for clarity and to reflect the composition of Nominating Committees under new language added to Section 21(a) above.

      Filling of Vacancies for Nominating Committees

      Sec.23 24. All vacancies in any Nominating Committee other than those caused by the expiration of a member's term of office shall be filled as follows:

      (a) If the unexpired term of the member causing the vacancy is for less than six months, such vacancy shall be filled by appointment by the remaining members of the Nominating Committee of some member of the Corporation having a place of business in the same District.
      (b) If the unexpired term of the member causing the vacancy is for six months or more, such vacancy shall be filled by election, which shall be conducted as nearly as practicable in accordance with the provisions of Section 2223 of this Article.

      Meetings of Nominating Committees

      Sec 24 25. Meetings of each Nominating Committee shall be held at such times and places, upon such notice, and in accordance with such procedure as each Nominating Committee in its discretion may determine. A quorum of a Nominating Committee shall consist of a majority of its members, and any action taken by a majority of the entire Committee at any meeting at which a quorum ts present, except as otherwise provided in the By-Laws, shall constitute the action of the Committee. Action by a Nominating Committee may be taken by mail, telephonic or telegraphic vote, in which case any action taken by a majority of the Committee shall constitute the action of the Committee. Any action taken by telephonic vote shall be confirmed in writing at a regular meeting of the Nominating Committee.

      Explanation

      The changes make clear that any final action by a Nominating Committee must be taken by a majority of the Committee members.

      Election of Chairman and Other Nominating Committee Officers

      Sec 25 26. Following the annual election of members of the Nominating Committees pursuant to Section 22 23 of this Article, each Nominating Committee shall elect from its members a Chairman and such other officers as it deems necessary for the proper performance of its duties under these By-Laws.

      ARTICLE V VIII

      Officers and Employees

      Election of Officers of the Board

      Sec. 1. As soon as practicable, following the annual election of members to the Board of Governors, the Board of Governors shall elect from its members a Chairman, one or more Vice Chairmen, and such other officers as it shall deem necessary or advisable, to serve until the next annual election and or until their successors are chosen and qualify. The officers so elected shall have such powers and duties as may be determined from time to time by the Board of Governors. The Board of Governors, by affirmative vote of fourteen a majority of its members, may remove any such officer at any time.

      Officers of the Corporation

      Sec. 2. The Board of Governors shall select a chief executive officer, to be designated President of the Corporation, who as such chief executive officer of the Association shall be responsible for the management and administration of its affairs and shall be the official representative of the Association Corporation in all public matters and shall bey during his tncumbancyr a member of the Board of Governors and ex officio a member of any committee authorized by the Board of Governors. The Board may provide for other executive or administrative officers as it shall deem necessary or advisable, including, but not limited to, Executive Vice-President, Senior Vice-President, Vice-President, General Counsel, Secretary and Treasurer of the Corporation. All such officers shall have such titles, such powers and duties and shall be entitled to such compensation as shall be determined from time to time by the Board of Governors. The terms of office of such officers shall be at the pleasure of the Board of Governors, which by affirmative vote of fourteen a majority of the members, may remove any such officer at any time.

      Explanation

      The changes expand the class of authorized officers and permit removal of any officer by a majority vote of the Board. The fact that the President shall serve as a member of the Board has been transferred to new Article VII, Section 4 of the By-Laws.

      Absence of President

      Sec. 3. In the case of the abasence or inabiliy to act of the President of the Corporation, or in case of a vacancy in such office, the Board of Governors may appoint its Chairman or such other person as it may designate to act as such officer pro tern, who shall assume all the functions and discharge all the duties of the President.

      Employment of Counsel

      Sec. 4. The Board of Governors may retain or authorize the employment of counsel, with such powers, titles, duties and authority as it shall deem necessary or advisable.

      Administrative Staff

      Sec. 5. The Board of Governors may employ or authorize the employment and prescribe the powers and duties of such an administrative staff as it deems necessary or advisable. The employment and compensation of such administrative staff of the Corporation shall be at the pleasure of the Board of Governors.

      Restrictions on Compensation of Board and Committee Members

      Sec. 6. No member of the Board of Governors, (except the that member who is designated President of the Corporation as provided in Section 2 of this Article, or the President pro tem), as provided in Section 3 of this Article, or no member of any District Committee or of and no member of any other Committee, shall be entitled to receive any compensation from the Corporation for any work done in connection with his duties as a member of the Board of Governors, any District Committee or any other committee., but However, all members of the Board of Governors, of the Advisory Council, of the District Committee, and of all other committees appointed either by the Board of Governors or by any District Committee, such persons shall be entitled to reimbursement for reasonable expenses incurred in connection with the business of the Corporation.

      Explanation

      Grammatical changes and a proposed revision which would permit payment by the Association for the performance of services unrelated to Board or committee activity such as acting as outside counsel to the Association.

      ARTICLE VI IX

      Committees

      National Standing Committees

      Sec. 1. The Board of Governors may appoint such standing and other committees as it deems necessary or desirable, and it shall fix their powers, duties and terms of office.

      District Standing Committees

      Sec. 2. Each District Committee, in the exercise of its powers and performance of its duties as provided in the By-Laws, may, except as otherwise herein provided, appoint such standing or other committees as it deems necessary or desirable, and shall fix their powers, duties and terms of office.

      District and Local Business Conduct Committees

      Sec. 3. Each District committee annually snail appoint irom among its members or members of the Corporation having places of business within the District, a District Business Conduct Committee of not more than twelve members, at least one member of which shall be a member of the District Committee, provided, however, that the Board of Governors by resolution may increase, upon request any such District Business Conduct Committee to a larger number. Each such committee shaft function as the Business Conduct Committee of the Corporation in such District in accordance with the By-Laws, Rules of Fair Practice and Code of Procedure for Handling Trade Practice Complaints. Each District Committee may also appoint such Local Business Conduct Committees as it deems necessary or appropriate and, wherever possible, at least one member of each such Local Business Conduct Committee shall be a member of the District Business Conduct Committee Each such Local Business Conduct Committee shall function as a subcommittee of the District Business Conduct Committee in accordance with the By-Laws, the Rules of Fair Practice, and the Code of Procedure for Handling Trade Practice Complaint.

      Explanation

      The language concerning appointment of District Business Conduct Committee is being deleted because as a practical matter the members of the District Committees and District Business Conduct Committees are the same persons. The elimination of language concerning Local Business Conduct Committees is done because no such committees have been constituted as a practical matter.

      Removal of Committeemen

      Sec. 4. 3. Any member of any committee appointed pursuant to Sections 1, 2 or 3 of this Article may be removed from office, after appropriate notice from the District Committee appointing such member, or from the Board of Governors, if it is the appointing authority, for refusal, failure, neglect or inability to discharge his duties, or for any cause the sufficiency of which shall be decided by the District Committee or the Board of Governors, whichever is the appointing authority.

      Executive Committee

      Sec. 5 4. By resolution passed not less than annually by a majority of the entire Board of Governors, there may be created an Executive Committee consisting of five or more members of the Boardy which Committee shall have and may exercise such of the powers of the Board in the management of the business and affairs of the Corporation in the interim between meetings of the Board of Governors as may be delegated to it from time to time by the Board. Each The Executive Committee created hereunder shall keep minutes of its meetings and shall report its proceedings to the Board of Governors at each the next meeting thereof.

      Explanation

      The amendment would require the Board to adopt a resolution appointing an Executive Committee at least once a year. The other changes are clarifying.

      ARTICLE VII X

      Rules of Fair Practice

      Authority to Adopt Rules and Amendments-Submission to Members—Voting on Rules and Amendments

      Sec. 1. To promote and enforce just and equitable principles of trade and business, to maintain high standards of commercial honor and integrity among members of the Corporation, to prevent fraudulent and manipulative acts and practices, to provide safeguards against unreasonable profits or unreasonable rates of commissions or other charges, to protect investors and the public interest, to collaborate with governmental and other agencies in the promotion of fair practices and the elimination of fraud, and in general to carry out the purposes of the Corporation and of Section 15A of the Act, the Board of Governors is hereby authorized to adopt for submission to the members of the Corporation such rRules of fFair pPractice for the members and persons associated with members, and such amendments thereto as it may, from time to time deem necessary or appropriate. The Board of Governors, upon the adoption of any such rRules of fFair pPractice or amendments thereto shall forthwith cause copies thereof to be sent to each member of the Corporation to be voted upon. If any such rRules of fFair pPractice or amendment thereto are approved by a majority of the members voting, within thirty (30) days after the date of submission to the membership, and are not disapproved approved by the Commission as provided in Section 15A of the Act, they shall become effective rRules of fFair pPractice of the Corporation as of such date as the Board of Governors may prescribe. In any case, however, where a particular section of the Rules of Fair Practice provides that membership approval is not required, the Board may amend that provision as provided subject to approval of the amendment by the Commission as provided by the 1934 Act. Also, where the Board of Governors by resolution finds an emergency to exist, such rRules of fFair pPractice or amendments thereto, if adopted by a two-thirds vote of the Board of Governors and not disapproved approved by the Commission pursuant to Section 15A of the Act, may become effective as of such time as the Board of Governors may prescribe, without submission to the members for a vote as hereinbefore required. An emergency which is found by the Board of Governors to exist shall continue until the Board of Governors by resolution terminates such but in no event shall an emergency continue for a period in excess of six months. The Board of Governors shall have the authority, however, after, in each instance, reassessing the facts and circumstances which gave rise to the emergency, by resolution to declare, if it deems such appropriate under the facts and circumstances then existing, the emergency to continue to exist for successive six-month periods as required. All emergency rules adopted during the period of the emergency shall cease to be effective upon the termination of the emergency as hereinbefore provided. The Board of Governors is hereby authorized, subject to the provisions of the By-Laws and of Section 15A of the Act, to administer, enforce, suspend, or cancel any rRules of fFair pPractice adopted hereunder.

      Explanation

      The- amendments clarify that the Board is authorized to adopt appendixes and supplements to certain Rules of Fair Practice without a requirement for membership approval.

      Supplemental Local Rules and Amendments

      Sec.2. Subject to the approval of the Board of Governors and the provisions of Section 15A of the Act, each Distict Ccommtttee may adopt such supplemental local rules of fair practice and such amendments thereto, as it may from ttme to time deem necessary or appropriate}- provided, however, that such rules of fair practice and amendments thereto shall be designed to effect the same purposes and shall be subject to the same provisions with respect to approval by members having places of business within the district as are provided flt Section i or this Article, with respect to rules or rair practice applicable to all members. The Board of Governors, subject to the provisions of Section 15A of the Act, may at any time suspend or cancel any such locai rules of fair practice or any portion of any such local rules so adopted and approved. Any Disrict oommtttcc, Subject to the approval of the Board of Governors and the provisions of Section 1-5A of the Act, may at any time suspend or cancel any local rules of fair practice or any portion of any such local rules adopted by it pursuant to this Section.

      Explanation

      The section has been in the By-Laws since the inception of the Association when the future structure of the Association was unknown. No local rules of fair practice have ever been adopted and the section appears unnecessary.

      Power of the Board

      Sec. 3 2. The Board of Governors, in the administration and enforcement of any rRules of fFair pPractice adopted under Sections Section 1 and 2 of this Article, shall have power to:

      (a) To make and issue interpretations of all such rRules of fFair pPractice;
      (b) To prescribe such procedure for the presentation, hearing and adjudication of complaints between or against members of the Corporation and/or persons associated with members as it deems necessary or appropriate; and
      (c) To prescribe maximum penalties, applicable to members, to include censure, fine, suspension, limitation of activities, functions and operations, or expulsion from membership or suspension or barring from being associated with all members, or any other fitting penalty sanction, and to prescribe maximum penalties applicable to persons associated with members to include censure, fine, suspension, limitation of activities, functions and operations, or revocation of registration, if any, or suspension or barring a person associated with a member from being associated with all members, or any other fitting penalty, sanction, for,
      (1) breach by a member or a person associated with a member of anyconvenant with the Corporation or its members,,
      (2) for violation by a member or a person associated with a member of any of the terms, conditions, covenants, and provisions of these By-Laws, or of the Rules of Fair Practice of the Corporation, the federal securities laws including the rules and regulations adopted thereunder, the rules of the Municipal Securities Rulemaking Boards,, or
      (3) failure by a member or person associated with a member to submit a dispute for arbitration under the Code of Arbitration Procedure ("Code") as required by the Code, or to fail to appear or to produce any document in their possession or control as directed pursuant to provisions of the Code, or to fail to honor an award of arbitrators properly rendered pursuant to the Code where a timely motion has not been made to vacate or modify such award pursuant to applicable law,
      (4) refusal by a member or person associated with a member to abide by an official ruling of the Board of Governors or Uniform Practice Committee acting within its appropriate authority, with respect to any transaction which is subject to the Uniform Practice Code, or
      (3)
      (5) for failure by a member or a person associated with a member to adhere to any ruling, order, direction or decision of, or to pay any penalty, fine or costs, imposed by, the Board of Governors or any District Business Conduct Committeey or for violation of any toeai roie of fair priactice adopted by any District Commtttee; provided, however, that no member or person associated with a member shall be disciplined unless and until the requirements of Section 4 3 of this Article are met.

      Explanation

      The changes primarily conform to Section 15A(b)(7) of the 1934 Act, as amended by the Securities Acts Amendments of 1975, which authorizes the Association to impose disciplinary sanctions consisting of limitation of activities, functions and operations of members and associated persons. The changes also reflect statutory changes authorizing the Association to impose disciplinary sanctions based upon Violations of the federal securities laws and rules and regulations thereunder. In addition, new subsections (c)(3) and (4) codify what are presently resolutions of the Board of Governors.

      Disciplinary Proceedings

      Sec. 4 3. In any proceeding under this Article, any member or person associated with a member shall be given the opportunity to have a hearingr at which hearing any such person he shall be entitled to be heard in person and/or by counsel. Such persons may present any relevant material. In any such proceeding against a member or against a person associated with a member to determine whether the member and/or the person associated with a member shall be disciplined:

      (a) specific charges shall be brought;
      (b) such member or person associated with a member shall be notified of and be given an opportunity to defend against such charges;
      (c) a record shall be kept; and
      (d) any determination shall include (A) a statement setting forth
      (1) any act or practice, in which such member or person associated with a member may be found to have engaged or which such member or person associated with a member may be found to have omitted;
      (B) a statement setting forth the
      (2) the specific rule or rules of the Corporation, regulation or statutory provision of which any such act or practice, or omission to act, is deemed to be in violation; (C) a statement whether the act or practice prohibited by soch rule or rules, or the omission or any act required hereby, are deemed to constitute conduct inconsistent with jest and equitable principles of tradey and
      (D) a statement setting forth
      (3) the basis upon which any findings are made, and
      (4) the penalty imposed.

      Explanation

      The proposed changes are to conform to the statutory changes in Section 15A(h)(l) of the Act by which the Association is no longer required to state whether a respondent's conduct was inconsistent with just and equitable principles of trade and to reflect the Association's authority to impose disciplinary sanctions based upon violations of the federal securities laws and rules and regulations thereunder.

      Grounds for Btsqualificatton to Participate in Determination of Complaint

      Sec.5 No member of the Board of Governors or of any District Business Conduct Committee or of any tocai Business Gonduct Committee shaft in any manner, directly or indirectlyt participate m the determination of any complaint affecting his interest or the interests of any person in whom he is directly or indirectly interested. In any case where such an interest is invdvedr the particular member shaft disqualify himself, or shaft be disqualified by the Chairman of any such Board or Committee.

      Explanation

      The provision has been transferred to the proposed Code of Procedure which has previously been circulated to the membership for comment and is presently on file with the Commission.

      ARTICLE XIV XI

      Uniform Practice Code

      Authority to Adopt Code

      Sec 1. The Board of Governors is hereby authorized to adopt a Uniform Practice Code and amendments, interpretations and explanations thereto designed to make uniform, where practicable, custom, practice, usage, and trading technique in the investment banking and securities business with respect to such matters as trade terms, deliveries, payments, dividends, rights, interest, reclamations, exchange of confirmations, stamp taxes, claims, assignments, powers of substitution, computation of interest and basis prices, due-bills, transfer fees, "when, as and if issued" trading, "when, as and if distributed" trading, marking to the marked and close-out procedure all to the end that the transaction of day-to-day business by members may be simplified and facilitated, that business disputes and misunderstandings, which arise from uncertainty and lack of uniformity in such matters, may be eliminated, and that the mechanisms of a free and open market may be improved and impediments thereto removed. Such code, and any amendments thereto, if duly adopted by the Board of Governors and not disapproved approved by the Commission pursuant to Section 15A of the Act, shall become effective as at such time as the Board of Governors may prescribe.

      Explanation

      The proposed changes are primarily technical and clarifying.

      Administration of Code

      Sec. 2 The administration of any uUniform pPractice cCode, or any amendment thereto, adopted by the Board of Governors pursuant to Section 1 of this Article, shall be vested in the Board of Governors, and the Board is hereby granted such powers as are reasonably necessary to achieve its effective operation. In the exercise of such powers, the Board may issue explanations and interpretations, and may act as arbitrator or conciliator in controversies arising under or in connection with said coder The Board may also issue and make binding rulings with respect to the applicability of the provisions of this code to situations in which there is no substantial disagreement as to the facts involved. The Board may delegate to appropriate Ccommittees such of its powers^ hereunder as it deems necessary and appropriate to achieve effective administration and operation of the code.

      Explanation

      The change is to reflect the fact that the Board does not act as an arbitrator of disputes under the Code and render awards which are intended to be judicially enforceable. Under the Association's rules the arbitration function rests with arbitration panels which are appointed and act pursuant to the Association's Code of Arbitration Procedure.

      Transactions Subject To Code

      Sec. 3. All over-the-counter transactions in securities between by members, except transactions in securities which are exempted under Section 3(a)(12) of the Act or are municipal securities as defined in Section 3(a)(29) of the Act, shaft be are subject to the pertinent provisions of the Uniform Practice Code and to the provisions of Section 2 of this Article unless exempted therefrom by the terms of the Code.

      Explanation

      The express exclusion from the Code for transactions in municipal securities is intended to avoid confusion by making clear that after the Securities Acts Amendments of 1975 such transactions continue to be exempt from the Code because they are now subject to the rulemaking authority of the Municipal Securities Rulemaking Board which has its own uniform practice rules.

      Authority to Adopt District Code

      Scope - Effective Bate of Sode and Amendments

      See 4. Each Btstrict Gommittee, after submission to the membership in its district for comment and criticism, and subject to the approval of the Board of Governors, is hereby authorized to adopt a district uniform practice code and amendments thereto, provided, however, that any such district uniform practice code and any amendment thereto shaft be designed to effect the same general purposes as are provided in Section i of this Article with respect to any uniform practice code adopted by the Board of Governors, and shaft not conflict in any way therewith. Any such district uniform practice code, and any amendment thereto, if duly adopted by the District Gommittee, approved by the Board of Governors and not disapproved by the Commission pursuant to Section 15A of the Act, shaft become effective as at such time as the District Gommittee may prescribe. The Board of Governors, subject to the provisions of Section 15A of the Act, may at any time declare ineffective any such district uniform practice code or any portion thereof.

      Explanation

      The section has been in the By-Laws since the inception of the Association when the future structure of the Association was unknown. No local uniform practice codes have ever been adopted and the provision appears unnecessary.

      Administration of District Gode

      Sec 5. The administration of any district uniform practice code or any amendment thereto, adopted pursuant to Section 4 of Article, shaft be vested in the District Gommittee adopting same, and such committee is hereby granted such powers as are reasonably necessary to achieve effective operation; Jn the exercise of such powers a Bistrict Committee may issue explanations and interpretations, and may act as arbitrator or conciliator in controversies arising under or in connection with such district uniform practice coder A District Gommittec may also issue binding rulings with respect to the applicability of the provisions of such district uniform practice code to situations m which there is no substantial disagreement as to the facts involved, A District Gommtt-tee may delegate to appropriate Gommittees such of its powers hereunder as it deems necessary and appropriate to achieve effective administration and operation of such coder

      Explanation

      See comment above.

      Transactions Subject to Bistrict Gode

      Sec 6. All over-the-counter transactions in securities between members in any district wherein a district uniform practice code is duly adopted pursuant to Section 4 of this Article, except transactions in securities exempted under Section 3(a)(l2) of the Act, shall be subject to the pertinent provisions of any such district uniform practice code and to the provisions of Section 5 or this Article.

      Explanation

      See comment above.

      ARTICLE XVI

      Automated Quotations System (NASDAQ)

      Definitions

      Sec. 1. The term "automated quotations system" means an electronic data processing system interconnected by wire or other means with terminals which make readily available to appproved subscribers, and to the general public at specific times and in appropriate summary form, the quotes of registered market makers in authorized securities.

      The term "registered market maker" means a member which is willing and able to serve as such in connection with a specified authorized security and which meets the qualifications for such set forth in Schedule "D" to these By-Laws.

      The term Authorized security" means a security which meets the qualifications for such set forth in Schedule "D" to these By-Laws.

      Board Authorized to Organize and Operate

      Sec 2. The Board of Governors is hereby authorized to organize and operate automated quotations systems to provide qualified subscribers with quotations on authorized securities traded on the "over-the-counter" market. The systems may be organized and operated by a division or subsidiary company of the Corporation or by one or more independent firms under contract with the Gorporation, as the Board from time to time may deem necessary or appropriate.

      Rules, Charges, Classifications, Qualifications, Requirements, Standards and Aggrievement Procedure

      Sec. 3. Taking into account relevant matters including the type of business done-securities traded, and service rendered, the Board of Governors may publish operating rules for the automated quotations systems, establish reasonable qualifications and classifications for registered market makers and other subscribers, provide standards for authorized securities, and publish the charges to be collected from subscribers by the operator of automated quotations systems, Services shall be provided to members on a nondiscriminatory basis and at reasonable and uniform rates designed to encourage maximum utilization by all members, with due allowance for the geographic remoteness of members of their branch offices receiving service outside of the 48 contiguous states.

      Members and other persons aggrieved by action taken or authorized by the Board of Governors in applying such qualifications, criteria, standards, and charges, or ensuing out of the operation of the automated quotations systems shaft, upon filing a complaint with the Board, be entitled to a hearing thereon (if requested), decision and review by the Board in accordance with procedures specified by the Board.

      Such rules, charges, classifications, qualifications, registration requirements, standards, exceptions thereto, and aggrtevement procedure shall be incorporated in Schedule D attached to and made a part of these By-Laws.

      Within the limitations provided herein, the Board or Governors shall have power to adopt, alter, amend, supplement or modify the provisions of Schedule B from time to time without recourse to the membership for approval, as would otherwise be required by Article IX hereof, and Schedule B, as adopted, altered, amended, supplemented or modified, shall, become effective as the Board of Governors may prescribe unless disaproved by the commission.

      Explanation

      The entire Article has been reworded in a shorter form and transferred to new Section 2(c) of Article VII of the By-Laws. Schedule "D" will be transferred to a new portion of the Manual. In addition, the aggrievement and other procedural provisions concerning the NASDAQ System now appearing in Schedule D have been moved to the proposed Code of Procedure which previously was sent to the membership for comment and is presently on file with the Commission for approval.

      Lists to be Kept

      Sec. 4. The Board of Governors shall keep a currently accurate and complete roll (a)- of registered market makers together with a list of the authorized securities as to which eaeh may enter quotes on the automated quotations systems, and (b)- of authorized securities.

      ARTICLE XVIII

      Reporting Transactions on Consolidated Tape Authorization

      Under the provisions of Rule 17a-15 adopted by the Securities and Exchange Commission under Section 17 of the Securities Exchange Act of 1934 the Corporation is required to file with the Securities and Exchange Commission a written plan meeting specified standards concerning the collection and dissemination by the Corporation of information relating to over-the-counter transactions executed by its members in securities registered or admitted to unlisted trading privileges on an exchanger The Board of Governors is hereby authorized to adopt rules and procedures in order to carry out the Corporation's responsibilities and duties under Rule 17a-15 and implement the plan filed pursuant to the rule as it may be amended from time to times-Such rules and procedures may include, among other things.

      (1) The manner of collecting and reporting last sale information.
      (2) The standards and methods to insure the promptness, accuracy and completeness of reporting and similar matters, and
      (3) The procedures to provide that last sale information wiH not be reported in a fraudulent or manipulative manner

      The Board of Governors shall also have authority to use any automated quotations system established under the provisions of Article XVI of the By-Laws in any manner it deems necessary and appropriate to further the implementation and operation of any composite transaction reporting system established pursuant to Rule 17a-15. The Board of Governors shaft also have authority to impose reasonable and equitable fees and changes tn connection with the collection and dissemination of last sale information.

      Such rules, procedures and charges shall be incorporated into Schedule G attached to and made a part of these By-Laws. The Board of Governors shaft have the power to adopt, alter, amend, supplement or modify the provisions of Schedule G from time to time without recourse to the membership for approval as would otherwise be required by Article IX hereof, and Schedule G as adopted, altered, amended, supplemented or modified shaft become effective as the Board of Governors shaft prescribe unless disapproved by the Commission.

      Explanation

      The provisions are proposed to be moved to the Rules of Fair Practice because they prescribe a standard of member conduct.

      ARTICLE XVII

      Clearing and Settling of Transactions of Members Transactions to Be Cleared Through Facilities of Registered Blearing Agencies

      Sec. 1. All over-the-counter transactions in securities between members shaft be cleared and settled through the facilities of a clearing agency registered with the Commission pursuant to the Securities Exchange Act of 1934 which clears and settles such over-the-counter transactions tn securities, unless,

      (a) the security involved in the transaction shall not have been qualified for clearance by the Board of Birectors of the registered clearing agency under the standards estabrehed by the rules of the registered clearing ageney.
      (b) one or more of the members involved in the transaction shall not have been qualified as a clearing member by the Board of Bireetors of the registered clearing agency pursuant to standards established by the rules of the registered clearing agency.
      (c) the rules of the registered clearing agency provide that the transaction shall not be cleared through the facilities of the registered clearing agency, or
      (d) the members involved in the transaction otherwise mutually agree.

      Explanation

      The Article has been reworded and transferred to new Section (b)(6) of Article VII of the By-Laws.

      ARTICLE VIII XII

      Limitation of Powers

      Prohibitions

      Sec 1. Under no circumstances shall the Board of Governors or any officer, employee or member of the Corporation have power to:

      (a) To make any donation or contribution from the funds of the Corporation or to commit the Corporation for the payment of any donations or contributions for political or charitable purposes; or
      (b) To use the name or facilities of the Corporation in aid of any political party or candidate for any public office.

      Explanation

      The changes are grammatical.

      Use of Name of Corporation by Members

      Sec. 2. No member shall use the name of the Corporation on letterheads, circulars or other advertising matter or literature except to the extent that may be authorized by the Board of Governors.

      Unauthorized Expenditures

      Sec. 3. No officer, employee, member of the Board of Governors or of any District or other Committee, shall have any power to incur or contract any liability on behalf of the Corporation not authorized by the Board of Governors. The Board may delegate to the President of the Association Corporation, or his delegate, such authority as it deems necessary to contract on behalf of the Association Corporation or to satisfy unanticipated liabilities during the period between Board meetings.

      Explanation

      The changes are for clarity and consistency with language in other By-Law provisions.

      ARTICLE IX XIII

      Amendments to By-Laws Procedure for Adopting Additionsy Alterations or Amendments to By-Laws

      Any member of the Board of Governors by resolution, any District Committee by resolution, or any twenty-five members of the Corporation by petition signed by such members, may propose additions, alterations, or amendments to these By-Laws. Every proposed addition, alteration or amendement shall be presented in writing to the Board of Governors and a record shall be kept thereof. The Board of Governors shall first pass on all proposed additions alterations or amendments to these By-Laws, and first may adopt any proposed addition, alteration or amendment to these By-Laws by affirmative vote of a majority of the members of the Board of Governors then in office. The Board of Governors, upon adoption of any such addition, alteration or amendment to these By-Laws, except as otherwise provided in these By-Laws Section 2 of Article I, Section 1 of Article III, Section 1 of Article IV and Section 3 of Article XVI hereof, shall forthwith cause a copy thereof to be sent to and voted upon by each member of the Corporation to be voted upon. If such addition, alteration or amendment to these By-Laws is approved by a majority of the members voting within thirty (30) days after the date of submission to the membership, and is not disapproved approved by the Commission as provided in Section 15A of the Act, it shall become effective as of such date as the Board of Governors may prescribe.

      Explanation

      The changes are to eliminate unnecessary language and to conform to the existing Commission review authority prescribed under Section 19(b) of the 1934 Act, added by the Securities Acts Amendments of 1975.

      ARTICLE X XIV

      Corporate Seal

      The corporate seal shall have inscribed thereon, the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware." Said seal may be used by causing it or a facsimile thereof to be imposed or affixed or reproduced or otherwise.

      ARTICLE XI XV

      Checks

      All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Governors from time to time designate.

      ARTICLE XII

      Ftscai Year

      The fiscal year shaft begin the first day of October in each yearr

      Explanation

      The provision appears unnecessary.

      ARTICLE XIII XVI

      Annual Financial Statement

      As soon as practicable after the end of each fiscal year, the Board of Governors shall send to each member of the Corporation a reasonably itemized statement of receipts and expenditures of the Corporation for such preceding fiscal year.

    • 86-84 NASDAQ National Market System Grows to 2,687 Securities With 30 Voluntary Additions on December 2, 1986

      TO: All NASD Members and Level 2 and Level 3 Subscribers

      On Tuesday, December 2, 1986, 30 issues are scheduled to join the NASDAQ National Market System, bringing the total number of issues in NASDAQ/NMS to 2,687. These 30 issues, which will begin trading under real-time trade reporting, are entering NASDAQ/NMS pursuant to the Securities and Exchange Commission's criteria for voluntary designation.

      The 30 issues scheduled to join NASDAQ/NMS on Tuesday, December 2, 1986, are:

      Symbol*

      Company

      Location

      ACPT

      Acceptance Insurance Holdings, Inc.

      Omaha, NE

      BKST

      Bank of Stamford

      Stamford, CT

      DIBK

      Dime Savings Bank of Wallingford (The)

      Wallingford, CT

      FCNCA

      First Citizens BancShares, Inc. (Cl A)

      Raleigh, NC

      FCNCB

      First Citizens BancShares, Inc. (Cl B)

      Raleigh, NC

      GATI

      Gaming and Technology, Inc.

      Las Vegas, NV

      GART

      Gartner Group, Inc.

      Stamford, CT

      GDYN

      Geodynamics Corporation

      Santa Barbara, CA

      GVMF

      Golden Valley Microwave Foods, Inc.

      Eden Prairie, MN

      GROV

      Grove Hall Savings Bank (The)

      Brighton, MA

      HA MB

      Hamburger Hamlets, Inc.

      Sherman Oaks, CA

      HUFK

      Huffman Koos, Inc.

      River Edge, NJ

      INSP

      InSpeech, Inc.

      Norristown, PA

      JMED

      Jones Medical Industries, Inc.

      St. Louis, MO

      MASB**

      MASSBANK Corp.

      Reading, MA

      MASXZ

      Masco Industries, Inc. (Dep Shrs)

      Taylor, MI

      NEEC

      NEECO, Inc.

      Canton, MA

      PTSI

      P.A.M. Transportation Services, Inc.

      Tontitown, AR

      PBNB

      People's Savings Bank of New Britain (The)

      New Britain, CT

      RSGI

      Riverside Group, Inc.

      Jacksonville, FL

      SURE

      SCOR U.S. Corporation

      New York, NY

      SIGM

      Sigma Designs, Inc.

      Fremont, CA

      SOSA

      Somerset Savings Bank

      Somerville, MA

      SPBD

      Springboard Software, Inc.

      Minneapolis, MN

      SNLT

      Sunlite, Inc.

      Atlanta, GA

      TRCC

      TRC Companies, Inc.

      East Hartford, CT

      TKLC

      TEKELEC

      Calabasas, CA

      USRE

      US Facilities Corporation

      Costa Mesa, CA

      WNDT***

      Wendt-Bristol Company (The)

      Columbus, OH

      WNDTW***

      Wendt-Bristol Company (The) (Wts)

      Columbus, OH

      The following issues may be included in NASDAQ/NMS prior to the next regularly scheduled phase-in date:

      Pending Additions

      Symbol*

      Company

      Location

      AOAC

      AOA Corporation

      Dallas, TX


      * NASDAQ symbols are proprietary to the National Association of Securities Dealers, Inc.

      ** This company was originally scheduled to enter NASDAQ/NMS on November 14, 1986. It has been rescheduled to enter on December 2, 1986.

      *** These issues are scheduled to commence trading in the NASDAQ System concurrently with their designation as NASDAQ/NMS securities on December 2, 1986.


    • 86-83 Proposed New NASD Rule of Fair Practice Prohibiting Members From Effecting Securities Transactions During Trading Halts

      IMPORTANT MAIL VOTE

      OFFICERS, PARTNERS AND PROPRIETORS

      TO: All NASD Members

      LAST VOTING DATE IS DECEMBER 31, 1986.

      EXECUTIVE SUMMARY

      NASD members are invited to vote on proposed new Article III, Section 42 of the NASD Rules of Fair Practice. The proposed new rule would prohibit NASD members from effecting, directly or indirectly, over-the-counter transactions in a security as to which a trading halt is currently in effect. The rule is to be considered in conjunction with a proposed amendment to Schedule D of the NASD By-Laws, which would authorize the NASD to halt over-the-counter trading in a NASDAQ security pending the dissemination of material news by the issuer or to halt over-the-counter trading in a security listed on a national securities exchange during a trading halt imposed by the exchange to permit the dissemination of material news.

      The proposed new Rule of Fair Practice is the result of concerns raised by the NASD Market Surveillance and Trading Committees over continued trading during NASDAQ quotations halts and the protections afforded investors during the critical disclosure process.

      The proposed new rule has been approved by the NASD Board of Governors and now requires the approval of the membership. The text of the proposed new rule is attached as Exhibit 1.

      OVERVIEW

      Proposed new Article III, Section 42 of the NASD Rules of Fair Practice would prohibit NASD members from effecting any over-the-counter transactions, directly or indirectly, in a security as to which a trading halt is currently in effect. The proposed new rule is to be considered in conjunction with a proposed amendment to Schedule D of the NASD By-Laws, also approved by the NASD Board of Governors, which would authorize the NASD to halt over-the-counter trading in a NASDAQ security pending the dissemination of material news by an issuer. (Schedule D currently provides only for the suspension of quotations of a NASDAQ security while material news is being disseminated to the marketplace.) The proposed amendment to Schedule D would also authorize the NASD to halt over-the-counter trading in a security listed on a national securities exchange during a trading halt imposed by the exchange to permit the dissemination of material news.

      The proposed amendments were published for comment on February 21, 1986 (Notice to Members 86-13), in the form of amendments to Schedule D. The Board subsequently determined, however, that the prohibition against effecting transactions in a security in which trading has been halted would be more appropriately placed in a new Rule of Fair Practice, rather than in Schedule D.

      Accordingly, if approved by the membership, proposed new Article III, Section 42 of the NASD Rules of Fair Practice will be filed with the Securities and Exchange Commission. The proposed amendment to Schedule D will also be submitted to the Securities and Exchange Commission for approval. Pursuant to Article VII of the NASD By-Laws, amendments to Schedule D do not require a membership vote. The text of the related proposed amendment to Schedule D is attached as Exhibit 2 for informational purposes only.

      BACKGROUND

      In March 1979, pursuant to Schedule D of the NASD By-Laws, the Board of Governors adopted a recommendation that NASDAQ issuers notify the NASD of the pending release of material news in advance of or simultaneously with the release of such information to the press, as required by Part II of Schedule D. "Material news" for this purpose is information that might reasonably be expected to affect the value of an issuer's securities or influence investors' decisions. Material news would include information regarding corporate events of an unusual or nonrecurrent nature.

      The purpose of such notification is to enable the NASD to evaluate the information and its potential impact on the marketplace and to determine, through consultation with the issuer, whether the public interest would be served by halting quotations in the security through the NASDAQ System while the news is disseminated to the marketplace. Such action, known as a "quotations halt," alerts the marketplace to the imminent announcement of material news and provides the public with an opportunity to evaluate the information and consider it in making investment decisions.

    • 86-82 1987 Schedule of Holidays

      TO: All NASD Members and Other Interested Persons

      Listed below is the NASD's 1987 schedule of holidays.

      January 1 (Thursday)

      New Year's Day

      February 16 (Monday)

      Washington's Birthday Observed

      April 17 (Friday)

      Good Friday

      May 25 (Monday)

      Memorial Day Observed

      July 3 (Friday)

      Independence Day Observed

      September 7 (Monday)

      Labor Day

      November 26 (Thursday)

      Thanksgiving Day

      December 25 (Friday)

      Christmas Day

      Sincerely,

      Gordon S. Macklin
      President

    • 86-81 Amendments to Appendix F Regarding Freely Tradable Partnership Units Effective Immediately

      TO: All NASD Members and Other Interested Persons

      ATTN: Direct Participation Programs Department

      EXECUTIVE SUMMARY

      This notice announces the adoption of exemptions from the special suitability and disclosure requirements of Appendix F to Article III, Section 34 of the NASD Rules of Fair Practice for freely tradable limited partnerships. The exemptions relate to primary and secondary public offerings of and secondary market transactions in freely tradable partnership units, depositary receipts or assignee units quoted on the NASDAQ System or listed on a registered national securities exchange.

      The NASD has adopted amendments to Sections 3 and 4 of Appendix F to Article III, Section 34 of the NASD Rules of Fair Practice, which are effective immediately. The text of the amended sections is attached.

      The amendments provide exemptions for primary and secondary offerings and secondary market transactions in direct participation program securities from the suitability provisions contained in Section 3 and the requirement in Section 4 that NASD members inform potential investors of the facts pertaining to the lack of liquidity and marketability of the program securities.

      BACKGROUND

      Appendix F was adopted for the purpose of regulating the distribution of and secondary transactions in direct participation program securities. These securities are usually partnerships and have traditionally been illiquid. Investors are generally required to hold an investment in a direct participation program for a number of years in order to fully realize the benefits of the investment. The nature of a direct participation program security, therefore, presents special concerns regarding its suitability for investors, the adequacy and accuracy of the disclosure in the offering document, and other program arrangements that Article III, Section 34 and Appendix F, adopted thereunder, were intended to address.

      Recently, however, an increasing number of direct participation programs have issued partnership units, depositary receipts for such units, or assignee units of limited partnership interests that are freely tradable in a manner generally analogous to common stocks and are quoted on the NASDAQ System or listed on registered national securities exchanges. Therefore, the NASD undertook a review of the application of Appendix F to freely tradable program units.

      Subsection 3(a) of Appendix F prohibits a member from distributing a direct participation program that has not established or disclosed in the program prospectus standards of suitability. Subsection 3(b) of Appendix F requires members, when "recommending the purchase, sale or exchange of an interest in a direct participation program," to obtain certain enumerated information, make an affirmative finding of suitability, and retain a record of the basis for that finding. These requirements were specifically included in light of the absence of liquidity in the market for limited partnerships, as well as to assure that the unique tax status and investment characteristics of the program are considered in secondary market transactions, and in initial distributions.

      The NASD has reviewed the purposes of the special suitability requirements contained in subsections 3(a) and 3(b) of Appendix F and has concluded that these special requirements are not necessary for freely tradable program units. It is important to note, however, that transactions in freely tradable partnership units remain subject to the general suitability requirements of Article III, Section 2 of the NASD Rules of Fair Practice.

      Subsection 4(d) of Appendix F requires NASD members to inform potential investors of the facts relating to the lack of liquidity and marketability of investments in direct participation programs prior to the execution of such transactions. Compliance with this subsection is unnecessary where an active trading market exists or will exist for the program units.

      SUMMARY OF AMENDMENTS

      The NASD has amended subsections 3(a) and 3(b) and subsection 4(d) of Appendix F to exempt from those provisions:

      (1) secondary offerings of or secondary market transactions in a direct participation program security for which quotations are displayed on the NASDAQ System or which is listed on a registered national securities exchange; and
      (2) primary offerings of direct participation programs for which an application for inclusion on the NASDAQ System or listing on an exchange has been approved.

      In addition, with respect to primary offerings, the new exemption requires the issuer to make a good-faith representation that inclusion on the NASDAQ System or listing on a registered national securities exchange will occur within a reasonable period of time following the formation of the program.

      Questions regarding this notice should be directed to the NASD Corporate Financing Department at (202) 728-8258.

      Sincerely,

      Frank J. Wilson
      Executive Vice President
      Legal and Compliance

      Attachment

      AMENDMENTS TO APPENDIX F ARTICLE III, SECTION 34 NASD RULES OF FAIR PRACTICE*

      * * * *

      Section 3

      Suitability

      (a) A member or person associated with a member shall not underwrite or participate in a public offering of a direct participation program unless standards of suitability have been established by the program for participants therein and such standards are fully disclosed in the prospectus and are consistent with the provisions of subsection (b) of this section.
      (b) In recommending to a participant the purchase, sale or exchange of an interest in a direct participation program, a member or person associated with a member shall:
      (1) have reasonable grounds to believe, on the basis of information obtained from the participant concerning his investment objectives, other investments, financial situation and needs, and any other information known by the member or associated person, that:
      (i) the participant is or will be in a financial position appropriate to enable him to realize to a significant extent the benefits described in the prospectus, including the tax benefits where they are a significant aspect of the program;
      (ii) the participant has a fair market net worth sufficient to sustain the risks inherent in the program, including loss of investment and lack of liquidity; and
      (iii) the program is otherwise suitable for the participant;
      (2) maintain in the files of the members documents disclosing the basis upon which the determination of suitability was reached as to each participant.
      (c) Subsections 3(a) and 3(b) shall not apply to:
      (1) a secondary public offering of or a secondary market transaction in a unit, depositary receipt or other interest in a direct participation program for which quotations are displayed on the NASDAQ System or which is listed on a registered national securities exchange, or
      (2) an initial public offering of a unit, depositary receipt or other interest in a direct participation program for which an application for inclusion on the NASDAQ System or listing on a registered national securities exchange has been approved by NASDAQ or such exchange and the applicant makes a good-faith representation that it believes such inclusion on NASDAQ or listing on an exchange will occur within a reasonable period of time following the formation of the program.
      [c]
      (d) Notwithstanding the provisions of subsections (a) and (b) hereof, no member shall execute any transaction in a direct participation program in a discretionary account without prior written approval of the transaction by the customer.

      Section 4

      Disclosure

      * * * *

      (d) Prior to executing a purchase transaction in a direct participation program, a member or person associated with a member shall inform the prospective participant of all pertinent facts relating to the liquidity and marketability of the program during the term of the investment[.]; provided, however, that this subsection shall not apply to an initial or secondary public offering of or a secondary market transaction in a unit, depositary receipt or other interest in a direct participation program which complies with subsection 3(c).

      * New language is underlined; deleted language is in brackets.


    • 86-80 Proposed Changes to the Financial Recordkeeping and Reporting of Currency and Foreign Transactions

      TO: All NASD Members and Other Interested Persons

      EXECUTIVE SUMMARY

      The Department of the Treasury is soliciting comments on proposed amendments to the implementing regulations of the Bank Secrecy Act. Also known as the Currency and Foreign Transactions Reporting Act of 1970, these regulations govern the payment, receipt or transfer of currency or other monetary instruments; the export or import of currency or monetary instruments out of or into the United States; and certain foreign financial transactions and accounts. The proposed amendments include changes to the financial recordkeeping and reporting required of broker-dealers with regard to such transactions.

      BACKGROUND

      The Currency and Foreign Transactions Reporting Act of 1970 (the Currency Act) was enacted as a means of requiring certain financial institutions, including broker-dealers, to create records of currency transactions that may be useful in criminal, tax or other regulatory investigations. The Currency Act authorizes the Treasury Department to implement and administer the Act's reporting and recordkeeping requirements. With respect to broker-dealers, however, the Treasury Department delegated its responsibility to the SEC. In order to assure compliance and effective oversight by the self-regulatory organizations, the SEC adopted Rule 17a-8 under the Exchange Act.

      SEC Rule 17a-8, which became effective on January 18, 1982, requires broker-dealers to file reports and make and preserve records pursuant to the Currency Act and the regulations adopted thereunder. Moreover, in accordance with other SEC recordkeeping rules (see SEC Rule 17a-3(a)(l)), the SEC has taken the position that broker-dealers are required to make and retain their records in a manner that identifies the receipt and disbursement of currency in connection with securities transactions.

      SUMMARY OF PROPOSED AMENDMENTS

      The proposed amendments address a number of issues. Changes affecting the activities of broker-dealers are highlighted below.

      1. Multiple, same-day currency transactions. The Treasury Department proposes to codify an instruction on Form 4789, the Currency Transaction Report, that currently requires broker-dealers to report multiple, same-day transactions in currency by or on behalf of any person that total more than $10,000, if they are aware of them. This does not impose any new burden on broker-dealers to adopt systems to reveal the existence of multiple, same-day transactions.
      2. Cash purchases of monetary instruments. A second proposal may or may not be applicable to broker-dealers depending upon whether their business activities include cash purchases of monetary instruments. If applicable, broker-dealers would be required to obtain and keep a report from each purchaser of a monetary instrument, such as a money order or traveler's check, where the purchase involves a transaction in currency of more than $3,000. The purchaser would be required to sign the report and to certify whether or not other cash purchases were made during that same business day with the same or any other financial institution where the aggregate value of all purchases exceeded $10,000.
      Broker-dealers would be required to treat any affirmative certification, or a refusal or a failure to file a full and complete report, as a reportable transaction and to file a Currency Transaction Report. If a purchaser misrepresents either the existence or aggregate amount of the transactions, broker-dealers would have no duty to report unless they have actual knowledge of the transactions.
      3. Time periods for filing report. The Treasury Department is proposing to standardize the time periods for filing reports. All reports previously subject to filing within 30 days would now be filed within 15 days of the reportable event or a request for the report from regulatory authorities.
      4. Verification of customer identification. The Treasury Department has noted from its reviews of Form 4789, the Currency Transaction Report, that some financial institutions fail to obtain proper identification of customers. The Treasury Department believes that in the past accounts have been opened for individuals based on inadequate identifications and then the signature cards for these accounts have been relied on as a means of satisfying the identification requirement.
      To correct this situation, the Treasury Department is proposing that verification of identity be made by examination of a document, other than an account signature card, that is normally acceptable when cashing checks (e.g., a driver's license or credit card). Statements such as "know customer" are not sufficient for purposes of identification.
      5. Recordkeeping requirements for extensions of credit. This proposal would change broker-dealers' recordkeeping requirements to extensions of credit exceeding $10,000 instead of $5,000.
      6. Recordkeeping requirements for incoming transactions. This proposal would extend broker-dealers' recordkeeping requirements to include incoming as well as outgoing transactions with persons, accounts or places outside the United States, which involve the transfer of currency, monetary instruments, funds, checks, investment securities or credit in amounts exceeding $10,000. It would also include transactions that are later cancelled or not completed for any reason.
      7. Recordkeeping requirements for certain purchases of monetary instruments. In conjunction with the proposed requirement to report certain purchases of monetary instruments, broker-dealers would be required to keep records regarding the sale of monetary instruments, such as money orders and traveler's checks, that exceed $3,000. Multiple purchases that result in either cash in or cash out totalling more than $3,000 during one business day would be treated as a single purchase if the broker-dealer is aware that they are by or on behalf of one person.
      8. Taxpayer identification numbers. Currently, broker-dealers need to maintain the taxpayer identification number of each person opening, or having an interest in, an account and who either resides, is a citizen of, or does business in the United States. In the case of a non-resident alien, the broker-dealer must also record the person's passport number or a description of some other government document used to verify identity.
      The Treasury Department is proposing to replace the lengthy exemption provision currently in the regulations with simpler requirements. Under the proposed amendment, if a broker-dealer is unable to secure the taxpayer identification number, it will not be a violation if the broker-dealer (i) has made a reasonable effort to secure the number, and (ii) maintains a list containing the names, permanent addresses and account numbers, where applicable, of those persons from whom it has been unable to secure numbers and makes this information available to regulatory authorities upon request.

      * * * *

      A copy of the release containing all proposed changes is attached for your review. All members and other parties interested in commenting on the amendments should direct their comments on or before November 24, 1986, to:

      Jonathan J. Rusch, Acting Director
      Office of Financial Enforcement
      Department of the Treasury
      1500 Pennsylvania Avenue, N.W.
      Room 1458
      Washington, D.C. 20220

      Questions concerning this notice may be directed to Susan Lang, NASD Surveillance Department, at (202) 728-6969.

      Sincerely,

      John E. Pinto, Jr.
      Senior Vice President
      Compliance

      Attachment

      DEPARTMENT OF THE TREASURY

      31 CFR Part 103

      Amendments to Implementing Regulations; the Bank Secrecy Act

      AGENCY: Office of the Secretary,Treasury.

      ACTION: Proposed rule.

      SUMMARY: The Bank Secrecy Act, Pub. L. No. 91-508 (permanently codified at 12 U.S.C. 1829b, 12 U.S.C. 1951 et seq. and at 31 U.S.C. 5311 et seq.), empowers the Secretary of the Treasury to require financial institutions to keep records and file reports that the Secretary determines have a high degree of usefulness in criminal, tax and regulatory matters. At present, Treasury regulations implementing the Act require a variety of financial institutions to file reports of large currency transactions. The Secretary also can direct designated institutions to file reports regarding specified transactions with foreign financial agencies. Financial institutions also are required to maintain records necessary to trace transactions through the nation's banking system.

      The Department's experience in enforcing the Act in recent years has indicated that the following proposed substantive regulatory changes are needed to strengthen enforcement of the Act. In particular, recent judicial decisions, such as United States v. Anzalone, 766 F.2d 676 (1st Cir. 1985), have drawn attention to the fact that the regulations may be inadequate to sustain prosecutions for failing to report transactions that have been structured to evade the current reporting requirements. In light of cases such as Anzalone, the Department of Justice believes that certain changes to the currency transaction reporting requirements are needed to expand the coverage of the Act to ensure the collection of needed information, and to strengthen enforcement of the Act

      DATE: Comments must be received on or before November 24, 1986.

      ADDRESS: Address written comments to Jonathan J. Rusch, Acting Director, Office of Financial Enforcement, Office of the Assistant Secretary (Enforcement), Department of the Treasury, Room 1458,1500 Pennsylvania Ave., NW., Washington, DC 20220.

      FOR FURTHER INFORMATION CONTACT: Linda Noonan, Attorney Advisor, Office of the Assistant General Counsel (Enforcement), Department of the Treasury, Room 2000,1500 Pennsylvania Ave., NW., Washington, DC 20220 (202/ 566-2941).

      SUPPLEMENTARY INFORMATION:

      Background

      The following amendments are made to strengthen enforcement of the Bank Secrecy Act and to make clarifications to the existing regulations, as noted:

      (1) Expand the definition of "bank" to include Edge Act corporations: An "Edge" or "Agreement" corporation, as defined by 12 U.S.C. 611 et seq., is a corporation organized in the United States for the purpose of engaging in international or foreign banking, or other foreign financial operations; such institutions are supervised by the Board of Governors of the Federal Reserve System. This amendment to expand coverage of the regulations to include these entities is justified by the rapidly expanding roles played by such financial entities in the banking system and the need to maintain a comprehensive scheme of reporting and recordkeeping requirements. See regulatory proposal #2.
      (2) Add a new definition of "common carrier": This new definition is intended to clarify the reporting responsibilities for currency and monetary instruments that are transported into or out of the United States. See regulatory proposal #2.
      (3) Revise the definition of "financial institution" in light of recent case law, and to include certain selling agents of traveler's checks, money orders and similar instruments: This revision modifies the definition to comport with recent case law defining financial institutions for Bank Secrecy Act purposes. It also expands the definitions of "financial institution" to include certain selling agents of certain monetary instruments and all transmitters of funds. Coverage of these additional entities is justified by the rapidly expanding roles played by such financial institutions in the banking system and the need to maintain a comprehensive scheme of reporting and recordkeeping requirements. See regulatory proposal #2.
      (4) Clarify and expand the definition of "monetary instruments" to include promissory notes, checks made out to fictitious payees and certain other types of checks: These substantive changes are warranted by enforcement experience, which indicates that casino markers, certain cashier's checks and checks made out to fictitious payees are being used for money laundering, but arguably are not subject to current reporting requirements. Other amendments to the definition are intended to clarify the regulations. See regulatory proposal #2.
      (5) Add a new definition for "transaction account" and insert it in place of the deleted term "demand deposit account" wherever it appears in the Part: This new term combines currently covered demand deposit accounts with recently developed money market and NOW accounts, which have many of the same characteristics as demand deposit accounts. See regulatory proposals #2 & 3.
      (6) Add a new definition for "business day". This amendment provides that die term "business day" for banks means banking day. See regulatory proposal #2.
      (7) Clarify that financial institutions must report multiple, same-day currency transactions of which they are aware that total more than $10,000: This amendment codifies the CTR Form 4789 instruction that currently requires financial institutions to report multiple, same-day transactions of which they are aware that are by or on behalf of any person and total more than $10,000. H does not impose any new burden on financial institutions to adopt systems to reveal the existence of multiple, same- day transactions. See regulatory proposal #4.
      (8) Require financial institutions to report cash purchases exceeding $3,000 of monetary instruments, such as cashier's checks, money orders or traveler's checks, where the aggregate of all such same-day purchase exceeds $10,000: The Department of Justice is concerned that unreported money laundering is being conducted through "smurfing" organizations that employ numerous agents to launder large amounts of cash by conducting repetitive transactions with numerous financial institutions, each involving less than $10,000 in currency. Treasury has found that unreported money laundering is being conducted through the use of various negotiable instruments, especially cashier's checks. For example, "smurfs" use multiple, same- day cash purchases of cashier's checks to convert large amounts of cash into a more compact form without currently triggering the filing of a report with the Treasury Department of leaving an audit trail that investigators can readily detect. The Department of Justice recommends this regulatory approach, which addresses the problem of reporting aggregate transactions by placing a certification requirement on the individual conducting the transactions. If an individual misrepresents to the financial institution either the existence or aggregate amount of the transactions, the financial institution will have no duty to report unless it has actual knowledge of the transactions. Such a misrepresentation would, however, be a criminal offense on the part of the individual responsible for it. See regulatory proposal #4.
      (9) Require banks to obtain signed statements from their customers attesting to the basis for their exemption from the currency transaction reporting requirements: Recent enforcement experience suggests that many banks are not paying sufficient attention to compliance with the requirements for granting reporting exemptions pursuant to the authority set out in § 103.22. This amendment seeks to ensure that banks are more diligent in controlling their exempt lists while, at the same time, making customers accountable for their representations to banks that justify such reporting exemptions. See regulatory proposal #4.
      (10) Permit banks to exempt from the currency transaction reporting requirement deposits by certain public utilities and commercial passenger carriers: This proposed amendment to the exemption procedure would permit banks to exempt cash deposits by certain public utilities and commercial passenger carriers. See regulatory proposal #4.
      (11) Clarify the prohibition on exempting automobile, boat and airplane dealerships: This proposed amendment makes clear that no motor vehicle dealership may be exempted from the currency reporting requirements. This includes, but is not limited to, motorcycle, recreational vehicle, and farm equipment dealers. See regulatory proposal #4.
      (12) Revise the procedures for filing all reports and for recording foreign financial accounts: This amendment updates and clarifies the procedures for filing all reports, and for keeping records of interests in foreign financial accounts. All reports previously subject to filing within 30 days would be filed within 15 days of the reportable event or the request for the report, whichever is applicable. See regulatory proposals #5, 6&8.
      (13) Require that customer identification be verified by document examination: This amendment addresses a compliance problem Treasury has identified with financial institutions that report insufficient information on Forms 4789 to show proper identification of customers. Many financial institutions have opened bank accounts for individuals based on inadequate identifications, and then have relied on the signature cards for those accounts to satisfy the current identification requirement. This-amendment requires financial institutions to exercise no less care in identifying the individuals conducting reportable transactions than they do when identifying noBdepositors cashing checks. Signature cards alone would not satisfy the identification requirement. This regulation would make the instruction for the completion of item 12 on the existing Currency Transaction Report partially obsolete. See regulatory proposal #7.
      (14) Limit financial institution recordkeeping requirements to extensions of credit exceeding $10,000 instead of $5,000: This amendment modifies recordkeeping requirements to eliminate recordkeeping that is no longer justified by the usefulness of the information retained. See regulatory proposal #9.
      (15) Expand financial institution recordkeeping requirements to include incoming as well as outgoing transactions with persons, accounts or places outside the United States: This amendment responds to increasingly sophisticated international financial schemes, and simply requires that recordkeeping cover incoming as well as outgoing transactions, including transactions that are later cancelled or not completed for any reason. See regulatory proposal #9.
      (16) Require records to be kept on certain purchases of more than $3,000 in monetary instruments: In concert with the proposed reporting requirement for monetary instrument purchases, this recordkeeping requirement would ensure that information in addition to that provided on the reports would be retained as part of the normal business records of the financial institution. Such information would provide a paper trail that would be available to investigators pursuant to traditional forms of legal process. See regulatory proposal #9.
      (17) Revise additional recordkeeping requirements for banks, casinos and brokers or dealers in securities to simplify the procedures for recording taxpayer identification numbers, and require those financial institutions to keep lists of all persons from whom taxpayer identification numbers have not been obtained: This amendment replaces the current lengthy exemption provisions in §§103.34,103.35 and 103.36 regarding taxpayer identification numbers with a simpler requirement in § 103.38(c) that a list be maintained of all persons from whom a taxpayer identification number is not obtained. This procedure also is incorporated in the new additional recordkeeping requirements for foreign currency exchanges. See regulatory proposals #10,12,13,14, & 15.
      (18) Clarify that additional recordkeeping requirements for banks include deposit slips and credit tickets: This amendment to the additional recordkeeping requirement for banks makes clear that deposit slips and credit tickets should be retained as part of the paper trail already required by § 103.34 to be recorded and that such records must stipulate whether transactions involve currency. See regulatory proposal #11.
      (19) Require foreign currency dealers to keep certain additional records: Treasury's enforcement experience indicates that foreign currency dealers are an increasingly important component of sophisticated money laundering and tax evasion schemes. The rapid evolution of international financial activity in recent years makes the imposition of recordkeeping requirements on foreign currency dealers appropriate at this time. Foreign currency dealers currently are subject to little or no oversight other than under the Bank Secrecy Act. These recordkeeping requirements serve to place foreign currency dealers on a par with brokers or dealers in securities, casinos and banks in retaining additional records that the Secretary finds have a high degree of usefulness in criminal, tax and regulatory matters. See regulatory proposal #14.
      (20) Establish a uniform minimum retention period for transaction account records: Under present regulations, bank records required to reconstruct deposits to demand deposit accounts can be destroyed two years after the transaction. These records normally consist of deposit slips, proof tapes, copies of checks deposited, and related records. Since deposits reflect income, these types of records are the most important bank records for documenting unreported income in, for example, a criminal tax investigation. However, the constraints placed on the Department by the two-year retention period make it extremely difficult to document violations for more than one year with deposit records. Since tax and related financial crimes may not be discovered until several years after they occur, the deposit records needed to reconstruct income often may be destroyed before the investigation starts. Without records to reconstruct income, an investigation may not be initiated or may have to be discontinued. This proposed amendment to the record retention period would alleviate this problem and standardize the retention requirement for all records covered under the Act. See regulatory proposal #15.
      (21) Clarify the overall Bank Secrecy

    • 86-79 Quarterly Checklist of Notices to Members

      TO: All NASD Members and Other Interested Persons

      The following is a list of NASD Notices to Members issued during the third quarter of 1986. Requests for copies of any notice should be accompanied by a self-addressed mailing label and directed to: NASD Administrative Services, 1735 K Street, N.W., Washington, D.C. 20006-1506.

      Notice Number

      Date

      Topic

      86-48

      July 8, 1986

      NASDAQ National Market System Grows to 2,457 Securities With 33 Voluntary Additions on July 15, 1986

      86-49

      July 9, 1986

      Request for Comments on Proposed Amendment to Schedule G of the NASD By-Laws

      86-50

      July 11, 1986

      Accurate Completion of Form U-4 (Uniform Application for Securities Industry Registration)

      86-51

      July 14, 1986

      Automation of Test Administration for the Financial and Operations Principal Examination

      86-52

      July 29, 1986

      NASDAQ National Market System Grows to 2,507 Securities With 52 Voluntary Additions on August 5, 1986, and 2 Mandatory Inclusions on August 12, 1986

      86-53

      July 30, 1986

      Quarterly Checklist of Notices to Members

      86-54

      July 30, 1986

      Proposed Amendment to Article III, Section 26 of the NASD Rules of Fair Practice Governing the Prompt Payment for Investment Company Shares Sold to Customers by NASD Members

      86-55

      July 30, 1986

      Request for Comments on Proposed Revisions to Schedule D of the NASD By-Laws

      86-56

      August 12, 1986

      NASDAQ National Market System Grows to 2,517 Securities With 17 Voluntary Additions on August 19, 1986

      86-57

      August 12, 1986

      Labor Day: Trade Date-Settlement Date Schedule

      86-58

      August 26, 1986

      NASDAQ National Market System Grows to 2,550 Securities with 27 Voluntary Additions on September 2, 1986

      86-59

      August 27, 1986

      Request for Comments on a Proposed Amendment to the Uniform Practice Code, Section 59, Close-Out Procedure; Buying-In

      86-60

      August 27, 1986

      Request for Comments on a Proposed Amendment to the Uniform Practice Code, Section 64, Acceptance and Settlement of COD Orders

      86-61

      September 3, 1986

      Proposed New Rule of Fair Practice Relating to Monthly Reporting of Aggregate "Short" Positions

      86-62

      September 10, 1986

      NASDAQ National Market System Grows to 2,569 Securities With 27 Voluntary Additions on September 16, 1986

      86-63

      September 10, 1986

      NASD Operations Center Opens in Rock-ville, Maryland; New Addresses and Telephone Numbers

      86-64

      September 12, 1986

      Columbus Day: Date Schedule Trade Date-Settlement

      86-65

      September 12, 1986

      Compliance with the NASD Rules of Fair Practice in the Employment and Supervision of Off-Site Personnel

      86-66

      September 19, 1986

      Due Diligence Expense Reimbursements in Connection with Direct Participation Programs

    • 86-78 NASDAQ National Market System Grows to 2,658 Securities With 21 Voluntary Additions on November 18, 1986

      TO: All NASD Members and Level 2 and Level 3 Subscribers

      On Tuesday, November 18, 1986, 21 issues are scheduled to join the NASDAQ National Market System, bringing the total number of issues in NASDAQ/NMS to 2,658. These 21 issues, which will begin trading under real-time trade reporting, are entering NASDAQ/NMS pursuant to the Securities and Exchange Commission's criteria for voluntary designation.

      The 21 issues scheduled to join NASDAQ/NMS on Tuesday, November 18, 1986, are:

      Symbol*

      Company

      Location

      DOCP

      Delaware Ostego Corporation

      Cooperstown, NY

      FEXA

      Florida Express, Inc.

      Orlando, FL

      GENA

      General Automation, Inc.

      Anaheim, CA

      KOSS

      Koss Corporation

      Milwaukee, WI

      LDMFA

      Laidlaw Transportation Ltd. (CIA)

      Ontario, Canada

      MRBL

      Marble Financial Corporation

      Rutland, VT

      MASB

      MASSBANK for Savings

      Reading, MA

      NMBC

      Merchants Bancorp, Inc. (The)

      Norwalk, CT

      MRET

      Meret, Inc.

      Columbus, OH

      MILW

      Milwaukee Insurance Group, Inc.

      Milwaukee, WI

      MTNR

      Mountaineer Bankshares of West Virginia, Inc.

      Martinsburg, WV

      MUXVF

      Musto Explorations Limited

      Vancouver, Canada

      OVWV

      One Valley Bancorp of West Virginia, Inc.

      Charleston, WV

      THFI

      Plymouth Five Cents Savings Bank

      Plymouth, MA

      SHLB

      Shelby Federal Savings Bank (C1B)

      Indianapolis, IN

      CODA

      Step-Saver Data Systems, Inc.

      Bala Cynwyd, PA

      CODAZ

      Step-Saver Data Systems, Inc. (Wts)

      Bala Cynwyd, PA

      SCSLA

      Suncoast Savings & Loan Association (Cl A)

      Hollywood, FL

      TKIOY

      Tokio Marine & Fire Insurance Company, Ltd. (The)

      Tokyo, Japan

      VMTGZ

      VMS Mortgage Investors L.P. II

      Chicago, IL

      XPLR

      Xplor Corporation

      New York, NY

      The following issues may be included in NASDAQ/NMS prior to the next regularly scheduled phase-in date:

      Pending Additions

      Symbol*

      Company

      Location

      AARN

      Aaron Brothers Art Marts, Inc.

      City of Commerce, CA

      AGII

      Argonaut Group,Inc.

      Los Angeles, CA

      BENJ

      Benj. Franklin Savings & Loan Association

      Portland, OR

      ROCK

      Boorheim-Fields, Inc.

      Dallas, TX

      CFNH

      Cheshire Financial Corporation

      Keene, NH

      CLIC

      Clairson International Corporation

      Ocala, FL

      DOMN

      Domain Technology, Inc.

      Milpitas, CA

      DUSA

      Dryclean USA, Inc.

      Miami, FL

      EDGC

      Edgcomb Corporation

      New York, NY

      FUIC

      Farmers Union Insurance Holding Company

      Denver, CO

      FARR

      Farragut Mortgage Co., Inc.

      Waltham, MA

      GHRE

      Guaranty Holdings Corp.

      North White Plains, NY

      HIII

      Harman International Industries, Inc.

      Washington, DC

      HMSB

      Home Savings Bank (The)

      Brooklyn, NY

      IDEL

      Ideal School Supply Corporation

      Oak Lawn, IL

      ICPI

      InCon Packaging, Inc.

      Roseland, NJ

      LPLIA

      LPL Investment Group, Inc. (CIA)

      Wallingford, CT

      LNBK

      Lane Financial, Inc.

      Northbrook, IL

      LOIC

      Loyola Capital Corporation

      Baltimore, MD

      MRCH

      Merchants Group, Inc.

      Buffalo, NY

      PCSI

      PCS, Inc.

      Scottsdale, AZ

      RITC

      Richmond Transportation Corp.

      Richmond, IN

      SKCH

      Skyline Chili, Inc.

      Cincinnati, OH

      SPAIB

      Strategic Planning: Associates, Inc. (Cl B)

      Washington, DC

      NASDAQ/NMS Interim Additions

      Symbol*

      Security

      Date of Entity

      NBCC

      National Bane of Commerce Company

      10/29/86

      AMRI

      AmeriFirst Federal Savings & Loan Association

      10/30/86

      HUSB

      Home Unity Savings & Loan Association

      10/30/86

      MMCT

      Metro Mobile CTS, Inc.

      10/31/86

      CRITA

      Criterion Group, Inc. (CL A)

      11/05/86

      HTLD

      Heartland Express, Inc.

      11/05/86

      SCOT

      Scott & Stringfellow Financial, Inc.

      11/05/86

      VSTR

      Vestar, Inc.

      11/05/86

      BHAG

      BHA Group, Inc.

      11/06/86

      CLSIF

      CDC Life Sciences, Inc.

      11/06/86

      CONT

      Continental Medical Systems, Inc.

      11/06/86

      WMBS

      West Mass Bankshares, Inc.

      11/07/86

      The following changes to the list of NASDAQ/NMS securities occurred since October 24, 1986:

      NASDAQ/NMS Symbol* And/Or Name Changes

      New/Old Symbol*

      New/Old Security

      Date of Change

      CSBK/CSBKA

      Coastal Bancorp/Coastal Savings Bank (Cl A)

      10/28/86

      DNSB/DNSF

      D & N Savings Bank, F.S.B./ Detroit & Northern Savings, F.A.

      11/03/86

      COFD/COFD

      Collective Federal Savings Bank/ Collective Federal Savings & Loan Association

      11/04/86

      HABEZ/HABEZ

      Haber, Inc. (11/26/87 Cl B Wts)/ Haber, Inc. (11/26/86 Cl B Wts)

      11/06/86

      NASDAQ/NMS Deletions

      Symbol*

      Security

      Date

      AMERZ

      America First Federally Guaranteed Mortgage Fund L.P.

      10/24/86

      DTIB

      Distribuco, inc.

      10/28/86

      PATN

      Patten Corporation

      10/28/86

      NJNB

      New Jersey National Corporation

      10/31/86

      AFUR

      American Furniture Company, Incorporated

      11/03/86

      FRRG

      First Railroad & Banking Company of Georgia

      11/03/86

      CRMP

      Crump Companies, Inc. (The)

      11/04/86

      Questions regarding this notice should be directed to Ms. Kit Milholland, Senior Analyst, NASDAQ Operations, at (202) 728-8281. Questions pertaining to trade reporting rules should be directed to Mr. Leon Bastien, Assistant Director, Market Surveillance, at (202) 728-8192.

      Sincerely,

      Gordon S. Macklin
      President


      * NASDAQ symbols are proprietary to the National Association of Securities Dealers, Inc.


    • 86-77 John Franklin & Associates 1975 Hempstead Turnpike East Meadow, New York 11554

      TO: All NASD Members

      ATTN: Operations Officer, Cashier, Fail-Control Department

      On November 5, 1986, the United States District Court for the Eastern District of New York, appointed the Securities Investor Protection Corporation (SIPC) Trustee for the above-captioned firm.

      Members may use the "immediate close-out" procedures as provided in Section 59(i)(2) of the NASD's Uniform Practice Code to close out open OTC contracts. Also, MSRB Rule G-12(h)(iii) provides that members may use the above procedures to close out transactions in municipal securities.

      Questions regarding the firm should be directed to:

      SIPC Trustee

      Securities Investor Protection Corporation
      Farragut Building, Suite 800
      900 Seventeenth Street N. W.
      Washington, D. C. 20006
      Attn: Ms. Josephine Wang
      Telephone: (202) 223-8400

    • 86-76 South African Sanctions Act

      TO: All NASD Members and Other Interested Persons

      EXECUTIVE SUMMARY

      The Congress has recently enacted legislation providing sanctions against certain transactions with South Africa or South African entities. This notice provides information relating to certain provisions of that Act which may relate to the business of NASD members.

      On October 2, 1986, Congress enacted the Comprehensive Anti-Apartheid Act of 1986 (Sanctions Act) (Public Law No. 99-440), containing prohibitions against certain transactions in securities issued by South African entities. Important prohibitions in the Sanctions Act become effective on November 16, 1986, and may directly affect NASD members' trading activity, especially trading in American Depositary Receipts (ADRs). Members and associated persons should consult with their counsel to assure that their trading activity is in compliance with the Sanctions Act.

      There are a number of potential ramifications of the Act to the broker-dealer community. One of primary importance to NASD members relates to continued market making and retail activity in ADRs representing shares of South African entities. The pertinent provision in this regard is §310(a) of the Act which provides "no national of the United States may, directly or through another person, make any new investment in South Africa." This provision becomes effective on November 16. The term "new investment" is defined at §3(4) of the Act as meaning "a commitment or contribution of funds or other assets" and "a loan or other extension of credit," but does not include:

      the ownership or control of ... a debt or equity security issued by the government of South Africa or a South African entity before [October 2, 1986] or the transfer or acquisition of such ... debt or equity security, if any such transfer or acquisition does not result in a payment, contribution of funds or assets, or credit to a South African entity, a controlled South African entity, or the government of South Africa.

      In the context of ADR trading, this language presents the possibility of violation of the Act, which carries civil and/or criminal sanctions, through the purchase of depositary receipts which are backed by securities issued by a South African entity after October 2, 1986, and through transactions benefitting South African entities. Presently, application of the prohibitions of the Act to a situation where securities issued after October 2 become part of the pool of securities underlying an ADR is unclear. There is the possibility that the inclusion of post-October 2 securities in the pool would "taint" the entire pool and therefore make it a prohibited investment. The Treasury Department has rulemaking authority and is currently working on rule proposals for this and other sections of the Act. The NASD, various banks that issue ADRs and certain broker-dealers doing an ADR business have been in contact with the Treasury Department to focus the Department's attention on this and other issues. To date, there have been no regulatory proposals or statements that indicate how, or whether, this problem will be dealt with in the proposed regulations.

      The purpose of this notice is to inform NASD members of this situation and of the fact that regulations will be prepared by the Treasury Department. Should members or their counsel desire to make their views as to the implementation of these or other provisions of the Sanctions Act known to the Treasury Department, the regulations are being developed by the Office of Foreign Asset Control, Treasury Department, 1331 G Street, N.W., Suite 500, Washington, D.C. 20220.

      Once a determination is made by the Treasury as to the method in which it will proceed, members will be provided with such information as becomes available. As of November 16, however, any member or associated person handling transactions in ADRs should take steps, including consultation with counsel, to assure that the transactions in the securities in question are in compliance with the Sanctions Act.

      Any questions regarding this notice may be addressed T. Grant Callery, NASD Office of the General Counsel, at (202) 728-8285.

      Sincerely,

      Frank J.Wilson
      Executive Vice President and General Counsel

    • 86-75 NASDAQ National Market System Grows to 2,638 Securities With 25 Voluntary Additions on November 4, 1986, and Eight Mandatory Inclusions on November 11, 1986

      TO: All NASD Members and Level 2 and Level 3 Subscribers

      On Tuesday, November 4, 1986, 25 issues are scheduled to join the NASDAQ National Market System, bringing the total number of issues in NASDAQ/NMS to 2,630. These 25 issues, which will begin trading under real-time trade reporting, are entering NASDAQ/NMS pursuant to the Securities and Exchange Commission's criteria for voluntary designation.

      The 25 issues scheduled to join NASDAQ/NMS on Tuesday, November 4, 1986, are:

      Symbol*

      Company

      Location

      ADPT

      Adaptec, Inc.

      Milpitas, CA

      ASBS

      Asbestee Industries, Inc.

      Pennsauken, NJ

      BARY

      Barry's Jewelers, Inc.

      Duarte, CA

      BOCB

      Buffets, Inc.

      Wayzata, MN

      CNBE

      CNB Bancshares, Inc.

      Evansville, IN

      CEBK

      Central Co-Operative Bank

      Somerville, MA

      DOCKS

      Chicago Dock and Canal Trust (The)

      Chicago, IL

      DMCZ

      Datametrics Corporation

      Chatsworth, CA

      FARF

      Fairfield-Noble Corporation

      New York, NY

      FDOS

      Franklin Computer Corporation

      Pennsauken, NJ

      GKIE

      General Kinetics Incorporated

      Rockville, MD

      GWTI

      Groundwater Technology, Inc.

      Norwood, MA

      HOGI

      Harken Oil & Gas, Incorporated

      Dallas, TX

      JBIL

      J. Bildner & Sons, Inc.

      Boston, MA

      LAUR

      Laurel Entertainment, Inc.

      New York, NY

      OLNB

      Old National Bancorporation

      Spokane, WA

      PKLB

      PharmaKinetics Laboratories, Inc.

      Baltimore, MD

      PKLBW

      PharmaKinetics Laboratories, Inc. (Wts)

      Baltimore, MD

      POLR

      Polymeric Resources Corporation

      Wayne, NJ

      PNUT

      Specialty Retail Concepts, Inc.

      Winston-Salem, NC

      SSAL

      Shelton Savings & Loan Association, Inc.

      Shelton, CT

      STAR

      Stars To Go, Inc.

      Los Angeles, CA

      UFST

      Unifast Industries, Inc.

      Hauppauge, NY

      WCRP

      WESTCORP

      Orange, CA

      WTBK

      Westerbeke Corporation

      Avon, MA

      The following issues may be included in NASDAQ/NMS prior to the next regularly scheduled phase-in date:

      Pending Additions

      Symbol*

      Company

      Location

      AMRI

      AmeriFirst Federal Savings & Loan Association

      Miami, FL

      CSGI

      Citizens Security Group, Inc.

      Red Wing, MN

      CONT

      Continental Medical Systems, Inc.

      Mechanicsburg, PA

      EBCO

      Ehrlich Bober Financial Corporation

      New York, NY

      FRDC

      Frances Denny Companies, Inc.

      New York, NY

      HDRI

      HDR Power Systems, Inc.

      Columbus, OH

      HTLD

      Heartland Express, Inc.

      Coralville, IA

      HUSB

      Home Unity Savings & Loan Association

      Lafayette Hills, PA

      IRWN

      Irwin Magnetic Systems, Inc.

      Ann Arbor, MI

      MMCT

      Metro Mobile CTS, Inc.

      New York, NY

      MILW

      Milwaukee Insurance Group, Inc.

      Milwaukee, WI

      NBCC

      National Bane of Commerce Company

      Charleston, WV

      RMCO

      Remco America, Inc.

      Houston, TX

      SCOT

      Scott & Stringfellow Financial, Inc.

      Richmond, VA

      SMIX

      Systems Marketing, Inc.

      Phoenix, AZ

      TLAC

      Telephone Auction, Inc. (The)

      San Jose, CA

      VSTR

      Vestar, Inc.

      Pasadena, CA

      The following eight securities will enter NASDAQ/NMS under mandatory Tier 1 criteria on November 11, 1986:

      Symbol*

      Company

      Location

      TBCX

      Banking Center (The)

      Waterbury, CT

      BTGC

      Bio-Technology General Corporation

      New York, NY

      BITC

      Biotech Capital Corporation

      New York, NY

      JLUB

      Jiffy Lube International, Inc.

      Baltimore, MD

      LAGR

      L.A. Gear, Inc.

      Los Angeles, CA

      NESB

      New England Savings Bank

      New London, CT

      QVCN

      QVC Network, Inc.

      Philadelphia, PA

      WCYS

      Worchester County Institution For Savings

      Worchester, MA

      NASDAQ/NMS Interim Additions

      Symbol*

      Security

      Date of Entry

      CMIKA

      Carmike Cinemas, Inc. (Cl A)

      10/10/86

      HERS

      Heritage Financial Services, Inc.

      10/14/86

      ANSY

      American Nursery Products, Inc.

      10/16/86

      MOAI

      Morino Associates, Inc.

      10/17/86

      JSBK

      Johnstown Savings Bank, F.S.B.

      10/22/86

      FHVN

      Fairhaven Savings Bank

      10/23/86

      MEYR

      Fred Meyer, Inc.

      10/23/86

      SHOR

      Shorewood Packaging Corporation

      10/24/86

      The following changes to the list of NASDAQ/NMS securities occurred since October 10, 1986:

      NASDAQ/NMS Symbol* And/Or Name Changes

      New/Old Symbol*

      New/Old Security

      Date

      FISB/FISB

      First Indiana Corporation/First Indiana Federal Savings Bank

      10/17/86

      PSBK/PSBK

      Progressive Bank, Inc./Pawling Savings Bank

      10/20/86

      NASDAQ/NMS Deletions

      Symbol*

      Security

      Date

      HYTKE

      Hytek International Corporation

      10/15/86

      AZBW

      Arizona Bancwest Corporation

      10/17/86

      JWAT

      J.W.P., Inc.

      10/17/86

      GRCM

      Gray & Co. Public International, Inc.

      10/23/86

      UPCI

      USPCI, Inc.

      10/23/86

      Questions regarding this notice should be directed to Kit Milholland,. Senior Analyst, NASDAQ Operations, at (202) 728-8281. Questions pertaining to trade reporting rules should be directed to the NASD's Market Surveillance Section,, at (202) 728-8201.

      Sincerely,

      Gordon S. Macklin
      President


      * NASDAQ symbols are proprietary to the National Association of Securities Dealers, Inc.


    • 86-74 Proposed Amendments to Article III, Section 19(f) and Section 33(d) of the NASD Rules of Fair Practice and Article X, Section 6 of the NASD By-Laws

      IMPORTANT MAIL VOTE

      OFFICERS, PARTNERS AND PROPRIETORS

      TO: All NASD Members

      LAST VOTING DATE IS NOVEMBER 28, 1986.

      ••• Executive Summary

      NASD members are invited to vote on the following amendments to the NASD Rules of Fair Practice and the NASD By-Laws:

      • Article III, Section 19(f) of the NASD Rules of Fair Practice — would permit members or persons associated with members to receive performance-type fees under circumstances similar to those in which investment advisers are permitted by the SEC to receive such fees. This amendment is a result of recent adoption by the SEC of a rule codifying its interpretation of performance-type compensation.
      • Article III, Section 33(d) of the NASD Rules of Fair Practice — is a technical rule change, made at the prompting of the SEC, amending the definition of "option" to incorporate the definition contained in the Securities Exchange Act of 1934.
      • Article X, Section 6 of the NASD By-Laws — creates a provision authorizing compensation of members of Extended Hearing Committees. This change is made in accordance with amendments to the NASD Code of Procedure.
        These proposed amendments have been approved by the NASD Board of Governors and now are being submitted for membership approval. Prior to becoming effective, they must also be approved by the SEC.

      OVERVIEW

      The proposed amendment to Article III, Section 19(f) of the NASD Rules of Fair Practice would, under certain circumstances, allow performance-type fees. Section 19(f) generally prohibits members or persons associated with members from sharing in the profits or losses in customer accounts other than in direct proportion to the amount invested. The proposed amendment would permit members and associated persons to receive performance fees under circumstances similar to those in which investment advisers are permitted by the SEC to receive such fees. The text of the proposed amendment is attached as Exhibit A.

      The proposed amendment to Article III, Section 33(d) of the NASD Rules of Fair Practice is essentially a technical change that would amend the definition of "option" to include any put, call, straddle or other option that is a "security" as defined in Section 3(a)(10) of the Securities Exchange Act of 1934, rather than as defined in Section 2(1) of the Securities Act of 1933. The text of the proposed amendment is attached as Exhibit B.

      The proposed amendment to Article X, Section 6 of the NASD By-Laws creates an exception to the general rule that members of NASD hearing panels do not receive compensation. This amendment would allow implementation of changes to the NASD Code of Procedure, which provide for extended hearings. Pursuant to those procedures, such committee members will be compensated at the same rate as members of NASD arbitration panels. The text of the proposed amendment is attached as Exhibit C.

      BACKGROUND

      I. Amendment to Article III, Section 19(f), NASD Rules of Fair Practice

      This amendment was considered by the Board of Governors in view of the recent promulgation by the SEC of Rule 205-3 under the Investment Advisers Act of 1940 (Advisers Act). In the past, the NASD has occasionally taken no-action positions with respect to members' receipt of certain performance-type fees in circumstances where a customer has entered into an agreement with a member or persons associated with a member and the facts indicate that (1) the investment is relatively large; (2) the number of investors is limited; (3) there is evidence of the investors' sophistication; and (4) the agreement could be reasonably considered to be entered into by virtue of arm's-length negotiation.

      The recent adoption of SEC Rule 205-3 under the Advisers Act marks the codification of the SEC staff's position since 1975 that, under certain factual circumstances, the prohibitions of Section 205(1) of the Advisers Act against performance-type fees may not be necessary or appropriate in the public interest. Rule 205-3 applies similar, although more specific, standards to those that have been utilized by the NASD with respect to Section 19(f) no-action positions.

      Comments Received

      The proposed amendment to Article III, Section 19(f) was published for comment on April 25, 1986 (Notice to Members 86-31). The NASD received 10 comments on the proposed amendment. Of these, one came from a state securities administrator, one from the Securities Industry Association Investment Adviser/Money Management Committee, and the remaining eight were from NASD member firms.

      Two of the commentators generally favored the amendments, but both suggested the development of standardized contractual agreements to be used in connection with such a performance fee. Two commentators did not express any view as to the merits of the proposal but raised questions as to the manner in which the provision would be applied to accounts consisting of shares of direct participation programs.

      One member firm's comments suggested that the rule be limited in its applicability to members registered with the SEC as investment advisers, questioning whether such arrangements could qualify as advisory services "incidental" to brokerage activities. Two member firms opposed adoption of the amendment, citing potential abuses and problems that could arise in the context of a declining market.

      The state securities commissioner did not express an opinion as to the merits of the rule but suggested qualifying language recognizing the fact that performance fees are prohibited by a number of states' securities laws.

      The SIA committee generally supported the amendment but recommended that qualification for the exemption be predicated upon compliance with SEC Rule 205-3. The committee felt that this would simplify enforcement and eliminate any potential competitive distinctions between NASD-member and non-member investment advisers.

      The committee suggested that the rule be amended to track Rule 205-3 in a number of areas, including the member's "reasonable belief," prior to entering into the contract, in (1) the net worth and investment size requirements, (2) the customer's ability to understand the terms of the agreement, and (3) the fact that the contract represents an arms-length arrangement. The committee also suggested that the NASD rule contain the SEC language relating to methods of computing compensation and the provisions for disclosure of information to the client, which is required prior to entering into the agreement.

      In response to these comments, the Board of Governors amended the proposal as originally set forth in Notice to Members 86-31 to clarify the fact that the proposal had never contemplated an arrangement whereby a member or a person associated with a member shares in losses in a customer account. It is contemplated that incentive fees will be based upon the overall profits in an account, with such fees reduced or eliminated based upon a netting of profits and losses during the period covered by the arrangement.

      In addition, the Board has amended paragraphs B, C and E of the proposed rule to allow members or persons associated with members to act upon a reasonable belief that (1) the customer meets the net worth requirement, (2) the customer understands the proposed method of compensation, and (3) the agreement represents an arms-length arrangement. The reasonable-belief standard was utilized in SEC Rule 205-3, and, like that rule, a member or person associated with a member must make necessary inquiries to support such a conclusion. Upon examination by the NASD, the member or person associated with a member must document the basis for those conclusions.

      The Board concluded that it was not necessary to amend the proposal to recognize explicitly the state and SEC rules that prohibit or restrict performance fees and that require registration as an investment adviser in certain circumstances. The proposed amendment is not intended to affect the responsibilities of members or associated persons under SEC or state regulatory requirements. In addition, the utilization of such a fee structure could constitute a beneficial interest of the member in the account for purposes of the NASD Board of Governors' Free-Riding and Withholding Interpretation.

      II. Amendment to Article III, Section 33(d), NASD Rules of Fair Practice

      Article III, Section 33(d) of the NASD Rules of Fair Practice was last amended on September 13, 1985. In approving that amendment, the SEC observed that because the NASD is a national securities association whose rules must comply with Section 15A of the Securities Exchange Act of 1934, the definition of "option" should more appropriately refer to Section 3(a)(10) of the Exchange Act rather than Section 2(1) of the Securities Act of 1933. 1/ After receiving assurances from the SEC's Division of Market Regulation that there is no material practical significance in the difference between the Acts' definitions, the NASD Options Committee and the Board of Governors approved the amendment to refer to the Securities Exchange Act of 1934. 2/

      Comments were not solicited on this proposed amendment.

      III. Amendment to Article X, Section 6 of the NASD By-Laws

      The Board of Governors has approved amendments to the NASD Code of Procedure authorizing the appointment of Extended Hearing Committees to serve in the capacity of hearing subcommittees of the District Business Conduct Committees or Market Surveillance Committee and subcommittees of the Board of Governors in the event that a disciplinary hearing extends over several days. The amendments also identify the individuals eligible to serve on Extended Hearing Committees, provide that extended hearings are to be conducted in accordance with applicable NASD Code of Procedure provisions, and permit the compensation of Extended Hearing Committee members at the rate prescribed by the Board of Governors for arbitrators appointed under the Code of Arbitration Procedure.

      To effectuate the compensation provision, Article X, Section 6 of the NASD By-Laws must be amended to exempt members of Extended Hearing Committees from the prohibition against the receipt of compensation by NASD committee members for committee-related services. The Board of Governors believes that it is appropriate to compensate members of Extended Hearing Committees, in addition to reimbursement for expenses, because service on such committees is expected to involve substantial time and effort.

      Comments on this proposed amendment were solicited in conjunction with the amendments to the NASD Code of Procedure (Notice to Members 86-23, March 27, 1986); none were received.

      * * *

      The Board of Governors believes that the amendments to Article III, Section 19(f) and Section 33(d) of the NASD Rules of Fair Practice and Article X, Section 6 of the NASD By-Laws are necessary and appropriate and recommends that members vote their approval.

      Please mark the attached ballot according to your convictions and return it in the enclosed, stamped envelope to "The Corporation Trust Company." Ballots must be postmarked no later than November 28, 1986. Questions concerning this notice may be directed to T. Grant Callery, NASD Office of General Counsel, at (202) 728-8285.

      Sincerely,

      Frank J. Wilson
      Executive Vice President and General Counsel

      Attachments

      Exhibit A

      PROPOSED AMENDMENT TO ARTICLE III, SECTION 19(f) NASD RULES OF FAIR PRACTICE*

      Sharing in accounts; extent permissible

      (f)
      (1)
      (A) Except as provided in Subsection (f)(2), no member or person associated with a member shall share directly or indirectly in the profits or losses in any account of a customer carried by the member or any other member [unless]; provided, however, that a member or person associated with a member may share in the profits or losses in such an account if (i) such member or person associated with a member obtains prior written authorization from the member carrying the account; and (ii) the member or person associated with a member shares in the profits or losses in the account only in direct proportion to the financial contributions made to such account by either the member or person associated with a member.
      (B) Exempt from the direct proportionate share limitation of subsection (f)(l)(A)(ii) are accounts of the immediate family of such member or person associated with a member. For purposes of this section, the term "immediate family" shall include parents, mother-in-law or father-in-law, husband or wife, children or any relative to whose support the member or person associated with a member otherwise contributes directly or indirectly.
      (2) Notwithstanding the prohibition of subsection (f)(l), a member or person associated with a member may receive compensation based on a share in profits or gains in an account if all of the following conditions are satisfied;
      (A) The member or person associated with a member seeking such compensation obtains prior written authorization from the member carrying the account;
      (B) The customer has at the time the account is opened either a net worth which the member or person associated with a member reasonably believes to be not less than $1,000,000, or the minimum amount invested in the account is not less than $500,000;
      (C) The member or person associated with a member reasonably believes the customer is able to understand the proposed method of compensation and its risks prior to entering into the arrangement;
      (D) The compensation arrangement is set forth in a written agreement executed by the customer and the member;
      (E) The member or person associated with a member reasonably believes, immediately prior to entering into the arrangement, that the agreement represents an arm's-length arrangement between the parties;
      (F) The compensation formula takes into account both gains and losses realized or accrued in the account over a period of at least one year; and
      (G) The member has disclosed to the customer all material information relating to the arrangement including the method of compensation and potential conflicts of interest which may result from the compensation formula.

      Exhibit B

      PROPOSED AMENDMENT TO ARTICLE III, SECTION 33(d) NASD RULES OF FAIR PRACTICE*

      (a) Unchanged.
      (b) Unchanged.
      (c) Unchanged.
      (d) For purposes of this section, the term "option" shall mean any put, call, straddle, or other option or privilege, which is a "security" as defined in Section [2(1)1 3(a)(10) of the Securities Exchange Act of 193[3]4 as amended, but shall not include any tender offer, registered warrant, right, convertible security or any other option in respect to which the writer is the issuer of the security which may be purchased or sold upon the exercise of the option.

      Exhibit C

      PROPOSED AMENDMENT TO ARTICLE X, SECTION 6 NASD BY-LAWS*

      Sec. 6.

      No member of the Board of Governors (except the President of the Corporation or the President pro tern), no member of any District Committee and no member of any other committee, other than an Extended Hearing Committee as defined in Article I of the Corporation's Code of Procedure, shall be entitled to receive any compensation from the Corporation for any work done in connection with his duties as a member of the Board of Governors, any District Committee or any other committee. However, such persons shall be entitled to reimbursement for reasonable expenses incurred in connection with the business of the Corporation.


      1/ Securities Exchange Act Release No. 22404 (September 13, 1985), 50 FR 38235, 38237 N. 27.

      2/ Letter from Richard T. Chase, Associate Director, SEC Division of Market Regulation, to Peter Canada, NASD Associate Director, NASDAQ Operations, dated March 4, 1986.

      *New language is underscored; deleted language is bracketed.

      *New language is underscored.


    • 86-73 Effectiveness of Exemption from NASD Board of Governors' Free-Riding Interpretation for Conversions of Savings and Loan Associations and Certain Other Organizations

      TO: All NASD Members and Other Interested Persons

      EXECUTIVE SUMMARY

      Effective with the SEC's approval on September 25, 1986, an amendment to the NASD Board of Governors' Free-Riding Interpretation provides limited exemption for certain persons purchasing "hot issue" securities in connection with the conversion to stock ownership of mutual savings and loan associations, savings banks and certain other organizations.

      BACKGROUND

      On September 25, 1986, the Securities and Exchange Commission (SEC) approved an amendment to the Board of Governors' Interpretation with respect to Free-Riding and Withholding (Interpretation). The amendment provides an exemption, subject to compliance with specified conditions, from the Intepretation for sales of "hot issue" securities 1/ made in connection with the conversions of savings and loan associations, savings banks and certain other organizations from the mutual form to the stock form of ownership. The amendment became effective upon approval by the SEC. 2/

      The amendment, as originally proposed, was published by the NASD for comment in Notice to Members 85-81 (December 2, 1985). In response to the comments received and following further consideration by the NASD Board of Governors, a revised proposal was published for comment in Notice to Members 86-26 (April 8, 1986). The revised amendment was subsequently filed with and approved by the SEC.

      The amendment provides limited exemptive relief from the provisions of the Interpretation, which otherwise prohibit or restrict the ability of certain persons, if they come within any of the classes of persons covered by the Interpretation, from exercising their subscription rights or otherwise purchasing securities directly from a converting savings and loan association or other converting institution.

      The Interpretation prohibits a member and associated persons of a member from selling securities that are part of a "hot issue" to persons associated with members, their immediate family members, with certain exceptions, and to accounts in which members or associated persons of members have a beneficial interest ("prohibited persons").3/The Interpretation also prohibits sales by members and associated persons of members to senior officers and certain employees of specified financial institutions, including savings and loan associations, banks and insurance companies, their immediate family members and accounts in which such persons have a beneficial interest ("restricted persons").4/ Such sales are not prohibited, however, if the purchaser has an investment history with the member making the sale, the total amount sold by the member to all persons covered by the Interpretation is insubstantial and not disproportionate, and the amount sold to any one such "restricted person" is insubstantial. Previously under the Interpretation, members and associated persons of members were responsible for assuring compliance with these prohibitions and restrictions with respect to sales made by the issuer on a non-underwritten basis. 5/

      The amendment changes the application of these prohibitions and restrictions of the Interpretation by establishing an exemption for sales of securities in a "conversion offering" made directly by the converting institutions to persons who are otherwise restricted or prohibited under the Interpretation. 6/ The amendment does not cover nonconversion offerings made by savings and loan associations, savings banks or other institutions nor does it cover the underwritten portion of conversion offerings where sales are made directly by members. Such offerings continue to be subject to the restrictions and prohibitions of the Interpretation.

      The exemption is available only if specified conditions are satisfied, which are determined by whether the purchaser comes within one of the prohibited classes under the Interpretation or within one of the classes of restricted persons. In the case of purchasers who were previously prohibited under the Interpretation, such as associated persons of members, three conditions must be met for an effective exemption:

      1. The purchaser must be an "eligible purchaser."7/
      2. The securities being acquired must be restricted against sale or transfer for 150 days.
      3. The purchase must be reported in writing to the person's employer- member within one day of payment.

      In the case of purchasers who were previously restricted under the Interpretation, such as senior officers of the converting savings and loan association or other institution, the sole condition for effective exemption is that they meet the definition of "eligible purchasers."

      * * *

      A more detailed discussion of the purposes and background of the amendment is contained in the notices to members noted previously. The text of the amendment is attached to this notice. It will appear as new language at the end of the Interpretation. The revised Interpretation will be published by Commerce Clearing House, Inc., in the October 1986 supplement to the NASD Manual.

      Any questions concerning this notice or the amendment may be directed to either Dennis C. Hensley or John F. Mylod, Jr., NASD Office of General Counsel, at (202) 728-8294.

      Sincerely,

      Frank J. Wilson
      Executive Vice President and General Counsel

      Attachment

      AMENDMENT TO FREE-RIDING INTERPRETATION*

      Effective September 25, 1986

      SALES BY ISSUERS IN CONVERSION OFFERINGS

      Definitions

      (a) For purposes of this subsection, the following terms shall have the meanings stated:
      (1) "Conversion offering" shall mean any offering of securities made as part of a plan by which a savings and loan association or other organization converts from a mutual to a stock form of ownership.
      (2) "Eligible purchaser" shall mean a person who is eligible to purchase securities pursuant to the rules of the Federal Home Loan Bank Board or other governmental agency or instrumentality having authority to regulate conversion offerings.

      Conditions for Exemption

      (b) This Interpretation shall not apply to a sale of securities by the issuer on a non-underwritten basis to any person who would otherwise be prohibited or restricted from purchasing a hot issue security if all of the conditions of this subsection (b) are satisfied.
      (1) Sales to Members, Associated Persons of Members and Certain Related Persons
      If the purchaser is a member, person associated with a member, member of the immediate family of any such person to whose support such person contributes, directly or indirectly, or an account in which a member or person associated with a member has a beneficial interest:
      (A) the purchaser shall be an eligible purchaser;
      (B) the securities purchased shall be restricted from sale or transfer for a period of 150 days following the conclusion of the offering; and
      (C) the fact of purchase shall be reported in writing to the member where the person is associated within one day of payment.
      (2) Sales to Other Restricted Persons
      If the purchaser is not a person specified in subsection (b)(l) above, the purchaser shall be an eligible purchaser.

      1/ The Interpretation defines a "hot issue" to be securities of a public offering that trade at a premium in the secondary market, whenever such secondary market begins. Interpretation, NASD Manual, p. 2040.

      2/ Securities Exchange Act Release No. 23645 (September 25, 1986).

      3/ Interpretation, paragraphs 2 and 5, NASD Manual, p. 2041.

      4/ Interpretation, paragraphs 4 and 5, NASD Manual, p. 2041.

      5/ Interpretation, "Issuer Directed Securities," NASD Manual, p. 2043.

      6/ The term "conversion offering" is defined by the amendment to mean any offering made as part of a plan by which a savings and loan association or other organization converts from a mutual form to a stock form of ownership. See section (a)(l).

      7/ The term "eligible purchaser" is defined to mean a person who is eligible to purchase pursuant to the rules of the Federal Home Loan Bank Board or other agency having authority to regulate conversion offerings. See section (a)(2).

      * This text is added to the end of the Interpretation.


    • 86-72 Norbay Securities, Inc. 36-35 Bell Boulevard Bayside, New York 11361

      TO: All NASD Members

      ATTN: Operations Officer, Cashier, Fail-Control Department

      On October 14, 1986, the United States District Court for the Eastern District of New York, appointed a SIPC Trustee for the above-captioned firm.

      Members may use the "immediate close-out" procedures as provided in Section 59(i)(2) of the NASD's Uniform Practice Code to close out open OTC contracts. Also, MSRB Rule G-12(h)(iii) provides that members may use the above procedures to close out transactions in municipal securities.

      Questions regarding the firm should be directed to:

      SIPC Trustee

      Irving H. Picard, Esquire
      Moses & Singer
      Time & Life Building
      1271 Avenue of the Americas
      New York, New York 10020
      Telephone: (212) 246-3700

    • 86-71 Holiday Settlement Schedule - November 1986

      TO: All NASD Members and Municipal Securities Bank Dealers

      ATTN: All Operations Personnel

      The schedule of trade dates/settlement dates below reflects the observance by the financial community of Veteran's Day, Tuesday, November 11, and Thanksgiving Day, Thursday, November 27. On Tuesday, November 11, the NASDAQ System and the exchange markets will be open for trading. However, it will not be a settlement date since many of the nation's banking institutions will be closed in observance of Veteran's Day. All securities markets will be closed on Thursday, November 27, in observance of Thanksgiving Day.

      Trade Date-Settlement Date Schedule For "Regular-Way" Transactions

      Trade Date

      Settlement Date

      Regulation T Date*

      November 3

      November 10

      November 12

      4

      12

      13

      5

      13

      14

      6

      14

      17

      7

      17

      18

      10

      18

      19

      11

      18

      20

      November 19

      26

      December 1

      20

      28

      2

      21

      December 1

      3

      24

      2

      4

      25

      3

      5

      26

      4

      8

      27

      MARKETS CLOSED

      -

      28

      5

      9

      It should be noted that November 11 is considered a business day for receiving customers' payments under Regulation T of the Federal Reserve Board.

      Transactions made on Tuesday, November 11, will be combined with transactions made on the previous business day, November 10, for settlement on November 18. Securities will not be quoted ex-dividend and settlements, marks to the market, reclamations, buy-ins and sell-outs, as provided in the Uniform Practice Code, will not be made and/or exercised on November 11.

      The foregoing settlement dates should be used by broker-dealers and municipal securities dealers for purposes of clearing and settling transactions pursuant to the Uniform Practice Code and Municipal Securities Rulemaking Board Rule G-12 on Uniform Practice.

      Questions concerning this notice should be directed to the NASD Uniform Practice Department at (212) 839-6256.


      * Pursuant to Sections 220.8(b)(l) and (4) of Regulation T of the Federal Reserve Board, a broker-dealer must promptly cancel or otherwise liquidate a customer purchase transaction in a cash account if full payment is not received within seven (7) business days of the date of purchase or, pursuant to Section 220.8(d)(l), make application to extend the time period specified. The date by which members must take such action is shown in the column entitled "Regulation T Date."


    • 86-70 NASDAQ National Market System Grows to 2,602 Securities With 12 Voluntary Additions on October 21, 1986

      TO: All NASD Members and Level 2 and Level 3 Subscribers

      On Tuesday, October 21, 1986, 12 issues are scheduled to join the NASDAQ National Market System, bringing the total number of issues in NASDAQ/NMS to 2,602. These 12 issues, which will begin trading under real-time trade reporting, are entering NASDAQ/NMS pursuant to the Securities and Exchange Commission's criteria for voluntary designation.

      The 12 issues scheduled to join NASDAQ/NMS on Tuesday, October 21, 1986, are:

      Symbol*

      Company

      Location

      AEROP

      Aero Services International, Inc. (Pfd)

      Teterboro, NJ

      CHPS

      Chips and Technologies, Inc.

      Milpitas, CA

      CRAW

      Crawford & Company

      Atlanta, GA

      DNOS

      Diagnostic, Inc.

      Minneapolis, MN

      DOTX

      Dotronix, Inc.

      New Brighton, MN

      HFET

      Home Federal Savings and Loan Association of Upper East Tennessee

      Johnson City, TN

      IBAN

      Imperial Bancorp

      Los Angeles, CA

      KTCO

      Kenan Transport Company

      Chapel Hill, NC

      LASR

      Laser Precision Corporation

      Irvine, CA

      NYCS

      New York City Shoes, Inc.

      Springfield, PA

      RSFC

      Republic Savings Financial Corporation

      Jupiter, FL

      WOBS

      Woburn Five Cents Savings Bank

      Woburn, MA

      The following issues may be included in NASDAQ/NMS prior to the next regularly scheduled phase-in date:

      Pending Additions

      Symbol*

      Company

      Location

      ANSY

      American Nursery Products, Inc.

      Tahlequah, OK

      BHAG

      BHA Group, Inc

      Kansas City, MO

      CBRI

      CBR Information Group, Inc.

      Houston, TX

      CTSE

      Continental Training Services, Inc.

      Indianapolis, IN

      MEYR

      Fred Meyer, Inc.

      Portland, OR

      VLCCF

      Majestic Shipping Co., Ltd.

      Nassau, Bahamas

      MOAI

      Morino Associates, Inc.

      Vienna, VA

      NASDAQ/NMS Interim Additions

      Symbol*

      Company

      Date of Entry

      MUTU

      Mutual Federal Savings and Loan Association

      9/30/86

      LTEK

      Life Technologies, Inc.

      10/0186

      ARMR

      Armor All Products Corporation

      10/02/86

      NECC

      New England Critical Care, Incorporated

      10/02/86

      LEYS

      Lands' End, Inc.

      10/03/86

      MIHO

      M/I Schottenstein Homes, Inc.

      10/03/86

      PFSI

      Pioneer Financial Services, Inc.

      10/03/86

      ACPI

      American Consumer Products, Inc.

      10/07/86

      BPAO

      Baldwin Piano and Organ Company

      10/08/86

      CCMC

      Commonwealth Mortgage Company, Inc.

      10/08/86

      IDBX

      IDB Communications Group, Inc.

      10/08/86

      JOUL

      Joule, Inc.

      10/08/86

      MWAV

      Microwave Laboratories, Inc.

      10/08/86

      FRTR

      Frontier Insurance Group, Inc.

      10/10/86

      The following changes to the list of NASDAQ/NMS securities occurred since September 26, 1986:

      NASDAQ/NMS Symbol* And/Or Name Changes

      New/Old Symbol*

      New/Old Security

      Date of Change

      MINL/MINL

      Minnetonka Corp./Minnetonka, Inc.

      9/29/86

      PFINA/PFIN

      P&F Industries, Inc. (Cl A)/ P&F Industries, Inc.

      10/01/86

      KEQU/KEQU

      Kewaunee Scientific Corporation/ Kewaunee Scientific Equipment Corporation

      10/06/86

      TLMT/TLMTB

      Telemation, Inc./Telemation, Inc. (Cl B)

      10/09/86

      NASDAQ/NMS Deletions

      Symbol*

      Security

      Date

      AMSKQ

      American Solar King Corporation

      9/29/86

      TPBRQ

      Top Brass Enterprises, Inc.

      9/29/86

      WFSB

      Westchester Financial Corporation

      9/29/86

      FRDMC

      Freedom Savings and Loan Association

      9/30/86

      STHM

      Stanhome, Inc.

      10/01/86

      TIPRC

      Tipperary Corporation

      10/01/86

      INFR

      Infrared Industries, Inc.

      10/07/86

      TIRE

      One Liberty Properties, Inc

      10/09/86

      Questions regarding this notice should be directed to Kit Milholland, Senior Analyst, NASDAQ Operations, at (202) 728-8281. Questions pertaining to trade reporting rules should be directed to the NASD's Market Surveillance Section, at (202) 728-8201.

      Sincerely,

      Gordon S. Macklin
      President


      * NASDAQ symbols are proprietary to the National Association of Securities Dealers, Inc.


    • 86-69 Amendments to NASD Rules on Short Sales Become Effective October 15, 1986

      TO: All NASD Members and Other Interested Persons

      EXECUTIVE SUMMARY

      The Securities and Exchange Commission recently approved amendments to the Board of Governors' Interpretation on Prompt Receipt and Delivery of Securities and Article III, Section 21 of the NASD Rules of Fair Practice (SEC Release No. 34-23572). The amendments, which will become effective on October 15, 1986, provide for additional regulation of short selling in the over-the-counter market. The text of the amendments is attached.

      ACCEPTING ORDERS

      The amendments to the Board of Governors' Interpretation on Prompt Receipt and Delivery of Securities (Interpretation) create separate procedures for the acceptance of "long" and "short" customer sale orders and establish new requirements for accepting "short" sale orders from customers.

      Perhaps the most significant change relates to the acceptance of "short" sale orders from customers as provided in new section (b)(2) of the Interpretation. Section (b)(2) prohibits a member from accepting a "short" sale order from a customer unless the member makes an affirmative determination that it will receive delivery of the security from the customer or that the member can borrow the security on behalf of the customer for delivery by settlement date.

      In adopting this new provision for "short" sales, the Board of Governors stated that the requirement to make an "affirmative determination" does not permit members to make assumptions with respect to a customer's ability to deliver securities in a "short" sale situation. A member must specifically ask the customer whether the securities will be delivered by settlement so that the member may determine whether it must borrow the securities on behalf of the customer for delivery by settlement. The Board chose not to establish a single method for members to demonstrate their compliance with the new requirements, but found it appropriate that the rule allow members the flexibility to design their own procedures.

      Another amendment to the Interpretation involves a change in the criteria for accepting "long" sale orders from customers. Previously, section (b)(l) of the Interpretation prohibited a member from accepting a "long" sale order from a customer unless:

      (A) The member had possession of the security;
      (B) The customer was long in his account with the member;
      (C) The member received reasonable assurance that the customer would deliver the security to the member within five business days; or
      (D) The security was on deposit with a registered broker-dealer or an organization subject to state or federal banking regulations and the customer forwarded instructions to deliver the security to the member against payment.

      Under the amended Interpretation, the requirements in subsections (b)(l) (A), (B) and (D) are unchanged. The requirement in subsection (C), that a member receive reasonable assurance that the customer will deliver the security within five business days, has been amended. Subsection (C) now requires members to make an "affirmative determination" that the customer owns the security to be sold and will deliver it within five business days. Guidance as to what is necessary to make an "affirmative determination" in the case of a "long" sale is provided in section (b)(4). That section requires members to make a notation on the order ticket at the time of the conversation with the customer reflecting the location of the securities and the ability of the customer to deliver them in good form within five business days.

      MARKING OF ORDER TICKETS

      The amendment to Article III, Section 21 of the NASD Rules of Fair Practice requires that each order ticket for a sale by a customer be marked "long" or "short." An order may be marked "long" only if:

      (1) The customer's account is "long" the security; or
      (2) The member is informed that the customer owns the security and will deliver it as soon as possible without undue inconvenience or expense.

      If neither of these conditions can be satisfied, the order must be marked as a "short" sale.

      It may be useful to point out that the five-business-day requirement for the delivery of securities in connection with a "long" sale under the Interpretation is not inconsistent with Article III, Section 21(b), which permits an order ticket to be marked "long" if the customer owns the security and will deliver it as soon as possible without undue inconvenience or expense.

      The purpose of the requirement under the Interpretation to make an "affirmative determination" that securities sold "long" will be delivered within five business days is to prevent the build-up of fails between members by eliminating, insofar as possible, situations in which members enter into transactions that they are unable to consummate. The requirement to mark customer order tickets "long" or "short" under Article III, Section 21(b) serves an entirely different purpose. The marking of order tickets is a surveillance mechanism that enables member firms and regulatory bodies to monitor compliance with the Interpretation and other applicable requirements. As a result, the circumstances under which an order ticket may be marked "long" are purposely broad.

      Therefore, upon determining that a customer owns a security and will deliver it within five business days, a member may accept the customer's order as a "long" sale under the Interpretation and mark the ticket "long." In the event that the customer subsequently becomes unable to deliver within five days, but represents that he will deliver as soon as possible, the member may continue to treat the order as a "long" sale without any further notation. Article III, Section 21(b) permits an order to be marked "long" if the customer owns the security and will deliver it as soon as possible without undue inconvenience or expense.

      Pursuant to Article II, Section l(f) of the NASD Rules of Fair Practice, the term "customer" does not include a broker or dealer. Therefore, the requirements of the Interpretation on Prompt Receipt and Delivery of Securities for accepting orders and the requirements of Article III, Section 21(b) for marking order tickets do not apply to orders placed with one broker-dealer by another broker-dealer. Nor do the requirements apply to orders received by persons engaged in market making or similar trading activities for a member if such requirements have already been satisfied by other persons associated with the member.

      Questions regarding this notice may be directed to Mary S. Head, NASD Office of General Counsel, at (202) 728-8284.

      Sincerely,

      Frank J.
      Executive Vice President
      Legal and Compliance

      Attachment

      AMENDMENTS TO NASD RULES ON SHORT SALES*

      Effective October 15, 1986

      Amendment to the Board of Governors' Interpretation on Prompt Receipt and Delivery of Securities

      It shall be deemed a violation of Article III, Section 1 of the Rules of Fair Practice of the Association for a member to violate the provisions of the following interpretation hereof:

      (a) Purchases: No member may accept a customer's purchase order for any security unless it has first ascertained that the customer placing the order or its agent agrees to receive securities against payment in an amount equal to any execution, even though such an execution may represent the purchase of only a part of a larger order.
      (b) Sales:
      (1) Long Sales
      No member or person associated with a member shall accept [execute] a long sale [sell] order [for] from any customer in any security unless:
      (A) The member has possession of the security;
      (B) The customer is long in his account with the member;
      (C) The member makes an affirmative determination [Reasonable assurance is received by the member, or person associated with a member, from the customer] that the customer owns the security and will deliver [be delivered to] it in good deliverable form within five (5) business days of the execution of the order; or
      (D) The security is on deposit in good deliverable form with a member of the Association, a member of a national securities exchange, a broker-dealer registered with the Securities and Exchange Commission, or any organization subject to state or federal banking regulations and that instructions have been forwarded to that depository to deliver the securities against payment.
      (2) "Short Sales
      No member or person associated with a member shall accept a "short" sale order [for] from any customer in any security unless the member makes an affirmative determination that it will receive delivery of the security from the customer or that it can borrow the security on behalf of the customer for delivery by settlement date.
      (3) Public Offering
      In the case of a public offering of securities, paragraph 1 hereof shall not apply during the period from the commencement of the public offering until seven (7) business days following the date of settlement between the underwriter and the issuer of the securities; provided, however, that the member believes in good faith that the customer has purchased the securities.
      (4) "Affirmative Determination"
      To satisfy the requirements for an "affirmative determination" ["reasonable assurance"] contained in subsection [subparagraphl (l)(C)[(c)] above, the member or person associated with a member must make a notation on the order ticket at the time he takes the order which reflects his conversation with the customer as to the present location of the securities in question, whether they are in good deliverable form and his ability to deliver them to the member within five (5) business days.

      Amendment to Article III, Section 21 of the NASD Rules of Fair Practice

      Marking of Customer Order Tickets

      (b) A person associated with a member shall indicate on the memorandum for each customer order for the sale of any security whether the order is "long" or "short." An order shall be marked "long" only if (1) the customer's account is "long" the security involved or (2) the member is informed that the customer owns the security and will deliver it as soon as possible without undue inconvenience or expense.

      * New language is underlined; deleted language is bracketed.


    • 86-68 Proposed Amendment to Article III, Section 35 of the NASD Rules of Fair Practice Relating to Advertising and Sales Literature for Direct Participation Programs

      IMPORTANT MAIL VOTE

      OFFICERS, PARTNERS AND PROPRIETORS

      TO: All NASD Members

      LAST VOTING DATE IS NOVEMBER 3, 1986.

      EXECUTIVE SUMMARY

      NASD members are invited to vote on a proposed amendment to the NASD Rules of Fair Practice that would require advertising and sales literature for publicly offered direct participation programs to be filed with the NASD's Advertising Department. The NASD will review the material for conformance with the guidelines contained in Article III, Section 35 of the Rules of Fair Practice.

      BACKGROUND

      A proposed amendment to Article III, Section 35 of the NASD Rules of Fair Practice has been approved by the NASD Board of Governors and now is being submitted for membership approval. Prior to becoming effective, the rule change must also be approved by the Securities and Exchange Commission.

      The proposed amendment would require advertising and sales literature concerning publicly offered direct participation programs to be filed with the NASD's Advertising Department. If the literature has been filed with the NASD by the program's sponsor, general partner, underwriter or another member, a second filing would not be required. The text of the proposed rule change is attached.

      Article III, Section 35 of the NASD Rules of Fair Practice regulates members' communications with the public. It requires that all such communications be based on principles of fair dealing and good faith and that the communications provide a sound basis for evaluating the facts regarding the securities offered by members.

      Material facts and qualifications may not be omitted if, in the context of the material presented, the omission would make the advertising or sales literature misleading. Exaggerated or misleading statements are prohibited, and members may not publish or distribute any public communications that the member knows or has reason to know contain any untrue statements of material fact or are otherwise false or misleading.

      Article III, Section 35 currently requires a member to file all advertisements with the NASD's Advertising Department for review prior to use for one year after becoming a member, commencing with the member's initial advertisement. In addition, an NASD District Business Conduct Committee may, under certain circumstances, require a member to file advertising and sales literature with the Advertising Department at least 10 days prior to use. All members are also subject to routine spot checks of their advertising and sales literature.

      The NASD has become aware that certain advertising and sales literature used in connection with public direct participation programs has involved misleading illustrations of past performance, the inclusion of information on projected performance, and the unbalanced presentation of programs by not including a statement of significant risks. The NASD has referred such practices to the appropriate District Business Conduct Committees.

      The NASD Direct Participation Programs/Real Estate Committee considered whether specific guidelines should be developed and applied to sales literature and advertising used in connection with public direct participation program offerings but concluded that current guidelines contained in Article III, Section 35 are adequate to regulate the content of member communications with the public. However, the Board of Governors believes that a filing requirement for public direct participation programs' advertising and sales literature is necessary.

      COMMENTS RECEIVED

      The proposed amendment to Article III, Section 35 was published for comment in Notice to Members 85-69 on October 21, 1985. The NASD received 48 comments on the proposed amendment. Of these, 28 commentators were generally in favor of the proposed amendment and 19 were generally opposed.

      Those commentators in favor of the proposed amendment generally expressed concern that a substantial amount of the material currently being used contains information of questionable accuracy and that review of such material by the NASD is necessary. Commentators opposed to the amendment stated that the current procedures in place under Article III, Section 35 are adequate to ensure that advertising and sales literature used by members does not contain exaggerated or misleading statements. These commentators indicated that the current filing requirement of one year for new members, along with routine spot checks of advertising and sales literature, is adequate to educate members and protect the public.

      Further, these commentators pointed out that examples of inappropriate or misleading advertising are readily identifiable, without burdening all members with the requirement to file on a regular basis. Newspaper and magazine advertisements can be monitored by the NASD without imposing such a filing requirement on members.

      The Board, however, concluded that the filing requirement was appropriate and in the public interest. The Board also approved an amendment to the provision to recommend pre-use filing of direct participation program materials.

      The committee discussed the issue of material marked "broker-dealer use only," and concluded that, if such material is provided to a member's customers, the material is considered to be sales literature and subject to the filing requirement.

      * * * * *

      The Board of Governors believes that the amendment to Article III, Section 35 of the NASD Rules of Fair Practice is necessary and appropriate and recommends that members vote their approval. Please mark the attached ballot according to your convictions and return it in the enclosed, stamped envelope to "The Corporation Trust Company." Ballots must be postmarked no later than November 3, 1986.

      Questions concerning this notice may be directed to either R. Clark Hooper, NASD Advertising Department, at (202) 728-8330, or T. Grant Callery, NASD Office of the General Counsel, at (202) 728-8285.

      Sincerely,

      Lynn Nellius
      NASD Secretary

      Attachment

      PROPOSED AMENDMENT TO ARTICLE III, SECTION 35 OF THE NASD RULES OF FAIR PRACTICE

      (New language is underscored.)

      Section 35. Communications with the Public*

      (c) Filing Requirements and Review Procedures
      (3) Advertisements and sales literature concerning public direct participation programs as defined in Article III, Section 34 of the Rules of Fair Practice shall be filed with the Association's Advertising Department for review within 10 days of first use or publication. Filing in advance of use is recommended. Members need not file for review advertising and sales literature which has been filed by the sponsor, general partner or underwriter of the program or by another member.

      * Current subsections (3) through (7) will be renumbered as (4) through (8), respectively.


    • 86-67 NASDAQ National Market System Grows to 2,580 Securities With 23 Voluntary Additions on October 7, 1986

      TO: All NASD Members and Level 2 and Level 3 Subscribers

      On Tuesday, October 7, 1986, 23 issues are scheduled to join the NASDAQ National Market System, bringing the total number of issues in NASDAQ/NMS to 2,580. These 23 issues, which will begin trading under real-time trade reporting, are entering NASDAQ/NMS pursuant to the Securities and Exchange Commission's criteria for voluntary designation.

      The 23 issues scheduled to join NASDAQ/NMS on Tuesday, October 7, 1986, are:

      Symbol*

      Company

      Location

      ACCC

      A.C. Teleconnect Corp.

      Rochester, NY

      AIRC

      Associated Inns & Restaurants Company of America

      Englewood, CO

      ATBC

      Atlantic Bancorporation

      Voorhees, NJ

      CANO

      Canonie Environmental Services Corp.

      Porter, IN

      CINNA

      Citizens Insurance Company of America, Inc. (Cl A)

      Austin, TX

      CSBM

      City Savings Bank of Meriden

      Meriden, CT

      CLEV

      Clevite Industries, Inc.

      Glenview, IL

      CLEVW

      Clevite Industries, Inc. (Wts)

      Glenview, IL

      DVIS

      Datavision, Inc.

      Deer field Beach, FL

      EWSB

      East Weymouth Savings Bank

      East Weymouth, MA

      EDCO

      Edison Control, Inc.

      Piscataway, NJ

      KDNYP

      Home Intensive Care, Inc. (Pfd)

      North Miami Beach, FL

      KDNYW

      Home Intensive Care, Inc. (Wts)

      North Miami Beach, FL

      MAIL

      Mail Boxes Etc.

      San Diego, CA

      NFSF

      NFS Financial Corp

      Nashua, NH

      NAHL

      North American Holding Corporation

      East Hartford, CT

      NESAP

      Northeast Savings, F.A. (Pfd)

      Hartford, CT

      QCBK

      Quincy Co-Operative Bank (The)

      Quincy, MA

      RHEM

      Rheometrics, Inc.

      Piscataway, NJ

      SPAR

      Spartan Motors, Inc.

      Charlotte, MI

      SPARW

      Spartan Motors, Inc. (Wts)

      Charlotte, MI

      TSBK

      Taunton Savings Bank

      Taunton, MA

      VBNK

      Vanguard Savings Bank

      Holyoke, MA

      The following issues may be included in NASDAQ/NMS prior to the next regularly scheduled phase-in date:

      Pending Additions

      Symbol*

      Company

      Location

      CMIKA

      Carmike Cinemas, Inc. (Cl A)

      Columbus, GA

      CNSA

      Crown Savings Association

      Casselberry, FL

      FHVN

      Fairhaven Savings Bank

      Fairhaven, MA

      HERS

      Heritage Financial Services, Inc.

      Blue Island, IL

      IDBX

      IDB Communications Group, Inc.

      Culver City, CA

      LEYS

      Lands' End, Inc.

      Chicago, IL

      MWAV

      Microwave Laboratories, Inc.

      Raleigh, NC

      MUTU

      Mutual Federal Savings & Loan Association

      Elkin, NC

      NVIS

      National Video, Inc.

      Portland, OR

      NCOR

      Nellicor Incorporated

      Hayward, CA

      NSSB

      Norwich Savings Society

      Norwich, CT

      PXREA

      Phoenix Re Corporation (Cl A)

      Hartford, CT

      NASDAQ/NMS Interim Additions

      Symbol*

      Security

      Date of Entry

      SLMAJ

      Student Loan Marketing Association-Voting Restricted

      9/10/86

      BLVD

      Boulevard Bancorp, Inc.

      9/11/86

      ACSN

      Acuson Corporation

      9/16/86

      XCEL

      Excel Bancorp, Inc.

      9/17/86

      ISEC

      Insituform Southeast Corp.

      9/18/86

      SFFD

      San Francisco Federal Savings & Loan Association

      9/23/86

      STHF

      Stanley Interiors Corporation

      9/23/86

      FFTN

      Fidelity Federal Savings & Loan Association of Tennessee

      9/24/86

      HSRC

      HEALTHSOUTH Rehabilitation Corporation

      9/24/86

      FISV

      FIserv, Inc.

      9/25/86

      CHIK

      Golden Poultry Company, Inc.

      9/25/86

      MRTN

      Marten Transport, Ltd.

      9/25/86

      The following changes to the list of NASDAQ/NMS securities occurred since September 5, 1986:

      NASDAQ/NMS Symbol* And/Or Name Changes

      New/Old Symbol*

      New/Old Security

      Date of Change

      STHM/STHMK

      Stanhome, Inc./Stanhome, Inc. (Non-Voting)

      9/08/86

      JHSL/JHSL

      John Hanson Savings Bank, F.S.B./John Hanson Savings & Loan, Inc.

      9/12/86

      MNTX/RENL

      Minntech Corp./Renal Systems, Inc.

      9/15/86

      NASDAQ/NMS Deletions

      Symbol*

      Security

      Date

      DIVHF

      Divi Hotels, N.V.

      9/05/86

      BVSCQ

      Birdview Satellite Communications, Inc.

      9/08/86

      DLITQ

      D'Lites of America, Inc.

      9/08/86

      ENDLE

      Endo-Lase, Inc.

      9/08/86

      DIVWF

      Divi Hotels, N.V. (Wts)

      9/09/86

      EMFC

      EMF Corporation

      9/09/86

      BTSQ

      Brooks Satellite, Inc.

      9/10/86

      CCOTS

      Consolidated Capital Income Opportunity Trust â€" SBI

      9/10/86

      CCOTW

      Consolidated Capital Income Opportunity Trust (Wts)

      9/10/86

      CASI

      Computer Associates International, Inc.

      9/11/86

      KING

      King World Productions, Inc.

      9/11/86

      CVRS

      Converse, Inc.

      9/12/86

      PTCS

      PT Components, Inc.

      9/12/86

      FOKL

      First Oklahoma Bancorporati Inc.

      9/17/86

      GRAC

      Graco, Inc.

      9/19/86

      QUOT

      Quotron Systems, Inc.

      9/19/86

      DSIIW

      Decom System, Inc.

      9/24/86

      VMKT

      (Wts) Victory Market, Inc.

      9/24/86

      CNCO

      Conseco, Inc.

      9/25/86

      ELDN

      Eldon Industries, Inc.

      9/25/86

      Questions regarding this notice should be directed to Kit Milholland, Senior Analyst, NASDAQ Operations, at (202) 728-8281. Questions pertaining to trade reporting rules should be directed to the NASD's Market Surveillance Section, at (202) 728-8201.

      Sincerely,

      Gordon S. Macklin
      President

      NASD Market Services, Inc.

      1735 K Street, N.W.
      Washington, D.C.
      (202) 728-8000

      October 3, 1986

      IMPORTANT

      Principals * Traders * Compliance Directors

      TO: All SOES Participants

      RE: Review of SOES Operating Rules

      EXECUTIVE SUMMARY

      To assure members that they can continue to use the Small Order Execution System (SOES) with confidence and that it will continue to grow in share volume and member participation, the NASD is placing increased emphasis on its regulatory programs to determine members' compliance with SOES operating rules. This notice describes some of the more common practices that do not conform with SOES rules, the seriousness with which the NASD views infractions of those rules, and the extent of disciplinary actions taken.

      BACKGROUND

      SOES, which began operation in 1984, is a system that was designed by traders, automation and operations personnel and the senior managements of NASD members as a cost-effective system for the automated execution of small, public agency orders in NASDAQ securities.

      Currently, customer trades for up to 1,000 shares in NASDAQ National Market System issues, and up to 500 shares in other NASDAQ stocks, may be automatically executed through SOES on an agency or riskless principal basis.

      The SOES Users Committee, composed of representatives of NASD members that participate in SOES, is responsible for developing policies and procedures relating to the operation and enhancement of SOES. The Committee functions in an advisory capacity to the NASD Trading Committee, the NASD Board of Governors and the Board of Directors of NASD Market Services, Inc.

      Since its inception, SOES has proven to be a valuable addition to the NASDAQ market, particularly on the high-volume days of the past year. However, continued growth and success of SOES is dependent upon preserving the confidence of SOES market makers that all participants are complying with system rules.

      For its part, the NASD is making every effort to closely monitor the operation of the system's rules, adjusting them when necessary and, through the Market Surveillance Committee, taking appropriate disciplinary actions against both members and responsible individuals when infractions of these rules are uncovered.

      A number of notices detailing SOES operating rules have been issued to the membership since the implementation of SOES. Discussion of the system and its rules are also contained in the NASD Manual and the NASDAQ/CQS Symbol Directory.

      RECENT SOES RULE CHANGES

      By way of summary, SOES rules governing the conduct of participant members permit only agency orders, including riskless principal transactions, of limited size received from public customers to be entered by SOES order-entry firms into SOES for execution. Through a recent enhancement, participants can now execute internalized trades with their customers through SOES. Customer orders in excess of the size limits may not be divided into smaller orders to meet the size requirements.

      At the suggestion of the Market Surveillance and Trading Committees, the NASD Board recently amended the SOES rules to prohibit persons associated with members from utilizing SOES to execute trades in their own personal accounts or in accounts in which they have an economic interest. This amendment will become effective upon approval by the SEC.

      PRACTICES NOT CONFORMING TO SOES RULES

      The practice of dividing agency orders in excess of the 500/1,000-share execution limits in order to meet the SOES size requirements is inconsistent with SOES rules and is a matter of extreme concern to the Market Surveillance Committee. Practices of this type have resulted in the NASD bringing formal disciplinary actions against several NASD members. The Committee will continue to view future violations of the SOES execution limits as serious infractions of NASD rules, and it will take appropriate disciplinary actions as necessary.

      As an example, SOES execution limits do not permit the dividing of a 3,500-share, customer agency order in a NASDAQ/NMS issue by entering it into SOES as four separate orders, each within the size limit. Similarly, the rules also prohibit the entering of 1,000 shares of a 3,500-share order in SOES, with the remaining 2,500 shares executed directly with market makers; the entire 3,500-share order must be executed outside of SOES.

      Another area that has been the subject of formal disciplinary actions by the Committee is the use of SOES by order-entry or order-entry/market-maker firms to execute trades for firm accounts with other NASD members. This practice is specifically prohibited by SOES rules and will continue to come under the close scrutiny of the Committee.

      NASD SURVEILLANCE OF SOES PRACTICES

      The NASD's regular on-site examination has been expanded to include a comprehensive review of members' compliance with SOES rules. Also, special examinations of SOES order-entry and order-entry/market-maker firms are now under way across the country.

      In addition to these on-site inspections by the NASD district offices, the NASD Market Surveillance Section reviews all SOES transactions and, via new automated programs, will be in a position to detect potential SOES violations on an on-line, real-time basis.

      Members are strongly encouraged to review the rules governing trading in SOES with their registered representatives, traders and other appropriate personnel. Members are also urged to amend their written supervisory procedures to incorporate a system for monitoring in-house compliance with SOES rules.

      SOES market makers should continue utilizing the SOES complaint procedures by calling the SOES Operations Center at (212) 839-6210 whenever they are concerned that orders may have been entered in violation of the SOES operating rules.

      Questions concerning compliance with SOES rules may be directed to Mary Rose Murray, NASD Market Surveillance Section, at (202) 728-6962. Questions about this notice may be directed to the undersigned at (202) 728-8233.

      Sincerely,

      John E. Pinto
      Senior Vice President
      Compliance


      * NASDAQ symbols are proprietary to the National Association of Securities Dealers, Inc.


    • 86-66 Due Diligence Expense Reimbursements in Connection with Direct Participation Programs

      TO: All NASD Members and Other Interested Persons

      ATTN: Direct Participation Programs Department

      EXECUTIVE SUMMARY

      This notice examines a number of due diligence reimbursement practices that have arisen in the area of public offerings of direct participation programs and the appropriateness of those practices under the NASD's underwriting compensation guidelines. This notice is a amplification of earlier NASD notices on this subject.

      BACKGROUND

      The NASD Direct Participation Programs/Real Estate Committee has reviewed information received from members and their counsel regarding certain practices that have developed with respect to members' charges for reimbursement of due diligence expenses. The purpose of this notice is to assist the membership by clarifying the scope of what is considered a permissible reimbursement of due diligence expenses incurred by a member in connection with a public offering of a direct participation program.

      In 1982, the NASD adopted Appendix F to Article III, Section 34 of the NASD Rules of Fair Practice. Appendix F applies to public offerings of direct participation programs and, among other things, provides that underwriting compensation from any source may not exceed NASD guidelines. In connection therewith, the NASD published Notice to Members 82-51 (October 19, 1982), which announced the NASD guidelines on underwriting compensation referenced in Subsection 5(b) of Appendix F. Underwriting compensation may not exceed 10 percent of the gross proceeds of the offering, with the exception that up to an additional 0.5 percent may be reimbursed to underwriters for "bona fide due diligence expenses."

      Subsequently, the NASD issued Notice to Members 85-29 (April 19, 1985) to clarify the application of the compensation guidelines under Appendix F. The NASD indicated in that notice that the due diligence expenditures that may exceed the 10 percent limitation by 0.5 percent include only reimbursable expenses incurred by a member in affirmatively discharging its responsibility pursuant to Section 4 of Appendix F to ensure that all material facts pertaining to the program are adequately and accurately disclosed in the offering document. The notice addressed the issue of "due diligence meetings" in exotic locations and indicated that sales incentive vacations awarded to top producers at the close of the offering may not be allocated to due diligence. Instead, where the NASD review identified such allocations to due diligence, the expenses should be reallocated as incentive compensation subject to Subsections 5(e) and 5(f) of Appendix F, and are required to be disclosed in the offering document as part of the 10 percent underwriting compensation guideline.

      The notice further clarified that if travel is necessary to discharge the member's due diligence obligations, it should ordinarily be undertaken by responsible officials of the member visiting the partnership offices to verify the information provided to the member. Reimbursement of the member's travel expenses may be properly allocated to the 0.5 percent limitation. On the other hand, expenses incurred by the issuer's officials in traveling to due diligence meetings should be allocated to the issuer's organization and offering expenses.

      DISCUSSION

      Pursuant to information reviewed by the Direct Participation Programs/Real Estate Committee, it appears that certain members, either alone or in cooperation with other members, are conducting due diligence as a profit center. Appendix F permits an additional 0.5 percent compensation to NASD members above the 10 percent underwriting guideline only for reimbursement of members' bona fide due diligence expenses. Thus, any bill presented by a member to a sponsor or dealer-manager for reimbursement of costs associated with its due diligence activities must be for actual costs incurred by the member and may not include a profit margin.

      The NASD believes it is also the responsibility of the program sponsor and dealer-manager to ensure compliance with the compensation guidelines contained in Appendix F. It appears that some members have submitted non-itemized bills to program sponsors or dealer-managers representing their aggregate expenses for conducting due diligence. While the sponsor is not required to obtain an itemized expense statement before paying out due diligence expenses, any bill for due diligence submitted by a member to a sponsor must be based on the member's actual expenses incurred in conducting due diligence. In the event a sponsor or dealer-manager receives a non-itemized bill for due diligence that it has reason to question, it has the obligation to ensure compliance with Appendix F by requesting an itemized statement to support the bill submitted by the member. If such a due diligence bill cannot be justified, any excess over actual due diligence expenses that is paid is considered by the NASD to be undisclosed underwriting compensation and is required to be included within the 10 percent compensation guideline, disclosed in the offering document and reflected on the books and records of the member.

      In addition, a number of members have formed entities for conducting due diligence to lower the cost of due diligence individually. Where such entity is not operated at a profit, each of the members' allocable share of the due diligence expenses of the entity is permissible to be included in the 0.5 percent guideline.* Such due diligence entities formed by members generally obtain operating capital by soliciting sponsors for contributions as founders. However, any payment made by a sponsor to such a due diligence entity as a "founder's contribution," if not related to actual due diligence expenses, will be considered undisclosed underwriting compensation to the members, and is required to be included in the 10 percent guideline, disclosed in the offering document and reflected on the books and records of the members as compensation in connection with an offering of the sponsor's program.

      Further, such due diligence entities generally charge a sponsor a flat fee for conducting due diligence with respect to each program of the sponsor. To the extent such due diligence fee represents reimbursement of members' actual costs for conducting their due diligence investigation, such fee may be reimbursed by the sponsor and included within the 0.5 percent due diligence guideline for the program. However, any amount of such fee that exceeds members' bona fide due diligence expenses will be considered undisclosed underwriting compensation.

      The Direct Participation Programs/Real Estate Committee has also considered whether a member's request for reimbursement of due diligence expenses may include expenses to cover the overhead of the member's due diligence department. The NASD believes that the reimbursement of a reasonable allocation of the member's overhead, including salaries and office overhead, may be included in the member's request for reimbursement of due diligence expenses. However, as indicated above, if the allocation is excessive, the excess will be considered underwriting compensation subject to the 10 percent guideline.

      In addition, the committee considered whether the due diligence fees received from a sponsor with respect to a particular offering must be used to cover only expenses with respect to that offering or if all due diligence fees could be aggregated to cover the member's complete due diligence expenses related to all programs it underwrites. The NASD believes that any due diligence fees received from a sponsor by a member may only be applied to its due diligence activities with respect to the particular program of that sponsor.

      * * * * *

      The NASD hopes that this notice will aid the membership and sponsors by providing clarification of permissible reimbursement of due diligence expenses in direct participation program offerings. Any comments or questions regarding this notice should be directed to either Frank J. Formica or Suzanne E. Rothwell of the NASD's Corporate Financing Department, at (202) 728-8258.

      Sincerely,

      Frank J. Wilson
      Executive Vice President
      Legal and Compliance

      Notice to members 86-66

      NOT AVAILABLE AT THIS TIME


      * In comparison, the bill for conducting due diligence of a consulting firm that is not a member or an affiliate of a member is considered a bona fide reimbursement of the member's actual expenses for due diligence even though the consulting firm may include a profit margin in its bill.


    • 86-65 Compliance with the NASD Rules of Fair Practice in the Employment and Supervision of Off-Site Personnel

      TO: All NASD Members, Associated Persons and Other Interested Persons

      EXECUTIVE SUMMARY

      NASD rules and policies consider associated persons of a member to be employees of the member, regardless of their locations or compensation arrangements. The notice addresses regulatory issues that relate to off-site employment of registered persons, including supervisory procedures, private securities transactions, fair dealings with customers and communications with the public.

      Because of the significance of the issues discussed in this notice, the NASD strongly urges that it be distributed to all associated persons and recommends that it be included in the compliance manual of all firms employing off-site personnel.

      INTRODUCTION

      A significant number of NASD members employ registered persons who engage in securities-related activities, on a full- or part-time basis, at locations away from the offices of the members. These off-site representatives, often classified for compensation purposes as independent contractors, may also be involved in other business enterprises such as insurance, real estate sales, accounting or tax planning. They may also operate as separate business entities under names other than those of the members. The NASD, in the course of its disciplinary proceedings, has observed a pattern of rule violations and other regulatory problems stemming from factors inherent in these arrangements and the manner in which they are effectuated.

      Irrespective of an individual's location or compensation arrangements, all associated persons are considered to be employees of the firm with which they are registered for purposes of compliance with NASD rules governing the conduct of registered persons and the supervisory responsibilities of the member. The fact that an associated person conducts business at a separate location or is compensated as an independent contractor does not alter the obligations of the individual and the firm to comply fully with all applicable regulatory requirements.

      To provide guidance to the membership in meeting these obligations, this notice discusses certain regulatory issues that frequently arise in the context of off-site employment. Because of the importance of these issues, the NASD urges each member to duplicate this notice and distribute it individually to all associated persons. In addition, it is suggested that this notice be included in the compliance manual of firms employing off-site representatives. The NASD, in the course of its member examinations, will make inquiries to ascertain that this notice has been provided to all appropriate personnel.

      Article III, Section 27, NASD Rules of Fair Practice: Supervision

      Section 27(a) sets forth the basic duty of a member firm to:

      ". . .establish, maintain and enforce written procedures which will enable it to supervise properly the activities of each registered representative and associated person to assure compliance with applicable securities laws, rules, regulations and statements of policy promulgated thereunder and with the rules of this Association."

      Although the rule does not prescribe specific supervisory procedures to be followed by all firms, it clearly mandates that the adopted procedures enable a firm to supervise properly the activities of each associated person to assure compliance. Thus, firms employing off-site representatives are responsible for establishing and carrying out procedures that will subject these individuals to effective supervision designed to monitor their securities-related activities and to detect and prevent regulatory and compliance problems.

      This can include:

      1. Educating off-site personnel regarding their obligations as registered persons to the firm and to the public, including prohibited sales practices.
      2. Maintaining regular and frequent contact with such individuals.
      3. Implementing appropriate supervisory practices, such as records inspections and compliance audits at the representatives' places of employment, to ensure that their methods of business and day-to-day operations comply with applicable rules and requirements.

      For greatest effectiveness in preventing and detecting violations, visits should be unannounced and include, for example, a review of on-site customer account documentation and other books and records, meetings with individual representatives to discuss the products they are selling and their sales methods, and an examination of correspondence and sales literature.

      To fulfill these obligations, a firm should consider whether the number and location of its registered principals provides the capability to supervise its off-site representatives effectively.

      Section 27(c) includes the requirement that a member:

      ". . .review and endorse in writing, on an internal record, all transactions and all correspondence of its registered representatives pertaining to the solicitation or execution of any securities transaction."

      This requirement applies equally in the case of off-site representatives. Firms whose off-site personnel also engage in non-securities businesses should remind these individuals that correspondence pertaining to such businesses, unless submitted for review, may not include material related to securities transactions.

      Section 27(d) imposes upon a member the obligation to:

      ". . .review the activities of each office, which shall include the periodic examination of customer accounts to detect and prevent irregularities and abuses and at least an annual inspection of each office of supervisory jurisdiction."

      An office of supervisory jurisdiction (OSJ) is defined in Section 27(f) as:

      ". . .any office designated as directly responsible for the review of the activities of registered representatives or associated persons in such office and/or in other offices of the member."

      If a member has designated an individual as responsible for reviewing the activities of other registered persons within the firm, the office of that individual must be inspected annually, regardless of whether such person is compensated as an employee or as an independent contractor.

      Article III, Section 40, NASD Rules of Fair Practice: Private Securities Transactions

      Past experience of the NASD in examining members indicates that the conduct of off-site representatives most frequently resulting in violations of NASD rules involves unauthorized private securities transactions, or "selling away." The NASD expects that the promulgation of Section 40 and the clarification of the obligations of members and associated persons in such transactions will reduce the instances of selling away among all associated persons, including off-site representatives.

      Several aspects of Section 40, and certain related issues, merit emphasis in the context of off-site personnel. Section 40 cannot accomplish its objectives unless member firms communicate the substance of the rule to their associated persons and take affirmative steps to ensure that these requirements are understood and observed. This is especially true in the case of off-site representatives whose day-to-day access to compliance personnel and individuals experienced in the securities industry may be limited and whose participation in non-private securities transactions may be infrequent and restricted in scope.

      Because of their location and other circumstances of their employment, off-site personnel have a greater opportunity than on-site personnel to engage in undetected selling away. Consequently, firms that employ such persons are responsible for monitoring their activities in a manner reasonably intended to detect violations. Further, the obligations imposed upon the firm and the associated person under the rule are neither altered nor lessened in any way by the fact that the individual is compensated as an independent contractor.

      The rule requires a member that approves an associated person's involvement in private securities transactions for compensation to record the transactions on its books and records and supervise the individual's participation "as if the transactions were executed on behalf of the member." Although the rule does not specify the manner of recordation, the firm may wish to maintain records that provide information regarding:

      • The individual and the security involved;
      • The amount and source of compensation;
      • The names of the investors and the amounts and dates of the investments;
      • The issuer, syndicator or any other broker-dealer involved; and
      • The manner in which the firm undertook to supervise the associated person's participation.

      These records should be in a form that would permit the NASD to ascertain, upon examination, all relevant information regarding the participation of associated persons in private securities transactions.

      Several issues arise in connection with supervising the involvement of off-site representatives in private securities transactions. The NASD has observed that some firms permit such persons to form and sell interests in limited partnerships for which they serve as general partners. While this is not an impermissible activity, members and registered persons are reminded that such transactions are securities transactions, and therefore subject to Section 40 and all other rules and regulations governing such transactions. Thus, the member is responsible for ensuring that the formation of these partnerships and the solicitation and sale of interests therein are conducted in compliance with all applicable requirements, including those pertaining to documentation, due diligence, disclosure, suitability determinations, and the handling of customer funds.

      There have been instances in which associated persons have engaged in private securities transactions without notifying the firm, due to the belief or the advice of third parties that the product involved was not a security. Under federal securities laws, the definition of a security includes the commonly understood products, such as stocks and bonds, as well as other investment products, such as an "investment contract" in which one or more individuals invest in a common venture with the expectation of receiving a monetary return on their investment from or through the efforts of a third party.

      Because questions frequently arise as to whether a particular investment instrument is a security, a registered person should not sell any product offered by an entity outside the firm without consulting the member to determine the product's status as a security.

      Article III, Section 2, NASD Rules of Fair Practice: Recommendations to, and Fair Dealings with, Customers

      Article III, Section 2 of the NASD Rules of Fair Practice requires that:

      "[i]n recommending to a customer the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by the customer as to his other security holdings and as to his financial situation and needs."

      The policy of the NASD Board of Governors pertaining to Section 2 sets forth specific guidelines in the areas of recommending speculative, low-priced securities, excessive trading activity, trading in mutual fund shares, fraudulent activity, and recommending purchases beyond the customer's capability.

      The actions of an associated person in dealing with customers and customer accounts, regardless of whether he or she is compensated as an employee or an independent contractor, are actions on behalf of the firm. The firm is responsible for supervising in a manner designed to detect and prevent violations of Section 2. Members should take affirmative steps to ensure that off-site personnel understand and abide by NASD and firm policies regarding dealings with customers, customer accounts and customer funds.

      Article III, Section 10, Rules of Fair Practice: Influencing or Rewarding Employees of Others

      Article III, Section 10 of the NASD Rules of Fair Practice prohibits members and associated persons from giving:

      ". . .anything of value, including gratuities, in excess of fifty dollars per individual per year to any person. . .where such payment or gratuity is in relation to the business of the employer of the recipient of the payment or gratuity"

      unless such payments or gratuities are pursuant to a written agreement between the payor and the recipient to which the recipient's employer has consented.

      It is, therefore, a violation of Section 10 for a member to compensate an associated person of another member in connection with securities transactions without the employer firm's consent. A member's obligations under Section 10 are not affected by the fact that the recipient is compensated by his or her NASD employer member as an independent contractor.

      Article III, Section 35, Rules of Fair Practice: Communications with the Public

      Article III, Section 35(b) of the NASD Rules of Fair Practice requires that every item of advertising and sales literature, as defined in Section 35(a):

      ". . .be approved by signature or initial, prior to use, by a registered principal (or his designee) of the member."

      Paragraph (2) of Section 35(b) requires further that a separate file of such items be maintained for a period of three years.

      This rule applies to all materials originated or distributed by off-site representatives that meet the definition of "advertisement" or "sales literature," including those prepared or used by persons compensated as independent contractors. In particular, firms must approve any materials referencing that securities are sold by the off-site representative through the member, even though such materiab may be intended to promote the non-securities businesses of the off-site personnel.

      Article III, Section 35(d)(2)(A) further requires that all advertisements and sales literature contain the name of the member, as well as certain other information under specified circumstances. The fact that an associated person may operate under a business name other than that of the member does not alter this requirement. The NASD has received inquiries regarding the need to include the name of the member in promotional materials that do not include references to the associated person's securities-related activities. Particular materials should be considered individually, preferably by the firm's compliance department, to determine whether they fall within the scope of Section 35.

      Unregistered Broker-Dealers

      The Securities and Exchange Commission has taken the position that an individual who operates as an independent contractor must be registered as a broker-dealer unless he or she is under the control of a registered broker-dealer. 1/ The question of "control" must be evaluated in light of the facts and circumstances of each situation and is not susceptible to a test of general application. There are, however, circumstances inherent in off-site employment and independent contractor compensation arrangements that may give rise to potential liability for operating as unregistered broker-dealers. Thus, registered persons and member firms may want to consider registering of off-site locations as broker-dealers.

      Any questions regarding this notice should be directed to either Dennis C. Hensley, NASD Vice President and Deputy General Counsel, at (202) 728-8245, or Jacqueline D. Whelan, Attorney, NASD Office of the General Counsel, at (202) 728-8270.

      Sincerely,

      Frank J. Wilson
      Executive Vice President and General Counsel


      1/ Refer to the statement by the SEC Division of Market Regulation, dated June 18, 1982, forwarded to ail NASD members on August 25, 1982.


    • 86-64 Columbus Day: Trade Date-Settlement Date Schedule

      TO: All NASD Members and Municipal Securities Bank Dealers

      ATTN: All Operations Personnel

      The schedule of trade dates/settlement dates below reflect the observance by the financial community of Columbus Day, Monday, October 13, 1986. On this day, the NASDAQ System and the exchange markets will be open for trading. However, it will not be a settlement date since many of the nation's banking institutions will be closed in observance of Columbus Day.

      Trade Date-Settlement Date Schedule For "Regular-Way" Transactions

      Trade Date

      Settlement Date

      * Regulation T Date

      October 3

      October 10

      October 14

      6

      14

      15

      7

      15

      16

      8

      16

      17

      9

      17

      20

      10

      20

      21

      13

      20

      22

      14

      21

      23

      It should be noted that October 13, 1986, is considered a business day for receiving customers' payments under Regulation T of the Federal Reserve Board.

      Transactions made on Monday, October 13, will be combined with transactions made on the previous business day, October 10, for settlement on October 20. Securities will not be quoted ex-dividend, and settlements, marks to the market, reclamations, buy-ins and sell-outs, as provided in the Uniform Practice Code, will not be made and/or exercised on October 13.

      The foregoing settlement dates should be used by broker-dealers and municipal securities dealers for purposes of clearing and settling transactions pursuant to the NASD's Uniform Practice Code and Municipal Securities Rulemaking Board Rule G-12 on Uniform Practice.

      Questions concerning this notice should be directed to the NASD Uniform Practice Department at (212) 839-6256.

      * * * * *


      * Pursuant to Sections 220.8(b)(l) and (4) of Regulation T of the Federal Reserve Board, a broker-dealer must promptly cancel or otherwise liquidate a purchase transaction in a cash account if full payment is not received within seven (7) business days of the date of purchase or, pursuant to Section 220.8(d)(l), make application to extend the time period specified. The date members must take such action is shown in the column entitled "Regulation T Date."


    • 86-63 NASD Operations Center Opens in Roekville, Maryland; New Addresses and Telephone Numbers

      TO: All NASD Members and Other Interested Persons

      The ribbon-cutting ceremony for the new 110,000-square-foot NASD Operations Center, which will serve the NASD membership and the NASDAQ market, will be September 17, 1986. The facility, located 18 miles north of Washington, D.C., in Rockville, Maryland, will support 200-million-share trading days and provide the first complete, back-up computer communications system of any securities market in the world.

      NASD departments that rely heavily on computer services will be relocated from the NASD's Executive Office headquarters at 1735 K Street, N.W., Washington, D.C., to the Rockville site in three phases between September and October. Correspondence to the departments relocating should be directed to:

      NASD Operations Center
      9513 Key West Avenue
      Rockville, Maryland 20850

      All information relating to the Central Registration Depository (CRD), including filings of Forms U-4 and U-5 (Uniform Application for Securities Industry Registration or Transfer and Uniform Termination Notice for Securities Industry Registration) should be sent to:

      NASD/CRD
      P.O. Box 6011
      Rockville, Maryland 20850

      This new post office box for NASD/CRD filings is effective immediately. However, forms with the old address may be used until supplies are exhausted.

      Telephone numbers for key employees relocating to the Rockville site will be listed in an updated Guide to Information and Services, which will be available in November 1986. General telephone numbers for the departments relocating to Rockville are:

      Department

      Telephone Number

      Planned Moving Date

      Main Telephone Number

      (301) 738-6500

      9/22

      Administrative Services

      (301) 738-6703

      9/22

      Automated Reports

      (301) 738-6581

      9/22

      Central Files

      (301) 738-6817

      9/22

      Computer Center

      (301) 738-6781

      9/22

      CRD Accounting

      (301) 738-6737

      10/6

      CRD Data Entry

      (301) 738-6718

      10/6

      Human Resources

      (301) 738-6821

      10/6

      Information Services

      (301) 738-6500

      10/6

      Information Systems

      (301) 738-6620

      10/27

      ISD Office Automation

      (301) 738-6675

      9/22

      Mailroom

      (301) 738-6819

      9/22

      Member Firm Registration Services

      (301) 738-6715

      10/6

      Membership

      (301) 738-6715

      10/6

      NASDAQ, Inc.

      (301) 738-6752

      9/22

      Qualifications

      (301) 738-6693

      10/27

      Special Registration Review

      (301) 738-6739

      10/6

      Systems Operations

      (301) 738-6786

      9/22

      Training

      (301) 738-6821

      10/6

      Treasurer's Office

      (301) 738-6540

      9/22

      Sincerely,

      John T. Wall
      Executive Vice President
      Member and Market Services

      The following changes to the list of NASDAQ/NMS securities occurred since August 8, 1986:

      NASDAQ/NMS Symbol* and/or Name Changes

      New/Old Symbol*

      New/Old Security

      Date of Change

      HADS/HADS

      Hadson Corp./Hadson Petroleum Corp.

      08/13/86

      EMSIF/PACEF

      EMS Systems, Ltd./Pasadena Technology Corp.

      08/14/86

      NASDAQ/NMS Deletions

      Symbol*

      Security

      Date

      GOAAQ

      American Adventure, Inc.

      08/12/86

      BFTV

      Birdfinder Corp.

      08/12/86

      CCPAC

      Communications Corporation of America

      08/12/86

      CRFT

      ComputerCraft, Inc.

      08/12/86

      INFC

      InfoTech Management, Inc.

      08/12/86

      JPII

      J.P. Industries, Inc.

      08/12/86

      PDGY

      Prodigy Systems, Inc.

      08/12/86

      BPHC

      Bay Pacific Health Corporation

      08/15/86

      EMSC

      Entertainment Marketing, Inc.

      08/18/86

      Questions regarding this notice should be directed to Kit Milholland, Senior Analyst, NASDAQ Operations, at (202) 728-8281. Questions pertaining to trade reporting rules should be directed to the NASD's Market Surveillance Section, at (202) 728-8201.

      Sincerely,

      Gordon S. Macklin
      President

    • 86-62 NASDAQ National Market System Grows to 2,569 Securities With 27 Voluntary Additions on September 16, 1986

      TO: All NASD Members and Level 2 and Level 3 Subscribers

      On Tuesday, September 16, 1986, 27 issues are scheduled to join the NASDAQ National Market System, bringing the total number of issues in NASDAQ/NMS to 2,569. These 27 issues, which will begin trading under real-time trade reporting, are entering NASDAQ/NMS pursuant to the Securities and Exchange Commission's criteria for voluntary designation.

      The 27 issues scheduled to join NASDAQ/NMS on Tuesday, September 16, 1986, are:

      Symbol*

      Company

      Location

      AIFS

      AIFS, Inc.

      San Francisco, CA

      ATIM

      ATI Medical, Inc.

      Glendale, CA

      ARIT

      Aritech Corp.

      Framingham, MA

      CSEC

      Commercial Security Bancorporation

      Salt Lake City, UT

      CBSI

      Community Bank System, Inc.

      Syracuse, NY

      CNBT

      Community National Bank & Trust Company of New York

      Staten Island, NY

      DTOM

      DeTomaso Industries, Inc.

      Red Bank, NJ

      FSEB

      First Home Federal Savings and Loan Association

      Sebring, FL

      GACO

      GardenArnerica Corporation

      Oakland, CA

      GSBI

      Granite State Bankshares, Inc.

      Keene, NH

      HARP

      Harper International, Inc.

      San Antonio, TX

      HFNO

      Home Federal Savings Bank, Northern Ohio

      Lakewood, OH

      HRZB

      Horizon Bank

      Bellingham, WA

      ISBJ

      Interchange State Bank

      Saddle Brook, NJ

      ITELN

      Itel Corporation (Cl B Pfd, Ser B)

      Chicago, IL

      ITELO

      Itel Corporation (Cl B Pfd, Ser A)

      Chicago, IL

      LIPO

      Liposome Company, Inc. (The)

      Princeton, NJ

      MAXC

      Maxco, Inc.

      Lansing, MI

      MOKG

      Morgan, Olmstead, Kennedy & Gardner Capital Corporation

      Los Angeles, CA

      NHIC

      Nichols-Homeshield, Inc.

      Aurora, IL

      OMICP

      OMI Corp. (Pfd)

      New York, NY

      PACR

      Pacer Corporation

      BothelL WA

      PAYN

      Pay'n Save, Inc.

      Seattle, WA

      RSLA

      Republic Savings and Loan Association of Wisconsin

      Milwaukee, WI

      TMAN

      Tel/Man, Inc.

      Greenville, SC

      TLSS

      Telesis Systems Corporation

      Chelmsford, MA

      TWAXP

      Trans World Airlines, Inc. (Pfd)

      New York, NY

      The following issues may be included in NASDAQ/NMS prior to the next regularly scheduled phase-in date:

      Pending Additions

      Symbol*

      Company

      Location

      ACSN

      ACUSON

      Mountain View, CA

      ADPK

      Aid Pack, Inc.

      Gloucester, MA

      ARMR

      Armour All Products Corporation

      Irvine, CA

      BLVD

      Boulevard Bancorp, Inc.

      Chicago, IL

      CHPS

      Chips and Technologies, Inc.

      Milpitas, CA

      CCMC

      Commonwealth Mortgage Company, Inc.

      Wellesley Hills, MA

      FISV

      FIserv, Inc.

      West Allis, WI

      FFTN

      Fidelity Federal Savings and Loan Association of Tennessee

      Nashville, TN

      FRTR

      Frontier Insurance Group, Inc.

      Monticello, NY

      HSRC

      HEALTHSOUTH Rehabilitation Corporation

      Birmingham, AL

      HUFK

      Huffman-Koos, Inc.

      River Edge, NJ

      ISEC

      Insituform Southeast Corp.

      Jacksonville, FL

      JOUL

      Joule, Inc.

      Edison, NJ

      LTEK

      Life Technologies, Inc.

      Gaithersburg, MD

      MIHO

      M/I Schottenstein Homes, Inc.

      Columbus, OH

      NECC

      New England Critical Care, Inc.

      Marlborough, MA

      PFSI

      Pioneer Financial Services, Inc.

      Rockford, IL

      SURE

      SCOR U.S. Corporation

      New York, NY

      NASDAQ/NMS Interim Additions

      Symbol*

      Security

      Date of Entry

      PICI

      Polymer International Corporation

      8/26/86

      FOOD

      P & C Foods, Inc.

      8/27/86

      SCOM

      SCS/Compute, Inc.

      9/03/86

      The following changes to the list of NASDAQ/NMS securities occurred since August 22, 1986:

      NASDAQ/NMS Symbol* And/Or Name Changes

      New/Old Symbol*

      New/Old Security

      Date of Change

      BUGS/DBUG

      Cooper Development Company/Cooper Development Company

      8/25/86

      CNTRS/CNTRS

      CPL Real Estate Investment Trust/Centennial Real Estate Investment Trust

      8/27/86

      OMCM/DOYL

      Omnicom Group, Inc./Doyle Dane Bernbach Group, Inc.

      9/02/86

      AVFC/AILI

      AmVestors Financial Corp./American Investors Life Insurance Co., Inc.

      9/03/86

      LLOG/LLOG

      Lincoln Logs Ltd./Lincoln Logs Inc.

      9/03/86

      POLY/PTEK

      Poly-Tech, Inc./Poly-Tech, Inc.

      9/03/86

      NASDAQ/NMS Deletions

      Symbol*

      Security

      Date

      REPH

      Republic Health Corporation

      8/25/86

      CASH

      Comdata Network, Inc.

      8/26/86

      INSUW

      Insituform of North America, Inc. (Wts)

      8/27/86

      AGAI

      Ally & Gargano, Inc.

      8/28/86

      HDON

      Henredon Furniture Industries, Inc.

      8/28/86

      IDLE

      Idle Wild Foods, Inc.

      8/29/86

      THOR

      Thor Industries, Inc.

      8/29/86

      BBDO

      BBDO International, Inc.

      9/02/86

      AFSB

      Athens Federal Savings Bank

      9/03/86

      INCM

      InteCom, Inc.

      9/04/86

      MONU

      Monumental Corporation

      9/04/86

      Any questions regarding this notice should be directed to Kit Milholland, Senior Analyst, NASDAQ Operations, at (202) 728-8281. Questions pertaining to trade reporting rules should be directed to the NASD's Market Surveillance Section, at (202) 728-8201.

      Sincerely,

      Gordon S. Macklin
      President


      * NASDAQ symbols are proprietary to the National Association of Securities Dealers, Inc.


    • 86-61 Proposed New Rule of Fair Practice Relating to Monthly Reporting of Aggregate "Short" Positions

      IMPORTANT MAIL VOTE

      OFFICERS, PARTNERS AND PROPRIETORS

      TO: All NASD Members

      LAST VOTING DATE IS OCTOBER 3, 1986.

      EXECUTIVE SUMMARY

      NASD members are invited to vote on a proposed new Rule of Fair Practice, which would require members to maintain a record of their total "short" positions in NASDAQ securities in all customer and proprietary firm accounts and report this information, aggregated by security, to the NASD on a monthly basis. The NASD will make data on short-interest positions available to the public via the financial press. This action is in response to a recommendation developed in a study prepared by Irving M. Pollack at the request of the NASD. The text of the proposed new rule is attached.

      BACKGROUND

      Article III, Section 41 of the NASD Rules of Fair Practice was adopted by the NASD Board of Governors in November 1985 as the first in a series of actions providing for additional regulation of short-selling activity in the over-the-counter market. The original purpose of the reporting requirement was to provide data for a study of current short-selling practices in the over-the-counter market, commissioned by the Board of Governors and conducted by former SEC Commissioner Irving M. Pollack.

      Accordingly, the Board of Governors determined it appropriate" to adopt the new requirement pursuant to Article XII of the NASD By-Laws, which permits the adoption of new Rules of Fair Practice for periods of six months without recourse to the membership for approval. The new rule was filed with the Securities and Exchange Commission and approved on December 19, 1985 (SEC Release No. 34-22731).

      In May 1986, the Board of Governors extended the effectiveness of the new rule for an additional six months. The extension was approved by the SEC on July 30, 1986 (SEC Release No. 34-23482).

      At its July 1986 meeting, the Board of Governors reviewed the short-sale study conducted by Mr. Pollack and adopted the study's recommendations that the requirement for reporting short-interest positions in NASDAQ securities be made permanent and that short-interest data reported pursuant to the rule be made publicly available via the financial press.

      Article III, Section 41 of the NASD Rules of Fair Practice is hereby submitted to the membership for vote. The Board of Governors believes that this new rule is necessary and appropriate and recommends that members vote their approval.

      If the new rule is adopted, members should continue to utilize Form NS-1 to submit monthly short-interest information to the NASD's Market Surveillance Section. The form requires a member to identify each NASDAQ security in which it or its customers maintain a "short" position, the security's NASDAQ symbol, and the aggregate number of shares held "short" for both the current and the immediately preceding month. Additional forms are available from the NASD district offices.

      Reports shall be made as of the close of business on the settlement date falling on the 15th of each month. If the 15th is a non-settlement date, reports shall be made on the preceding settlement date. Reports shall be received by the NASD no later than the second business day after the reporting settlement date.

      * * * *

      Please mark the attached ballot according to your convictions and return it in the enclosed, stamped envelope to "The Corporation Trust Company." Ballots must be postmarked no later than October 3, 1986.

      Questions concerning this notice may be directed to Mary S. Head, NASD Office of the General Counsel, at (202) 728-8284.

      Sincerely,

      Frank J. Wilson
      Executive Vice President and General Counsel

      Attachments

      PROPOSED NEW NASD RULE OF FAIR PRACTICE

      Article III, Section 41.

      Reporting of Aggregate "Short" Positions

      Each member shall maintain a record of total "short" positions in all customer and proprietary firm accounts in securities included in the NASDAQ System and shall regularly report such information to the Corporation in such a manner as may be prescribed by the Corporation. Reports shall be made as of the close on the settlement date falling on the 15th of each month, or, where the 15th is a non-settlement date, on the preceding settlement date. Reports shall be received by the Corporation no later than the second business day after the reporting settlement date.

    • 86-60 Request for Comments on a Proposed Amendment to the Uniform Practice Code, Section 64, Acceptance and Settlement of COD Orders

      TO: All NASD Members and Other Interested Persons

      ATTN: Operations Principal, Cashier

      EXECUTIVE SUMMARY

      Last Date for Comments: October 1, 1986.

      The NASD Board of Governors is circulating for comment a proposed amendment to Section 64 of the Uniform Practice Code, Acceptance and Settlement of COD Orders. The amendment would eliminate the exemption in subparagraph (a)(5)(ii), which provides that a COD/POD transaction may be settled physically if both parties to either side of the transaction (i.e., the customer and its agent or the member and its agent) are not participants in a registered securities depository.

      This amendment would have the effect of requiring that all COD/POD transactions executed by a broker-dealer for a customer be processed through the confirmation and book-entry facilities of clearing agencies. If this method is not used, transactions would be completed on a regular-way settlement basis. The Board concluded that the effect of removing this exemption would be negligible while the benefits of book-entry settlement (reduced DKs, lower processing costs and timely transaction settlement) would be realized. The text of the proposed amendment is attached.

      BACKGROUND

      COD (Collect on Delivery) refers to a purchase by a customer and POD (Payment on Delivery) refers to a sale by a customer, wherein a broker-dealer receives or makes payment at the time the securities are delivered.

      Regulation T of the Federal Reserve Board permits a broker-dealer and a customer to establish a special account whereby the broker-dealer purchases a security for a customer or sells a security to a customer with the understanding that the broker-dealer is to deliver the security promptly to the customer and full payment is to be made by the customer against the delivery (i.e., COD/POD). Regulation T states further that the period for payment in this type of account is not the usual seven business days, but rather 35 calendar days after the date of the purchase or sale.

      COD/POD customers may be individual investors, but they are generally institutions, such as banks, insurance companies, registered investment companies and pension funds that request that securities purchased on a COD/POD basis be delivered to a clearing agent (generally a bank) that will receive the securities and make payment.

      On January 1, 1983, the NASD adopted new Section 64 of the Uniform Practice Code, Acceptance and Settlement of COD Orders, which standardized the procedures for the acceptance and settlement of COD/POD transactions. This represented an industry-wide cooperative effort to modernize trade processing, to encourage the book-entry settlement of transactions through the use of the Institutional Delivery (ID) Systems available through registered securities depositories, and to help diminish the DK (Don't Know) problems attendant with physical deliveries.

      Section 64, as originally adopted, prohibited NASD members of depositories and NASD members that cleared through depository members from accepting COD/POD orders from their customers who were or whose agents or correspondents were members of a depository. If the facilities of a depository, such as the ID System of the Depository Trust Company, were used for the confirmation, affirmation and book-entry settlement of depository-eligible transactions, the rule permitted COD/POD orders between these parties.

      The rule applied only to transactions that involved NASD members and customers who were both participants or whose agents were participants in a depository. The rule did not affect the clearance of COD/POD business of NASD members that were not participants or whose agents, customers or customer's agents or correspondents were not participants in a depository. Nor did the rule require members, their COD/POD customers, clearing agents or correspondents to become participants in a registered securities depository. The rule also did not apply to transactions that were settled outside the United States. (As proposed, this exemption will remain.)

      EXPLANATION OF THE PROPOSED AMENDMENT

      Since the adoption of Section 64 in 1983, the industry has realized the benefits of book-entry settlement of COD/POD transactions in that it reduces DK rates, lowers processing costs and provides timely settlement of transactions. Additionally, industry-supported studies have confirmed that the majority of COD/POD transactions are processed through the ID System.

      However, transactions that are settled outside the ID System by relying on the Section 64 exemptions are contributing to delays in processing, and increasing broker-dealer operational expenses and depository costs. This is a result of the need to maintain larger quantities of certificates to satisfy physical deliveries, which would not be required if these transactions were processed through the ID System or another book-entry type of delivery.

      To resolve these problems, the ID Implementation Committee, a securities industry group, has proposed that the NASD amend Section 64 and that the New York Stock Exchange amend its Rule 387 to require that all COD/POD transactions executed by a broker-dealer for a customer be processed through the confirmation and book-entry delivery facilities that are available at several registered clearing agencies. If this processing method is not used, the committee feels that transactions executed for customers and institutional clients should be on a regular-way settlement basis.

      The Uniform Practice Committee, a standing committee of the NASD Board of Governors, considered the ID Implementation Committee's request and concluded that the effect of removing the exemption would be negligible. The Uniform Practice Committee and the Board of Governors noted that it was not necessary for a broker-dealer to become a member of a securities depository, but only that it have access to a bank that is a member of a depository in order to extend the COD/POD privilege to customers.

      Further, most banks, although not direct participants of a securities depository, are invariably associated on a correspondent basis with a bank that is a depository member. Therefore, the Committee recommended and the Board approved for member comments the proposal to eliminate the exemption in subparagraph (a)(5)(ii) of Section 64 of the Uniform Practice Code.

      All members and other interested persons are invited to submit comments on the proposed amendment. Comments should be received no later than October 1, 1986, and should be directed to:

      Mr. Lynn Nellius, Secretary
      National Association of Securities Dealers, Inc.
      1735 K Street, N.W.
      Washington, D.C. 20006

      Comments received will be considered by the Uniform Practice Committee and the NASD Board of Governors. If approved by the Board, the proposed amendment must be filed with and approved by the Securities and Exchange Commission before becoming effective.

      Questions concerning this notice may be directed to Donald Catapano, Director, NASD Uniform Practice/TARS, at (212) 839-6255.

      Sincerely,

      John T. Wall
      Executive Vice President
      Member and Market Services

      Attachment

      PROPOSED AMENDMENT TO SECTION 64 OF THE NASD UNIFORM PRACTICE CODE*

      Sec. 64. Acceptance and Settlement of COD Orders

      (a)(l), (2), (3) and (4) are unchanged.

      (a)
      (5) The facilities of a securities depository shall be utilized for the confirmation, acknowledgment and book entry settlement of all depository eligible transactions covered by this rule except[:] transactions that are to be settled outside the United States.
      [(i) transactions that are to be settled outside of the United States;]
      [(ii) transactions wherein both a member and its agent are not participants in a security depository, or where both the customer and its agent are not participants in a securities depository.]

      * New language is underlined; deleted language is bracketed.


    • 86-59 Request for Comments on a Proposed Amendment to the Uniform Practice Code, Section 59, Close-Out Procedure; Buying-in

      TO: All NASD Members and Other Interested Persons

      ATTN: Operations Principal, Cashier, Buy-in Personnel

      EXECUTIVE SUMMARY

      Last Date for Comments: October 1, 1986.

      The NASD Board of Governors is circulating for comment a proposed amendment to the Uniform Practice Code, Section 59, Close-Out Procedure; Buying-in. It would require that buy-ins returned by a clearing corporation to a broker be executed for "cash" or "guaranteed delivery" of certificates. The proposed amendment was recommended by the Uniform Practice Committee and coincides with one of the recommendations in the study on Short-Sale Regulation of NASDAQ Securities, prepared by former SEC Commissioner Irving M. Pollack.

      The Board concluded that this amendment would effectively assure the timely delivery of fully paid-for securities. The text of the proposed amendment is attached.

      BACKGROUND AND EXPLANATION OF THE PROPOSED AMENDMENT

      One of the areas examined by the short-sale study prepared by Irving M. Pollack was the relationship between short selling and clearing corporation short interest (fails to deliver), i.e., the inability to deliver or election by a clearing participant to withhold delivery of securities to the clearing corporation. The short condition can exist indefinitely in a continuous net settlement system because the rules and procedures of the clearing corporations permit outstanding long or short positions to be carried forward on a virtually perpetual basis. The procedure provides that open positions be marked to the market daily, with market price fluctuations being reflected in a participant's daily cash settlement. This effectively insulates both the clearing corporation and broker-dealer participants from financial losses. The procedure also allows a clearing participant to postpone delivery indefinitely, or until a purchasing broker-dealer initiates buy-in procedures.

      A problem revealed by the Pollack short-sale study concerned instances in which a long clearing broker did not receive securities from a clearing corporation, especially in situations where there were high levels of short selling in conjunction with large clearing-short interest. In some circumstances, when a long clearing broker initiated a buy-in, it was retransmitted to a short clearing broker who was also a short seller and thereby unable to satisfy the request for certificates.

      In a continuous net settlement system, the identity of the clearing broker to whom a buy-in is retransmitted is unknown. The buy-in could be executed with a broker who was a short seller and also short to the clearing corporation, which would leave the long clearing broker unable to obtain physical delivery of the required certificates.

      To expedite the delivery of fully paid-for securities and to limit the adverse effects of short selling, the proposed amendment to Section 59 of the Uniform Practice Code will require that buy-ins returned by a clearing organization to a broker be executed for cash or guaranteed delivery of certificates.

      In reaching this recommendation, the Uniform Practice Committee took into consideration the fact that over 90 percent of clearing corporation buy-ins are never executed, but satisfied through either their priority in the daily settlement cycle or through retransmission of the buy-in to short clearing participants.

      All members and other interested persons are invited to submit comments on the proposed amendment. Comments should be received no later than October 1, 1986, and should be directed to:

      Mr. Lynn Nellius, Secretary
      National Association of Securities Dealers, Inc.
      1735 K Street, N.W.
      Washington, D.C. 20006

      Comments received will be considered by the Uniform Practice Committee and the NASD Board of Governors. If approved by the Board, the proposed amendment must be filed with and approved by the Securities and Exchange Commission before becoming effective.

      Questions concerning this notice may be directed to Donald Catapano, Director, NASD Uniform Practice-TARS, at (212) 839-6255.

      Sincerely,

      John T. Wall
      Executive Vice President
      Member and Market Services

      Attachment

      PROPOSED AMENDMENT TO SECTION 59 OF THE NASD UNIFORM PRACTICE CODE*

      Sec. 59. Close-Out Procedure; Buying-in

      (a) and (b) are unchanged.

      Seller's failure to deliver after receipt of notice

      (c)
      (i)
      (a). On failure of the seller to effect delivery in accordance with the "buy-in" notice, or to obtain a stay as hereinafter provided, the buyer may close the contract by purchasing all or any part of the securities necessary to complete the contract. Such execution will also operate to close-out all contracts covered under re-transmitted notices of buy-in issued pursuant to the original notice of buy-in. A "buy-in" may be executed by a member from its long position and/or from customers' accounts maintained with such member. [In all cases, members must be prepared to defend the price at which the "buy-in" is executed relative to the current market at the time of the "buy-in.'1
      (c)
      (i)
      (b) In the event of the failure of a clearing corporation to effect delivery in accordance with a buy-in notice, the buyer must close the contract by purchasing for "cash" in the best available market, or at the option of the buyer for guaranteed delivery, for the account and liability of the party in default all or any part of the securities necessary to complete the contract.
      As provided in subsections (i)(a) and (i)(b) hereof, members must be prepared to defend the price at which the "buy-in" is executed relative to the current market at the time of the "buy-in."
      (c)
      (ii) is unchanged.
      (d) through (n) are unchanged.

      * New language is underlined; deleted language is bracketed.


    • 86-58 NASDAQ National Market System Grows to 2,550 Securities With 27 Voluntary Additions on September 2, 1986

      TO: All NASD Members and Level 2 and Level 3 Subscribers

      On Tuesday, September 2, 1986, 27 issues are scheduled to join the NASDAQ National Market System, bringing the total number of issues in NASDAQ/NMS to 2,550. These 27 issues, which will begin trading under real-time trade reporting, are entering NASDAQ/NMS pursuant to the Securities and Exchange Commission's criteria for voluntary designation.

      The 27 issues scheduled to join NASDAQ/NMS on Tuesday, September 2, 1986, are:

      Symbol*

      Company Name

      Location

      ACME

      Acme Steel Company

      Riverdale, IL

      AARE

      Adams-Russell Electronics Co., Inc.

      Waltham, MA

      AFGI

      Ambassador Financial Group, Inc.

      Tamarac, FL

      ANDB

      Andover Savings Bank

      Andover, MA

      BNGO

      Bingo King Company, Inc.

      Littleton, CO

      BMDS

      Bio-Medicus, Inc.

      Eden Prairie, MN

      BMDSW

      Bio-Medicus, Inc. (Wts)

      Eden Prairie, MN

      COMM

      Cellular Communications, Inc.

      New York, NY

      EBSI

      Eagle Bancshares, Inc.

      Tucker, GA

      FICRO

      Fidelcor, Inc. (Ser B Pfd)

      Philadelphia, PA

      FBSI

      First Bane Securities, Inc.

      Morgantown, WV

      GEOX

      Geonex Corporation

      St. Petersburg, FL

      GFGC

      Great Falls Gas Company

      Great Falls, MT

      HFSF

      Home Federal Savings and Loan Association of San Francisco

      San Francisco, CA

      KDNY

      Home Intensive Care, Inc.

      North Miami Beach, FL

      IFSB

      Independence Federal Savings Bank

      Washington, DC

      LDMK

      Landmark Bank for Savings

      Whitman, MA

      LLOGV

      Lincoln Logs, Ltd. (WI)

      Chestertown, NY

      LLTC

      Linear Technology Corporation

      Milpitas, CA

      MCBKA

      MerchantsBank of Boston, A Co-operative Bank (Cl A)

      Boston, MA

      KITS

      Meridian Diagnostics, Inc.

      Cincinnati, OH

      NSSX

      National Sanitary Supply Company

      Los Angeles, CA

      ODSI

      Old Dominion Systems, Inc.

      Gaithersburg, MD

      PRME

      Prime Capital Corporation

      Rolling Meadows, IL

      SUBK

      Suffolk Bancorp

      Riverhead, NY

      SUHC

      Summit Holding Corporation

      Beckley, WV

      TWST

      Twistee Treat Corporation

      Cape Coral, FL

      The following issues may be included in NASDAQ/NMS prior to the next regularly scheduled phase-in date:

      Pending Additions

      Symbol*

      Company Name

      Location

      NTMF

      Network Multi-Family Security Corporation

      Carrollton, TX

      PICI

      Polymer International Corp.

      Tampa, FL

      WSFS

      Wilmington Savings Fund Society Federal Savings Bank

      Wilmington, DE

      NASDAQ/NMS Interim Additions

      Symbol*

      Security

      Date of Entry

      PSVB

      Penn Savings Bank, F.S.B.

      08/12/86

      ATCMA

      American Television and Communications Corporation (CIA)

      08/13/86

      DEVN

      Devon Group, Inc.

      08/13/86

      QUIP

      Quipp, Inc.

      08/18/86

      DIME

      Dime Savings Bank of New York, F.S.B. (The)

      08/19/86

      BEEP

      Roadrunner Enterprises, Inc.

      08/19/86

      TRSL

      Transnational Industries, Inc.

      08/19/86

      WATTA

      Watts Industries, Inc. (Cl A)

      08/21/86


      * NASDAQ symbols are proprietary to the National Association of Securities Dealers, Inc.


    • 86-57 Labor Day: Trade Date-Settlement Date Schedule

      TO: All NASD Members and Municipal Securities Bank Dealers

      ATTN: All Operations Personnel

      Securities markets and the NASDAQ System will be closed on Monday, September 1, 1986, in observance of Labor Day. "Regular-way" transactions made on the business days immediately preceding that day will be subject to the following schedule.

      Trade Date-Settlement Date Schedule For "Regular-Way" Transactions

      Trade Date

      Settlement Date

      * Regulation T Date

      August 22

      August 29

      September 3

      25

      September 2

      4

      26

      3

      5

      27

      4

      8

      28

      5

      9

      29

      8

      10

      September 1

      MARKETS CLOSED

      2

      9

      11

      The foregoing settlement dates should be used by brokers, dealers and municipal securities dealers for purposes of clearing and settling transactions pursuant to the NASD's Uniform Practice Code and Municipal Securities Rulemaking Board Rule G-12 on Uniform Practice. Questions regarding the application of these settlement dates to a particular situation may be directed to the NASD Uniform Practice Department at (212) 839-6256.

      * * * * *


      * Pursuant to Sections 220.8(b)(l) and (4) of Regulation T of the Federal Reserve Board, a broker-dealer must promptly cancel or otherwise liquidate a purchase transaction in a cash account if full payment is not received within seven (7) business days of the date of purchase or, pursuant to Section 220.8(d)(l), make application to extend the time period specified. The date members must take such action is shown in the column entitled "Regulation T Date."


    • 86-56 NASDAQ National Market System Grows to 2,517 Securities With 17 Voluntary Additions on August 19, 1986

      TO: All NASD Members and Level 2 and Level 3 Subscribers

      On Tuesday, August 19, 1986, 17 issues are scheduled to join the NASDAQ National Market System, bringing the total number of issues in NASDAQ/NMS to 2,517. These 17 issues, which will begin trading under real-time trade reporting, are entering NASDAQ/NMS pursuant to the Securities and Exchange Commission's criteria for voluntary designation.

      The 17 issues scheduled to join NASDAQ/NMS on Tuesday, August 19, 1986, are:

      Symbol*

      Company

      Location

      A RIG

      American Reliance Group, Inc.

      Lawrenceville, NJ

      BPCO

      Bonneville Pacific Corporation

      Salt Lake City, UT

      CIMC

      CIMCO

      Costa Mesa, CA

      CYTO

      Cytogen Corporation

      Princeton, NJ

      GNTE

      Granite Cooperative Bank

      North Quincy, MA

      LIFS

      Lowell Institution for Savings

      Lowell, MA

      MLLE

      Martin Lawrence Limited Editions, Inc.

      Van Nuys, CA

      MLLEW

      Martin Lawrence Limited Editions, Inc. (Wts)

      Van Nuys, CA

      MTIX

      Mechanical Technology, Incorporated

      Latham, NY

      MOBI

      Molecular Biosystems, Inc.

      San Diego, CA

      PLXS

      Plexus Corp.

      Neenah, WI

      SSSL

      Sun State Savings & Loan Association

      Phoenix, AZ

      SLVN

      Sylvan Learning Corporation

      Montgomery, AL

      TIPT

      Tipton Centers, Inc.

      St. Louis, MO

      TCBC

      TrustCompany Bancorporation (The)

      Jersey City, NJ

      VLVL

      Video Library, Inc.

      San Diego, CA

      WLBK

      Waltham Savings Bank

      Waltham, MA

      The following issues may be included in NASDAQ/NMS prior to the next regularly scheduled phase-in date:

      Pending Additions

      Symbol*

      Company

      Location

      ATCMA

      American Television and Communications Corporation (Cl A)

      Englewood, CO

      CRITA

      Criterion Group, Inc. (Cl A)

      Houston, TX

      XCEL

      Excel Bancorp, Inc.

      Quincy, MA

      MGSI

      Mars Graphic Services, Inc.

      Westville, NJ

      FOOD

      P & C Foods, Inc.

      Syracuse, NY

      TRSL

      Transnational Industries, Inc.

      New York, NY

      VTRD

      VTR Incorporated

      Pittsburgh, PA

      NASDAQ/NMS Interim Additions

      Symbol*

      Security

      Date of Entry

      MNXI

      MNX Incorporated

      7/25/86

      SLHC

      Southlife Holding Company

      7/25/86

      GPAR

      General Parametrics Corporation

      7/30/86

      SYNT

      Syntro Corporation

      7/30/86

      THIS

      Thermo Instrument Systems, Inc.

      8/05/86

      FSBK

      First Service Bank for Savings

      8/07/86

      WRPS

      WearEver-ProctorSilex

      8/08/86

      The following changes to the list of NASDAQ/NMS securities occurred since July 25, 1986:

      NASDAQ/NMS Symbol* and/or Name Changes

      New/Old Symbol*

      New/Old Security

      Date of Change

      CHER/CHER

      Cherry Corp./Cherry Electrical Products Corp.

      7/30/86

      YFED/YFED

      York Financial Corp./York Federal Savings & Loan Association

      8/01/86

      CPSA/CPSA

      Central Pennsylvania Financial Corp./Central Pennsylvania Savings Association

      8/04/86

      NASDAQ/NMS Deletions

      Symbol*

      Security

      Date

      STGRQ

      Steiger Tractor, Inc.

      7/28/86

      NAUG

      Naugles, Inc.

      7/29/86

      NAUGW

      Naugles, Inc. (Wts)

      7/29/86

      PWRC

      Power Conversion, Inc.

      7/29/86

      ANHC

      American National Holding Company

      7/31/86

      HFLA

      Heritage Federal Savings & Loan Association

      7/31/86

      ACIS

      Applied Communications, Inc.

      8/01/86

      WCOM

      Warner Computer Systems, Inc.

      8/04/86

      PCII

      Protocol Computers, Inc.

      8/07/86

      Questions regarding this notice should be directed to Kit Milholland, Senior Analyst, NASDAQ Operations, at (202) 728-8281. Questions pertaining to trade reporting rules should be directed to the NASD's Market Surveillance Section, at (202)728-8201.

      Sincerely,

      Gordon S. Macklin
      President


      * NASDAQ symbols are proprietary to the National Association of Securities Dealers, Inc.


    • 86-55 Request for Comments on Proposed Revisions to Schedule D of the NASD By-Laws

      TO: All NASD Members, NASDAQ Issuers and Other Interested Persons

      LAST DATE FOR COMMENTS: SEPTEMBER 15, 1986.

      The National Association of Securities Dealers, Inc. (NASD), requests comments on proposed revisions to Schedule D of the NASD By-Laws. Schedule D governs the operations of the NASDAQ System. The text of the proposed revisions is included as Attachment I. The text of the current Schedule D is included as Attachment II.

      BACKGROUND

      The proposed revisions are the result of a comprehensive review of Schedule D undertaken by the NASD Board of Governors Ad Hoc Committee on Schedule D. The committee's major goal in reviewing Schedule D was to increase the Schedule's usefulness as a reference tool for NASDAQ issuers, NASDAQ market makers and other NASD members.

      In addition to making certain organizational changes and editorial revisions, the committee has attempted to update Schedule D to reflect current practice and procedure and to incorporate in the Schedule material that now appears in the NASDAQ Symbol Directory and other NASD publications and notices. The Schedule will also contain a Table of Contents and a definitional section.

      To facilitate review of the proposed revisions, the following is a summary of the changes made to each part.

      PART I

      Part I is new. It provides definitions for the terms used in Schedule D, with the exception of terms relating to options which, for the present time, will remain in the options section of Schedule D, renumbered as Part VIII.

      PART II

      Part II contains the qualification requirements for domestic and foreign NASDAQ securities. The major changes to these requirements are summarized as follows:

      • Firm commitment offerings may be included in NASDAQ upon the effective date of the registration statement, while offerings conducted on a "best efforts" basis may be included only upon the closing of the offering.
      • Annual reports filed with the NASD must contain audited financial statements prepared in accordance with generally accepted accounting principles.
      • Assets that are temporary in nature or severely restricted in their use shall not be included in determining an issuer's total assets.
      • Convertible debentures and redeemable preferred stock with a redemption provision under the sole control of the holder shall not be included in the calculation of an issuer's capital and surplus.
      • Foreign issuers shall be required to register pursuant to Section 12(g) of the Securities Exchange Act of 1934 to be eligible for initial inclusion in the NASDAQ System.
      • Minimum average daily trading volume requirements for foreign shares during the first 90 days of trading have been eliminated.
      • The number of market makers required for a foreign issue's initial inclusion in NASDAQ has been reduced to two from three.
      • Requirements of 100,000 shares of float and 300 shareholders for foreign issues have been added.
      • NASDAQ issuers involved in bankruptcy proceedings or whose financial statements contain a disclaimer opinion may be suspended or terminated from inclusion in the NASDAQ System.

      PART III

      Part III is new. It contains the qualitative and quantitative qualification requirements for NASDAQ National Market System securities that are currently part of the NASD's National Market System Designation Plan. In addition to setting forth the application procedures for NASDAQ/NMS designation, this part includes the alternative Tier 2 quantitative criteria now contained in SEC Rule HAa2-l. The Tier 1 mandatory designation criteria are eliminated. Corporate governance criteria, which have already been approved by the NASD Board and are on file with the Securities and Exchange Commission, will be included in this part.

      PARTS IV and V

      Parts IV and V were formerly numbered as Parts VI and VII. No changes have been made at this time.

      PART VI

      Part VI, formerly Part I, contains the requirements applicable to NASDAQ market makers. This part now includes:

      • Registration requirements for NASDAQ market makers.
      • An explicit requirement for market makers to maintain a two-sided market.
      • NASD authority to suspend the quotations of a market maker whose quotations are not reasonably related to the market and who fails to update its quotations.
      • The table of maximum allowable spreads currently located in the NASDAQ Symbol Directory.
      • Revised procedures for withdrawing quotations. Currently, market makers are permitted to withdraw their quotations as long as they obtain excused withdrawal status prior to re-entering quotations. The revised procedures require a market maker to obtain excused withdrawal status prior to withdrawing quotations. New limits are also placed on the length of excused withdrawals. Excused withdrawals based on illness, vacations or physical circumstances beyond the market maker's control may be granted for up to five days, unless extended. Excused withdrawals based on a firm's investment banking activities may be granted for up to 60 days.

      PART VII

      Part VII, formerly Part III, contains the requirements applicable to market makers participating in the Consolidated Quotations Service (CQS). The changes made to this part parallel those made to new Part VI with respect to NASDAQ market makers. This part now includes:

      • Registration procedures for market makers participating in CQS.
      • An explicit statement of the requirement of SEC Rule HAcl-1 that quotations in reported securities be firm for a normal unit of trading or for the size displayed.
      • A requirement that quotations displayed in both CQS and the NASDAQ System be identical.
      • Revised procedures for withdrawing quotations in CQS securities. Market makers will be required to obtain excused withdrawal status prior to withdrawing quotations in CQS securities. New limits are also placed on the length of an excused withdrawal. An excused withdrawal based on illness, vacations or physical circumstances beyond the market maker's control may be granted for up to five days. An excused withdrawal based on a firm's investment banking activities may be granted for up to 60 days.

      PART VIII

      Part VIII was formerly numbered as Part IV. No changes have been made at this time.

      PART IX

      Part IX was formerly numbered as Part V. No changes have been made at this time.

      PARTS X THROUGH XIII

      Parts X through XIII were formerly numbered as Parts VIII through XI. No changes have been made at this time.

      * * * * * *

      All members and other interested persons are invited to submit written comments on the proposed revisions to Schedule D. Comments should be received no later than September 15, 1986, and should be directed to:

      Mr. Lynn Nellius, Secretary
      National Association of Securities Dealers, Inc.
      1735 K Street, N.W.
      Washington, D.C. 20006

      Comments received by the indicated date will be considered by the NASD Board of Governors. Any rule changes approved by the Board must be filed with and approved by the Securities and Exchange Commission before becoming effective.

      Questions concerning this notice may be directed to S. William Broka, Vice President, NASDAQ Operations-Companies, at (202) 728-8050, or Mary S. Head, Senior Attorney, NASD Office of General Counsel, at (202) 728-8284.

      Sincerely

      Frank J. Wilson
      Executive Vice President and General Counsel

      Attachments

      Attachment I

      TABLE OF CONTENTS

      SCHEDULE D

         

      Page

      PART I

      DEFINITIONS

      1

      PART II

      QUALIFICATION REQUIREMENTS FOR NASDAQ SECURITIES

      Section

       

      1.

      Qualification Requirements for Domestic Securities

      2

      2.

      Qualification Requirements for Foreign Securities and American Depositary Receipts

      4

      3.

      Suspension or Termination of Inclusion of a Security and Exceptions to Inclusion Criteria

      7

      4.

      Use of the NASDAQ System on a Test Basis

      8

      PART III

      DESIGNATION OF NASDAQ NATIONAL MARKET SYSTEM SECURITIES

      Section

       

      1.

      Applications for Designation

      8

      2.

      Quantitative Designation Criteria

      8

      3

      Registration Standards

      9

      4.

      Quantitative Maintenance Criteria

      10

      5.

      Non-Quantitative Designation Criteria

      11

      PART IV*

      NASDAQ ISSUER QUOTATION FEES

      Section

       

      1.

      Entry Fee

       

      2.

      Annual Fee

       

      3.

      Interim Inclusion Fee

       

      PART V*

      PUBLICATION AND DISSEMINATION OF QUOTATIONS TO THE NEWS MEDIA

      PART VI

      REQUIREMENTS APPLICABLE TO NASDAQ MARKET MAKERS

      Section

       

      1.

      Registration as a NASDAQ Market Maker

      12

      2.

      Character of Quotations

      12

      3.

      Stabilizing Bids

      14

      4.

      Reports

      15

      5.

      Normal Business Hours

      15

      6.

      Clearance and Settlement

      15

      7.

      Withdrawal of Quotations

      16

      8.

      Voluntary Termination of Registration

      16

      9.

      Suspension and Termination of Quotations by Association Action

      16

      10.

      Termination of NASDAQ Service

      16

      PART VII

      CONSOLIDATED QUOTATIONS SERVICE (CQS)

      Section

       

      1.

      Registration as a CQS Market Maker

      16

      2.

      Obligations of CQS Market Makers

      17

      3.

      Normal Business Hours

      17

      4.

      Withdrawal of Quotations

      17

      5.

      Voluntary Termination of Registration

      17

      6.

      Suspension and Termination of Quotations by Association Action

      18

      part VIII*

      NASDAQ INDEX OPTIONS

      Section

       

      1.

      Definitions

       

      2.

      NASDAQ Index Options Services Available

       

      3.

      Registration, Qualification and Other General Requirements Applicable to NASDAQ Index Options Market Makers

       

      4.

      Character of Index Options Quotations

       

      5.

      Commitment Rules

       

      6.

      Sanctions

       

      7.

      Requirements Applicable to NASDAQ Index Options Order-Entry Firms

       

      8.

      Transaction Reporting Requirements

       

      9.

      Authorization of NASDAQ Index Options Market Making

       

      10.

      NASDAQ Index Options Contracts Authorized for Trading

       

      11.

      Series of NASDAQ Index Options Open for Trading

       

      12.

      Unit of Trading

       

      13.

      Suspension of Authorization of NASDAQ Index Options Contracts

       

      14.

      Trade Comparison Procedures

       

      15.

      Clearance and Settlement

       

      16.

      Rules of General Applicability

       

      PART IX*

      SCHEDULE OF CHARGES

      Section

       

      1.

      NASDAQ System Services

       

      2.

      Equipment Charges

       

      3.

      Special Service Options

       

      4.

      Installation, Removal or Relocation

       

      5.

      Miscellaneous Services

       

      6.

      Partial-Month Charges

       

      7.

      Late Fees

       

      8.

      Mutual Fund Quotation Program

       

      9.

      Minor Modifications to Charges

       

      PART X*

      LOCAL QUOTATIONS PROGRAM

      PART XI*

      PROCEDURES FOR ACCESS TO THE NASDAQ SYSTEM BY NON-NASDAQ MARKET MAKERS

      PART XII*

      REPORTING TRANSACTIONS IN NASDAQ NATIONAL MARKET SYSTEM SECURITIES

      part XIII*

      MUTUAL FUND QUOTATION PROGRAM

      Section

       

      1.

      Description

       

      2.

      Eligibility Requirements

       

      3.

      News Media Lists

       

      4.

      Supplemental List

       

      5.

      Determination of Number of Shareholders

       

      PART I

      DEFINITIONS

      For purposes of Schedule D, unless the context requires otherwise:

      (1) "Act" means the Securities Exchange Act of 1934.
      (2) "Association" means the National Association of Securities Dealers, Inc.
      (3) "Best efforts offering" means an offering of securities by members of a selling group under an agreement that imposes no financial commitment on the members of such group to purchase any such securities except as they may elect to do so.
      (4) "CQS market maker" means a dealer registered as such that, with respect to a reported security, holds itself out as being willing to buy and sell such security for its own account on a regular and continuous basis otherwise than on a national securities exchange in amounts of less than block size.
      (5) "Capital and surplus" means total stockholders' equity as presented in accordance with generally accepted accounting principles as reflected on the issuer's statement of financial condition or a comparable statement.
      (6) "Consolidated Quotations Service" or "CQS" means the consolidated quotation collection system for listed securities implementing SEC Rule HAcl-1.
      (7) "Firm commitment offering" means an offering of securities by participants in a selling syndicate under an agreement that imposes a financial commitment on participants in such syndicate to purchase such securities.
      (8) "Member" means a broker or dealer admitted to membership in the Association.
      (9) "NASDAQ market maker" means a dealer registered as such that, with respect to a security, holds itself out (by entering quotations in the NASDAQ System) as being willing to buy and sell such security for its own account on a regular and continuous basis.
      (10) "NASDAQ National Market System security" or "NASDAQ/NMS security" means any authorized security that (i) substantially meets the criteria set forth in Part HI, Sections 2 and 5 of this Schedule D and is subject to a transaction reporting plan approved by the Securities and Exchange Commission; (ii) is a right to purchase such security; or (iii) is a warrant to subscribe to such security, and has been so designated by the Association upon application of the issuer of the security.
      (11) "NASDAQ System" means the electronic interdealer quotation system operated by NASDAQ, Inc., a subsidiary of the Association.
      (12) "Normal unit of trading" means 100 shares of a security unless, with respect to a particular security, the Association determines that a normal unit of trading shall constitute other than 100 shares. If a normal unit of trading is other than 100 shares, a special identifier shall be appended to the issue's NASDAQ symbol.
      (13) "Penalty bid" means a stabilizing bid that permits the managing underwriter to reclaim a selling concession granted to a syndicate member in connection with the sale of securities in an underwritten offering when the syndicate member resells such securities to the managing underwriter.
      (14) "Pre-effective stabilizing bid" means a stabilizing bid entered prior to the effective date of an offering.
      (15) "Reported security," as used in Part VII, means an equity security for which quotations are entered into the Consolidated Quotations Service.
      (16) "Stabilizing bid" means a bid entered for the purpose of supporting the price of a security to facilitate an offering of such security as permitted by SEC Rules 10b-6 and 10b-7.

      PART II

      QUALIFICATION REQUIREMENTS FOR NASDAQ SECURITIES

      Sec. 1. Qualification Requirements for Domestic Securities

      To qualify for inclusion in the NASDAQ System, a security shall satisfy all applicable requirements contained in subsections (a) or (b), and (c) herein.

      (a) A security other than a security distributed in connection with an initial public offering shall be considered for inclusion in the NASDAQ System provided that it is:
      (1) registered pursuant to Section 12(g)(l) of the Securities Exchange Act of 1934 (Act); or
      (2) registered on a national securities exchange pursuant to Section 12(b) of the Act; or
      (3) issued by an insurance company pursuant to Section 12(g)(2)(G) of the Act; or
      (4) issued by an investment company registered under the Investment Company Act of 1940, provided that the issuer or underwriter of or any dealer in the security is not currently engaged in a distribution of such security that subjects such issuer, underwriter or dealer to the provisions of Section 22(d) of the Act, and provided further that transactions in such shares, other than redemptions or repurchases by or on behalf of the issuer, are exempted from or not subject to Rule 22c-l adopted under the Act.
      (b)
      (1) A new issue offered on a firm commitment basis shall be considered for inclusion on the day that its registration statement is declared effective by the Securities and Exchange Commission. A new issue offered on a best efforts basis shall be considered for inclusion upon the closing of the offering. Qualification under this paragraph shall automatically terminate 120 days after the last day of the issuer's fiscal year during which the registration statement became effective.
      (2) A new issue for which a registration statement is not required to be filed with the Securities and Exchange Commission under Section 3(a) of the Securities Act of 1933 shall be considered for inclusion upon the effectiveness of its registration statement or an equivalent document filed with the appropriate regulatory authority if the offering is conducted on a firm commitment basis or, if conducted on a best efforts basis, at the closing of the offering. Qualification under this paragraph shall automatically terminate 120 days after the effective date of the offering.
      (c) In addition to the requirements contained in paragraphs (a) or (b) above, and unless otherwise indicated, a security shall satisfy the following criteria for inclusion in the NASDAQ System:
      (1) For initial inclusion, the issue shall have two registered and active market makers, one of which may be a market maker entering a stabilizing bid. For continued inclusion, the issue shall have one registered and active market maker.
      (2) For initial inclusion, the issuer shall have total assets of at least $2 million. For continued inclusion, the issuer shall have total assets of at least $750,000. An issuer's total assets will be determined on the basis of a balance sheet prepared in accordance With generally accepted accounting principles. Assets that are temporary or restricted in their use will be excluded from the determination of total assets.
      (3) For initial inclusion, the issuer shall have capital and surplus of at least $1 million. For continued inclusion, the issuer shall have capital and surplus of at least $375,000. Only issues of common and preferred stock will be included in capital and surplus. Debentures and redeemable securities with the redemption provision within the sole control of the holder will be excluded from the determination of capital and surplus.
      (4) In the case of a convertible debt security, for initial inclusion, there shall be a principal amount outstanding of at least $10 million. For continued inclusion, there shall be a principal amount outstanding of at least $5 million.
      (5) The issuer shall have, in the case of common stock, at least 300 holders of the security. An account of a member that is beneficially owned by a customer (as defined in Article II, Section l(f) of the NASD Rules of Fair Practice) will be considered a holder of a security upon appropriate verification by the member.
      (6) In the case of common stock, there shall be at least 100,000 publicly held shares. Shares held directly or indirectly by any officer or director of the issuer and by any person who is the beneficial owner of more than 10 percent of the total shares outstanding are not considered to be publicly held.
      (7) In the case of rights and warrants, for initial inclusion only, there shall be at least 100,000 issued and the underlying security shall be included in the NASDAQ System or listed on a national securities exchange.
      (8) In the case of units, all component parts shall meet the requirements for initial and continued inclusion.
      (9) The security shall not currently be suspended from trading by the Securities and Exchange Commission pursuant to Section 12(k) of the Act.
      (10) The issuer shall certify, at or before the time of qualification, that all applicable inclusion criteria have been satisfied.
      (11) The issuer shall pay the NASDAQ Issuer Quotation Fee, described in Part IV.
      (12) The issuer shall file with the Association three copies of all reports and other documents filed or required to be filed with the Securities and Exchange Commission. Issuers that are not required to file reports with the Securities and Exchange Commission shall file with the Association three copies of reports required to be filed with the appropriate regulatory authority. All required reports shall be filed with the Association on or before the date they are required to be filed with the Securities and Exchange Commission or appropriate regulatory authority. Annual reports filed with the Association shall contain audited financial statements.
      (13) The issuer shall make prompt disclosure to the public of any material information that may affect the value of the securities or influence investors' decisions.
      (14) The issuer shall comply with any obligation of any person regarding filing or disclosure of information material to the issuer or the security, whether such obligation arises under the federal securities laws and the regulations promulgated thereunder or other applicable federal or state statutes or rules.

      Sec. 2. Qualification Requirements for Foreign Securities and American Depositary Receipts

      To qualify for inclusion in the NASDAQ System, a security of a foreign issuer, an American Depositary Receipt (ADR) or similar security issued in respect of a security of a foreign issuer shall satisfy the requirements of paragraphs (a), (b) or (c), and (d) and (e) herein.

      (a) A security of a foreign issuer, an American Depositary Receipt (ADR) or similar security issued in respect of a security of a foreign issuer, other than a newly issued security, shall be considered for inclusion provided that it is registered pursuant to Section 12(g) of the Act.
      (b) A new issue of foreign securities conducted on a firm commitment basis shall be considered for inclusion on the day that its registration statement is declared effective by the Securities and Exchange Commission. A new issue of foreign securities conducted on a "best efforts" basis shall be considered for inclusion upon the closing of the offering. Qualification under this paragraph shall automatically terminate 120 days after the last day of the issuer's fiscal year during which the registration statement became effective.
      (c) A foreign issuer whose securities or underlying ADRs were included in the NASDAQ System on or before October 5, 1983, and whose securities are exempt from registration under Section 12(g) of the Act pursuant to SEC Rule 12g3-2(b), shall continue to be included in the NASDAQ System, provided that all applicable requirements of SEC Rule 12g3-2(b) are met.
      (d) Notwithstanding its exemption from registration pursuant to SEC Rule 12g3-2(b), a foreign security or ADR shall not be qualified for inclusion in the NASDAQ System if:
      (1) the issuer of the security or of the security underlying the ADR fails to make available to its shareholders and the Association on a timely basis an annual balance sheet and statement of operations prepared in accordance with the generally accepted accounting practices of the issuer's country of domicile, including certification, if applicable; or
      (2) the principal marketplace of the issuer's securities fails to coordinate regulatory activities with the Association in a manner sufficient to assure a fair and orderly market in the security and protection of investors and the public interest.
      (e) In addition to the requirements contained in subsections (a), (b) or (c), and (d), the security shall satisfy the following criteria for inclusion in the NASDAQ System:
      (1) For initial inclusion, the issue shall have two registered and active market makers, one of which may be a market maker entering a stabilizing bid. For continued inclusion, the issue shall have one registered and active market maker.
      (2) For initial inclusion, the issuer shall have total assets of at least U.S. $2 million. For continued inclusion, the issuer shall have total assets of at least U.S. $750,000. An issuer's total assets will be determined on the basis of a balance sheet prepared in accordance with U.S. generally accepted accounting principles or those accompanied by detailed schedules quantifying the differences between U.S. accounting principles and those of the issuer's country of domicile. Assets that are temporary or restricted in their use will be excluded from the determination of total assets.
      (3) For initial inclusion, the issuer shall have capital and surplus of at least U.S. $1 million. For continued inclusion, the issuer shall have capital and surplus of at least U.S. $375,000. Only issues of common, preferred or equivalent stock will be included in capital and surplus. Debentures and redeemable securities with a redemption provision under the sole control of the holder will be excluded from the determination of capital and surplus.
      (4) In the case of a convertible debt security, for initial inclusion, there shall be a principal amount outstanding of at least U.S. $10 million; for continued inclusion, there shall be a principal amount outstanding of at least U.S. $5 million.
      (5) In the case of foreign shares, the issuer shall have at least 300 holders of the security. An account of a member that is beneficially owned by a customer (as defined in Article II, Section l(f) of the NASD Rules of Fair Practice) will be considered a holder of a security upon appropriate verification by the member.
      (6) In the case of foreign shares, the issuer shall have at least 100,000 publicly held shares. Shares held directly or indirectly by any officer or director of the issuer and by any person who is the beneficial owner of more than 10 percent of the total shares outstanding are not considered to be publicly held.
      (7) In the case of rights, warrants and ADRs, for initial inclusion only, at least 100,000 shall be issued.
      (8) In the case of rights and warrants, the underlying security shall be included in the NASDAQ System or listed on a national securities exchange.
      (9) In the case of units, all component parts shall meet the requirements for initial and continued inclusion.
      (10) The security shall not currently be suspended from trading by the Securities and Exchange Commission pursuant to Section 12(k) of the Act or by the appropriate regulatory authorities of the issuer's country of domicile.
      (11) The issuer shall certify, at or before the time of qualification, that all applicable inclusion criteria have been satisfied.
      (12) The issuer shall pay the NASDAQ Issuer Quotation Fee, described in Part IV.
      (13) The issuer shall file with the Association three copies of all reports required to be filed with the Securities and Exchange Commission. All required reports must be filed with the Association on or before the date they are required to be filed with the Securities and Exchange Commission.
      (14) The issuer shall make prompt disclosure to the public in the United States through international wire services or similar disclosure media of any material information that may affect the value of the securities or influence investors' decisions.
      (15) The issuer shall comply with any obligation of any person regarding filing or disclosure of information material to the issuer or the security, whether the obligation arises under the securities laws of the United States or the issuer's country of domicile, or other applicable federal or state statutes or rules.

      Sec. 3. Suspension or Termination of Inclusion of a Security and Exceptions to Inclusion Criteria 1/

      (a) The Association may, pursuant to procedures set forth in the NASD Code of Procedure, apply additional or more stringent criteria for the initial or continued inclusion of a particular security or suspend or terminate the inclusion of an otherwise qualified security if:
      (1) an issuer files for protection under any provision of the federal bankruptcy laws;
      (2) an issuer's independent accountants issue a disclaimer opinion on financial statements required to be certified; or
      (3) the Association deems it necessary to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade or to protect investors and the public interest.
      (b) If the Association determines that a security's inclusion shall be suspended or terminated because of its noncompliance with the provisions of Sections (1) or (2) hereof, or by the operation of subsection (3)(a) hereof, the Association shall so notify the issuer prior to suspension or termination or as soon as practicable thereafter.
      (c) The Association may request any additional information or documentation, public or nonpublic, deemed necessary to make a determination regarding a security's initial or continued inclusion, including, but not limited to, any material provided to or received from the Securities and Exchange Commission or other appropriate regulatory authority. Information requested pursuant to this paragraph shall be submitted within a reasonable period.
      (d) The Association may make exceptions to the application of the criteria contained in Sections (1) or (2) hereof, where it is deemed appropriate.
      (e) A security that has been suspended shall be required, prior to re-inclusion, to comply with the requirements for continued inclusion. A security that has been terminated shall be required, prior to re-inclusion, to comply with the requirements for initial inclusion.
      (f) Securities issued in connection with the merger or consolidation of at least one issuer of qualifying securities shall be promptly included in the NASDAQ System, provided the conditions of subsections (l)(c) or (2)(e) hereof for securities that have already been included are satisfied.

      Sec. 4. Use of the NASDAQ System on a Test Basis

      Notwithstanding the eligibility standards set forth in Part n of Schedule D, the Association may at any time authorize the use of the NASDAQ System on a test basis for whatever studies it considers necessary.

      PART III

      DESIGNATION OF NASDAQ NATIONAL MARKET SYSTEM SECURITIES

      Sec. 1. Applications for Designation

      (a) Application for designation shall be on a form supplied by the Association and signed by a corporate officer of the issuer. Compliance with the designation criteria will be determined on the basis of information filed with the appropriate regulatory authority and the records of the Association as of the application date. The Association may require the issuer to submit such other information as is relevant to a determination of designation as a national market system security.
      (b) Designation of a security shall be declared effective within a reasonable time after determination of qualification. The effective date of designation shall be determined by the Association giving due regard to the requirements of the NASDAQ System, the media and market makers. Effectiveness of designation may be delayed upon written request by the issuer. An issuer that has been determined to be qualified but is pending effectiveness shall not be required to meet the designation criteria prior to effectiveness.
      (c) The Association may make exceptions to the criteria contained in this Part III where it deems appropriate.

      Sec. 2. Quantitative Designation Criteria

      In order to be designated, an issue shall be required to substantially meet the criteria set forth in paragraph (a), (b) or (c) below.

      Initial public offerings (IPOs) are eligible for immediate inclusion in NASDAQ/NMS upon prior application and with the written consent of the managing underwriter that immediate inclusion is desired. All other qualifying issues, excepting special situations, are included on regularly scheduled phase-in dates.

      (a) Alternative 1
      (1) The issuer of the security had annual net income of at least $300,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years.
      (2) There are at least 350,000 publicly held shares.
      (3) The market value of publicly held shares is at least $2 million.
      (4) The price per share on each of the five ousiness days prior to the date of application by the issuer is $3 or more.
      (5) At least two dealers act as NASDAQ market makers with respect to the security on each of the five business days preceding the date of application by the issuer.
      (b) Alternative 2
      (1) The issuer of the security has capital and surplus of at least $8 million.
      (2) There are at least 800,000 publicly held shares.
      (3) The market value of publicly held shares is at least $8 million.
      (4) At least two dealers act as NASDAQ market makers with respect to the security on each of the five business days preceding the date of application by the issuer.
      (5) The issuer has a four-year operating history.
      (c) Warrants
      (1) The warrants substantially meet the above criteria provided, however, that they shall not be required to meet the criteria set forth in paragraph 1(B).
      (2) Immediately after the distribution, there are at least 450,000 warrants outstanding.
      (d) The computations required by paragraph (a)(l) and (b)(l) shall be taken from the issuer's most recent financial information filed with the Association. The computations required in paragraphs (a)(2), (a)(3), (b)(2) and (b)(3) shall be as of the date of application of the issuer. Determinations of beneficial ownership for purposes of paragraphs (a)(2) and (b)(2) shall be made in accordance with SEC Rule 13d-3. In the case of American Depositary Receipts, the computations required by paragraphs (a)(l) and (b)(l) shall relate to the foreign issuer and not to any depositary or any other person deemed to be an issuer for purposes of Form S-12 under the Securities Act of 1933.

      Sec. 3. Registration Standards

      In addition to meeting the quantitative criteria for NASDAQ/NMS inclusion, the issue must also be:

      (a) registered under Section 12(g)(l) of the Securities Exchange Act of 1934 (Act); or
      (b) issued by an insurance company meeting the conditions of Section 12(g)(2)(G) of the Act; or
      (c) registered under the Securities Act of 1933 and issued by a closed-end investment management company registered under Section 8 of the Investment Company Act of 1940; or
      (d) an American Depositary Receipt issued against the equity security of a foreign issuer if such equity security is registered pursuant to Section 12 of the Act; or
      (e) registered under Section 12(b) of the Act and listed on a national securities exchange, or admitted to unlisted trading privileges on an exchange, provided that:
      (1) no rule, stated policy or practice of such exchange shall prohibit or condition, or be construed to prohibit or condition, or otherwise limit, directly or indirectly, the ability of any member to effect any transaction in such security otherwise than on such exchange; and
      (2) such exchange shall permit NASDAQ market makers elephone access to exchange trading facilities with respect to transactions in NMS securities to the same extent that exchange market makers are permitted access to NASDAQ market makers; and
      (3) transaction reports in such security are not collected, processed and made available pursuant to the plan submitted to the Securities and Exchange Commission pursuant to Rule HAa3-l under the Securities Exchange Act of 1934, as amended, (the "CTA Plan") which was declared effective as of May 17, 1974.
      (f) Foreign securities and American Depositary Receipts where either the issuer is required to file reports pursuant to Section 15(d) of the Act or the security is exempt from registration under Section 12(g) of the Act by reason of the applicability of Rule 12g3-2(b) are not eligible for designation in NASDAQ/NMS.

      Sec. 4. Quantitative Maintenance Criteria

      After designation as a NASDAQ National Market System security, a security must substantially meet the criteria set forth below to continue to be designated as a national market system security. Failure to meet any of the maintenance criteria may result in the termination of an issue's designation in NASDAQ/NMS upon notice by the Association.

      (a) Common Stock, Preferred Stock, Shares or Certificates of Beneficial Interest of Trusts and Limited Partnership Interests" in Foreign or Domestic Issues
      (1) 200,000 shares publicly held.
      (2) Market value of publicly held shares of $2 million.
      (3) Either annual net income of $200,000 for the previous fiscal year or in two of the last three fiscal years or net worth of at least $1 million.
      (b) Rights and Warrants — Common stock of the issuer must continue to be designated.
      (c) Market Makers — At least two authorized NASDAQ market makers.
      (d) Bankruptcy and/or Liquidation
      Should an issuer file under any of the sections of the Bankruptcy Act or announce that liquidation has been authorized by its board of directors and that it is committed to proceed, its securities shall not remain designated unless it is determined that the public interest and the protection of investors would be served by continued designation.
      (e) Termination Procedure
      (1) An issuer that is subject to termination of its designation may request a review by a Committee of the NASD Board of Governors. If a review is requested, the issuer is entitled to submit materials and arguments in connection with such review.
      (2) The Committee may grant or deny continued designation on the basis of the written submission by the issuer and whatever other data it deems relevant.
      (3) Determinations by the Committee may be appealed to the NASD Board of Governors by any aggrieved person. An appeal to the Board shall not operate as a stay of the decision of the Committee.

      Sec. 5. Non-Quantitative Designation Criteria

      (This section is identical to the language in a proposed rule on corporate governance currently pending approval by the SEC.)

      PART IV

      NASDAQ ISSUER QUOTATION FEES

      No change.

      PART V

      PUBLICATION AND DISSEMINATION OF QUOTATIONS TO THE NEWS MEDIA

      No change.

      PART VI

      REQUIREMENTS APPLICABLE TO NASDAQ MARKET MAKERS

      Sec. 1. Registration as a NASDAQ Market Maker

      (a) Quotations and quotation sizes may be entered into the NASDAQ System only by an NASD member registered as a NASDAQ market maker or other entity approved by the Association to function in a market-making capa city.
      (b) An NASD member seeking registration as a NASDAQ market maker shall file an application with the Association. The application shall certify the member's good standing with the Association and shall demonstrate compliance with the net capital and other financial responsibility provisions of the Securities Exchange Act of 1934. A member's registration as a NASDAQ market maker shall become effective upon receipt by the member of the notice of approval of registra tion from the Association.
      (c) A NASDAQ market maker may become registered in a newly authorized issue by contacting NASDAQ Operations-Members. If registration is requested within five business days after the issue is authorized, and the require ments of paragraph (b) above are satisfied, registration shall become effective at the time the registration request is entered.
      (d) A NASDAQ market maker may become registered in an issue already included in the NASDAQ System by entering a registration request via a NASDAQ terminal. If registration is requested in an issue included in NASDAQ for more than five days, and the requirements of paragraph (b) above are satisfied, registration shall become effective at the opening of the NASDAQ System on the second business day after the registration request is entered.
      (e) A NASDAQ market maker's registration in an issue shall be terminated by the Association should the market maker fail to enter quotations in the issue within five business days after the market maker's registration in the issue becomes effective.

      Sec. 2. Character of Quotations

      (a) Two-Sided Quotations. For each security in which a member is registered as a market maker, the member shall be willing to buy and sell such security for its own account on a continuous basis and shall enter and maintain two-sided quotations in the NASDAQ System, subject to the procedures for excused withdrawal set forth in Section 7 below.
      (b) Firm Quotations. A market maker that receives an offer to buy or sell from another member of the Association shall execute a transaction for at least a normal unit of trading at its displayed quotations as disseminated through the NASDAQ System at the time of receipt of any such offer. If a market maker displays a quotation for a size greater than a normal unit of trading, it shall, upon receipt of an offer to buy or sell from another member of the Association, execute a transaction at least at the size displayed.
      (c) Quotations Reasonably Related to the Market. A market maker shall enter and maintain quotations that are reasonably related to the prevailing market. Should it appear that a market maker's quotations are no longer reasonably related to the prevailing market, the Association may require the market maker to re-enter its quotations. If a market maker whose quotations are no longer reason ably related to the prevailing market fails to re-enter its quotations, the Associ ation may suspend the market maker's quotations in one or all securities.
      (1) In the event that a market maker's ability to enter or update quotations is impaired, the market maker shall immediately contact NASDAQ Operations-Members to request the withdrawal of its quotations.
      (2) In the event that a market maker's ability to enter or update quotations is impaired and the market maker elects to remain in the NASDAQ System, the market maker shall execute an offer to buy or sell received from another member of the Association at its quotations as disseminated through the NASDAQ System.
      (d) Excess Spreads. A market maker shall not enter quotations into the NASDAQ System that exceed the parameters for maximum allowable spreads as may be published from time to time by the Association. 2/
      (e) Locked and Crossed Markets. A market maker shall not, except under extraordinary circumstances, enter or maintain quotations in the NASDAQ System during normal business hours if:
      (1) the bid quotation entered is equal to or greater than the asked quotation of another market maker entering quotations in the same security; or
      (2) the asked quotation is equal to or less than the bid quotation of another market maker entering quotations in the same security.

      A market maker shall, prior to entering a quotation that locks or crosses another quotation, make reasonable efforts to avoid such locked or crossed market by executing transactions with all market makers whose quotations would be locked or crossed.

      Sec. 3. Stabilizing Bids

      (a) Eligibility. A market maker may enter a stabilizing bid in the NASDAQ System, which will be identified with the appropriate identifier on the NASDAQ quotation display. Only one market maker in an issue may enter a stabilizing bid. A stabilizing bid will not be displayed unless one market maker, in addition to the market maker entering the stabilizing bid, is registered in the issue and enters quotations.
      (b) Character. A stabilizing bid, a pre-effective stabilizing bid and a penalty bid may be entered into the NASDAQ System. A stabilizing bid must be available for all freely tradeable outstanding securities of the same class being offered.
      (c) Notice to Association
      (1) A market maker that wishes to enter a stabilizing bid shall so notify NASDAQ Operations-Members in writing prior to the first day on which the stabilizing bid is to appear in the NASDAQ System. The notice shall include (i) the name of the security and its NASDAQ symbol; (ii) the date on which the registration will become effective, if the security is already included in NASDAQ; (iii) whether the stabilizing bid will be a penalty bid or a penalty-free bid; and (iv) a copy of the preliminary prospectus or shelf registration statement, unless the Association determines otherwise.
      (2) In the case of a pre-effective stabilizing bid, the notice shall include (i) the name of the security and its NASDAQ symbol; (ii) the contemplated effective date of the offering; (iii) whether it is contemplated that the pre-effective stabilizing bid will be converted to a stabilizing bid and, if so, whether the stabilizing bid will be a penalty bid or a penalty-free bid; and (iv) a copy of the preliminary prospectus, unless the Association determines otherwise.
      (3) A market maker that has provided the written notice prescribed above shall also contact NASDAQ Operations-Members for authorization on the day the market maker wishes to enter the stabilizing bid.
      (d) Dual Bids in the Same Issue. A market maker shall not enter a stabilizing bid at the same time that it is quoting any other bid or offer in the issue.
      (e) Volume Reporting for Stabilizing Bids. A market maker entering a stabilizing bid shall report all purchases made on the stabilizing bid and enter "zero volume" for sales during the period in which the stabilizing bid is in effect.

      Sec. 4. Reports

      (a) Daily. A market maker shall report to the NASDAQ System each business day no later than 5 p.m. Eastern Time its total daily volume (purchases and sales) relating to NASDAQ securities in which it is a market maker. If the market maker has not executed transactions in a security in which it is registered as a market maker, it shall report "zero volume."
      Daily volume reports shall be entered via a NASDAQ terminal. In cases of equipment malfunction or failure, volume reports shall be telephoned to NASDAQ Operations-Members.
      A market maker shall also report to the NASDAQ System each business day all other data relating to securities quoted in the NASDAQ System, as the Association shall require.
      (b) Monthly. A market maker shall report monthly to the NASDAQ System such data on securities quoted in the NASDAQ System, as the Association shall require.
      (c) Other. A market maker shall make such other reports to the Association as may be prescribed from time to time by the Association.

      Sec. 5. Normal Business Hours

      A NASDAQ market maker shall be open for business as of 9:30 a.m. Eastern Time and shall close no earlier than 4 p.m. Eastern Time. Should a market maker wish to remain open for business later than 4 p.m. Eastern Time, it shall so notify NASDAQ Operations-Members via a NASDAQ terminal and shall close only on the hour or the half hour, but no later than 6:30 p.m. Eastern Time.

      Sec. 6. Clearance and Settlement

      (a) A market maker shall clear and settle transactions in NASDAQ securities through the facilities of a registered clearing agency where clearing facilities are located within 25 miles of the market maker.
      (b) Notwithstanding its proximity to a particular clearing facility, a market maker may also clear and settle transactions through any registered clearing facility using a continuous net settlement system; enter into a correspondent clearing arrangement with a member that clears through a continuous net settlement clearing facility; settle transactions "ex-clearing" provided that both parties to the transaction agree; or use direct clearing services.

      Sec. 7. Withdrawal of Quotations

      (a) A market maker that wishes to withdraw quotations in a security shall contact NASDAQ Operations-Members to obtain excused withdrawal status prior to withdrawing its quotations.
      (b) Excused withdrawal status based on illness, vacations or physical circumstances beyond the market maker's control may be granted for up to five business days, unless extended by NASDAQ Operations-Members. Excused withdrawal status based on investment banking activity or the advice of legal counsel, accompanied by a representation that the condition necessitating the withdrawal of quotations is not permanent in nature, may be granted for not more than 60 days. The withdrawal of quotations because of pending news, a sudden influx of orders or price changes, or to effect transactions with competitors shall not normally constitute acceptable reasons for granting excused withdrawal status.

      Sec. 8. Voluntary Termination of Registration

      A market maker may voluntarily terminate its registration in a security by withdrawing its quotations from the NASDAQ System. A market maker that voluntarily terminates its registration in a security may not re-register as a market maker in that security for two business days.

      Sec. 9. Suspension and Termination of Quotations By Association Action

      The Association may, pursuant to the procedures set forth in the NASD Code of Procedure, suspend, condition, limit, prohibit or terminate a market maker's authority to enter quotations in one or more authorized securities for violations of the applicable requirements or prohibitions contained in this Schedule.

      Sec. 10. Termination of NASDAQ Service

      The Association may, upon notice, terminate NASDAQ service in the event that a market maker fails to qualify under specified standards of eligibility or fails to pay promptly for services rendered by the NASDAQ System.

      PART VII

      CONSOLIDATED QUOTATIONS SERVICE (CQS)

      Sec. 1. Registration as a CQS Market Maker

      (a) Quotations and quotation sizes in reported securities may be entered into the Consolidated Quotations Service (CQS) through the NASDAQ System only by an NASD member registered with the Association as a CQS market maker.
      (b) An NASD member seeking registration as a CQS market maker shall file an application with the Association. The application shall certify the member's good standing with the Association and shall demonstrate compliance with the net capital and other financial responsibility provisions of the Securities Exchange Act of 1934. A member's registration as a CQS market maker shall become effective upon receipt by the member of the notice of approval of registration from the Association.
      (c) A CQS market maker may become registered in a reported security by entering a registration request via a NASDAQ terminal. Registration shall become effective at the time the registration request is entered.
      (d) An NASD member that becomes registered as a CQS market maker in an issue shall enter quotations in the issue on the effective date of the issue's authorization. If quotations are not entered on the effective date of authorization and the CQS market maker remains inactive in the issue for five business days, the CQS market maker's registration in the issue will be terminated.

      Sec. 2. Obligations of CQS Market Makers

      Pursuant to SEC Rule HAcl-1, a CQS market maker's quotations in reported securities are required to be firm for the size displayed or, if no size is displayed, for a normal unit of trading. If a market maker displays quotations in both CQS and the NASDAQ System, the market maker shall maintain identical quotations in each service.

      Sec. 3. Normal Business Hours

      A CQS market maker shall be open for business as of 9:30 a.m. Eastern Time and shall close no earlier than 4 p.m. Eastern Time. A CQS market maker shall designate a closing time for each security between 4 p.m. and 6:30 p.m. Eastern Time. A designated closing time may be set only on the hour or half hour. A CQS market maker whose market is closed may re-open its market as late as 6:30 p.m. Eastern Time upon appropriate notification to the Association.

      Sec. 4. Withdrawal of Quotations

      (a) A CQS market maker that wishes to withdraw quotations in a reported security shall contact NASDAQ Operations-Members to obtain excused withdrawal status prior to withdrawing its quotations.
      (b) Excused withdrawal status based on illness, vacations or physical circumstances beyond the CQS market maker's control may be granted for up to five business days, unless extended by NASDAQ Operations-Members. Excused withdrawal status based on investment banking activity or advice of legal counsel, accompanied by a representation that the condition necessitating the withdrawal of quotations is not permanent in nature, may be granted for not more than 60 days. The withdrawal of quotations because of pending news, a sudden influx of orders or price changes, or to effect transactions with competitors shall not normally constitute acceptable reasons for granting excused withdrawal status.

      Sec. 5. Voluntary Termination of Registration

      A CQS market maker may voluntarily terminate its registration in an reported security by withdrawing its quotations from the NASDAQ System. A CQS market maker that voluntarily terminates its registration in a reported security may not, however, re-register as a CQS market maker in that security for two days.

      Sec. 6. Suspension and Termination of Quotations by Association Action

      The Association may, pursuant to the procedures set forth in the NASD Code of Procedure, suspend, condition, limit, prohibit or terminate a CQS market maker's authority to enter quotations in a reported security for violations of the applicable requirements or prohibitions of this Schedule.

      parts VIII - XIII

      No change.

      National Association of Securities Dealers,-Inc.
      1735 K Street, N.W.
      Washington, D.C. 20006
      (202) 728-8000

      M E M O R A N D U M

      TO: District Directors
      Department Heads
      Selected Staff

      FROM: Raymond W. Cocchi

      DATE: September 3, 1986

      RE: Blue-Sky Exemption for NASDAQ/NMS

      The attached brochure was designed to encourage state legislators to sponsor and support legislation to exempt NASAQ/NMS securities from their blue-sky laws.

      During the 1987 legislation session, corrective legislation will be sought in a number of the following states:

      Alabama

      North Carolina

      Alaska

      North Dakota

      Arizona

      Oklahoma

      Arkansas

      South Carolina

      California

      South Dakota

      Idaho

      Tennessee

      Iowa

      Texas

      Massachusetts

      Vermont

      Michigan

      Virginia

      Minnesota

      Washington

      Mississippi

      West Virginia

      Nebraska

      Wisconsin

      New Mexico

      Wyoming

      If you or members of your staff are acquainted with any state legislators or other elected officials in any of these states who you feel may wish to assist us, please call me at (202) 728-8370.

      * * * * *

      Attachment

      Attachment II

      Schedule D

      Introduction

      This schedule has been prepared pursuant to Article VII, Section l(a)(6) of the Corporation's By-Laws and is applicable to the nationwide automated quotations system, which is operated under the direction and control of the Corporation, known as the NASDAQ System, and also is applied to the publication in newspapers or other media of quotations in NASDAQ securities and over-the-counter quotations for securities not in NASDAQ. The operating agreement preserves the Corporation's proprietary rights in the quotations handled by the System, and retains for the Corporation the power to decide who may obtain access to System services and data, what securities may be quoted on the System, and the charges to be collected by the operator for System services and data.

      This schedule contains (a) the qualifications for registered market makers and other subscribers for System services; (b) the standards for authorized securities; (c) the schedule of charges for System services; (d) the procedures for hearing and disposition of grievances and complaints arising out of the administration and operation of the NASDAQ System; and (e) the standards governing the publication of quotations in newspapers for national and local quotations lists of NASDAQ and other over-the-counter issues.

      I

      QUALIFICATIONS OF USERS OF SERVICES

      A. Level 1 Service

      1. Nature of Service. This service will provide the subscriber with the highest bid and the lowest ask quotation for each authorized security for which a minimum of two registered market makers are entering quotations during the day. Provided, however, that in the case of a locked or crossed market, only the highest bid will be displayed.
      2. Availability. The service is available only through independent firms authorized by the Corporation to obtain access to the data from the NASDAQ System for distribution to others. The subscriber must agree with the Corporation that the quotations data received through such service will not be used for illegal purposes nor will access thereto be granted on a continuous basis to any person not approved by the Corporation, and the independent distributor must obtain authorization in writing from the Corporation to serve the subscriber.

      B. Level 2 Service

      1. Nature of Service. This service will provide the subscriber with access to the bid/ask quotations and quotation sizes of all of the registered market makers entering quotes on each of the authorized securities.
      2. Availability. The service is available only to persons approved by the Corporation.
      [Section B. 1. amended effective June 16, 1981.]

      C. Level 3 Service

      1. Nature of Service. This service will enable the registered market maker to enter bid/ask quotations and quotation sizes into the System only on the securities as to which the Corporation has authorized it to enter quotes. Subscribers to Level 3 service shall also receive Level 2 service.
      2. Availability. Level 3 service is available to any member which, upon application, is authorized by the Corporation to participate in the NASDAQ System as a registered market maker.
      3. Continuing Qualifications.
      a) Character of quotations entered into the System.
      i) A registered market maker which receives a buy or sell order must execute a trade for at least a normal unit of trading at his quotations as they appear on NASDAQ CRT screens at the time of receipt of any such buy or sell order. If a registered market maker displays a quotation which indicates that it is for a size greater than a normal unit of trading, he must execute a buy or sell order up to the size displayed.
      ii) Each quotation entered or maintained by a registered market maker must be reasonably related to the prevailing market. Should it appear to the Corporation that a market maker's quotations are no longer reasonably related to the prevailing market, the Corporation may require the market maker to re-enter its quotations.
      iii) Locked and crossed markets. A registered market maker shall not be permitted, except under extraordinary circumstances, to enter quotations into the NASDAQ System during normal business hours if (1) the bid quotation entered is equal to or greater than the ask quotation of another registered market maker entering quotations in the same security or (2) the ask quotation is equal to or less than the bid quotation of another registered market maker in the same security. A market maker has an obligation, prior to entering a quotation which locks or crosses another quotation, to make reasonable efforts to avoid such locked or crossed market by executing transactions with all market makers whose quotations would be locked or crossed.
      [Redesignated subparagraph (a) May 17, 1976; amended effective May 19, 1982; June 2, 1982.]
      b) Stabilising Bids in the System.
      i) Eligibility—Stabilizing bids may be entered by a registered market maker for display on Level 2 or Level 3 terminals. Only one market maker in an issue may appear on the System as the stabilizing market maker. Stabilizing bids will not be displayed unless one market maker in addition to the market maker entering the stabilization bid is registered in the issue.
      ii) Character—The stabilizing bid may not be qualified by legend or delivery restrictions. A penalty stipulation may accompany the stabilizing bid provided the penalty stipulation is applicable to selling concessions only.
      iii) Notice to Corporation—A market maker which de^ sires to be designated as stabilizing underwriter must notify the Corporation by 5:00 P. M. E. T. on the business day prior to the day when the stabilized bid is to appear on the System.
      iv) Dual bids in the same issue—A market maker shall not be permitted to register as a stabilizing market maker at the same time he is quoting a regular two-sided market in the issue. Therefore a market maker which desires to enter the stabilizing bid must withdraw its regular quotation from the System no later than 5 :00 P.M. on the business day prior to his desired display of the stabilizing bid on the System.
      v) Volume Reporting—The market maker entering a stabilizing bid is required to report all purchases made on the stabilized bid in the stabilized issue and to enter "0" (zero) volume for sales during the period in which such bid is in effect. If the stabilized bid is withdrawn during the day volume should be reported in the usual manner.
      [Section C. 1. amended effective June 16, 1981; Section C. 3. b amended effective October 1, 1971; May 1. 1973 and August 1, 1973; redesignated subparagraph (b) May 17, 1976; amended effective March 21, 1977; amended effective June 16, 1981.]
      c) Reports.
      i) Daily—The registered market maker shall report to the System each business day its daily volume reports relating to securities in which it is a registered market maker in the System or in which it is a market maker entering a stabilizing bid in the manner and method the Association prescribes. The registered market maker shall also report to the System each business day all other data relating to securities quoted in the System as the Association shall require.
      ii) Monthly. A registered market maker shall report monthly to the System such data on securities quoted in the System as the Board of Governors shall require.
      [Subparagraph (d)(i) amended effective March 14, 1972; October 1, 1972 and August 1, 1973; redesignated subparagraph (c) May 17, 1976.]
      d) Normal business hours. The registered market maker shall keep the Corporation advised as to the normal business hours (Eastern time) during which it shall enter quotes. All firms shall be open and active as of 9:30 a.m. Eastern time and no market maker shall close sooner than 4:00 p.m. Eastern time. Firms may close their hours of trading only on either the hour or the half hour. The System shall publish a "closed symbol" for the registered market maker on Level 2 and 3 terminals when the System is operating outside such normal business hours. However, the registered market maker will be able to enter quotes outside such normal business hours, providing the System is operating, by appropriate notification to the operator of the NASDAQ System of the desire to enter quotes.
      [Subparagraph (e) amended effective October 1, 1974; redesignated subparagraph (d) May 17. 19.76: amended effective October 9, 1985.]
      e) Clearance and Settlement—A registered market maker located in an area where clearing facilities are available (as determined by the Board of Governors) shall clear and settle transactions in all NASDAQ securities through the facilities of a registered clearing agency. Transactions may, however, be settled "ex-clearing" upon agreement of both parties to the transaction.

      • • • Explanation of the Board of Governors

      The Board of Governors has determined that, for purposes of this rule, clearing facilities are available if located within 25 miles of a market maker. Notwithstanding its proximity to a particular clearing facility, a market maker may clear its transactions through any registered clearing facility with continuous net settlement: enter into a correspondent clearing arrangement with a member which clears through a continuous net settlement clearing facility: or use direct mail settlement.

      [Subparagraph (e) added effective April. 1982.]

      4. Initiating Service.
      a) If accepted for registration, and the market maker's terminal is timely installed, the market maker's registration shall be effective at the start of business on the second business day following receipt of his application by the Corporation. Otherwise the market maker's registration shall be effective at the start of business on the second business day following installation of the terminal.
      b) A member participating in an underwriting syndicate may apply for registration as a market maker in the security prior to the close of the syndicate provided that its authorization to enter quotes thereon will not become effective until the security is authorized for quotation by the Corporation and the member is free to quote under applicable rules and regulations, and under the terms of the syndicate agreement.
      c) A member who is not participating in an underwriting syndicate but who intends to make a market in the security being marketed by the syndicate as soon as it is free to be traded in the open market may apply for registration as a market maker in the security prior to the time the security may be publicly offered, provided that its authorization to enter quotes thereon will not become effective until the security is authorized for quotation by the Corporation and the member is free to quote under applicable rules and regulations.

      A market maker's initial registration in a security not previously authorized may become immediately effective if a request for registration is received by the Corporation within five business days of authorization of the security.

      5. Withdrawal Procedure.
      a) With the approval of the Corporation, upon a showing that it is seriously impaired in its ability to enter quotes, the registered market maker may suspend its quotes for a specified period of time in the case of contemplated financing in the security, the presence of statutory prohibitions or restrictions, or such other reason acceptable to the Corporation.
      b) A market maker who withdraws and then re-enters quotations during the day may do so only with the prior approval of the Corporation.
      c) A market maker whose quotation in an issue is withdrawn without the approval of the Corporation at the time the NASDAQ System closes for the day shall cause his registration in such issue to be terminated subject, however, to the re-registration procedure set forth in paragraph 5 d) below.
      d) The market maker may by making application to the Corporation under the procedures and requirements set forth in Schedule D re-register as a market maker in any security in which his registration is terminated pursuant to paragraph 5 c) above.
      6. Voluntary Termination. A registered market maker may voluntarily terminate its registration as to a given security by withdrawing its quotations from the System.
      7. Suspension and Termination of Quotations by Action of the Corporation.
      The Corporation may. pursuant to the procedures set out in the Code of Procedure, suspend, condition, limit, prohibit, or terminate the registered market maker's authority to enter quotes on one or more authorized securities for violations of the applicable standards of this Schedule "D".
      [Subparagraph C amended effective November 20, 1972; May 17, 1976; December 22, 1980.]

      D. Termination of Service and Failure to Promptly Pay Fines Assessed by the Trading Committee.

      1. The Corporation, upon notice, may terminate service on any level for failure of the subscriber (1) to qualify under the standards of availability specified above for such service or (2) to pay the System operator for services rendered.
      2. Any member which is a respondent in a complaint of the Trading Committee pursuant to this Schedule is required to promptly pay any fine or cost imposed by the Trading Committee to the Treasurer of the Corporation. In the event that the respondent fails to do so the Trading Committee may, after ten (10) business days notice in writing to such respondent, suspend his authority to enter quotes into or receive quotes from Levels 2 and 3 of the NASDAQ System. Or, the Committee may impose any other fitting penalties authorized by Part VII of this Schedule pursuant to the complaint procedures authorized therein.
      [Subparagraph D amended effective August 1, 1973.]

      II

      QUALIFICATIONS FOR AUTHORIZED SECURITIES

      A. Introduction

      Paragraphs B.I and C.I define an eligible pool of securities which may be authorized for NASDAQ. Generally, this pool contains any security which is registered under the Exchange Act.* This means securities listed on national securities exchanges and a variety of over-the-counter stocks, warrants, rights and convertibles (which the Act defines as "equity" securities), and bank securities (registered not with the SEC but with the Federal Reserve System, FDIC, or the Comptroller). Beyond these registered securities, also included in the pool are certain insurance company and investment company securities, plus foreign securities and ADRs where specified information is available in the United States. And, finally, under paragraph B.2, a new domestic issue may go into the pool immediately upon its registration being declared effective by the Securities and Exchange Commission, in which case it shall be eligible to be an authorized security on the same day that its registration is declared effective.

      Securities from the eligible pool will be authorized if certain other criteria—set out in paragraphs B.3 or C.3 of the Rules—are met. Generally, there will have to be at least two market makers for domestic securities or three market makers for foreign securities and American Depositary Receipts, public distribution of at least 100,000 shares, a minimum capital and surplus of $1,000,000, and compliance with certain disclosure standards. In the case of foreign securities, the number of shares publicly held in the United States is generally not available. Therefore, foreign securities or American Depositary Reteipts, providing they satisfy those standards set forth in Section C, will first receive a provisional authorization for a period of 90 calendar days. If the average daily volume reported by market makers during the 90-day provisional period is less than 500 shares per day, the authorization will be suspended. A foreign security or American Depositary Receipt so suspended will not be reconsidered for authorization for at least 90 days following the suspension. For suspension of authorization the same disclosure and public distribution criteria as for initial authorization apply, plus $750,000-assets, and $375,000-capital-and-surplus tests. Depending on the circumstances of each case the Corporation may make exceptions from these criteria or apply additional or more stringent criteria.

      In the main the Rules can be administered on the basis of reports already filed publicly by the issuers. Hence, whenever it shall appear to the Corporation that a security is eligible to be an authorized security under paragraphs B.I, B.2 or C.I, and that none of the conditions of paragraphs B.3 or C.2 applies, the Corporation will simply declare that the security is an authorized security.
      [Subparagraph A amended effective June 1, 1974 and December 17, 1974; May 17, 1976.]

      B. Rules for Authorized Domestic Securities*

      1. A security shall be eligible to be an authorized security if it is:
      a. registered under section 12(g)(l) of the Securities Exchange Act,
      b. registered on a national securities exchange in accordance with the requirements of Section 12(b) of the Securities Exchange Act..
      c. issued by an insurance company meeting the conditions of section 12(g)(2)(G) of the Securities Exchange Act,
      d. issued by an investment company registered under the Investment Company Act of 1940, provided that the issuer or underwriter of, or any dealer in, the security is not currently engaged in a distribution of such security which subjects such issuer, underwriter, or dealer to the provisions of Section 22(d) of that Act, and provided further that transactions in such shares, other than redemptions or repurchases by or on behalf of the issuer, are exempted from or not subject to Rule 22c-l adopted under the Act.
      [Section B. 1. d. amended effective May 17, 1976.]
      2.
      a. A new issue shall be eligible to be an authorized security on the day that its registration statement is effective with the Securities and Exchange Commission provided that, as a result of the offering, all applicable criteria contained in paragraph 3 below are met. An authorization under this paragraph 2.a. shall automatically terminate 120 days after the last day of the issuer's fiscal year during which, the registration statement became effective.
      [Section B. 2. amended effective August 1, 1973, September 11, 1981.]
      b. A new issue for which a registration statement is not required to be filed with the Securities and Exchange Commission under Section 3(a) of the Securities Act of 1933 shall be eligible to be an authorized security upon effectiveness of its registration statement or equivalent document filed with the appropriate regulatory authority provided that, as a result of the offering, all applicable criteria contained in paragraph 3, below are met. An authorization under this paragraph 2.b. shall automatically terminate 120 days after the effective date of the offering.
      [B.2.b. adopted September 11, 1981.]
      3. An eligible security shall not be authorized, and an authorized security shall be subject to suspension or termination of authorization, if:
      a. it shall have been suspended from being traded over-the-counter by the Securities and Exchange Commission pursuant to section 12(k) of the Securities Exchange Act;
      b. there shall have been a failure by the issuer promptly to disclose to the public through the press any material information which may affect the value of its securities or influence investors' decisions;
      c. there shall have been a failure to file with the Corporation three copies of the issuer's annual and quarterly reports required to be filed with the Securities and Exchange Commission. An issuer which is not required to file an annual or quarterly report with the Securities and Exchange Commission must file with the Corporation three copies of its annual and quarterly reports required to be filed with the appropriate regulatory authority. Such reports shall be filed with the Corporation on the date they are required to be filed with the Securities and Exchange Commission or the appropriate regulatory authority.
      [Section B. 3. c. added effective December 17, 1974; amended December 29. 1977; amended effective December 23. 1985.]
      d. there shall have been a failure by the issuer to certify, at the time of authorization, that it is in compliance with all criteria for authorization.
      [Section B. 3. d. added effective December 17, 1974.]
      e. there shall have been a failure to comply with any obligation of any person regarding filing or disclosure of information material to the issuer or the security, whether the obligation arises under a federal or state statute or rule and the Corporation shall determine that the public interest requires suspension;
      f. there shall have been a failure by the issuer to pay the NASDAQ Issuer Quotation Fee as specified in Part V hereof;
      [Section B. 3. f. added effective June 1, 1974.]
      g. In the case of a security not yet authorized, there shall be fewer than two market makers registered, one of which may be a market maker entering a stabilizing bid; in the case of an authorized security there shall be fewer than one market maker registered.
      [Section B. 3. g. amended effective August 1, 1973 ; May 17, 1976.]
      h. In a case of stock, the total number of shares publicly held shall be less than 100,000 (shares held directly or indirectly by any officer or director of the issuer and by any person who is the beneficial owner of more than 10% of the class shall ordinarily not be considered as being publicly held) ; in the case of rights or warrants, the total number of rights or warrants issued shall be less than 100,000 and in the case of American Depositary Receipts, the number of American Depositary Receipts registered with the Securities and Exchange Commission shall be less than 100,000. Provided, however, that the number of rights, warrants or rican Depositary Receipts shall be considered only in conjunction with initial authorization ;
      [Section B. 3. h. amended effective August 28, 1981 : amended effective February 28. 1985.]
      i. the principal amount outstanding shall be less than $10,-000,000 in the case of a convertible debt security eligible but not yet authorized or $5,000,000 in the case of an authorized convertible debt security;
      [Section B. 3. i. amended effective August 1, 1973.]
      j. the issuer's total assets shall be less than $2,000,000 in the case of an eligible security not yet authorized or $750,000 in the case of an authorized security.
      [Section B. 3. j. amended effective December 17, 1974 and August 24, 1981.]
      k. the issuer's total capital and surplus shall be less than $1,000,000 in the case of an eligible security not yet authorized or $375,000 in the case of an authorized security. [Section B. 3. k. amended effective August 24, 1981.]
      l. the number of persons holding the security shall total less than 300 except in the case of rights, warrants or units. An account of a member of the Corporation which is beneficially owned by a customer (as defined in Article II, Section l(f) of the Rules of Fair Practice) shall be included as a holder of such security upon appropriate verification by the member.
      m. in the case of rights or warrants, the underlying security is not an authorized security or listed on a registered national securities exchange or
      [Section B. 3. m. amended as of Tuly 7. 1971, December 17, 1974 and August 28, 1981.]
      n. in the case of units not yet authorized, one of the component parts of the unit fails to comply with the requirements for eligible securities not yet authorized; in the case of units already authorized, one of the component parts of the unit fails to comply with the requirements for authorized securities.
      [Section B. 3. n. amended December 17. 1974 and August 28, 1981.]

      C. Rules for Authorized Foreign Securities and American Depositary-Receipts

      1. A security shall be eligible to be an authorized security if it is:
      a. issued by a foreign issuer where either the issuer is required to file reports pursuant to section 15 (d) of the Securities Exchange Act or the security is exempt from registration under section 12(g) of that Act by reason of the applicability of rule 12g3-2(b) promulgated by the Securities and Exchange Commission, or
      b. an American Depositary Receipt or similar security issued in respect of a security authorized under subdivision (a) of this paragraph 1.
      2. Notwithstanding a security's exemption from registration pursuant to Rule 12g3-2(b). a security of a foreign issuer (or an ADR or similar security issued with respect thereto) shall not be eligible to be an authorized security:
      a. if the issuer of such security, and in the case of ADR's the issuer of the security underlying the ADR, does not timely make available to its shareholders one copy, and. upon application for authorization and annually thereafter, the Corporation does not receive three copies of a balance sheet and statement of operations independently certified (or the equivalent) in accordance with the generally accepted accounting practices of the issuer's country of domicile ; or
      b. if the principal marketplace of the issuer's securities does not coordinate regulatory activities with the Corporation sufficiently to assure a fair and orderly market in the security and protection of investors and the public interest.
      3. An eligible security shall not be authorized, and an authorized security shall be subject to suspension or termination of authorization, if:
      a. at any time there is a failure to comply with the eligibility standards set forth in paragraphs 1 and 2 above;
      b. it shall have been suspended from being traded over-the-counter by the Securities and Exchange Commission pursuant to Section 12(k) of the Securities Exchange Act and the Corporation shall determine that the public interest requires suspension or termination of authorization as an authorized security;
      c. there shall have been a failure by the issuer promptly to disclose to the public by attempts to disseminate in the United States through international wire service? or similar disclosure media any material information which may affect the value of its securities or influence investors' decisions :
      d. there shall have been a failure to comply with any obligation of any person regarding filing or disclosure of information material to the issuer or the security, whether the obligation arises under a federal or state statute or rule and the Corporation shall determine that the public interest requires suspension;
      e. there shall have been a failure by the issuer to pay the NASDAQ Issuer Quotation Fee as specified in Part V hereof;
      f. in the case of a security not yet authorized, there shall be fewer than three market makers registered: in the case of an authorized security there shall be fewer than one market maker registered;
      g. in the case of an authorized security, the average daily volume reported by market makers during the first 90 calendar days after authorization is less than 500 shares per day;
      h. the principal amount outstanding shall be less than $10,000,000 in the case of a convertible debt security eligible but not authorized or $5,000,000 in the case of an authorized convertible debt security :
      i. the issuer's total assets shall be less than $2,000,000 in the case of an eligible security not yet authorized or $750,000 in the case of an authorized security;
      j. the issuer's total capital and surplus shall be less than $1,000,000 in the case of an eligible security not yet authorized or $375,000 in the case of an authorized security;
      k. in the case of rights or warrants, the underlying security is not an authorized security.
      [Section C. 2 amended effective January 27, 1983; Section C. 3 added effective Tanuary 27. 1983 ; amended effective December 23. 1985.]

      • • • Selected NASD Notices to Members

      83-19

      Approval of Revisions to Qualification Requirements of Foreign Issues on NASDAQ

       

      (April 27, 1983)

      D. Suspension or Termination of Authorization of a Security and Exceptions to Authorization Criteria

      1.
      a. In particular instances where the Corporation finds it appropriate to prevent fraudulent and manipulative acts and practices ; to promote just and equitable principles of trade ; or to protect investors or the public interest: (i) the Corporation may suspend or terminate the authorization of an otherwise authorized security or (ii) the Corporation may apply additional or more stringent criteria for the authorization of particular securities.
      1.
      b. A finding or findings, as proscribed in (l)(a), above, shall be made by the Corporation prior to the suspension or termination of an otherwise authorized security, or the application of more stringent criteria.
      2. Should the Corporation determine that the authorization of a security shall be suspended or terminated because of its noncompliance with the provisions of Sections B or C, or by the operation of paragraph D.I., it shall so notify the issuer prior to suspension or termination or as soon as practicable thereafter.
      3. The Corporation may make exceptions to the application of the criteria contained in Sections B or C where it deems it appropriate.
      4. A security which has been suspended shall be required, prior to reinclusion, to comply with the requirements for securities already authorized. A security which has been terminated shall be required, prior to reinclusion, to comply with the requirements of a security which has never been authorized.
      5. In the case of any merger or consolidation involving at least one issuer of authorized securities, the securities issued to carry out the merger or consolidation may be promptly authorized if the conditions of paragraphs B.3 or C.2 for securities which have already been authorized shall have been met.

      • • • Selected NASD Notice to Members

      85-20

      Solicitation of Comments on Proposed Corporate Governance Requirements for NASDAQ National Market System Companies

       

      (March 28, 1985)

      85-48

      Qualification and Registration Requirements of Schedule C of the Bv-Laws

       

      (July 17, 1985)

      85-49

      Solicitation of Comments on Shareholder Voting Rights for NASDAQ National Market System Companies

       

      (July 19, 1985)

      85-72

      Trade Reporting Rule Changes for NASDAQ Equity Audit Trail—Phase IT.

       

      (October 30, 1985)

      E. Use e System on a Test Basis

      Notwithstanding the eligibility standards set forth in Part II of Schedule D, the Board of Governors may at any time and from time to time authorize the use of the system on a test basis for whatever studies it considers necessary and appropriate.
      [Subparagraph "E" added effective March 29, 1971.]

      NOTIFICATION TO NASD OF NEWS RELEASES

      Schedule D requires NASDAQ companies to disclose promptly to the public through the press any material information which may affect the value of their securities or influence investors' decisions. The Board of Governors recommends that NASDAQ companies notify the NASD of the release of any such information no later than simultaneously with its release to the public through the press. Notification may be provided directly to the NASD Market Surveillance Department by telephone (call 202 728-8204). Information communicated orally should be confirmed promptly in writing. Where public release of information occurs after 5 :30 p.m. Eastern Time, notification should be made by 9:30 a.m. of the following trading day.

      The purpose of this recommendation is to assist in maintaining a stable and orderly market for NASDAQ securities. One of the methods used by the NASD to accomplish such is the institution of NASDAQ quotation halts. A quotations halt benefits current and potential shareholders by halting the display of quotations through the NASDAQ System until there has been an opportunity for the information to be disseminated to the public. This decreases the possibility of some investors acting on information known to them but which is not known to others. A quotations halt normally lasts about one to two hours after the appearance of the news on wire services, but it may last longer if a determination is made that the news has not been adequately disseminated. A quotations halt provides the public with an opportunity to evaluate the information and consider it in making investment decisions. It also alerts the marketplace to the fact that news has been released.

      Upon receipt of the information from the company, the NASD, after consultation with the company, will immediately evaluate the information, estimate its potential impact on the market and determine whether a quotations halt in the security is appropriate.

      Material information which might reasonably be expected to affect the value of the securities of a company or influence investors' decisions would include information regarding corporate events of an unusual and/or non-recurrent nature. The following list of events, while not an exhaustive summary of all situations in which disclosure to the NASD should be considered, may be helpful in determining whether information is material. It should also be noted that every development that might be reported to the NASD in these areas would not necessarily be deemed to warrant a quotations halt.

      • a merger, acquisition or joint venture ;
      • a stock split or stock dividend;
      • earnings and dividends of an unusual nature :
      • the acquisition or loss of a significant contract:
      • a significant new product or discovery ;
      • a change in control or a significant change in management;
      • a call of securities for redemption :
      • the public or private sale of a significant amount of additional securities ;
      • the purchase or sale of a significant asset;
      • a significant change in capital investment plans ;
      • a significant labor dispute ;
      • establishment of a program to make purchases of the company's own shares;
      • a tender offer for another company's securities ; and
      • an event requiring the filing of a current report under the Securities Exchange Act.

      • • • Selected NASD Notice to Members

      86-13

      Request for Comments on Proposed Amendment to Schedule D of the NASD By-Laws to Authorize Trading Halts in NASDAQ Securities and Listed Securities Traded Over-the-Counter

       

      (February 21, 1986)

      III

      CONSOLIDATED QUOTATIONS SERVICE

      A. Description of Service

      The Consolidated Quotations Service (CQS) provides the subscriber with access to bid/ask quotations and quotation sizes for securities listed on national stock exchanges. The CQS includes all common stocks, preferred stocks, warrants and rights registered or admitted to unlisted trading privileges on the American Stock Exchange, and the New York Stock Exchange and certain securities listed on the regional stock exchanges. The Subscriber will have access to quotations and quotation sizes in such securities from all registered CQS Third Market Makers and the American, Boston. Midwest. New York. Pacific and Philadelphia Stock Exchanges. Quotations are required by SEC Rule HAcl-1 to be firm for the displayed size or if no size is displayed for a normal unit of trading.

      The CQS will operate between 9:00 a.m. and 6:30 p.m. Eastern Time. All quotations for marketplaces that are open will be listed according to the best bid quotation or the best ask quotation following the quotations of the open marketplaces. If a stock exchange suspends trading in a security, a "HALT" notation will be displayed along with the last quotation. During any such suspension, quotations from marketplaces remaining open will continue to be displayed.

      B. Definitions

      (1) Third Market Maker—Any broker or dealer who holds himself out as being willing to buy and sell a reported security for his own account on a regular and continuous basis otherwise than on a national securities exchange in amounts of less than block size (including any such broker or dealer who also represents, as agent, orders to buy or sell reported securities on behalf of any other person and communicates bids and offers to the Corporation on behalf of such other persons as well as for his own account).
      (2) Reported Security—Any equity security as to which last sale information is reported in the consolidated transaction reporting system (Consolidated Tape).

      C. Initiating Service

      Every Third Market Maker shall communicate to the Corporation through the NASDAQ System his bids, offers and quotation sizes in reported securities by registering with the Corporation as a Third Market Maker. If accepted for registration, and a terminal is in place, a Third Market Maker's registration shall be effective at the start of business on the second business day following receipt of its application by the Corporation. Otherwise registration shall be effective at the. start of business on the second business day following installation of the terminal.

      D. Obligations of Third Market Makers

      The rules and regulations with respect to the obligations of Third Market Makers in reported securities are contained in SEC Rule llAcl-1 which is hereby incorporated as part of this Schedule D.

      E. Business Hours

      A registered Third Market Maker shall be open and active as of 10:00 a.m. Eastern Time and no Third Market Maker shall close sooner than 4:00 p.m. Eastern Time. A registered Third Market Maker shall designate a closing time for each security from 4:00 p.m. to 6:30 p.m. Eastern Time, and the closed symbol will be appended to the quotation at the designated time. The designated closing time may only be on the hour or the half hour. A registered Third Market Maker may reopen its market in a security up to 6:30 p.m. Eastern Time upon appropriate notification to the Corporation.

      F. Withdrawal Procedure

      1. With the approval of the Corporation upon a showing that it is seriously impaired in its ability to enter quotations, a registered Third Market Maker may suspend its quotations for a specified period of time in the case of contemplated financing in the security, the presence of statutory prohibitions or restrictions, or such other reason acceptable to the Corporation.
      2. A Third Market Maker who withdraws and then reenters quotations during the day may do so only with the prior approval of the Corporation.
      3. A Third Market Maker whose quotations in an issue are withdrawn without the approval of the Corporation at the time CQS closed for the day shall cause its registration in such issue to be terminated subject, however, to re-registration.
      4. A Third Market Maker may, by making application to the Corporation, pursuant to paragraph B re-register as a market maker in any security in which its registration is terminated pursuant to subparagraph 3. above.

      G. Voluntary Termination

      A registered Third Market Maker may voluntarily terminate its registration as to a given security by withdrawing its quotations from the System.

      H. Suspension and Termination of Quotations by Action of the Corporation

      The Corporation may, pursuant to the procedures set out in the Code of Procedure, suspend, condition, limit, prohibit, or terminate a registered Third Market Maker's authority to enter quotations on one or more authorized securities for violations of the applicable standards of this Schedule D.

      [New Section III added effective January 19, 1977; prior Section III redesignated Section V; amended effective July 26, 1978.]

      IV

      NASDAQ INDEX OPTIONS

      Section 1

      Definitions

      (a) NASDAQ Index Option Contract—The term "NASDAQ index option contract" means an option contract which is authorized for quotation display on the NASDAQ System.
      (b) Best Bid and Asked—The term "best bid" means the best or highest price of all the open, active bids. The term "best asked" means the best or lowest (but greater than zero) price of all the open active askeds.
      (c) Unit of Trading—The term "unit of trading" means the number of units of the underlying security designated by The Options Clearing Corporation as the subject of a single option contract. In the absence of any other designation, the unit of trading for a common stock is 100 shares.
      (d) Registered NASDAQ Index Options Market Maker—The term "registered NASDAQ index options market maker" means a member who meets the qualifications for such as set forth in Section 3 hereof, is willing and able to serve as such in connection with NASDAQ index option contracts and who is authorized by the Corporation to do so.
      (e) Options Clearing Corporation—The term "Options Clearing Corporation" means The Options Clearing Corporation, the issuer of options displayed on NASDAQ.
      (f) Rules of The Options Clearing Corporation—The term "rules of The Options Clearing Corporation" means the By-laws and the rules of The Options Clearing Corporation, and all written interpretations thereof as may be in effect from time to time.
      (g) Clearing Member—-The term "clearing member" means a member of the Corporation which has been admitted to membership in The Options Clearing Corporation pursuant to the provisions of the rules of The Options Clearing Corporation.
      (h) Put—The term "put" means an option contract under which the holder of the option has the right, in accordance with the terms of the option, to sell the number of units of the underlying security or deliver a dollar equivalent of the underlying index covered by the option contract.
      (i) Call—The term "call" means an option contract under which the holder of the options has the right, in accordance with the terms of the-option, to buy a number of units of the underlying security or to receive a dollar equivalent of the underlying index covered by the option contract.
      (j) Class of Options—The term "class of options" means all option contracts of the same type of option covering the same underlying security or index.
      (k) Type of Options—The term "type of options" means the classification of an option contract as either a put or a call.
      (l) Expiration Month—The term "expiration month" in respect of an option contract means the month and year in which such option contract expires.
      (m) Expiration Cycle—The term "expiration cycle" means all option contracts covering the same underlying security or index having the same expiration month, or the time period during which such options are authorized for trading.
      (n) Series of Options—The term "series of options" means all option contracts of the same class of options having the same exercise price and expiration date and which cover the same number of units of the underlying security or index.
      (o) Underlying Index—The term "underlying index" means an index upon which a NASDAQ index option contract is based.
      (p) Index Group—The term "index group" means a group of securities, whose inclusion and relative representation in the group is determined by the inclusion and relative representation of their current market values in a widely disseminated securities index specified by the Corporation.
      (q) Index Underlying Security—The term "index underlying security" means any of the securities included in an index group underlying a class of NASDAQ index options.
      (r) NASDAQ Market Index Option—The term "NASDAQ market index option" means an option contract issued by The Options Clearing Corporation and displayed on the NASDAQ system based, upon an underlying index which has been deemed by the Securities and Exchange Commission to be a market index.
      (s) Current Index Value—The term "current index value" means the level of a particular index (derived from the current market prices and capitalization of the underlying securities in the index group) at the close of trading on any trading day, or any multiple or fraction thereof specified by the Corporation as such value is reported by the reporting authority.
      (t) Index Multiplier—The term "index multiplier" as used in reference to an index option contract means the dollar amount (as specified by the Corporation) by which the current index value is multiplied to arrive at the index dollar equivalent. Such term replaces the term "unit of trading" used in reference to other kinds of options.
      (u) Index Dollar Equivalent—The term "index dollar equivalent" is the dollar amount which results when the index value is multiplied by the appropriate index multiplier.
      (v) Aggregate Current Index Value—The term "aggregate current index value" means the value required to be delivered to the holder of a call or by the holder of a put (against payment of the aggregate exercise price) upon the valid exercise of an index option. Such value is equal to the index multiplier times the current index value on the trading day on which an exercise notice is properly tendered to The Options Clearing Corporation, or, if the day on which such notice is so tendered is not a trading day, then on the most recent trading day.
      (w) Index Option Exercise Price—The term "index option exercise price" in respect of an index option means the specified index value which, when multiplied by the index multiplier, will yield the aggregate exercise price at which the aggregate current index value may be purchased (in the case of a call) or sold (in the case of a put) upon the exercise of such option.
      (x) Aggregate Index Option Exercise Price—The term "aggregate index option exercise price" in respect of an index option means the exercise price of such option times the index multiplier.
      (y) Index Option Premium—The term "index option premium" means the price of each such option (expressed in points), as agreed upon by the purchaser and seller in such transaction, times the index multiplier and the number of options subject to the transaction.
      (z) NASDAQ Index Option Market Maker—The term "index option market maker" means a registered market maker in NASDAQ index options who is authorized to execute and lock-in orders received by the market maker via an Order Confirmation Transaction.
      (aa) Expiration Date—The term "expiration date" of a NASDAQ option contract issued by The Options Clearing Corporation means the day and time fixed by the rules of The Options Clearing Corporation for the expiration of all option contracts having the same expiration month as such option contract.
      (bb) Long Position—The term "long position" means the number of outstanding option contracts of a given series of options held by a person (purchaser).
      (cc) Short Position—The term "short position" means the number of outstanding option contracts of a given series of options with respect to which a person is obligated as a writer (seller).
      (dd) Opening Purchase Transaction—The term "opening purchase transaction" means an option transaction in which the buyer's intention is to create or increase a long position in the series of options involved in such transaction.
      (ee) Opening Writing Transaction—The term "opening writing transaction" means an option transaction in which the seller's (writer's) intention is to create or increase a short position in the series of options involved in such transaction.
      (ff) Closing Sale Transaction—The term "closing sale transaction" means an option transaction in which the seller's intention is to reduce or eliminate a long position in the series of options involved in such transaction.
      (gg) Closing Purchase Transaction—The term "closing purchase transaction" means an option transaction in which the purchaser's intention is to reduce or eliminate a short position in the series of options involved in such transaction.
      (hh) Covered—The term "covered" in respect of a short position in a call option contract means that the writer's obligation is secured by a "specific deposit" or an "escrow deposit", meeting the conditions of Rules 610(e) or 610(h), respectively, of the Rules of The Options Clearing Corporation, or the writer holds in the same account as the short position, on a unit-for-unit basis, a long position either in the underlying security or in an option contract of the same class of options where the exercise price of the option contract in such long position is equal to or less than the exercise price of the option contract in such short position. The term "covered" in respect of a short position in a put option contract means that the writer holds in the same account as the short position, on a unit-for-unit basis, a long position in an option contract of the same class of options having an exercise price equal to or greater than the exercise price of the option contract in such short position.
      (ii) Uncovered—The term "uncovered" in respect of a short position in an option contract means the short position is not covered.
      (jj) Outstanding—The term "outstanding" in respect of an option contract means an option contract which has neither been the subject of a closing sale transaction nor has been exercised nor has reached its expiration date.
      (kk) Spread Order—The term "spread order" means an order to buy a stated number of option contracts and to sell the same number of option contracts, or contracts representing the same number of shares or units of trading at option in a different series of the same class of options.
      (ll) Straddle Order-—The term "straddle order" means an order to buy a number of call option contracts and the same number of put option contracts with respect to the same underlying security or index, or put and call option contracts representing the same number of shares or units of trading at option, and having the same exercise price and expiration date; or an order to sell a number of call option contracts and the same number of put option contracts with respect to the same underlying security or index, or put and call option contracts representing the same number of shares or units of trading at option and havine the same exercise price and expiration date, (e.g., an order to buy two XYZ July 50 calls and to buy two XYZ July 50 puts is a straddle order). In the case of adjusted option contracts, a straddle order need not consist of the same number of put and call contracts if such contracts both represent the same number of shares, or units of trading at option.
      (mm) Combination Order—The term "combination order" means an order to buy a number of call option contracts and the same number of put option contracts with respect to the same underlying security or index or put and call option contracts representing the same number of shares or units of trading at option, which contracts do not have both the same exercise price and expiration date; or an order to sell a number of call option contracts and the same number of put option contracts with respect to the same underlying security or index, or put and call option contracts representing the same number of shares, or units of trading at option, which contracts do not have both the same exercise price and expirption date (e.g., an order to buy two XYZ April 50 calls and to buy two XYZ July 40 puts is a combination order). In the case of adjusted option contracts, a combination order need not consist of the same number of put and call contracts if such contracts represent the same number of shares or units of trading at option.
      (nn) NASDAQ Index Options Service—The term "NASDAQ Index Options Service" or "Service" means the Service owned and operated by NASD Market Services Inc. which enables participants to report transactions in NASDAQ index options, to have reports of all NASDAQ index options transactions automatically forwarded to the Options Price Reporting Authority ("OPRA") for dissemination to the public and the industry, and to "lock-in" these trades by sending both sides to The Options Clearing Corporation for clearance and settlement; and to provide participants with sufficient monitoring and updating capabilities to participate in such a trading environment.
      (oo) NASDAQ Index Options Participant—The term "participant" shall mean either a NASDAQ index options market maker or NASDAQ index options order entry firm registered as such with the Association for participation in the NASDAQ Index Options Service.
      (pp) NASDAQ Index Options Order Entry Firm—The term "order entry firm" shall mean a member of the Association who is registered as an order entry firm for purposes of participation in the NASDAQ Index Options Service which permits the firm to enter options orders via Order Confirmation Transaction ("OCT") or Internalized Trade Transaction ("ITT").
      (qq) NASDAQ Index Options Market Maker—The term "market maker" shall mean a member of the Association who is registered as a NASDAQ index options market maker and thus authorized to execute and lock-in orders received by the market maker via Order Confirmation Transaction.
      (rr) Order Confirmation Transaction—The term "Order Confirmation Transaction" or "OCT" means a message entered into the NASDAQ System by an order entry firm which is directed to a market maker not simultaneously acting; as both a market maker and an order entry firm, which message contains the information specified by the Corporation as necessary for trade reporting purposes and for submission of trade detail to The Options Clearing Corporation.
      (ss) Internalized Trade Transaction—The term "Internalized Trade Transaction" or "ITT" means an OCT entered into the NASDAQ system by a participant containing the terms of a transaction executed by the participant as principal where the participant is also the order entry firm.
      (tt) Cabinet Transaction—The term "cabinet transaction" means a transaction in a NASDAQ index option executed at a price of $1.00 per contract for the purpose of opening or closing a position in an index option having a nominal market value.

      Section 2

      NASDAQ Index Options Services Available

      (a) Level 2 NASDAQ Index Options Service
      (1) Nature of Service—This service will provide the subscriber with access to the quotations of all of the registered NASDAQ index options market makers entering quotes on each of the NASDAQ index options, in addition to the last reported sale for each NASDAQ index option, the most recent index computation for the underlying index, daily high and low, daily volume, time of last sale and inside quotations.
      (2) Availability—This service is available only to persons approved and authorized by the Corporation for retrieval of NASDAQ index options quotation and last sale data.
      (b) Level 3 NASDAQ Index Options Service
      (1) Nature of Service—This service will enable a registered NASDAQ index options market maker to enter quotations into the System only on the NASDAQ index options as to which the Corporation has authorized it to enter quotes pursuant to the procedures set forth in Section 3 hereof. A subscriber to Level 3 NASDAQ index options service shall also receive Level 2 NASDAQ Index Options Service.
      (2) Availability—Level 3 NASDAQ Index Options Service is available to any member which, upon application, is approved and authorized by the Corporation to participate in the NASDAQ System as a registered NASDAQ index options market maker.

      Section 3

      Registration, Qualification and Other General Requirements Applicable to All NASDAQ Index Options Market Makers

      (a) Registration of NASDAQ Index Options Market Makers—Prior to acting as a market maker in NASDAQ index options, a member must make application to the Corporation on a form prescribed by the Corporation and become registered as such with it. In connection with such application, a member must submit to the Corporation such financial and other information as required by the Corporation to determine if such member meets the qualifications of a registered NASDAQ index options market maker specified herein. Such other information will include those classes and series of NASDAQ options in which ' such member desires to be registered as an index options market maker.
      (b) Participation in the NASDAQ Index Options Service shall be manidatory for all NASDAQ index options market makers. Accordingly, a NASDAQ index options market maker's registration as such shall be conditioned upon the member's initial and continuing compliance with the following requirements:
      (1) Execution of a NASDAQ Index Options Service participant application agreement with the Corporation ;
      (2) maintenance of the physical security of the equipment located on the premises of the NASDAQ index options market maker to prevent the unauthorized entry of information into the NASDAQ Index Options Service;
      (3) acceptance and settlement of each NASD index option trade that the Service identifies as having been effected by such NASDAQ index options market maker, or if settlement is to be made through another clearing member, guarantee of the acceptance and settlement of such identified trade by the clearing member on the regularly scheduled settlement date:
      (4) membership in The Options Clearing Corporation, or a clearing arrangement with such member; and
      (5) compliance with all applicable rules and operating procedures of the Corporation and the Securities and Exchange Commission.
      (c) NASDAQ index options market makers shall be under a continuing obligation to inform the Corporation of non-compliance with any of the registration requirements set forth above.
      (d) Obligation to Honor Trades—If a NASDAQ index options market maker, or clearing member acting on his behalf, is reported by the Service to clearing at the close of any trading day, or shown by the activity reports generated by the Service as constituting a side of a trade, such market maker, or clearing member acting on his behalf, shall honor such trade on the scheduled settlement date.
      (e) Compliance with Rules and Registration Requirements—Failure by NASDAQ index options market makers to comply with any of the rules or registration requirements applicable to the Service identified herein shall subject such participants to censure, fine, suspension or revocation of its registration as NASDAQ index options market maker and/or order entry firm or any other fitting penalty under the Rules of Fair Practice of the Association.
      (f) Market Maker Financial Requirements—A registered NASDAQ index options market maker shall continuously maintain net capital of at least $50,000 computed in accordance with the provisions of paragraph (c)(2) of Rule I5c3-1 under the Securities Exchange Act of 1934, as amended, plus $5,000 per options series up to a maximum requirement of $150,000.
      (g) Normal Business Hours—A registered NASDAQ index options market maker shall keep the Corporation advised as to the normal business hours during which it shall enter quotations. All firms should, be open and active between the hours of 9:30 a.m. and 4.10 p.m. (Eastern Time). The system shall publish a "close symbol" for a registered NASDAQ index options market maker on Level 2 and Level 3 terminals at the close of such firm's normal business hours.
      [Amended effective October 9. 1985.]
      (h) Initiation of Service—Upon initial application, the registration of a NASDAQ index options market maker in a NASDAQ index options series shall be effective at the start of business on the second business day following receipt of his registration application by the Corporation ; provided, however, said registration is accepted by the Corporation. If said initial registration is received for a NASDAQ index options series which has not previously been authorized by the Corporation, the registered NASDAQ index options market maker's registration shall be effective at the start of business on the first day that the NASDAQ options series is authorized for quotation by the Corporation; provided, however, said registration is accepted by the Corporation. A NASDAQ index options market maker shall commence market making and participation in the Service by initially contacting the NASDAQ Operations Center to obtain authorization for the trading of a particular NASDAQ index options series and identifying those terminals on which the Service information is to be displayed and thereafter by an appropriate keyboard entry which obligates him to execute transactions for at least one contract at the market maker's displayed quotations so long as the market maker remains active. All entries shall be made in accordance with the requirements set forth in the User Guide.
      (i) Withdrawal Procedure for NASDAQ Index Options Market Makers.
      (1) With the approval of the Corporation, a registered NASDAQ index options market maker may suspend its quotations in a NASDAQ index options series for a specified period of time upon a showing that it is seriously impaired in its ability to enter quotations, or, in the case of a contemplated financing in the underlying security, the presence of statutory prohibitions or restrictions, or such other reason acceptable to the Corporation.
      (2) In the event of a malfunction in the NASDAQ index options market maker's equipment rendering on-line communications with the Service inoperable, the NASDAQ index options market maker is obligated to immediately contact the NASDAQ Operations Center by telephone to request withdrawal from the Service. NASDAQ operational personnel will in turn enter the withdrawal notification from a supervisory terminal. Such manual intervention, however, will take a certain period of time for completion and any transaction occurring prior to the effectiveness of the withdrawal shall remain the responsibility of the withdrawing market maker.
      (3) A registered NASDAQ index options market maker who suspends its quotations in a NASDAQ index options series pursuant to paragraph (1) and (2) above may not re-enter quotations in such series during the same trading day without the prior approval of the Corporation.
      (j) Voluntary Termination—A registered NASDAQ index options market maker may voluntarily terminate its registration as to any NASDAQ options series by withdrawing its quotations from the Service without prior approval of the Corporation, subject to the conditions set forth in Sections 5 and 6 hereof. Such NASDAQ index options market maker may, by making application to the Corporation under the procedures and requirements set forth in this Section, re-register as a NASDAQ index options market maker in a NASDAQ options series in which his registration is terminated.
      (k) A NASDAQ index options market maker withdrawing option quotations from the NASDAQ Index Options Service for any reason has a specific obligation to monitor his status to assure that a withdrawal has in fact occurred. Any transaction occurring prior to the effectiveness of the withdrawal shall remain the responsibility of the withdrawing market maker.
      (l) Suspension and Termination of a Registered NASDAQ Index Options Market Maker's Authority to Enter Quotations by Action of the Corporation— The Corporation may, pursuant to provisions specified in the Code of Procedure, suspend, condition or terminate a registered index options market maker's authority to enter quotations on one or more series of NASDAQ index options to for violations of the applicable rules of this Schedule D.
      (m) Termination of Service on the Failure to Promptly Pay Fines and Assessments
      (1) The Corporation, upon notice, may terminate service on any level of NASDAQ index options service for failure of a subscriber to maintain the standards of availability specified in this Section 3 for such service or to pay the Service operator for services rendered.
      (2) Any member which is a respondent in a complaint pursuant to this Schedule D is reauired promptly to pay any fine or costs imposed to the Treasurer of the Corporation. In the event that the respondent fails to do so, the Corporation mav, after ten business days notice in writing to such respondent, suspend his authority to enter options ciuo^atinns into or receive options quotations from Level 2 and 3 of the NASDAQ Index Options Service.

      Section 4

      Character of Index Options Quotations Entered Into the NASDAQ Index Options Service by All NASDAQ Index Options Market Makers

      (a) All bids or offers for NASDAQ index options shall be for at least one option contract or the minimum unit of trading.
      (b) All bids and offers for NASDAQ index options shall be exnres=ed in terms of the applicable index multiplier (e.g.. a bid of five for a NASDAQ index option having an index multiplier of $100 shall represent a bid to pay a premium of $500 for an option contract).
      (c) All bids or offers for a NASDAQ index option contract for which The Options Clearing Corporation has established an adjusted unit of trading in accordance with paragraphs (c) and (d) of Section 11 of Article VI of the OCC's By-Laws shall be expressed in terms of dollars per the appropriate fractional part of the total securities and/or other property constituting such adjusted unit of trading.
      (d) A registered NASDAQ index options market maker who receives a buy or sell order must execute a trade for at least one contract at his quotation as they appear on the NASDAQ CRT screen at the time of receipt of any such buy or sell order. Each quotation entered by a registered NASDAQ index options market maker must be reasonably related to the prevailing market.
      (e) A registered NASDAQ index options market maker will be permitted to enter a one-sided quotation (0-1/16) with respect to those options which have no present market value.
      (f) Crossed Markets—A registered NASDAQ index options market maker shall not be permitted, except under extraordinary circumstances, to enter quotations into the NASDAQ Index Options Service if (1) the bid quotation entered is greater than the ask quotation of another registered market maker in the same options series or (2) the asked quotation is less than the bid quotation of another registered market maker in the same options series.
      (g) Quote Spread Parameters—A registered NASDAQ index options market maker shall not be permitted, except under extraordinary circumstances, to enter index option quotations into the NASDAQ Index Options Service if the spread between the market maker's bid and ask exceeds the following parameters:
      (1) 1/4 of $1, if the member's bid price is $.50 or less;
      (2) 1/2 of $1, if the bid price is more than $.50 but does not exceed $10;
      (3) 3/4 of $1, if the bid price is more than $10 but does not exceed $20;
      or
      (4) $1, if the bid price is more than $20;
      providing, however, that the allowable quote spread differentials for the longest term options series open for trading in each option class shall be twice the amounts stated in (1) through (4) above.
      (h) Except under extraordinary circumstances, a registered NASDAQ index options market maker shall not be permitted to enter on an intra-day basis a bid quotation more than $1 lower and/or an offering more than $1 higher than the last reported transaction for the particular index option contract. However, this standard shall not ordinarily apply if the price per share (or other utf't of trading of the underlying index value has changed since the last preceding transaction for the particular option contract, in which event a market maker may then bid no lower than or offer no more than $1 plus the aggregate change in the price per unit of trading) of the underlying index value since the time of the last preceding transaction for the particular index option contract. Nothing in this paragraph shall alter the maximum bid-ask differential established by paragraph (g) above.
      (i) Whenever, in the judgment of the Corporation, the interest of maintaining a fair and orderly market so requires, the Corporation may waive the requirements of paragraph (h) above on a case by case basis.
      (j) When unusual trading-conditions exist, and the interest of maintaining a fair and orderly market, the Corporation may waive the requirements of paragraph (g) above in those option series 10 or more points ih'ihe money to allow market makers to make bid/ask differentials as wide as the quotation in the primary market as determined by the inside quotation displayed in the NASDAQ System. Such waiver shall not automatically carry over from one day to the next.

      Section 5

      Commitment Rules Applicable to Options Market Makers in NASDAQ Index Options

      (a) Commitment Rule for Index Options Market Makers—A market maker in a NASDAQ index option, unless excused from entering quotations pursuant to Section 3(i) of Schedule D, Part IV, shall, during normal options business hours, continuously quote all options series in such index option through the expiration of the longest term index options authorized for trading at the time the member commences such market making. Failure to abide by this commitment shall cause the index options market maker to be subject to the sanctions contained in Section 6 hereof.

      The following examples illustrate the commitment rule for index option market makers established by this Section 5.

      1. Member A is authorized as a NASDAQ index options market maker prior to the expiration of January NASDAQ-100 Index™ Options. Member A is thus obligated to continuously quote all series of NASDAQ-100 put and call options authorized for trading in the January, February and March expirations through the expiration of the March options.
      2. Member B is authorized as a market maker in NASDAQ-100 Index™ Options at the time these options are authorized for the NASDAQ Options Program, but prior to the commencement of trading in these index ontions. The first authorized expiration cycle in NASDAO-100 Index™ options will consist of options expiring in April, May and June with trading to commence in March. Member B would be obligated to continuously quote all authorized NASDAQ-100 option series from the commencement of trading in such options in March through the expiration of June NASDAQ-100 Index™ options.

      Section 6

      Sanctions Applicable to NASDAQ Index Options Market Makers

      (a) Sanctions Applicable to Index Options Market Makers
      (1) A registered NASDAQ market maker in index options whose quotation for any option series in which the member is a market maker is withdrawn without the apnroval of the Corporation shall, at or before the daily close of the NASDAQ Index Options Service, have its registration terminated in all NASDAQ index option series covering the same underlying- index as that for which option quotations were suspended by the member, subject, however, to the re-registration procedures set forth in paragraph (2) below.
      (2) A NASDAQ index options market maker in index options whose registration in options classes is terminated pursuant to paragraph (a)(l) above may, by making application to the Corporation under the procedures and requirements set forth in Section 3 of Schedule D, Part IV, re-register as a NASDAQ index options market maker in any NASDAQ index options series in the options classes in which his registration was terminated pursuant to paragraph (a)(l) above providing, however, that the Corporation shall not grant effectiveness to such registration until the near-term options and those in the following expiration cycle have expired.

      The following example illustrates the sanction for index options market makers established by paragraph (a) above.

      Market Maker A, without approval of the Corporation, withdraws quotations from the NASDAQ Index Options Service for a series of NASDAQ-ICO Index™ options causing the member's registration in all NASDAQ-100 Index™ options series to be terminated pursuant to paragraph (a)(l) above.

      At the time market maker A's registration is terminated, January, February and March NASDAQ-100 Index™ options are trading. Pursuant to paragraph (a) (2) above, any application by member A to again register as a market maker in NASDAQ-100 Index™ options would not be granted effectiveness by the Corporation until the expiration of the February NASDAQ-100 Index™ options.

      (3) A registered market maker in NASDAQ index options who withdraws index options quotations from the NASDAQ Index Options Service in any options series without prior authorization during the IS business days preceding the expiration of the near-term options on the same underlying index may be deemed to be in violation of Article III, Section 1 of the Rules of Fair Practice of the Association.

      Section 7

      Requirements Applicable to NASDAQ Index Options Order Entry Firms

      (a) Participation in NASDAQ Index Options Service as an order entry firm requires current registration as such with the Corporation. Such registration shall be conditioned upon the order entry firm's initial and continuing compliance with the following requirements:
      (1) Execution of a NASDAQ Index Options Service participant application agreement with the Corporation ;
      (2) membership in, or a clearing arrangement with a member of The Options Clearing Corporation ;
      (3) compliance with all applicable rules and operating procedures of the Corporation and the Securities and Exchange Commission ;
      (4) maintenance of the physical security of the equipment located on the premises of the NASDAQ index options order entry firm to prevent the unauthorized entry of information into NASDAQ Index Options Service; and,
      (5)
      (a) acceptance and settlement of each trade that the Service identifies as having been effected by such NASDAQ index options order entry firm or, if settlement is to be made through another clearing member, guarantee of the acceptance and settlement of such identified trade by the clearing member on the regularly scheduled settlement date.
      (b) The registration required bereunder will apply solely to the qualification of a participant to participate in the NASDAQ Index Options Service. Such registration shall not be conditioned upon registration in any particular eligible or active NASDAQ index options contracts.
      (c) Each participant shall be under a continuing obligation to inform the Corporation of non-compliance with any of the registration requirements set forth above.
      (d) Upon the effectiveness of registration as a NASDAQ index options order entry firm, the participant may commence activity for entry of orders, as applicable. The operating hours of NASDAQ Index Options Service are currently 9:30 a.m. and 4:10 p.m. (Eastern Time), but may be modified by the Corporation. The extent of participation in the System by a NASDAQ index options order entry firm shall be determined solely by the firm in the exercise of its ability to enter orders into the system. [Amended effective October 9. 1985.]
      (e) Market orders shall not be permitted in the NASDAQ Index Options Service. All orders entered into the Service other than accommodation transactions shall be priced and all orders shall be directed to a specified NASDAQ index options market maker. NASDAQ index options order entry firms will be immediately notified on the terminal screen and printer, if requested of the execution or rejection of an order entered into via OCT.
      (f) If a NASDAQ index options order entry firm or clearing member acting on his behalf, is reported by the Service to clearing at the close of any trading day, or shown by the activity reports generated by the Service as constituting a side of a NASDAQ index option trade, such order entry firm or clearing member acting on his behalf, shall honor such trade on the scheduled settlement date.
      (g) Failure by a NASDAQ index options order entry firm to comply with any of the rules or registration requirements applicable to the Service identified herein shall subject such participant to censure, fine, suspension or revocation of its registration as a NASDAQ index options order entry and/or market maker firm or any other fitting sanction under the Rules of Fair Practice of the Association.

      Section 8

      Transaction Reporting and Other Reporting Requirements

      (a) All NASDAQ index options participants, upon becoming so registered and qualified, shall have access to, and be required to utilize, the Order Confirmation Transaction ("OCT") and Internalized Trade Transaction ("ITT") trade reporting systems established by the Corporation for NASDAQ index options transactions. Such trade reporting systems are designed to "lock-in" all NASDAQ index options transactions. Thus these systems serve trade comparison and clearing functions as well as trade reporting functions, and require the participation of both the order entry and the market making firms in the reporting process. Because these procedures, which are detailed in the User Guide, vary from those applying to transaction reporting in other NASDAQ securities, it is imperative that all NASDAQ index options participants become familiar with and comply with the provisions of this Section 8. Failure on the part of a NASDAQ index options participant to comply with NASDAQ index options reporting provisions may subject participants to censure, fine, suspension or revocation of registration as a NASDAQ index options market maker and/or order entry firm or any other fitting sanction under the Rules of Fair Practice of the Association.
      (b) Order Confirmation Transaction (OCT)—NASDAQ index options order entry firms shall enter an OCT into the Service promptly upon the execution of their order. Upon the acceptance by a market maker' of an OCT, the Service shall automatically forward a trade report to the Options Price Reporting Authority ("OPRA"). NASDAQ index options market makers shall accept an OCT via terminal entry within two minutes as specified by the Corporation, or the OCT shall be "timed-out", in which case the Service will notify the order entry firm of the market maker's non-acceptance of the order. The order entry firm will also be notified if the market maker affirmatively rejects the order via terminal entry. If the market maker wishes to subsequently confirm an OCT which has been timed-out or rejected, a new OCT must be entered into the Service by the order entry firm with a late trade indicator. Once accepted, an OCT may only be canceled or corrected by mutual consent of the market maker and order entry firm.
      (c) Unsolicited Orders—NASDAQ index options market makers are not obligated to accept an OCT which is unsolicited but, if they choose to do so, must accept the order within two minutes of its receipt as specified by the Corporation. Upon the acceptance of an unsolicited OCT order by a NASDAQ index options market maker, the system will automatically forward a trade report to OPRA. Once accepted by the market maker, the OCT may only be canceled or corrected with the mutual consent of the market maker and the order entry firm.
      (d) Internalized Trade Transaction (ITT)—NASDAQ Index Options Service participants shall, where appropriate, enter an ITT message into the Service within two minutes of the execution of an internalized trade. Upon the entry of an ITT message, the Service shall automatically forward a trade report to OPRA. An ITT may be subsequently canceled or corrected by the member.
      (e) A NASDAQ index options order entry firm shall transmit OCT and ITT for transactions in NASDAQ index options other than cabinet transactions at the price recorded on the trade ticket exclusive of commission, taxes or other charges.
      (f) NASDAQ index options participants may effect cabinet transactions in any class of options contracts authorized for trading via the Service at a price of $1.00 per contract, providing such price is reasonably related to the prevailing market for the option. In reporting cabinet transactions, participants shall designate these transactions as such with the appropriate indicator on OCT or ITT entered into the Service. Cabinet transactions will not be disseminated to OPRA but will be reported to OCC for clearance.
      (g) Weekly and/or Monthly Reports—A member shall report weekly and/or monthly to the Corporation such data on NASDAQ index options quoted in the Service as the Board of Governors shall require. Such report shall be on a form prescribed by the Corporation.
      (h) Trade Tickets—AH trade tickets on transactions in NaSDAQ index options and authorized underlying securities must indicate the time the order was received and the time the order was executed or canceled.

      Section 9

      Authorization of NASDAQ Index Option Market Making

      (a) The Corporation shall not authorize index option market making in any options series unless, at the time such market making activity is to commence, there are a minimum of five registered NASDAQ index options market makers in the index option.
      (b) Once market making has commenced in any class of NASDAQ index options, the Corporation shall withdraw approval of further market making activity with respect to any succeeding options series to be opened in that NASDAQ index option if there are fewer than three registered market makers in the index option.
      (c) Whenever the Corporation shall withdraw its approval for index option market making activity in a particular NASDAQ index options series pursuant to paragraph (b) above, it shall not reinstate such market making until the provisions of paragraph (a) above have been satisfied.

      Section 10

      NASDAQ Index Option Contracts Authorized for Trading

      The Corporation may from time to time approve for display on NASDAQ put option contracts and call option contracts in respect of underlying indexes which have been selected by the Corporation and approved for trading. All such option contracts shall be designated as to the type of option, the underlying index, the expiration month and the exercise price. Only quotations in respect to option contracts in a class or series of options approved by the Corporation and currently open for display on the Service may be quoted by a registered NASDAQ index options market maker on the NASDAQ Index Options Service.

      Section 11

      Series of NASDAQ Index Options Open for Trading

      (a) NASDAQ Index Options—After a particular class of index options has been approved for display on the Service and quotation thereon by registered NASDAQ index options market makers, the Corporation shall from time to time open for trading series of options therein. Prior to the opening of trading in any series of options the Corporation shall fix the expiration month and exercise price of options contracts included in each such series.
      (1) Expiration Months—At the commencement of trading in a particular class of NASDAQ index options, series of options having three different expiration months will normally be opened. Such expirations shall occur in consecutive months. The first such expiration will occur in the month following the month in which such options are introduced, the second expiration will occur in the month following the first, and the third expiration will occur in the month following the second. Additional series of index options of the same class may be opened for trading at or about the time a prior series expires and the expiration month of each such series will normally be approximately three months following the opening of such series.
      (2) Exercise Prices-—The procedures for fixing the exercise or strike price of each series of index options opened for trading shall be as follows:
      a. Strike prices shall be fixed at an index va,lue which is an integer.
      b. Regardless of the value of an index, the interval between strike prices will be $5.00.
      c. New series of index option contracts may be added up to the fifth business day prior to expiration.
      d. When new series of index option contracts within a new expiration cycle are opened for trading, two strike prices above and two strike prices below the current index value may be added.
      e. When the value of the index underlying a class of index options reaches a strike price, the Corporation may add one or more additional strike prices such that there are at least two strike prices above and two strike prices below the strike price which has been reached.
      f. In unusual market conditions, the Corporation may add additional series of index option contracts up to three strike prices above and three strike prices below the current index price.
      (b) Specification Adjustments—The unit of trading and the exercise price initially established for index option contracts of a particular series are subject to adjustment in accordance with the rules of The Options Clearing Corporation. When such adjustment(s) have been determined, announcement thereof shall be made by the Corporation and, effective as of the time specified in such announcement, the adjusted unit of trading- and the adjusted exercise price shall be applicable with respect to all subsequent transactions in such series.
      (c) Contract Adjustments—Index option contracts shall be subject to adjustments in accordance with the rules of The Options Clearing Corporation.
      (d) Puts and Calls—When calls are first opened for trading on an underlying index stock group, the Corporation may open a series of puts corresponding to each series of calls open or to be opened for trading on the same underlying index stock group.

      Section 12

      Unit of Trading

      The unit of trading in each series of options displayed on the Service shall be the unit of trading established by The Options Clearing Corporation pursuant to the rules of The Options Clearing Corporation.

      Section 13

      Suspension of Authorization of NASDAQ Index Option Contracts

      (a) The Corporation shall have the authority to suspend trading in NASDAQ index option contracts by either one or more market maker or all market makers where it deems it necessary and appropriate:
      (1) to prevent fraudulent and manipulative acts and practices;
      (2) to promote just and equitable principles of trade; or,
      (3) to prevent excessive speculation and promote the likelihood of a competitive and orderly market.
      (b) The Corporation shall suspend trading in NASDAQ index options contracts by all market makers :
      (1) if the underlying index is not being computed or disseminated; or,
      (2) if trading is halted or suspended in underlying stocks that collectively contribute (1) 20 percent of the current index group value (in the case of index stock groups comprised of more than 50 stocks) ; and (2) 10 percent of the current index group value (in the case of index stock groups comprised of 50 or fewer stocks).

      Section 14

      Trade Comparison Procedures for NASDAQ Index Options

      (a) Scope and Applicability—All transactions in NASDAQ index options shall be reported to the Corporation pursuant to reporting procedures established by the Corporation. The Corporation shall report all compared transactions to The Options Clearing Corporation for clearance and settlement. All compared transactions in NASDAQ options which are cleared and settled through the facilities of The Options Clearing Corporation shall be subject to the rules of The Options Clearing Corporation.
      (b) Responsibility of Clearing Members—Every member which is a member of The Options Clearing Corporation (a "clearing member") shall be responsible for the clearance and settlement of every NASDAQ index option transaction to which it is a party and for each NASDAQ index option transaction of a member for which it acts as correspondent and/or clearing agent pursuant to agreement. Unless specifically authorized by The Options Clearing Corporation, no member shall be permitted to have more than one such agreement with a clearing member in effect at any time.
      (c) Reporting of Clearing Information
      (1) Filing of Trade Information—Each NASDAQ index option participant shall individually report each transaction in a NASDAQ index option, for which it has a responsibility to report, each business day to the Corporation via OCT or ITT in the manner specified by the Corporation.
      (2) The Corporation will provide each NASDAQ index options participant with the opportunity to review on trade date OCT and ITT transactions to which the participant is a party.
      All OCT orders which are accepted by the contra party and all ITT which have not been cancelled shall be considered to be compared trades, i.e., trades where the trade information agrees as to the identity of the other party to the transaction, the type of option contract, the underlying index, the exercise price, the expiration month, the number of options contracts, the amount of the premium, the designation of the parties as purchaser and writer, respectively, and the trade date, if other than the date of submission.
      (3) Verification of NASDAQ Index Options Transactions—Each participant shall promptly review each OCT or ITT execution report received and report corrected trade information to the Corporation as soon as possible, but in any event, not later than the hour which shall be from time to time prescribed by the Corporation. It shall be the sole responsibility of participants to review the accuracy of all reports promptly upon receipt, and the Corporation shall not assume any responsibility for reviewing such reports for accuracy or for making any corrections not reported by a participant.
      (4) Reporting of Compared Trades to The Options Clearing Corporation—On each business day, at or prior to such time as may be prescribed by The Options Clearing Corporation, the Corporation shall furnish The Options Clearing Corporation a report of each clearing member's compared trades as reported to the Corporation on that day. Only those trades which have been confirmed by both parties shall be furnished by the Corporation to The Options Clearing Corporation, and the Corporation shall assume no responsibility with respect to any unaccepted order nor for any delays or errors in the reporting of trades.

      Section 15

      Clearance and Settlement Procedures for NASDAQ Index Options

      (a) Failure to Pay Premium—Whenever The Options Clearing Corporation shall reject a NASDAQ index option transaction because of the failure of a clearing member acting on behalf of the purchaser to pay the premium due thereon as required by the rules of The Options Clearing Corporation, the member acting as or on behalf of the seller (writer) shall have the right either to cancel the transaction by giving notices thereof to the defaulting clearing member or to enter into either a new opening writing transaction or closing sale transaction, as the case may be, in respect of the same NASDAQ index option contract that was the subject of the rejected NASDAQ index option transaction, charging any loss resulting therefrom (including any commissions paid or payable in connection with such new transaction) to the defaulting clearing member. Such action shall be taken on the day the NASDAQ index option transaction was rejected by The Options Clearing Corporation, unless the Corporation shall extend such time.
      In the event the rejected transaction involves a NASDAQ index option contract of a series in which trading has been terminated or suspended before a new NASDAQ index option transaction can be affected to establish the amount of any loss, the member acting as or on behalf of the seller shall have a claim against the defaulting clearing member for the amount of the premium due thereon.
      (b) Index Option Contracts of Suspended Members—When announcement is made of the suspension from membership in the Corporation of a member, other than a clearing member of The Options Clearing Corporation (a "non-clearing member"), pursuant to the By-Laws of the Corporation, all open short positions in option contracts of such member and all open positions that are secured in full by a specific deposit or evidenced by an escrow receipt in accordance with the rules of The Options Clearing Corporation, shall be closed out without unnecessary delay by all members carrying such positions for the account of the suspended non-clearing member; provided, however, that upon any such suspension, the Corporation may, in its discretion and where it determines that such is necessary for the protection of investors, suspend the mandatory close-out provisions hereof and may, in its discretion and where it determines that such is necessary for the protection of investors, reinstate such provisions at such time as it may determine. No temporary suspension of the mandatory close-out provisions hereof shall relieve any suspended non-clearing member of its obligations or of any damages incurred by members carrying positions for the account of such suspended non-clearing member. Should an open short position or an open position resulting from an exercise of an option contract not be closed when required by this Section, the price for the purpose of determining claims shall be fixed by the price current at the time when such position should have been closed under this Section. When a member of The Options Clearing Corporation is suspended pursuant to the provisions of the By-Laws, the positions of such clearing member shall be closed out in accordance with the rules of The Options Clearing Corporation.

      Section 16

      Rules of General Applicability

      The provisions of Part X of Schedule D to Article XVI of the By-Laws shall, to the extent not inconsistent with the provisions hereof, apply to NASDAQ index options.
      [Part IV added effective September 13, 1985.]

      V

      SCHEDULE OF CHARGES

      A. System Services

      1. NASDAQ Level 1 Service
      The charge to be paid by the subscriber for each terminal receiving NASDAQ Level 1 Service is $8.75 per month.
      2. NASD A Q Level 2/3 Service
      The charge to be paid by the subscriber for each terminal receiving NASDAQ Level 2 or NASDAQ Level 3 Service shall be $150 per month and $0.01 per quotation request, plus equipment related charges as detailed in Parts B, C and D below. Equipment related charges include an installation charge, a terminal charge and conversion, removal and relocation charges.
      3. Consolidated Quotation Service
      The charge to be paid by the subscriber for each terminal receiving Consolidated Quotation Service shall be $50 per month and $0.01 per quotation request plus the monthly charges established by the NYSE and AMEX for receiving last sale information and bid/ask quotations plus equipment related charges as detailed in Parts B, C and D below. Equipment related charges include an installation charge, a terminal charge and conversion, removal and relocation charges.
      4. Computer Assisted Execution Service
      The charges to be paid by members receiving the Computer Assisted Execution Service ("CAES") shaM consist of a fixed service charge and a per share transaction charge applicable to each side of a transaction plus equipment related charges.
      a. Service Charges1
      i. $100 per month for each terminal receiving CAES
      ii. $500 per month for a computer interface between CAES and a member's computer system.
      b. Transaction Charges
      i. $.003 per share shall be paid by the member which enters an order executed through CAES to buy or sell a NASDAQ or listed security.
      ii. $.004 per share shall be paid by the member which receives an order executed through CAES to buy or sell a NASDAQ security.
      iii. $.006 per share shall be paid by the member which receives an order executed through CAES to buy or sell a listed security.
      5. NASDAQ/National Market System Last Sale Information
      a. The charge to be paid by the subscriber for each terminal receiving NASDAQ/National Market System Last Sale Information supplied by a vendor shall be determined by the number of securities designated by the Corporation as NASDAQ/National Market System securities pursuant to the following schedule.

      Number of Designated Securities

      Charge per terminal per month

      250 or less

      $ 2.50

      251 to 500

      $ 5.00

      501 to 1,000

      $ 7.50

      1001 or more

      $10.00*

      b. The rate for each month shall be determined by the number of designated securities at the start of business on the first day of that month.
      6. Trade Acceptance and Reconciliation Service
      The service charge to be paid by the subscriber for terminals receiving Trade Acceptance and Reconciliation Service (TARS) shall be $100 per month for each TARS dedicated terminal providing both query and update capability, $50 per month for each shared terminal providing query and update capability for TARS as well as other services and $25 per month for each terminal providing query only capability. In addition, subscribers shall be charged $.25 for each query/response or correction message plus equipment related charges as detailed in Parts B, C and D below. Charges shall be billed to subscribers on a monthly basis and message charges shall be waived for those subscribers averaging 10 or less trades per day during any month.
      7. Computer-to-Computer Interface Service
      The charge to be paid by the subscriber to enable it to report transactions via its computer system shall be $1,200 per month.
      8. Limited Usage Service
      The charges to be paid by a subscriber for access to NASDAQ Level 1 Service (for securities other than National Market System securities) and NASDAQ/National Market System Last Sale Service through an authorized portable quotation device capable of receiving quotations for not more than forty securities at a time shall be $6.00 per month per device.
      9. Non-Professional Services
      (a) The charge to be paid by non-professional subscribers for access to NASDAQ Level 1 Service or NASDAQ/National Market System Last Sale Information Service through the services of an authorized vendor shall be $6.00 per month.
      (b) A "non-professional" is a natural person who is neither:
      i. registered or qualified in any capacity with the Securities and Exchange Commission, the Commodities Futures Trading Commission, any state securities agency, any securities exchange or association, or any commodities or futures contract market or association;
      ii. engaged as an "investment adviser" as that term is defined in Section 201(11) of the Investment Advisors Act of 1940 (whether or not registered or qualified under that Act) ; nor
      iii. employed by a bank or other organization exempt from registration under federal or state securities laws to perform functions that would require registration or qualification if such functions were performed for an organization not so exempt.
      (c) The Corporation may waive all or part of the foregoing charges with respect to the services offered by a vendor.
      [Section A amended effective March 21. 1985.]

      B. Equipment Charges

      The charge for using NASDAQ terminal equipment shall be $180 per month for the first terminal and $125 per month for each additional terminal where all terminals are located on the same premises.

      C. Special Options

      1. Receive only Printer

       

      $125/month

      2. Local Posting

      Permits subscriber to use NASDAQ Level 3 terminals to enter quotations simultaneously into an internal computer system.

      $ 10/month

      3. Dual Keyboard

       

      $ 15/month

      4. Level 1 Data Stream

      Permits Subscriber to process Level 1 data directly into its computer system for its own analysis.. Subscriber is responsible for line and modem charges and separate charges for any terminal display.

      $500/month

      D. Installation, Removal or Relocation

      Upon installation, removal, relocation of terminal and related equipment, or combination thereof, the subscriber shall pay charges incurred by NASD or its subsidiaries, on behalf of the subscriber for the work being performed by the maintenance organization retained by NASD or its subsidiaries. A minimum charge of $80 per site visit will be imposed upon the subscriber for any service provided under this Part.

      E. Other Services

      1. Daily Reports to Newspapers
      Reports for regular public release, such as a list of closing quotations or market summary information for newspaper publication, shall be produced in a format acceptable to most publishers without charge. Should such information be transmitted to another location at the request of any firm, a charge may be imposed for such services by the Corporation.
      2. Other Requests for Data
      The Corporation may impose and collect compensatory charges for data from the System, supplied upon request, where there is no provision elsewhere in this Part IV for charges for such service or sale.
      3. Correspondents
      The charge for registration and display of a correspondent firm for a registered market maker shall be $3.50 per month for each correspondent displayed per security.

      F. Partial Month Charges

      The charges for the month of commencement or termination of service will be a pro rata share of the full monthly charge computed by dividing the number of business days the service was provided during that month by a standard 20 business day month.

      G. Late Fees

      All NASDAQ charges which are past due for 60 days or more shall be subject to a late fee of 10% of the amount past due.

      H. Mutual Fund Quotation Program

      Funds included in the Mutual Fund Quotation Program shall be assessed an annual fee of $150 per fund authorized for the News Media Lists and $100 per fund authorized for the Supplemental List. Funds authorized during the course of an annual billing period shall receive a proration of these fees but no credit or refund shall accrue to funds terminated during an annual billing period.

      I. Minor Modifications in Charges

      In order to compensate for minor variations in annual net income, the Board of Governors may increase or decrease the total charges in this Schedule by 10% from the base charges as adopted on August 28, 1979 upon filing such change with the Commission pursuant to Section 19(b)(3) of the Act.

      [Section A.5. added effective October 6. 1982; amended effective July 24, 1984; Section A.6. added effective October 16, 1982; Section A7. added effective March 1, 1983; Section A.8. added effective January 3, 1984; amended effective July 30. 1985: renumbered as Part V effective September 13, 1985.]

      VI

      NASDAQ ISSUER QUOTATION FEE

      A. Entry Fee

      1. The issuer of each security which is authorized for inclusion in the NASDAQ System shall pay to the Corporation upon entry into the NASDAQ System an entry fee to be computed as follows with a maximum entry fee during any 24 month period of $5,000 per issuer:
      a. Stock Issues—$1,000 or $.001 per share outstanding, whichever is higher;
      b. Investment Company Shares—$1,000 or $.001 per share outstanding, whichever is higher;
      c. Warrant Issues—$1,000 or $.001 per warrant outstanding, whichever is higher;
      d. Unit Issues
      i) Where one or more of the component securities in the unit is an authorized security in the NASDAQ System—$1,000:
      ii) Where the component securities in the unit are not authorized securities in the NASDAQ System—$1,000 or $.001 per unit initially issued, whichever is higher;
      e. Shares of Beneficial Interest—$1,000 or $.001 per share outstanding, whichever is higher;
      f. Convertible Debentures—$1,000 or $50 per million dollars face amount of debentures outstanding, whichever is higher;
      g. Securities of Foreign Issuers and American Depository Receipts—$1,000.
      2. The entry fee shall be waived for those securities reentering the NASDAQ System for which an entry fee for the same security has been paid to the Corporation during the twenty-four month period prior to reentry. For purposes of calculating the above-mentioned twenty-four (24) month period the date of reentry shall be the date of receipt of the application for reentry into the NASDAQ System.
      3. In the case of a merger, consolidation, or reorganization involving at least one issuer of an authorized security, the entry fee shall be waived for the security issued to carry out such merger, consolidation or re-organization provided that such security is promptly authorized for inclusion in the NASDAQ System.
      4. Except for Unit Issues, Securities of Foreign Issuers, and American Depositary Receipts the entry fee shall be based on the total outstanding securities of the class to be included in the NASDAQ System as shown on the issuer's most recent Form 10-K filed with the SEC or in the case of new issues, as shown in the appropriate prospectus. In the case of issuers which are not required to file a Form 10K with the Commission, the entry fee shall be based on the annual report required to be filed with the appropriate regulatory authority.

      B. Annual Fee

      1. The issuer of each security which is authorized for inclusion in the NASDAQ System shall pay annually to the Corporation an annual fee for each such security to be computed as follows with a maximum annual fee of $4,000 per issuer:
      a. Stock Issues—$250 or $.0005 per share outstanding, whichever is higher;
      b. Investment Company Shares—$250 or $.0005 per share outstanding, whichever is higher;
      c. Warrant Issues—$250 or $.0005 per warrant outstanding, whichever is higher;
      d. Unit Issues
      i) Where one or more of the component securities in the unit is an authorized security in the NASDAQ System— $250;
      ii) Where the component securities in the unit are not authorized securities in the NASDAQ System—$250 or $.0005 per unit initially issued, whichever is higher;
      e. Shares of Beneficial Interest—$250 or $.0005 per share outstanding, whichever is higher;
      f. Convertible Debentures—$250 or $25 per million dollars face amount of debentures outstanding, whichever is higher;
      g. Securities of Foreign Issuers and American Depositary Receipts—$250.
      2. Except for Unit Issues, Securities of Foreign Issuers, and American Depositary Receipts, the annual fee shall be based on the total amount of outstanding securities of the class included in the NASDAQ System as shown on the issuer's most recent Form 10-K annual report filed with the SEC. In the case of issuers which are not required to file a Form 10-K with the Commission, the annual fee shall be based on the annual report required to be filed with the appropriate regulatory authority.
      3. If an authorized security is removed from the NASDAQ System, that portion of the annual fee for such security attributable to the months following the date of removal shall be refunded upon request.

      C. Interim Inclusion Fee

      1. In the case of a new issue which is authorized for inclusion in the NASDAQ System and for which an application has been made for listing on a national securities exchange pursuant to Section 12(b) of the Securities Exchange Act of 1934, such issuer shall pay to the Corporation upon entry into the NASDAQ System an Interim Inclusion Fee to be computed as follows with a maximum Interim Inclusion Fee of $1,000:
      a) Stock Issues—$200 or $.0005 per share outstanding, whichever is higher;
      b) Warrant Issues—$200 or $.0005 per warrant outstanding, whichever is higher;
      c) Unit Issues
      i) where one or more of the component securities in the unit is an authorized security in the NASDAQ System—$200;
      ii) where the component securities in the unit are not authorized securities in the NASDAQ System—$200 or $.0005 per unit initially issued, whichever is higher;
      d) Shares of Beneficial Interest—$200 or $.0005 per share outstanding, whichever is higher;
      e) Convertible Debentures—$200 or $25 per million dollars face amount of debentures outstanding, whichever is higher;
      f) Securities of Foreign Issuers and American Depositary Receipts—$200.
      2. In the event the issue is not accepted for listing on a national securities exchange within 60 calendar days of inclusion in the NASDAQ System, the entry and annual fees set forth in Sections A and B above shall apply and the Interim Inclusion Fee shall be credited toward the entry and annual fees.

      [Part III added effective June 1, 1977; redesignated as Part V effective January 19, 1977; Section c amended effective December 29, 1977; Part V renumbered as Part VI effective September 13, 1985; amended effective March 1. 1986.]

      VII

      PUBLICATION AND DISSEMINATION OF QUOTATIONS TO THE NEWS MEDIA

      The Information Committee shall recommend lists of quotations of NASDAQ securties for dissemination by the news media. The criteria for such lists shall he determined by the Information Committee in light of the space available for publication and the information desired by the news media and the investing public.

      The criteria shall be based on a combination of the following:

      A. securities outstanding;
      B. market value of securities outstanding;
      C. price;
      D. net worth of the issuer ;
      E. net income of the issuer ;
      F. operating history of the issuer ;
      G. dollar value of securities traded.

      The Information Committee may, under appropriate circumstances, grant exceptions to its established criteria if it determines that it is in the public interest to do so.

      Criteria for Inclusion in Quotation Lists

      I. Bankruptcy and/or Liquidation

      A security shall not be included in the National List if the issuer shall have filed under any of the sections of the Bankruptcy Act or announced that liquidation has been authorized by its Board of Directors and that the company is committed to proceed.

      II. Composition of the Lists

      There shall be two recommended lists of NASDAQ securities provided to the media: the "National List" and the "Additional List". Inclusion on the lists shall be determined semi-annually on the basis of information available to the Association on the selection date. All quotations released shall be Level I quotations.

      III. National List

      A. Domestic Common Stock

      1. Initial Inclusion Criteria

      The financial criteria for domestic common stock are separated into two alternative categories detailed below. Issuers which meet either one of the alternative criteria will be included in the National List regardless of their dollar volume. Alternative No. 1 includes a net income requirement while Alternative No. 2 has no income requirement but establishes higher financial requirements for those development companies which have no operating income:

      Alternative No. 1

      1. 350,000 Publicly Held Shares
      2. Market Value of Publicly Held Shares of $2,000,000
      3. Minimum Bid Price of $3.00
      4. Net Income of $300,000 in the previous fiscal year or in two of the last three fiscal years.

      Alternative No. 2

      1. 800,000 Publicly Held Shares
      2. Market Value of Publicly Held Shares of $8,000,000
      3. Net Worth of $8,000,000
      4. Incorporated for 4 Years

      2. Maintenance Criteria

      Upon inclusion in the National List under either of the alternative sets of initial inclusion criteria, issuers must satisfy the maintenance criteria set forth below to remain eligible for inclusion in the National List.

      1. 200,000 Publicly Held Shares
      2. Market Value of Publicly Held Shares of $2,000,000
      3. Either Annual Net Income of $200,000 for the previous fiscal year or in two of the last three fiscal years or Net Worth of at least $1,000,000.

      B. Foreign Securities

      Foreign issues and American Depository Receipts. (ADR's) registered pursuant to Section 12(g) under the Securities Exchange Act of 1934, as well as issues for which all relevant information has been filed with the Securities and Exchange Commission pursuant to Rule 12g3-2, shall meet the same criteria as domestic common stock except that the publicly held shares requirement for ADR's shall be determined by the number of ADR's outstanding.

      C. Warrants

      Common stock of issuer must be in the National List and all criteria for domestic common stock apply except that the publicly held shares requirement is replaced with 450,000 warrants publicly held at the time of the initial distribution.

      D. Convertible Debentures

      Common stock of issuer must be in the National List and $100 million of the issue must be outstanding.

      E. Units

      All criteria for domestic common stock apply except that the publicly held shares requirement is replaced with 350,000 publicly held units at time of initial distribution.

      F. Rights

      Automatically included if common stock of issuer is quoted in the National List.

      G. Preferred Stock, Shares or Certificates of Beneficial Interest of Trusts, Limited Partnership Interests, Real Estate Investment Trusts and Closed End Funds

      Same criteria as domestic common stock.

      H. New Issues

      Securities that meet the above criteria immediately following an initial distribution or secondary offering will be added to the National List on the day of the distribution.

      IV. Additional List

      All positions in the Additional List will be rilled on the basis of dollar value of average weekly volume.*

      Amended effective July, 1982.

      [Part VI renumbered as Part VII effective September 13, 1985.]

      VIII

      LOCAL QUOTATIONS PROGRAM

      The NASD Local Quotations Program is a service of the Association designed to provide a source of quotations to the media for securities of particular interest to specific communities. All quotations shall be inter-dealer quotations, represent the market for the security and, except for unusual circumstances, contain both bid and asked quotations. Nominal and "asked only" quotations shall not be released.

      A. Authority of the NASDAQ Committee

      The Local Quotations Program is administered by the Information Committee of the Corporation. It shall appoint the members of the Local Quotations Committees, consider requests for exceptions from the national inclusion standards set forth in Section C of this Part VII, and review and establish procedures for the administration of the program.

      B. Role of the Local Quotations Committees

      The various Local Quotations Committees shall be designated by the Information Committee and their members appointed by it. The Local Quotations Committees shall select securities to be included on their local quotations list, supervise the administration of the local quotation program, and develop local inclusion standards.

      C. National Inclusion Standards

      1. All securities of companies included in NASDAQ shall be eligible for inclusion in Local Quotations Lists.
      2. The following inclusion standards shall apply to securities not included in NASDAQ:
      a. Compliance with one of the following:
      i. The bid price for a security shall be at least $2.00, or
      ii. the issuer reports total assets not less than $2,000,000 and capital and surplus not less than $1,000,000 and may continue to be included so long as it continues to report total assets not less than $750,000 and capital and surplus not less than $375,000.
      b. The issuer shall make prompt and full disclosure of all material corporate developments.
      c. The issuer shall annually submit to its shareholders a balance sheet and income statement.
      d. CUSIP numbers shall be imprinted on all stock certificates of the issuer.
      [C. 2. a. amended August 24, 1981.]

      D. Local Inclusion Standards

      Whether an issue is selected to be included on a local quotations list shall depend upon considerations of sufficient shareholder interest, reflected by the number of shareholders residing in the area, or other fair and reasonable standards. Local Quotations Committees may, in response to local market conditions or space limitations, impose additional inclusion requirements, or inclusion requirements greater than the national requirements set forth in Section C, for its local quotations list. It shall file such increased standards with the Information Committee.

      [Part VII renumbered as Part VIII effective September 13, 1985.]

      IX

      PROCEDURES FOR ACCESS TO THE NASDAQ SYSTEM BY NON-NASDAQ MARKET MAKERS

      These procedures permit a registered NASDAQ market maker, upon approval by the Corporation, to enter quotations into the NASDAQ System on behalf of another market maker who does not subscribe to Level 3 NASDAQ service.

      A. Definitions
      1. An "access market maker" is a member of the Association who does not subscribe to Level 3 NASDAQ service, but is or intends to be a market maker in a security for which quotations are displayed on the NASDAQ System.
      2. An "entering subscriber" is a registered NASDAQ market maker who has entered into an arrangement with an access market maker to enter quotations in the NASDAQ System on behalf of such access market maker.
      B. The entering subscriber may enter quotations in the NASDAQ System on behalf of an access market maker only upon submission and approval by the Association of the following:
      1. A fully executed copy of the access arrangement agreement which shall contain all agreements and conditions concerning the access arrangement.
      2. An application for registration as an access market maker for each security.
      C. Access market makers and entering subscribers shall be limited to one access arrangement in each security.
      D. Quotations displayed by the entering subscriber on behalf of the access market maker shall be accompanied by the entering subscriber's market maker identifier and a special symbol designating that an access arrangement exists. The identity of the access market maker must be made available by the entering subscriber upon request.
      E. All transactions resulting from the display of quotations in the NASDAQ System by the entering subscriber shall be executed by the entering subscriber and he shall be responsible for the transaction. Both the entering subscriber and the access market maker shall be subject to and be responsible for compliance with the provisions of Schedule D.
      F. Access market makers shall pay to the Corporation an access fee of $70 per month for the first security and $52.50 per month for each additional security which is subject to an approved access arrangement.
      [Part VIII renumbered as Part IX effective September 13, 1985.]

      X

      REPORTING TRANSACTIONS IN NASDAQ NATIONAL MARKET SYSTEM DESIGNATED SECURITIES

      This Part has been adopted pursuant to Article VII of the Corporation's By-Laws and applies to the reporting by all members of transactions in NASDAQ/National Market System securities ("designated securities") through the Transaction Reporting System. These securities have been designated pursuant to the "National Market System Securities Designation Plan with Respect to NASDAQ Securities" ("Plan") which has been approved by the Securities and Exchange Commission pursuant to Rule HAa2-l.

      Section 1—Definitions

      (a) Terms used in this Part shall have the meaning as defined in the Association's By-Laws and Rules of Fair Practice, Rule HAa2-l and the Plan, unless otherwise defined herein.
      (b) "Transaction Reporting System" means the transaction reporting system for the reporting and dissemination of last sale reports in designated securities.
      (c) "Registered Reporting Market Maker" means a member of the Association which is registered as a NASDAQ market maker in a particular designated security. A member is a Registered Reporting Market Maker in only those designated securities for which it is registered as a NASDAQ market maker. A member shall cease being a Registered Reporting Market Maker in a designated security when it has withdrawn or voluntarily terminated its quotations in that security or when its quotations have been suspended or terminated by action of the Corporation.
      (d) "Non-Registered Reporting Member" means a member of the Association which is not a Registered Reporting Market Maker.

      Section 2—Transaction Reporting

      (a) When and How Transaction Reported
      (1) Registered Reporting Market Makers shall transmit through the Transaction Reporting System, within 90 seconds after execution, last sale reports of transactions in designated securities executed during the hours of the Transaction Reporting System. Transactions not reported within 90 seconds after execution shall be designated as late.
      (2) Non-Registered Reporting Members shall transmit through the Transaction Reporting System, or if such System is unavailable, via Telex, TWX or telephone to the NASDAQ Department in New York City, within 90 seconds after execution, last sale reports of transactions in designated securities executed during the trading hours of the Transaction Reporting System unless all of the following criteria are met:
      (A) The aggregate number of shares of designated securities which the member executed and is required to report during the trading day does not exceed 1,000 shares; and
      (B) The total dollar amount of shares of designated securities which the member executed and is required to report during the trading day does not exceed $25,000; and
      (C) The member's transactions in designated securities have not exceeded the limits of (A) or (B) above on five or more of the previous ten trading days.
      Transactions not reported within 90 seconds after execution shall be designated as late. If the member has reason to believe its transactions in a given day will exceed the above limits, it shall report all transactions in designated securities within 90 seconds after execution; in addition, if the member exceeds the above limits at any time during the trading day, it shall immediately report and designate as late any unreported transactions in designated securities executed earlier that day.
      (3) Non-Registered Reporting Members shall report weekly to the NASDAQ Department in New York City, on a form designated by the Board of Governors, last sale reports of transactions in designated securities which are not required by paragraph (2) to be reported within 90 seconds after execution.
      (4) All Members shall report weekly to the NASDAQ Department in New York City, on a form designated by the Board of Governors, last sale reports of transactions in designated securities executed outside the trading hours of the Transaction Reporting System.
      (5) All trade tickets for transactions in designated securities shall be time-stamped at the time of execution.
      (b) Which Party Reports Transaction
      (1) In transactions between two Registered Reporting Market Makers, only the member representing the sell side shall report.
      (2) In transactions between a Registered Reporting Market Maker and a Non-Registered Reporting Member, only the Registered Reporting Market Maker shall report.
      (3) In transactions between two Non-Registered Reporting Members, only the Member representing the sell side shall report.
      (4) In transactions between a member and a customer, the member shall report.
      (c) Information To Be Reported
      Each last sale report shall contain the following information:
      (1) NASDAQ symbol of the designated security;
      (2) Number of shares (odd lots shall not be reported);
      (3) Price of the transaction as required by paragraph (d) below;
      (4) A symbol indicating whether the transaction is a buy, sell, or cross.
      (d) Procedures for Reporting Price and Volume
      Members which are required to report pursuant to paragraph (b) above shall transmit last sale reports for all purchases and sales in designated securities, in the following manner:
      (1) For agency transactions, report the number of shares and the price excluding the commission charged.

      Example:

      SELL as agent 100 shares at 40
      less a commission of $12.50;
      REPORT 100 shares at 40.

      (2) For dual agency transactions, report the number of shares only once, and report the price excluding the commission charged.

      Example:

      SELL as agent 100 shares at 40
      less a commission of $12.50;
      BUY as agent 100 shares at 40 plus
      a commission of $12.50;
      REPORT 100 shares at 40.

      (3) For principal transactions, except as provided below, report each purchase and sale transaction separately and report the number of shares and the price. For principal transactions which are executed at a price which includes a mark-up, mark-down or service charge, the price reported shall exclude the mark-up, mark-down or service charge. Such reported price shall be reasonably related to the prevailing market, taking into consideration all relevant circumstances including, but not limited to, market conditions with respect to the security, the number of shares involved in the transaction, the published bids and offers with size at the time of the execution (including the reporting firm's own quotation), the cost of execution and the expenses involved in clearing the transaction.

      Example:

      BUY as principal 100 shares from another
      member at 40 (no mark-down included).
      REPORT 100 shares at 40.

      Example:

      BUY as principal 100 shares from a customer
      at 39 7/8, which includes a 1/8 mark-down
      from prevailing market at 40;
      REPORT 100 shares at 40.

      Example:

      SELL as principal 100 shares to a customer
      at 40 1/8, which includes a 1/8 mark-up
      from the prevailing market of 40:
      REPORT 100 shares at 40.

      Example:

      BUY as principal 10,000 shares from a
      customer at 39 3/4, which includes a 1/4
      mark-down or service charge from the
      prevailing market of 40;
      REPORT 10,000 shares at 40.


      Exception:
      A "riskless" principal transaction in which a member that is not a market maker in the security after having received from a customer an order to buy, purchases the security as principal from another member or customer to satisfy the order to buy or, after having received from a customer an order to sell, sells the security as principal to another member or customer to satisfy the order to sell, shall be reported as one transaction in the same manner as an agency transaction, excluding the mark-up or mark-down.

      Example:

      SELL as principal 100 shares to another
      member at 40 to fill an existing order;
      BUY as principal 100 shares from a customer
      at 40 minus a mark-down of $12.50;
      REPORT 100 shares at 40.

      (e) Transactions Not Required To Be Reported
      The following types of transactions shall not be reported:
      (1) transactions executed through the Computer Assisted Execution System ("CAES") ;
      (2) odd-lot transactions;
      (3) transactions which are part of a primary distribution by an issuer or of a registered secondary distribution (other than "shelf distributions") or of an unregistered secondary distribution;
      (4) transactions made in reliance on Section 4(2) of the Securities Act of 1933;
      (5) transactions where the buyer and seller have agreed to trade at a price substantially unrelated to the current market for the security, e.g., to enable the seller to make a gift;
      (6) purchases or sales of securities effected upon the exercise of an option pursuant to the terms thereof or the exercise of any other right to acquire securities at a preestablished consideration unrelated to the current market.
      (f) Aggregation of Transaction Reports
      (1) Under the following conditions, individual executions of orders in a security at the same price may be aggregated, for transaction reporting purposes, into a single transaction report.
      (A) Orders received prior to the opening of the reporting member's market in the security and simultaneously executed at the opening. Also, orders received during a trading or quotation halt in the security and executed simultaneously when trading or quotations resume. In no event shall a member delay its opening or resumption of quotations for the purpose of aggregating transactions.
      Example: A firm receives, prior to its market opening, several market orders to sell which total 10,000 shares. All such orders are simultaneously executed at the opening at a reported price of 40. REPORT 10,000 shares at 40.
      (B) Simultaneous executions by the member of customer transactions at the same price, e.g.. a number of limit orders being executed at the same time when a limit price has been reached.
      Example: A firm has several customer limit orders to sell which total 10,000 shares at a limit price of 40. That price is reached and all such orders are executed simultaneously. REPORT 10,000 shares at 40.
      (C) Orders relayed to the trading department of the reporting member for simultaneous execution at the same price.
      Example: A firm purchases a block of 50,000 shares from an institution at a reported price of 40. REPORT 50,000 at 40.
      Subsequently, one of the firm's branch offices transmits to the firm's trading department for execution customer buy orders in the security totalling 12,500 shares at a reported price of 40. REPORT 12,500 at 40.
      Subsequently, another branch office transmits to the firm's trading department for execution customer buy orders totalling 15,000 shares in the security at a reported price of 40. REPORT 15,000 at 40.
      Example: Due to a major change in market conditions, a firm's trading department receives from a branch office for execution customer market orders to sell totalling 10,000 shares. All are executed at a reported price of 40. REPORT 10,000 at 40.
      (D) Orders received or initiated by the reporting member which are impractical to report individually and are executed at the same price within 60 seconds of execution of the initial transaction; provided however, that no individual order of 10,000 shares or more may be aggregated in a transaction report and that the aggregated transaction report shall be made within 90 seconds of the initial execution reported therein. Furthermore, it is not permissible for a member to withhold reporting a trade in anticipation of aggregating the transaction with other transactions.
      Examples: A reporting member receives and executes the following orders at the following times and desires to aggregate reports to the maximum extent permitted under this rule.

      First Example

      11:01:00 500

      shares at 40

      11:01:05 500

      shares at 40

      11:01:10

      9,000 shares at 40

      11:01:15

      500 shares at 40

      REPORT : 10,500 shares at 40 within ninety seconds of 11 :01.

      Second Example

      11:01:00 100

      shares at 40

      11:01:10 11,000

      shares at 40

      11:01:30 300

      shares at 40

      REPORT: 400 shares within ninety seconds of 11:01 and 11,000 shares within ninety seconds of 11:01:10 (individual transactions of 10,000 shares or more must be reported separately).

      Third Example

      11:01:00 100

      shares at 40

      11:01:15 500

      shares at 40

      11:01:30 200

      shares at 40

      11:02:30 400

      shares at 40

      REPORT: 800 shares at 40 within ninety seconds of 11:01 and 400 shares at 40 within ninety seconds of 11 :02:30 (the last trade is not within sixty seconds of the first and must, therefore, be reported separately).

      (2) The reporting member shall identify aggregated transaction reports and order tickets of aggregated trades in a manner directed by the Corporation.

      [Amended effective August 3. 1984: renumbered as Part X effective September 13. 1985.]

      • • • Selected NASD Notices to Members

      83-1

      Explanation of Real-Time Transaction Reporting Under Schedule D of the By-Laws in NASDAQ NMS Securities

       

      (January 6, 1983)

      XI

      MUTUAL FUND QUOTATION PROGRAM

      A. Description

      The Mutual Fund Quotation Program collects and disseminates through the NASDAQ System prices for both mutual funds and money market funds.

      B. Eligibility Requirements

      To be eligible for participation in the Mutual Fund Quotation Program, a fund shall:

      1. be registered with the Securities and Exchange Commission as an open-end management investment company pursuant to the Investment Company Act of 1940,
      2. execute the agreement specified by the Corporation relating to the fund's obligations under the Program,
      3. pay, and continue to pay, the fees as set forth in Part IV of Schedule D, and
      4. submit quotations through an automatic quotation system operated by the Corporation.

      C. News Media Lists

      1.
      a. An eligible fund shall be authorized for inclusion in the News Media Lists released by the Corporation if it has at least 1,000 shareholders or $25 million in net assets.
      b. Compliance with Subsection C.I.a. shall be certified by the fund to the Corporation at the time of initial application for inclusion in the Lists.
      2.
      a. An authorized fund shall remain included in the News Media Lists if it has either 750 shareholders or $15 million in net assets.
      b. Compliance with Subsection C.2.a. shall be certified to the Corporation upon written request by the Corporation.

      D. Supplemental List

      An eligible fund shall be authorized for inclusion in the Supplemental List released to vendors of NASDAO Level 1 Service if the fund has at least 300 shareholders at the time of initial application for inclusion in the Supplemental List.

      E. Determination of Number of Shareholders

      For the purposes of this Part X. the number of shareholders of a fund shall be measured by the sum of record holders, as reported by the fund to the Securities and Exchange Commission, and the number of accounts of members of the Corporation beneficially owned by customers (as defined in Article II, Section l(f) of the Rules of Fair Practice) ; provided, however, that an account with more than one beneficial owner shall be considered one account.

      [Part XI adopted effective July 30, 1985.]


      * No page numbers are assigned to these parts. No changes have been made at this time so the text is not included in Attachment I. See Attachment II for current text.

      1/ The NASD is currently considering a proposal that would authorize the initiation of trading halts in the over-the-counter market in NASDAQ and listed securities to permit the release and dissemination of material news.

      2/ The following are the current maximum allowable spreads approved by the NASD Board of Governors.

      MAXIMUM ALLOWABLE SPREADS

      Average Spread

      Maximum Allowable Spread

      1/8 or less

      1/4

      1/4

      1/2

      3/8

      3/4

      1/2

      1

      5/8

      1

      3/4

      1 1/2

      7/8

      1 1/2

      1

      1 1/2

      1 1/8

      1 5/8

      1 1/4

      1 3/4

      1 3/8

      1 7/8

      1 1/2

      2

      1 5/8

      2

      1 3/4

      3

      1 7/8

      3

      2

      3

      2 1/8

      3

      2 1/4

      3

      2 3/8

      3

      2 1/2

      3

      2 5/8

      4

      2 3/4

      4

      2 7/8

      4

      For an average spread of 3 or more, the maximum allowable spread is 125 percent of the average spread rounded to the next highest whole number.

      * The Exchange Act requires registration if an "equity" security has 500 or more holders of record and the issuer's total assets exceed $1,000,000. However, an issuer may voluntarily register under the Exchange Act even though it does not meet these requirements. For a security to be eligible to be an authorized security, it must register with the SEC under the Exchange Act and must have 300 or more holders of record and the issuer's total assets must exceed $2,000,000.

      * For purposes of this Section, securities of foreign issuers or American Depositary Receipts or similar securities issued in respect of securities of foreign issuers registered under section 12(g) of the Securities Exchange Act of 1934 shall be considered "domestic" securities.

      1 Service charges will not become effective until one year after the date CAES is expanded to include NASDAQ/NMS securities.

      * On July 13, 1984, the Association's Board of Governors voted to indefinitely defer the increase in the charge from $7.50 to $10.00.

      * Explanation of Average Weekly Volume—To monitor security volume data in NASDAQ, a statistical moving average method called exponential averaging is used and is recomput3d weekly. This technique gives more weight to the most current volume and less weight to the most distant past. For example, at present the weighting parameter is chosen to give 10% weight to the most current volume and less than 1% weight to the volume that occurred 23 weeks ago. Thus, the significance of the reported volume as maintained for more than 6 months is virtually nil.


    • 86-54 Proposed Amendment to Article III, Section 26 of the NASD Rules of Fair Practice Governing the Prompt Payment for Investment Company Shares Sold to Customers by NASD Members

      IMPORTANT MAIL VOTE

      OFFICERS, PARTNERS AND PROPRIETORS

      TO: All NASD Members

      LAST VOTING DATE IS SEPTEMBER 2, 1986.

      Enclosed is a proposed new rule (attached as Exhibit I) that will amend Article III, Section 26 of the NASD Rules of Fair Practice by the addition of new subsection (m). Proposed new subsection (m) was approved by the NASD Board of Governors and now requires membership approval. If approved by the membership, it must be filed with and approved by the Securities and Exchange Commission before becoming effective. As discussed below, the proposed rule was published for comment on August 30, 1985 (Notice to Members 85-58) and again on December 24, 1985 (Notice to Members 85-86).

      BACKGROUND OF THE PROPOSED RULE

      In recent years, the investment company ("mutual fund") industry has experienced unprecedented growth. In 1957, there were 143 mutual funds with $87 billion in net assets and annual sales of $1.4 billion. By 1985, there were 1,531 mutual funds with $495 billion in net assets and annual sales of $114 billion.

      Almost 60 percent of investors' purchases and redemptions of mutual funds (excluding short-term funds) are processed by NASD member firms and their agents using a variety of non-uniform procedures and systems, many of which are costly and inefficient. The ever-increasing number of transactions led to the development of the FUND/SERV system. This system, which is operated by the National Securities Clearing Corporation (NSCC), will automate, standardize and centralize the processing of mutual fund transactions by interposing NSCC between broker-dealers and mutual funds. A pilot program has recently been completed and the FUND/SERV system will gradually be phased in over the next few years.

      The system will provide for net settlement in a participant's account with NSCC on the fifth business day following trade date (T + 5).

      For the past 29 years, prompt payment by members for mutual fund shares that they have sold to customers has been governed by the NASD Board of Governors Prompt Payment Interpretation (Paragraph 5265 of the NASD Manual). (See Exhibit II, which is attached.) The Interpretation does not include a definition of "prompt payment." It is proposed that this Interpretation will be rescinded and new subsection (m) will be adopted.

      EXPLANATION OF PROPOSED RULE

      New subsection (m) will contain a definition of "prompt payment."

      Paragraph (1) of subsection (m) will require members, including underwriters, who engage in direct retail transactions with customers, to transmit payments to mutual funds or their agents ("payees") by the later of trade date plus five business days (T + 5) or the end of one business day following receipt of a customer's payment for such shares. However, members will be required to transmit payments to payees by the end of the seventh business day following receipt of a customer's order (T + 7) whether or not they have received payment from a customer.

      Essentially, the proposed rule adopts a standard for settlement (T + 5) similar to that being used by the FUND/SERV system. However, it recognizes that for members who may not use the system, some flexibility should be permitted in the settlement procedure to allow sufficient time for customers' checks to clear.

      Paragraph (2) of subsection (m) will require members that are underwriters and that engage in wholesale transactions with other members to transmit payments received from such members to payees by the end of two business days following receipt of such payments.

      As time progresses and the FUND/SERV system becomes fully operative, the Board anticipates that most members that offer mutual fund shares will find it advantageous, in terms of efficiency, ease of settlement and cost, to utilize the FUND/SERV system.

      COMMENTS RECEIVED

      The NASD received 40 responses to Notice to Members 85-58 and 17 responses to Notice to Members 85-86. In response to commentators, the final form of the proposed rule differs considerably from that originally proposed in these earlier notices.

      The major concerns expressed by commentators and to which the Board responded are:

      1. Some members requested clarification of the term "transmit" in the proposed rule.
      The Board believes that it is not necessary to define the term "transmit," since it has the usual and customary meaning for purposes of the rule, i.e.; to send, transfer, dispatch or convey payments to payees, by any means, within the time parameters specified in the rule.
      2. The proposed rule should not be adopted until the FUND/SERV system is fully operative.
      The Board understands that the FUND/SERV system has only recently commenced operations following a successful pilot program. It will be some time, probably as much as two years, before the system is fully operative and all the prospective participants have joined the system. The Board does not consider that there is any reason to delay adopting the proposed rule, particularly since its provisions will mainly affect members that will not participate in the FUND/SERV system. This is because participants in the FUND/SERV system, which uses the standard T + 5 net settlement procedure, will normally be in compliance with the provisions of the proposed rule.
      3. The proposed rule should require similar prompt payment by mutual funds to members when mutual funds are redeemed.
      Neither the Board's current interpretation regarding prompt payment nor the proposed rule deals with prompt payment on redemption. This is because the law that governs such, Section 22(e) of the Investment Company Act of 1940, requires mutual funds to pay redemption proceeds within seven days after the tender of the security to the fund or to its agent. The Board therefore believes that it is not in a position to amend the rule as suggested by these commentators.
      4. The proposed rule does not provide enough time for customers' checks, in payment for mutual funds purchased through members, to clear. Thus, members may not be in possession of "good funds" at the expiration of the time parameters proposed in the rule.
      When the rule was originally drafted, a maximum time period of T + 5 business days was proposed. This was modified subsequently, as a result of comments received, to provide the alternative and the T + 7 maximum time period as described above. The Board considers that a total time period of eight days (T + 7) from the trade date to the settlement date is adequate to deal with the majority of mutual fund transactions.
      5. A time period of one business day from the day of receipt for transmittal of payments to mutual funds or their agents by underwriters engaged in wholesale transactions does not provide sufficient time for checks to clear.
      In response to this comment, the Board amended proposed paragraph (2) of subsection (m) to provide for a time period of two business days from the receipt of payment to transmittal.

      * * * * *

      The text of the proposed rule is attached as Exhibit I. Also, attached as Exhibit n, is a copy of the current Paragraph 5265 of the NASD Manual, which is proposed to be rescinded.

      The Board of Governors believes that the proposed rule is necessary and appropriate and recommends that members vote their approval. Please mark the attached ballot according to your convictions and return it in the enclosed, stamped envelope to "The Corporation Trust Company." Ballots must be postmarked no later than September 2, 1986.

      Questions concerning this notice may be directed to A. John Taylor, Vice President, NASD Investment Companies/Variable Contracts, at (202) 728-8328.

      Sincerely,

      Lynn Nellius
      Secretary

      Attachments

      Exhibit I

      PROPOSED AMENDMENT TO ARTICLE III, SECTION 26 OF THE NASD RULES OF FAIR PRACTICE

      Prompt Payment for Investment Company Shares

      (m)
      (1) Members (including underwriters) who engage in direct retail transactions for investment company shares shall transmit payments for such shares, which such members have sold to customers, to payees (i.e., underwriters, investment companies or their designated agents) by (1) the end of the fifth business day following receipt of a customer order to purchase such shares or by (2) the end of one business day following receipt of a customer's payment for such shares, whichever is the later date; provided, however, that members shall transmit such payments to payees by the end of the seventh business day following receipt of a customer order to purchase such shares whether or not payment has been received from a customer.
      (2) Members who are underwriters and who engage in wholesale transactions for investment company shares shall transmit payments for investment company shares, which such members have received from other members, to investment company issuers or their designated agents by the end of two business days following receipt of such payments.

      Exhibit II

      ••• Interpretation of the Board of Governors*

      ¶5265

      Prompt Payment by Members for Shares of Investment Companies

      Failure by members to pay underwriters (who are also members) promptly, and failure by underwriters to insist upon such prompt payment by members, for investment company shares which members have sold to customers is contrary to the accepted standards of the business.

      Members are required to transmit payment to underwriters (or custodians) promptly after the date of the transaction. Underwriters must pay issuers for shares acquired to fill dealers' orders promptly after the date of the transaction.

      Members must maintain records, showing date of transaction, date upon which payment is received from customer, and date of payment to underwriter, as to all transactions in investment company shares.

      In the event an underwriter does not receive payment from a member within ten (10) business days following the date of any transaction involving more than $100, or if any check received from a dealer for payment of an open transaction is returned by a bank as uncollectable, regardless of when the check was originally received, the underwriter must immediately notify the district office of the Association in the district where the dealer's office is located. The notice to the Association shall state that the underwriter has communicated with the member and shall contain any explanation furnished by the member for the failure to make prompt payment. A copy of this notice must be furnished to the member involved.

      Failure to comply with the procedures set forth herein may be considered a violation of Section 1 of Article III of the Rules of Fair Practice.

      Transactions in investment company shares between customers and members are subject to Regulation T of the Federal Reserve Board. However, the Interpretation above is in no way related to Regulation T.

      [As amended effective August 3, 1978.]


      * This interpretation of the NASD Board of Governors is proposed to be deleted in its entirety.


    • 86-53 Quarterly Checklist of Notices to Members

      TO: All NASD Members and Other Interested Persons

      The following is a list of NASD Notices to Members issued during the second quarter of 1986. Requests for copies of any notice should be accompanied by a self-addressed mailing label and directed to: NASD Administrative Services, 1735 K Street, N.W., Washington, D.C. 20006.

      Notice Number

      Date

      Topic

      86-24

      April 4, 1986

      SIPC Trustee Appointed
      Kobrin Securities Inc.
      415 Route 18 East
      East Brunswick, New Jersey 08816

      86-25

      April 7, 1986

      NASDAQ National Market System Grows to 2,307 Securities with 37 Voluntary Additions on April 15, 1986

      86-26

      April 8, 1986

      Request for Comments on Proposed Exemption From Free-Riding Interpretation for Conversion of Savings and Loan Associations

      86-27

      April 16, 1986

      Amendments to Corporate Financing Filing Requirements Effective Immediately

      86-28

      April 22, 1986

      Request for Comments on Proposed Amendments to Schedule E of the NASD By-Laws

      86-29

      April 23, 1986

      Proposed Amendment to Article III, Section 21 of the NASD Rules of Fair Practice Relating to Short Sales

      86-30

      April 24, 1986

      Quarterly Checklist of Notices to Members

      86-31

      April 25, 1986

      Request for Comments on a Proposed Amendment to Article III, Section 19(f) of the NASD Rules of Fair Practice

      86-32

      April 28, 1986

      NASDAQ National Market System Grows to 2,342 Securities with 36 Voluntary Additions on May 6, 1986, and 5 Mandatory Inclusions on May 13, 1986

      86-33

      May 7, 1986

      Request for Comments on a Proposed Amendment to the Corporate Financing Interpretation Concerning Sales Incentives for Real Estate Investment Trusts and Corporate Debt and Equity Offerings

      86-34

      May 13, 1986

      NASDAQ National Market System Grows to 2,363 Securities with 28 Voluntary Additions on May 20, 1986

      86-35

      May 14, 1986

      Adoption of Amendments to the Interpretation of the NASD Board of Governors on "Forwarding of Proxy and Other Materials"

      86-36

      May 14, 1986

      Firm Agreements with Customers Not To Testify In NASD Proceedings

      86-37

      May 14, 1986

      Memorial Day Trade Date-Settlement Date Schedule

      86-38

      May 21, 1986

      Membership Vote on Proposed Amendments to Article III, Section 28 of the NASD Rules of Fair Practice and Article VII, Section 8 of the NASD By-Laws

      86-39

      May 23, 1986

      Request for Comments on Proposed Amendment to the Code of Procedure to Grant Discretion to the NASD to Hold Hearings in Eligibility Proceedings

      86-40

      May 23, 1986

      Request for Comments on Amendment to Free-Riding Interpretation Concerning Investment Partnerships

      86-41

      May 27, 1986

      Presentation of Yield Quotations for Investment Company Shares in Communications with the Public

      86-42

      May 27, 1986

      NASDAQ National Market System Grows to 2,385 Securites with 25 Voluntary Additions on June 3, 1986

      86-43

      June 11, 1986

      NASDAQ National Market System Grows to 2,398 Securites with 10 Voluntary Additions on June 17, 1986

      86-44

      June 13, 1986

      Independence Day Trade Date-Settlement Date Schedule

      86-45

      June 23, 1986

      NASDAQ National Market System Grows to 2,420 Securities with 18 Voluntary Additions on July 1, 1986

      86-46

      June 26, 1986

      Amendments to the Interpretation of the NASD Board of Governors on "Forwarding of Proxy and Other Materials"

      86-47

      June 26, 1986

      SIPC Trustee Appointed
      Cusack, Light & Company, Inc.
      101 Old Short Hills Road
      West Orange, New Jersey 07052

    • 86-52 NASDAQ National Market System Grows to 2,507 Securities With 52 Voluntary Additions on August 5, 1986, and 2 Mandatory Inclusions on August 12, 1986

      TO: All NASD Members and Level 2 and Level 3 Subscribers

      On Tuesday, August 5, 1986, 52 issues are scheduled to join the NASDAQ National Market System, bringing the total number of issues in NASDAQ/NMS to 2,505. These 52 issues, which will begin trading under real-time trade reporting, are entering NASDAQ/NMS pursuant to the Securities and Exchange Commission's criteria for voluntary designation.

      The 52 issues scheduled to join NASDAQ/NMS on Tuesday, August 5, 1986, are:

      Symbol*

      Company

      Location

      ALFL

      Alliance Financial Corporation

      Dearborn, MI

      ALOY

      Alloy Computer Products, Inc.

      Framingham, MA

      AMFI

      Amcore Financial, Inc.

      Rockford, IL

      AMWD

      American Woodmark Corporation

      Winchester, VA

      AMWE

      Amwest Insurance Group, Inc.

      Woodland Hills, CA

      BMJF

      B.M.J. Financial Corp.

      Bordentown, NJ

      BTSB

      Braintree Savings Bank (The)

      Braintree, MA

      CJIIA

      CJI Industries, Inc. (Cl A)

      New York, NY

      CGNE

      Calgene, Inc.

      Davis, CA

      CPCO

      Central Pacific Corporation

      Bakersfield, CA

      CSBN

      Community Savings Bank

      Holyoke, MA

      DATX

      Data Translation, Inc.

      Marlborough, MA

      DFED

      Dominion Federal Savings & Loan Association

      McLean, VA

      ESCA

      Escalade, Incorporated

      Evansville, IN

      FMFS

      F & M Financial Services Corporation

      Menomonee Falls, WI

      FHPC

      FHP Corporation

      Fountain Valley, CA

      FFCA

      First Federal of the Carolinas, F. A.

      High Point, NC

      FFCAP

      First Federal of the Carolinas, F.A. (Pfd)

      High Point, NC

      HANA

      Hana Biologics, Inc.

      Berkeley, CA

      HGIC

      Harleysville Group, Inc.

      Harleysville, PA

      BLUD

      Immucor, Inc.

      Norcross, GA

      INSO

      Innovative Software, Inc.

      Lenexa, KS

      INTG

      Intergroup Corporation (The)

      Los Angeles, CA

      IHIRF

      International H.R.S. Industries, Inc.

      Toronto, Canada

      LSBX

      Lawrence Savings Bank

      Lawrence, MA

      LLEC

      Long Lake Energy Corporation

      New York, NY

      MSCA

      M.S. Carriers, Inc.

      Memphis, TN

      MAGE

      Magma Energy, Inc.

      Los Angeles, CA

      BILT

      MicroBilt Corporation

      Atlanta, GA

      AMTC

      Nature’s Sunshine Products, Inc.

      Spanish Fork, UT

      NUCP

      New Century Productions, Ltd.

      Beverly Hills, CA

      NUCPP

      New Century Productions, Ltd. (Ser A Pfd)

      Beverly Hills, CA

      NUCPO

      New Century Productions, Ltd. (Ser B Pfd)

      Beverly Hills, CA

      NCFS

      North Carolina Federal Savings & Loan Association

      Charlotte, NC

      PSSB

      Palm Springs Savings Bank

      Palm Springs, CA

      PBFI

      Paris Business Forms, Inc.

      Burlington, NJ

      PCEP

      Perception Technology Corporation

      Canton, MA

      PRST

      Present Co., Inc. (The)

      Rochester, NY

      RAWC

      Republic American Corporation

      Encino, CA

      SRCO

      Sealright Co., Inc.

      Kansas City, MO

      STWB

      Statewide Bancorp

      Toms River, NJ

      STWBW

      Statewide Bancorp (Wts)

      Toms River, NJ

      SUBBA

      Suburban Bancorp, Inc. (Cl A)

      Palatine, IL

      SBIO

      Synbiotics Corporation

      San Diego, CA

      TKAI

      Teknowledge, Inc.

      Palo Alto, CA

      TCOMB

      Tele-Communications, Inc. (Cl B)

      Englewood, CO

      TCOMW

      Tele-Communications, Inc. (Wts)

      Englewood, CO

      TLOS

      Telos Corporation

      Santa Monica, CA

      TCSFY

      Thomson-CSF

      Paris, France

      VFBK

      Vermont Federal Bank, F.S.B.

      Burlington, VT

      TVOPZ

      Vista Organization Partnership, L.P. (The)

      New York, NY

      ZEUS

      Zeus Components, Inc.

      Port Chester, NY

      The following issues may be included in NASDAQ/NMS prior to the next regularly scheduled phase-in date:

      Pending Additions

      Symbol*

      Company

      Location

      BALD

      Baldwin Piano & Organ Company

      Loveland, OH

      CONH

      Continental Homes Holding Corporation

      Scottsdale, AZ

      DEVN

      Devon Group, Inc.

      Stamford, CT

      DIME

      Dime Savings Bank of New Tork, F.S.B.

      Garden City, NT

      FSBK

      First Service Bank For Savings

      Leominister, MA

      GPAR

      General Parametrics Corporation

      Berkeley, CA

      GEOX

      Genox Corporation

      St. Petersburg, FL

      MMXI

      MNX Incorporated

      St. Joseph, MO

      KITS

      Meridian Diagnostics, Inc.

      Cincinnati, OH

      MNPI

      Microcom, me.

      Norwood, MA

      PRXS

      Praxis Biologies, Inc.

      Rochester, NY

      QDEL

      QUIDEL

      La Jolla, CA

      QUID

      Quipp, Ine-

      Miami, FL

      SFFS

      San Francisco Federal Savings & Loan Association

      San Francisco, CA

      SLHC

      Southlife Holding Company

      Nashville, TN

      STHF

      Stanley Interiors Corporation

      Stanleytown, VA

      STNT

      Syntro Corporation

      San Diego, CA

      THIS

      Thermo Instrument Systems, Inc.

      Waltham, MA

      USRLZ

      U.S. Realty Partners, L.P.

      Greenville, SC

      UGNE

      Unigene Laboratories, Inc.

      Fairfield, CT

      WTBK

      Westerbeke Corporation

      Avon, CA

      ZZND

      Zond Group (The)

      Tehachapi, CA

      Additionally, the following two securities will enter NASDAQ/NMS under the mandatory Tier 1 criteria on August 12, 1986:

      Symbol*

      Company

      Location

      HRSI

      Hal Roach Studios, Inc.

      Los Angeles, CA

      TIMED

      Trimedyne, Inc.

      Santa Ana, CA

      NASDAQ/NMS Interim Additions

      Symbol*

      Security

      Date of Entry

      ACRL

      American Cruise Lines, Inc.

      7/09/86

      GNMR

      Genmar Industries, Inc.

      7/09/86

      RICH

      Richmond Hill Savings Bank

      7/11/86

      SHOE

      Shoe City Corporation

      7/11/86

      TKUKV

      TMK/United, Inc. (WI)

      7/16/86

      AGCI

      American Capacity Group, Inc.

      7/17/86

      SWCB

      Sandwich Co-operative Bank (The)

      7/18/86

      CURY

      Bombay Palace Restaurants, Inc.

      7/23/86

      PSWA

      Pacific Southwest Airlines

      7/24/86

      TWMC

      TransWorld Music Corp.

      7/24/86

      The following changes to the list of NASDAQ/NMS securities occurred since July 3, 1986:

      NASDAQ/NMS Symbol* and/or Name Changes

      New/Old Symbol*

      New/Old Security

      Date of Change

      VBNB/VBNB

      VeloBind, Inc./Velo-Bind, Inc.

      7/09/86

      MLAB/MLAB

      Monitor Technologies, Inc./Monitor Labs, Inc.

      7/10/86

      DTRX/DTRX

      Detrex Corp./Detrex Chemical Industries, Inc.

      7/16/86

      ISLA/ISLA

      Investors Savings Bank/Investors Savings & Loan Association

      7/17/86

      PBNK/PBNK

      Progress Financial Corp./Progress Federal Savings Bank

      7/21/86

      KRUG/TNLG

      KRUG International Corporation/Technology, Inc.

      7/23/86

      STRWA/STRW

      Strawbridge & Clothier (Cl A)/Strawbridge & Clothier

      7/24/86

      NASDAQ/NMS Deletions

      Symbol*

      Security Name

      Date

      RGAS

      Rocky Mountain Natural Gas Company, Inc.

      7/08/86

      UBAN

      Union Bancorp, Inc.

      7/08/86

      AMFD

      A&M Food Services, Inc.

      7/09/86

      MCBC

      Midwest Commerce Corporation

      7/10/86

      PATB

      Patriot Bancorporation

      7/11/86

      PATBP

      Patriot Bancorporation (Pfd)

      7/11/86

      ULTR

      Ultra Systems, Inc.

      7/14/86

      GSHL

      General Shale Products Corporation

      7/18/86

      RECT

      Rectisel Corporation

      7/22/86

      CGESP

      Colonial Gas Company (Pfd)

      7/25/86

      SCPE

      Scope, Inc.

      7/25/86

      Any questions regarding this notice should be directed to Kit Milholland, Senior Analyst, NASDAQ Operations, at (202) 728-8281. Questions pertaining to trade reporting rules should be directed to the NASD Market Surveillance Section at (202) 728-8201.

      Sincerely,

      Gordon S. Macklin
      President


      * NASDAQ symbols are proprietary to the National Association of Securities Dealers, Inc.


    • 86-51 Automation of Test Administration for the Financial and Operations Principal Examination

      TO: All NASD Members and Other Interested Persons

      ATTN: TRAINING DIRECTORS AND REGISTRATION PERSONNEL

      The Qualifications Committee of the NASD Board of Governors is pleased to announce that starting on August 1, 1986, the Financial and Operations Principal Examination (Series 27) will be administered on the PLATO system. Currently, Series 27 is administered as a written examination on the third Saturday of each month at the same time as the Series 7 program. The last written administration of Series 27 tests will be July 19, 1986. Beginning in August, the Series 27 test will be administered daily on an appointment basis through the Control Data Education Center Network.

      All new applicants for registration as Financial and Operations Principals will be enrolled for testing on the PLATO system beginning July 15, 1986. Candidates who apply for registration as Financial and Operations Principals before July 15, and who are holding open admission tickets for the Series 27 exam, will also be enrolled on the PLATO system.

      The structure of the Series 27 exam will remain the same:

      1. 85 multiple-choice questions covering applicable rules and statutory provisions relating to broker-dealer financial responsibility and recordkeeping.
      2. A series of questions that require candidates to perform net capital and reserve account calculations pursuant to SEC Rules 15c3-l and 15c3-3 based on financial information in a hypothetical firm's trial balance.

      Delivery of the multiple-choice questions on the PLATO system is the same as for the other PLATO-administered examinations. However, new software has been developed for the computation section which requires more interaction between the candidates and the PLATO system. At the beginning of this section, candidates will be given a brief introductory lesson to familiarize them with the procedures for performing the required calculations.

      For each computation, the candidate will be shown a trial balance on the computer terminal from which to select appropriate accounts. Once selected, these accounts will be highlighted, and upon completion of this process, the accounts will be summarized, and the candidate will be given the option of either storing the answer or taking adjustments, deductions or "haircuts" on any account prior to storing the answer.

      Net capital must be computed using the standard method ratio of aggregate indebtedness to net capital. The net capital computation must be done by calculating (1) total assets, (2) total liabilities and net worth, and (3) "haircuts" and other deductions from net worth. The total testing time is three hours, with two hours allowed for the multiple-choice section and one hour for the computation section. Although candidates may opt to take either the multiple-choice section or the computation section first, both sections must be completed at one session. One score will be given at the end of the test.

      The study outline for the Financial and Operations Principal Examination is available from the NASD Executive office as well as NASD District offices at a cost of $5.

      * * * * *

      The Qualifications Committee is pleased to announce this additional automated testing service in keeping with the Association's goal of providing the most efficient registration and qualification system possible. Questions regarding this notice should be directed to Carole Hartzog, NASD Qualifications Department, at (202) 728-8141.

      Sincerely,

      Frank J McAuliffe
      Vice President
      Qualifications

      NASD QUALIFICATIONS COMMITTEE

      David M. Underwood, Chairman
      Underwood, Neuhaus & Co., Inc.

      Thomas J. Asher, Robinson-Humphrey Company, Inc.
      Bruce Avedon, Carillon Investments, Inc.
      Judith Belash, Goldman, Sachs & Co.
      Lewis W. Brothers, Jr., Virginia Division of Securities
      John F. Cogan, Jr., The Pioneer Group, Inc.
      Larry D. Hayden, Hayden Financial Management, Inc.
      John G. Higgins, Kidder Peabody & Co., Incorporated
      Thomas J. McAllister, Connecticut Mutual Financial Services, Inc.
      Glenn R. Oxner, Tryon Securities Corp.
      Allan Pessin, Salomon Brothers
      Bill T. Wall, Stern Brothers & Co., Inc.

    • 86-50 Accurate Completion of Form U-4 (Uniform Application for Securities Industry Registration)

      IMPORTANT

      TO: All NASD Members and Other Interested Persons

      ATTN: Compliance and Sales Management Personnel

      The NASD has noted that an increasing number of applications for registration have been found to be inaccurate or incomplete when compared with the applicant's disciplinary history contained in the Central Registration Depository (CRD) data base. Examples of inaccurate filings include failure to disclose past arrests, convictions, administrative orders, major complaints or legal proceedings when responding to questions 22A through 22J and 22M on Form U-4 (see the attached).

      Accurate and complete Form U-4 filings remain a critical aspect of the CRD System. NASD policy requires that any individual failing to disclose a past disciplinary history on Form U-4 must file an amended form disclosing the information with a written statement prepared by the applicant explaining the reason for the initial inaccurate filing. Registration with the member will not become effective until an amended Form U-4 and a statement of explanation are received by the NASD.

      Effective immediately, incidents of substantive non-disclosure will be subject to review by the appropriate District Business Conduct Committee (DBCC). The DBCC, upon review of all available information, including the applicant's written explanation, will take whatever action it deems appropriate. This could include formal disciplinary proceedings and sanctions imposed upon individual applicants. Because the failure to disclose such material information could raise a question on the adequacy of the review process conducted by members, DBCCs will consider members' activities as well since members are obligated to verify the statements contained in the application and make inquiry into the past record and business repute of the applicant.

      The NASD encourages members to inform all applicants for registration of their responsibilities when answering questions 22A through 22J and 22M on Form U-4. All members should take appropriate steps to ensure that each applicant reads and follows the general instructions for preparing and filing Form U-4.

      Questions concerning completion of Form U-4 may be directed to H. Craig Thompson, Assistant Director, Special Registration Review, at (202) 728-8362. Questions regarding any DBCC matters may be directed to your local District Office.

      Sincerely,

      Frank J. Wilson
      Executive Vice President
      Legal and Compliance


      Attachment

      Form U-4

    • 86-49 Request for Comments on Proposed Amendment to Schedule G of the NASD By-Laws

      TO: All NASD Members and Other Interested Persons

      LAST DATE FOR COMMENTS: August 9, 1986.

      The National Association of Securities Dealers, Inc. (NASD), is requesting comments on a proposed amendment to Section 2 of Schedule G of the NASD By-Laws. The proposed amendment would require NASD members to report transactions in listed securities executed between 4 p.m. and 4:30 p.m. Eastern Time to the Consolidated Tape Association (CTA) through the NASDAQ System. The text of the proposed amendment is attached.

      BACKGROUND

      The proposed amendment to Section 2 of Schedule G was recommended to the NASD Board of Governors by the Trading Committee as a result of concern over apparent non-uniformity of transaction reporting procedures with respect to transactions in listed securities executed between 4 p.m. and 4:30 p.m. Eastern Time. Some NASD members currently utilize NASDAQ facilities to report transactions in listed securities executed between 4 p.m. and 4:30 p.m. Eastern Time, while other NASD members report such trades via Form T. Form T is used to report trades that are executed after the close of CTA trading hours and is submitted to the NASD on a weekly basis. Information from Form T is not included in daily market activity summaries.

      The proposed requirement to report transactions in listed securities executed between 4 p.m. and 4:30 p.m. Eastern Time to CTA through NASDAQ will ensure uniformity of transaction reporting procedures and will also result in the dissemination of more complete data on daily trading activity to the wire services and print media and, thus, to public investors.

      It should be emphasized that transactions in listed securities executed outside exchange trading hours are considered to be over-the-counter transactions. Therefore, the proposed requirement to report to CTA through NASDAQ will be applicable to domestic transactions in listed securities executed between 4 p.m. and 4:30 p.m. by all NASD members, including those that are also members of a national securities exchange. The proposed amendment does not address the reporting of transactions in listed securities executed abroad after the close.

      All members and other interested persons are invited to submit comments on the proposed amendment. Comments should be received no later than August 9, 1986, and should be directed to:

      Mr. Lynn Nellius, Secretary
      National Association of Securities Dealers, Inc.
      1735 K Street, N.W.
      Washington, D.C. 20006

      Comments received will be considered by the Trading Committee and the NASD Board of Governors. If approved by the Board, the proposed amendment must be filed with and approved by the Securities and Exchange Commission.

      Questions concerning this notice may be directed to S. William Broka, Vice President, NASDAQ Operations-Companies, at (202) 728-8050.

      Sincerely,

      Frank J. Wilson
      Executive Vice President and General Counsel

      Attachment

      PROPOSED AMENDMENT TO SCHEDULE G OF THE NASD BY-LAWS*

      Schedule G, Section 2 — Transaction Reporting

      (a) When and How Transaction Reported
      (1) Designated Reporting Members shall transmit through the NASDAQ Transaction Reporting System, within 90 seconds after execution, last sale reports of transactions in eligible securities executed in the United States between the hours of 9;30 a.m. and 4:30 p.m. Eastern Time [during the trading hours of the Consolidated Tape]. Transactions not reported within 90 seconds after execution shall be designated as late.
      (2) Non-Designated Reporting Members shall transmit through the NASDAQ Transaction Reporting System or, if such System is unavailable, via Telex, TWX or telephone, to the NASDAQ Department in New York City, within 90 seconds after execution, last sale reports of transactions in eligible securities executed in the United States between the hours of 9:30 a.m. and 4:30 p.m. Eastern Time [during the trading hours of the Consolidated Tape] unless all of the following criteria are met:
      (A) The aggregate number of shares of eligible securities which the member executed and is required to report does not exceed 1,000 shares in any one trading day;
      (B) The total dollar amount of shares of eligible securities that the mem ber executed and is required to report does not exceed $25,000 in any one trading day; and
      (C) The member's transactions in eligible securities have not exceeded the limits of (A) or (B) above on five or more of the previous ten trading days.
      Transactions not reported within 90 seconds after execution shall be designated as late. If the member has reason to believe that its transactions in a given day will exceed the above limits, it shall report all transactions in eligible securities within 90 seconds after execution; in addition, if the member exceeds the above limits at any time during the trading day, it shall immediately report and designate as late any unreported transactions in eligible securities executed earlier that day.
      (3) Non-Designated Reporting Members shall report weekly to the NASDAQ Department in New York City, on Form T, last sale reports of transac tions in eligible securities that are not required by paragraph (2) to be reported within 90 seconds after execution.
      (4) All members shall report weekly to the NASDAQ Department in New York City, on Form T, last sale reports of transactions in eligible securities exe cuted in the United States outside the hours of 9;30 a.m. and 4;30 p.m. Eastern Time [trading hours of the Consolidated Tape].
      (5) All trade tickets for transactions in eligible securities shall be time- stamped at the time of execution.

      * New language is underlined; deleted language is bracketed.


    • 86-48 NASDAQ National Market System Grows to 2,457 Securities With 33 Voluntary Additions on July 15, 1986

      TO: All NASD Members and Level 2 and Level 3 Subscribers

      On Tuesday, July 15, 1986, 33 issues are scheduled to join the NASDAQ National Market System, bringing the total number of issues in NASDAQ/NMS to 2,457. These 33 issues, which will begin trading under real-time trade reporting, are entering NASDAQ/NMS pursuant to the Securities and Exchange Commission's criteria for voluntary designation.

      The 33 issues scheduled to join NASDAQ/NMS on Tuesday, July 15, 1986, are:

      Symbol*

      Company

      Location

      AIMT

      AIM Telephones, Inc.

      Fairfield, NJ

      ADMG

      Advanced Magnetics, Inc.

      Cambridge, MA

      AMFI

      Amcore Financial, Inc.

      Rockford, IL

      AGLS

      Anchor Glass Container Corporation

      Tampa, FL

      AFED

      Atlantic Federal Savings Bank

      Baltimore, MD

      BSGI

      BancServe Group, Inc.

      Rockford, IL

      BWRLF

      Breakwater Resources, Ltd

      Vancouver, Canada

      BFBS

      Brookfield Federal Bank for Savings

      Brookfield, IL

      CCAM

      CCA Industries, Inc.

      East Rutherford, NJ

      CCAZV

      CCA Industries, Inc. (Wts) (WI)

      East Rutherford, NJ

      CWCC

      Capital Wire & Cable Corporation

      Piano, TX

      COSF

      Cosmetics and Fragrance Concepts, Inc.

      Beltsville, MD

      DSTS

      DST Systems, Inc.

      Kansas City, MO

      FLAEF

      Florida Employers Insurance Company (The)

      Grand Cayman, British West Indies

      FKFD

      Frankford Corporation (The)

      Irvine, CA

      GWAYV

      Gateway Communications, Inc. (WI)

      Philadelphia, PA

      GSSC

      Grenada Sunburst System Corporation

      Grenada, MS

      HFMD

      Home Federal Savings Bank

      Hagerstown, MD

      HSLD

      Home Savings & Loan Association, Inc.

      Durham, NC

      HTCH

      Hutchinson Technology Incorporated

      Hutchinson, MN

      AIMBZ

      Integrated Resources American Insured Mortgage Investors Series '85, A California Limited Partnership

      New York, NY

      KENS

      Kenilworth Systems Corporation

      Plainview, NY

      KEYC

      Key Centurion Bancshares, Inc.

      Charleston, WV

      MHBK

      Mid-Hudson Savings Bank, FSB

      Fishkill, NY

      NIEX

      Niagara Exchange Corporation

      Buffalo, NY

      PACN

      Pacific Nuclear Systems, Inc.

      Federal Way, WA

      PWSB

      Peoples Westchester Savings Bank

      Hawthorne, NY

      SESL

      Southeastern Savings & Loan Company

      Charlotte, NC

      SSBB

      Southington Savings Bank

      Southington, CT

      TCTC

      Tompkins County Trust Company

      Ithaca, NY

      UFCS

      United Fire & Casualty Company

      Cedar Rapids, IA

      UNSL

      United Savings and Loan Association

      Lebanon, MO

      VMSI

      VM Software, Inc.

      Vienna, VA

      The following issues may be included in NASDAQ/NMS prior to the next regularly scheduled phase-in date:

      Pending Additions

      Symbol*

      Company

      Location

      READ

      American Learning Corporation

      Huntington Beach, CA

      BPCO

      Bonneville Pacific Corporation

      Salt Lake City, UT

      GWTI

      Groundwater Technology, Inc.

      Norwood, MA

      NPIC

      Native Plants Incorporated

      Salt Lake City, UT

      PSVB

      Penn Savings Bank

      Wyomissing, PA

      SHOE

      Shoe City Corporation

      Montgomery, AL

      TIPT

      Tipton Centers, Inc.

      St. Louis, MO

      WATTA

      Watts Industries, Inc. (Cl A)

      North Andover, MA

      NASDAQ/NMS Interim Additions

      Symbol*

      Security

      Date of Entry

      DIET

      American Health Companies, Inc.

      6/24/86

      ELDC

      Eldec Corporation

      6/25/86

      GECM

      Genicom Corporation

      6/25/86

      LEAF**

      Interleaf, Inc.

      6/26/86

      SKYW

      Skywest, Inc.

      6/26/86

      RBCO

      Ryan, Beck & Co., Inc.

      6/27/86

      SCFB

      South Carolina Federal Savings Bank

      7/01/86

      WATFY

      Waterford Glass Group, pic

      7/01/86

      KLLM

      KLLM Transport Services, Inc.

      7/02/86

      POLK

      Polk Audio, Inc.

      7/02/86

      XYVI

      Xvvision. Inc.

      7/02/86

      The following changes to the list of NASDAQ/NMS securities occurred since June 21, 1986:

      NASDAQ/NMS Symbol* and/or Name Changes

      New/Old Symbol*

      New/Old Security

      Date of Change

      ARDNA/ARDN

      Arden Group, Inc. (Cl A)/Arden Group, Inc.

      7/01/86

      GMSI/MHOM

      Gateway Medical Systems, Inc./Medical Homecare Systems, Inc.

      7/01/86

      IWCR/IWTR

      IWC Resources Corp./Indianapolis Water Co.

      7/01/86

      PMSI/CRHB

      Prime Medical Services, Inc./C.P. Rehab Corp.

      7/01/86

      VIKG/VIKG

      Viking Freight, Inc./Viking Freight System, Inc.

      7/01/86

      ETCC/ETCC

      Environmental Treatment and Technologies Corporation/ Environmental Testing and Certification Corporation

      7/02/86

      NASDAQ/NMS Deletions

      Symbol*

      Security

      Date

      ACVAA

      Alberto-Culver Company (Cl A)

      6/23/86

      CHSI

      Continental Healthcare Systems, Inc.

      6/23/86

      LILY

      Lily Tulip, Inc.

      6/25/86

      ESCO

      Environmental Systems Company

      6/27/86

      SLON

      Sloan Technology Corporation

      6/27/86

      TTEC

      Thoratec Laboratories, Inc.

      6/30/86

      SBPS

      Savings Bank of Pugent Sound, F.S.B.

      7/01/86

      Any questions regarding this notice should be directed to Kit Milholland, Senior Analyst, NASDAQ Operations, at (202) 728-8281. Questions pertaining to trade reporting rules should be directed to the NASD Market Surveillance Section at (202) 728-8201.

      Sincerely,

      Gordon S. Macklin
      President


      * NASDAQ symbols are proprietary to the National Association of Securities Dealers, Inc.

      ** This issue was previously announced as an interim NASDAQ/NMS addition on June 20, 1986. This offer was rescinded on June 23, 1986, and was subsequently reissued on June 26, 1986.


    • 86-47 Cusack, Light & Company, Inc. 101 Old Short Hills Road West Orange, New Jersey 07052

      TO: All NASD Members

      ATTN: Operations Officer, Cashier, Fail-Control Department

      On June 25, 1986, the United States District Court for the District of New Jersey appointed a SIPC Trustee for the above-captioned firm.

      Members may use the "immediate close-out" procedures as provided in Section 59(i)(2) of the NASD's Uniform Practice Code to close out open OTC contracts. Also, MSRB Rule G-12(h)(iii) provides that members may use the above procedures to close out transactions in municipal securities.

      Questions regarding the firm should be directed to:

      SIPC Trustee

      Frederick B. Lacey, Esquire
      LeBouef, Lamb, Leiby & MacRae
      Gateway One, Gateway Center
      Newark, New Jersey 07102
      Telephone: (201) 643-8000

    • 86-46 Amendments to the Interpretation of the NASD Board of Governors on "Forwarding of Proxy and Other Materials"

      TO: All NASD Members and Other Interested Persons

      The Securities and Exchange Commission recently approved amendments to the Interpretation of the NASD Board of Governors on "Forwarding of Proxy and Other Materials" under Article III, Section 1 of the NASD Rules of Fair Practice.1/ These amendments, which became effective on May 30, 1986, provide for an increase in the guidelines for fees that may be charged by NASD members to issuers in connection with proxy solicitations.

      The text of the amendments is attached to this notice.

      The Interpretation requires members to forward proxy materials to their customers promptly upon receipt of sufficient copies of the materials and satisfactory assurance that the issuer will reimburse the member for expenses incurred. The Appendix to the Interpretation sets out suggested rates of reimbursement.

      The recently approved amendments increase by 10* the guidelines for amounts a member may charge an issuer in connection with proxy solicitations. The increase of 10* applies to charges under the following categories: Charges for Initial Proxy and/or Annual Report Mailings; Charges for Proxy Follow-Up Mailings; and Charges for Interim Report Mailings. This increase of 10* does not apply to the recently approved proxy surcharge and fee for members' costs in providing the names of beneficial shareholders to the issuer. 2/

      The purpose of these amendments is to assist members in recouping the increasing costs of processing and transmitting proxy materials. Proxy solicitations demand a substantial amount of clerical work by members. In most instances, time is of the essence since there is a limited period during which materials must be mailed to beneficial owners and their votes returned to the issuer.

      Questions regarding this notice should be directed to Craig L. Landauer, NASD Office of the General Counsel, at (202) 728-8291.

      Sincerely,

      Frank J. Wilson
      Executive Vice President and General Counsel

      Attachment

      AMENDMENTS TO THE INTERPRETATION OF THE NASD BOARD OF GOVERNORS ON "FORWARDING OF PROXY AND OTHER MATERIALS" UNDER ARTICLE III, SECTION 1 OF THE NASD RULES OF FAIR PRACTICE*

      FORWARDING OF PROXY AND OTHER MATERIALS

      APPENDIX

      The Board of Governors has determined that the following suggested rates of reimbursement for expenses incurred in forwarding proxy material, annual reports, information statements and other material are to be used as a guide by members:

      Charges for Initial Proxy and/or Annual Report Mailings

      [50] 60 cents for each set of proxy material, i.e., proxy statement, form of proxy and annual report when mailed as a unit, plus postage, with a minimum of $5.00 for all sets mailed;

      [10] 20 cents for each copy, plus postage, for annual reports that are mailed separately from the proxy material pursuant to the instruction of the person soliciting proxies.

      Charges for Proxy Follow-Up Mailings

      [30] 40 cents for each set of follow-up material, plus postage, when the follow-up material is mailed to all beneficial owners;

      [50] 60 cents for each set of follow-up material, plus postage, when the follow-up material is mailed only to beneficial owners who have not responded to the initial mailing.

      Charges for Interim Report Mailings

      [20] 30 cents for each copy, plus postage, for interim reports, post-meeting reports or other material with a minimum of $2.00 for all sets mailed.


      1/NASD Manual (CCH), Para. 2037-3.

      2/See Notice to Members 86-35, dated May 14, 1986.

      * New language is underlined; deleted language is bracketed. These amendments were effective on May 30, 1986.


    • 86-45 NASDAQ National Market System Grows to 2,420 Securities With 18 Voluntary Additions on July 1, 1986

      TO: All NASD Members and Level 2 and Level 3 Subscribers

      On Tuesday, July 1, 1986, 18 issues are scheduled to join the NASDAQ National Market System, bringing the total number of issues in NASDAQ/NMS to 2,420. These 18 issues, which will begin trading under real-time trade reporting, are entering NASDAQ/NMS pursuant to the Securities and Exchange Commission's criteria for voluntary designation.

      The 18 issues scheduled to join NASDAQ/NMS on Tuesday, July 1, 1986, are:

      Symbol*

      Company

      Location

      BIOT

      BioTechnica International, Inc.

      Cambridge, MA

      CNLF

      CNL Financial Corporation

      Macon, GA

      CVSNF

      Conversion Industries, Inc.

      Pasadena, CA

      FOBBA

      First Oak Brook Bancshares Inc. (Cl A)

      Oak Brook, IL

      GCCC

      General Computer Corporation

      Twinsburg, OH

      IYCOY

      Ito-Yokado Co., Ltd.

      Tokyo, Japan

      LIFE

      Lifeline Systems, Inc.

      Watertown, MA

      MHCO

      Moore-Handley, Inc.

      Birmingham, AL

      PFSB

      Piedmont Federal Savings Bank

      Manassas, VA

      RSIC

      RSI Corporation

      Greenville, SC

      RFTN

      Reflectone, Inc.

      Tampa, FL

      SHRE

      Sahara Resorts

      Las Vegas, NV

      SUSTP

      Sunstates Corporation (Pfd)

      Jacksonville, FL

      TELQ

      TeleQuest, Inc.

      Burbank, CA

      TREN

      Trenwick Group, Inc.

      Westport, CT

      WOWI

      Worlds of Wonder, Inc.

      Fremont, CA

      XOMA

      XOMA Corporation

      Berkeley, CA

      XIDXW

      Xidex Corporation (Wts)

      Mountain View, CA

      The following issues may be included in NASDAQ/NMS prior to the next regularly scheduled phase-in date:

      Pending Additions

      Symbol*

      Company

      Location

      ACGI

      American Capacity Group, Inc.

      Peoria, IL

      GNMR

      Genmar Industries, Inc.

      Minneapolis, MN

      NFCL

      NFC Leasing, Inc.

      Hinsdale, IL

      POLK

      Polk Audio, Inc.

      Baltimore, MD

      SCFB

      South Carolina Federal Savings Bank

      Columbia, SC

      NASDAQ/NMS Interim Additions

      Symbol*

      Company

      Date of Entry

      INFTA

      Infinity Broadcasting Corporation (CIA)

      6/10/86

      LINN

      Lincoln Foodservice Products, Inc.

      6/10/86

      ATOG

      Andover Togs, Inc.

      6/11/86

      KECO

      Kent Electronics Corporation

      6/11/86

      MRTA

      Marietta Corporation

      6/11/86

      SIBR

      Sybra, Inc.

      6/13/86

      TCFC

      TCF Banking and Savings, F.A.

      6/17/86

      ASTE

      Astec Industries, Inc.

      6/18/86

      RUDY

      Rudy's Restaurant Group, Inc.

      6/18/86

      NNSL

      Newport News Savings and Loan Association

      6/19/86

      FFCT

      FFB Corp.

      6/20/86

      LEAF

      Interleaf, Inc.

      6/20/86

      WERN

      Werner Enterprises, Inc.

      6/20/86

      The following changes to the list of NASDAQ/NMS securities occurred since June 6, 1986:

      NASDAQ/NMS Symbol* and/or Name Changes

      New/Old Symbol*

      New/Old Security Name

      Date of Change

      BKNG/FIVT

      Banknorth Group, Inc./First Vermont Financial Corporation

      6/10/86

      BBEC/CDSG

      Blockbuster Entertainment Corporation/Cook Data Services, Inc.

      6/10/86

      MOSE/MOSE

      Moseley Holding Corporation/Moseley, Hallgarten, Estabrook & Weeden Holding Corporation

      6/11/86

      PASB/PASB

      Perpetual Savings Bank, F.S.B./ Perpetual American Bank, F.S.B.

      6/13/86

      PASBP/PASBP

      Perpetual Savings Bank, F.S.B. (Pfd)/ Perpetual American Bank, F.S.B. (Pfd)

      6/13/86

      AINVS/MINVS

      Ameribanc Investors Group, SBI/MIW Investors of Washington, SBI

      6/16/86

      TRTI/SCIT

      Transtech Industries, Inc./ Scientific, Inc.

      6/19/86

      USBI/SVRS

      United Saver's Bancorp, Inc./Saver's Bancorp,Inc.

      6/20/86

      CSOU/CSGA

      Citizens & Southern Corporation/

      6/23/86

      NASDAQ/NMS Deletions

      Symbol*

      Security

      Date

      FJAKC

      Flakey Jake's, Inc.

      6/10/86

      NMRX

      Numerax, Inc.

      6/12/86

      BOTH

      Booth, Inc.

      6/13/86

      CTST

      Centrust Savings Bank

      6/17/86

      SUBNP

      Summit Bancorporation (The) (Pfd)

      6/17/86

      CLNP

      Gallon Petroleum Company

      6/18/86

      MDIC

      Medicore, Inc.

      6/18/86

      Any questions regarding this notice should be directed to Kit Milholland, Senior Analyst, NASDAQ Operations, at (202) 728-8281. Questions pertaining to trade reporting rules should be directed to the NASD Market Surveillance Section at (202) 728-8201.

      Sincerely,

      Gordon S. Macklin
      President


      * NASDAQ symbols are proprietary to the National Association of Securities Dealers, Inc.


    • 86-44

      Notice to members 86-44

      NOT AVAILABLE AT THIS TIME

    • 86-43 NASDAQ National Market System Grows to 2,398 Securities With 10 Voluntary Additions on June 17, 1986

      TO: All NASD Members and Level 2 and Level 3 Subscribers

      On Tuesday, June 17, 1986, 10 issues are scheduled to join the NASDAQ National Market System, bringing the total number of issues in NASDAQ/NMS to 2,398. These 10 issues, which will begin trading under real-time trade reporting, are entering NASDAQ/NMS pursuant to the Securities and Exchange Commission's criteria for voluntary designation.

      The 10 issues scheduled to join NASDAQ/NMS on Tuesday, June 17, 1986, are:

      Symbol*

      Company

      Location

      AAGC

      All American Gourmet Company

      Orange, CA

      BVFS

      Bay View Federal Savings & Loan Association

      San Mateo, CA

      CALWV

      Calumet Industries, Inc. (WI) (Wts)

      Chicago, IL

      CLEA

      Chemical Leaman Corporation

      Exton, PA

      CRLDP

      Crossland Savings, F.S.B. (Pfd)

      Brooklyn, NY

      DGTC

      Digitech, Inc.

      St. Louis, MO

      FRFD

      First Community Bancorp, Inc.

      Rockford, IL

      KHLR

      Kahler Corporation (The)

      Rochester, MN

      PYRD

      Pyramid Technology Corporation

      Mountain View, CA

      SOON

      Sooner Defense of Florida, Inc.

      Lakeland, FL

      The following issues may be included in NASDAQ/NMS prior to the next regularly scheduled phase-in date:

      Pending Additions

      Symbol*

      Company

      Location

      ACRZ

      American Cruise Lines, Inc.

      Haddam, CT

      DIET

      American Health Companies, Inc.

      Rexburg, ID

      TOGS

      Andover Togs, Inc.

      New York, NY

      ELDC

      Eldec Corporation

      Lynwood, WA

      FFCT

      FFB Corporation

      New Haven, CT

      GECM

      Genicom Corporation

      Waynesboro, VA

      MRTA

      Marietta Corporation

      Cortland, NY

      NNSL

      Newport News Savings & Loan Association

      Newport News, VA

      RBCO

      Ryan, Beck & Co., Inc.

      West Orange, NJ

      SIBR

      Sybra, Inc.

      Atlanta, GA

      TCFC

      TCF Banking & Savings, F.A.

      Minneapolis, MN

      NASDAQ/NMS Interim Additions

      Symbol*

      Company

      Date of Entry

      HAVTA

      Haverty Furniture Companies, Inc. (CIA)

      5/27/86

      LSSB

      Lake Sunapee Savings Bank, F.S.B.

      5/27/86

      MMBLF

      MacMillan Bloedel Limited

      5/27/86

      CYPR

      Cypress Semiconductor Corporation

      5/28/86

      MTIK

      Modular Technology, Inc.

      5/28/86

      SKAN

      Skaneateles Savings Bank

      6/02/86

      ALLS

      Allison's Place, Inc.

      6/03/86

      GENZ

      Genzyme Corporation

      6/05/86

      JBAK

      J. Baker, Inc.

      6/05/86

      TOWR

      Tower Savings & Loan Association

      6/06/86

      The following changes to the list of NASDAQ/NMS securities occurred since May 23, 1986:

      NASDAQ/NMS Symbol* and/or Name Changes

      New/Old Symbol*

      New/Old Security

      Date of Change

      CALSF/CALSF

      California Gold Mines Ltd./ California Silver Ltd.

      5/27/86

      DBUG/BUGS

      Cooper Development Company/Cooper Development Company

      5/28/86

      BTSS/NPWR

      Brooks Satellite, Inc./Nationwide Power Corporation

      5/29/86

      MTOR/PSFS

      Meritor Savings Bank/Philadelphia Savings Fund Society

      6/02/86

      BEIH/LFTM

      BEI Holdings, Ltd/Lifetime Communities, Inc.

      6/02/86

      IUTL/IUTL

      Iowa Southern, Inc./Iowa Southern Utilities Company

      6/02/86

      INTLA/INTL

      Inter-Tel, Incorporated (Cl A)/ Inter-Tel, Incorporated

      6/04/86

      CACIA/CACI

      CACI, Inc. (Cl A)/CACI, Inc.

      06/05/86

      NASDAQ/NMS Deletions

      Symbol*

      Security

      Date

      FECXN

      First Executive Corporation (Pfd)

      5/27/86

      WIDE

      Widcom, Inc.

      5/28/86

      BMPI

      Biosearch Medical Products

      5/29/86

      INATZ

      Indiana National Corporation (DDRs)

      5/29/86

      PGAM

      Pacific Gamble Robinson Company

      5/30/86

      DDCC

      Decision Data Computer Corporation

      6/04/86

      MCSB

      Morris County Savings Bank

      6/04/86

      Any questions regarding this notice should be directed to Kit Milholland, Senior Analyst, NASDAQ Operations, at (202) 728-8281. Questions pertaining to trade reporting rules should be directed to Sharon Belanger, NASD Market Surveillance, at (202) 728-8206.

      Sincerely,

      Gordon S. Macklin
      President

      NASD Signasure Questionnaire


      * NASDAQ symbols are proprietary to the National Association of Securities Dealers, Inc.


    • 86-42 NASDAQ National Market System Grows to 2,385 Securities With 25 Voluntary Additions on June 3, 1986

      TO: All NASD Members and Level 2 and Level 3 Subscribers

      On Tuesday, June 3, 1986, 25 issues are scheduled to join the NASDAQ National Market System, bringing the total number of issues in NASDAQ/NMS to 2,385. These 25 issues, which will begin trading under real-time trade reporting, are entering NASDAQ/NMS pursuant to the Securities and Exchange Commission's criteria for voluntary designation.

      The 25 issues scheduled to join NASDAQ/NMS on Tuesday, June 3, 1986, are:

      Symbol*

      Company

      Location

      AWCSA

      AW Computer Systems, Inc. (Cl A)

      Mt. Laurel, NJ

      AAMD

      American MedCenters, Inc.

      Minneapolis, MN

      BLCCB**

      Balchem Corporation (Cl B)

      Slate Hill, NY

      BULR

      Buehler International, Inc.

      Lake Bluff, IL

      CAYB

      Cayuga Savings Bank

      Auburn, NY

      CHOL

      Central Holding Company

      Mt. Clemens, MI

      CTWL

      Chartwell Group Ltd.

      Carlstadt, NJ

      CBNH

      Community Bankshares, Inc.

      Concord, NH

      DYTR

      Dyatron Corporation

      Birmingham, AL

      FARA

      Faradyne Electronics Corp.

      Belleville, NJ

      GNDR

      Gander Mountain, Inc.

      Wilmot, WI

      IRIN

      International Robomation/Intelligenee

      Carlsbad, CA

      JNBK

      Jefferson National Bank

      Watertown, NY

      MALTZ

      Management Assistance Inc. Liquidating Trust

      New York, NY

      MSBK

      Medford Savings Bank

      Medford, MA

      NMSB

      New Milford Savings Bank

      New Milford, CT

      OCCN

      Occidental Nebraska Federal Savings Bank

      Omaha, NE

      RGEN

      Repligen Corporation

      Cambridge, MA

      SAVO

      Savoy Industries, Inc.

      New York, NY

      TECD

      Tech Data Corporation

      Clearwater, FL

      TCJC

      Town & Country Jewelry Manufacturing Corporation

      Chelsea, MA

      UVOL

      Universal Voltronics Corporation

      Mt. Kisco, NY

      VMIG

      View-Master Ideal Group, Inc.

      Beaverton, OR

      WSBK

      Western Bank

      Coos Bay, OR

      WBAT

      Westport Bancorp, Inc.

      Westport, CT

      The following issues may be included in NASDAQ/NMS prior to the next regularly scheduled phase-in date:

      Pending Additions

      Symbol*

      Company

      Location

      ALLS

      Allison's Place, Inc.

      Los Angeles, CA

      JBAK

      Baker (J.), Inc.

      Readville, MA

      CYPR

      Cypress Semiconductor Corporation

      San Jose, CA

      INFTA

      Infinity Broadcast Corporation (Cl A)

      New York, NY

      KECO

      Kent Electronics Corporation

      Houston, TX

      LSSB

      Lake Sunapee Savings Bank

      Newport, NH

      MTIK

      Modular Technology, Inc.

      Chicago, IL

      PCEP

      Perception Technology Corporation

      Canton, MA

      SKAN

      Skaneateles Savings Bank

      Skaneateles, NY

      SKYW

      Skywest, Inc.

      St. George, UT

      TOWR

      Tower Savings and Loan Association

      South Bend, IN

      WERN

      Werner Enterprises, Inc.

      Omaha, NE

      WOWI

      Worlds of Wonder, Inc.

      Fremont, CA

      NASDAQ/NMS Interim Additions

      Symbol*

      Company

      Date of Entry

      GTOS

      Gantos, Inc.

      5/13/86

      FSAM

      First American Savings, F.A.

      5/14/86

      STRL

      Sterling, Inc.

      5/14/86

      GENI

      Genetics Institute, Inc.

      5/20/86

      BRDL

      Brendle's Incorporated

      5/21/86

      CRTR

      Charter-Crellin, Inc.

      5/21/86

      PROS

      Prospect Group, Inc. (The)

      5/21/86

      The following changes to the list of NASDAQ/NMS securities occurred since May 9, 1986:

      NASDAQ/NMS Symbol* and/or Name Changes

      New/Old Symbol*

      New/Old Security

      Date of Change

      INVG/INVG

      INVG Mortgage Securities Corporation/Investors GNMA Mortgage-Backed Securities Trust, Inc.

      5/13/86

      JWAT/JWAT

      JWP, Inc./Jamaica Water Properties, Inc.

      5/13/86

      LSST/LSST

      Lone Star Technologies, Inc./Lone Star Steel Company

      5/15/86

      NOAX/NOAX

      NEOAX, Inc./Northeast Ohio Axle, Inc.

      5/20/86

      VIPLF/VIPLF

      Vulcan Packaging, Inc./Vulcan Industrial Packaging, Ltd.

      5/22/86

      TTCO/TTCO

      Trustcorp, Inc./Toledo Trustcorp, Inc.

      5/23/86

      TTCOP/TTCOP

      Trustcorp, Inc. (Pfd)/Toledo Trustcorp, Inc. (Pfd)

      5/23/86

      NASDAQ/NMS Deletions

      Symbol*

      Security

      Date

      VOIT

      Voit Corporation

      5/09/86

      FTNC

      First National Corporation of Ohio

      5/13/86

      HISI

      Health Information Systems, Inc.

      5/13/86

      VANS

      Van Schaak & Co.

      5/14/86

      EMCC

      Emett & Chandler Companies, Inc.

      5/16/86

      ATCC

      American Technical Ceramics Corporation

      5/19/86

      EXPDW

      Expeditors International of Washington Inc. (Wts)

      5/19/86

      TMPO

      Tempo Enterprises, Inc.

      5/19/86

      CTYFP

      CityFed Financial Corporation (Pfd)

      5/20/86

      ORSI

      ORS Automation, Inc.

      5/22/86

      GBCO

      Gulf Broadcast Company

      5/23/86

      Any questions regarding this notice should be directed to Kit Milholland, Senior Analyst, NASDAQ Operations, at (202) 728-8281. Questions pertaining to trade reporting rules should be directed to Sharon Belanger, NASD Market Surveillance, at (202) 728-8206.

      Sincerely,

      Gordon S. Macklin
      President

      National Association of Securities Dealers, Inc.
      1735 K Street N.W.
      Washington, D.C. 20006
      (202) 728-8000

      May 28, 1986

      IMPORTANT

      TO: Selected NASD Members

      RE: "Signasure" Guarantee Program

      RESPONSE REQUESTED BY JUNE 15, 1986.

      For the past two years, a committee composed of representatives from banks, trust companies, savings and loans, credit unions, the securities industry and stock transfer agents has been working to develop a new program, called "Signasure," to be used in connection with the transfer of registered securities.

      "Signasure" would require the formation of a corporation to operate the program, which would permit a broad range of firms offering financial services and products to guarantee signatures on securities certificates and stock powers ("stocks"). It would replace the current method which permits only certain approved financial institutions to guarantee signatures on stocks by filing the signatures of authorized individuals with transfer agents.

      The Signasure program would consist of two elements:

      (1) A procedure for prequalifying and verifying signature guarantors.
      (2) A surety bond to protect transfer agents and issuers. The surety bond will not insure members against losses.

      The procedure would utilize a coded label or stamp to be affixed to a stock which would be overprinted with the guarantor's name stamp. The label, produced by the American Bank Note Company, would contain various state-of-the-art security features, such as latent images and black-on-black bar codes, to prevent counterfeiting. The label would be readable only with an electronic instrument in the possession of the transfer agent.

      The costs of the equipment, the surety bond and the operation of the program would be met by participants purchasing the labels at a unit cost per label, with a minimum annual fee that would purchase up to 5,000 labels. Participants purchasing more than 5,000 labels per annum would be charged a decreasing unit cost. A theoretical projection of a cost schedule prepared by the Consultant on the assumption that there will be maximum participation is attached. The final cost to a participant would thus depend upon how many participants there are and how many signatures are guaranteed by each participant annually.

      The Consultant for the Signasure program and the staff of the SEC's Division of Market Regulation, recognizing that the cost to participants is crucial in deciding whether the program can proceed, have asked interested organizations to supply information about expected participation in the program and the annual number of signature guarantees that may be processed.

      Please let me know whether your firm would be interested in participating in such a program and approximately how many signature guarantees your firm would process annually if the program is adopted. Enclosed is a form for this purpose and a return envelope. Completed forms must be received no later than June 15, 1986, in order to be included in our report to the Signasure Group and the SEC. Without an accurate assessment of member interest, this program will not be able to go forward.

      Should you have any questions concerning this notice, please contact me at (202) 728-8328.

      Sincerely,

      A. John Taylor
      Vice President
      Investment Companies/Variable Contracts

      Attachments

      SIGNASURE SERVICES CORPORATION

      TRANSACTIONS ANALYSIS & PROJECTION SCHEDULE

      #1

      #2

      #3

      #4

      #5

      #6

      #7

      GUARANTOR

      TOTAL

      TOTAL LOCATIONS

      AVG. NO. BRANCHES

      AVG. TR'S/DAY YR/LOCATION

      TOTAL TR’S/YR GUARANTOR

      TOTAL TR'S CATEGORY

      SM.BANKS

      10,000

      30,000

      3

      1 x 250 = 250

      750

      7,500,000

      LG. BANKS

      300

      6,000

      20

      2 x 250 = 750

      15,000

      4,500,000

      SM. SIA'S

      450

      2,250

      5

      3 x 250 = 750

      3,750

      1,687,500

      LG. SIA'S

      50

      6,000

      120

      5 x 250 = 1,250

      150,000

      7,500,000

      SM. NASD

      600

      1,800

      3

      1 x 250 = 250

      750

      450,000

      LG. NASD

      100

      1,000

      10

      3 x 250 = 750

      7,500

      750,000

      SM. USLI

      3,600

      10,000

      3

      1 x 250 = 250

      750

      2,700,000

      LG. USLI

      300

      3,000

      10

      3 x 250 = 750

      7,500

      2,225,000

      SM. OTHERS

      1,000

      1,500

      1.5

      1 x 250 = 250

      375

      375,000

      LG. OTHERS

      100

      300

      3

      3 x 250 = 750

      2,250

      225,000

      TOTALS

      16,500

      62,500

           

      27,912,500

                 

      SAY 28,000,000

      CUNA

      20,000

      20,000

      1

      100/Location/Yr.

      100

      1,500,000

      FORMULA: Column 4 x 5 = #6
      Column 2 x 6 = #7

      Compiled by the Consultant.

      SIGNASURE SERVICES CORPORATION

      STAMP PRICES

      QUANTITY LEVELS

      RATE

      COST $ AMOUNT

      CUM. $ TOTAL

      CUM. LEVELS

      First 5,000

      @ 20¢

      $ 1,000

      $ 1,000

      5,000

      Next 45,000

      15¢

      6,750

      7,750

      50,000

      Next 100,000

      10¢

      10,000

      17,750

      150,000

      Next 150,000 (and over)

      7,500

      25,250

      300,000

      Compiled by the Consultant.


      * NASDAQ symbols are proprietary to the National Association of Securities Dealers, Inc.

      ** This issue is scheduled to commence trading in the NASDAQ System concurrent with its designation as a NASDAQ/NMS security on June 3, 1986.


    • 86-41 Presentations of Yield Quotations for Investment Company Shares in Communications With the Public

      TO: All NASD Members and Other Interested Persons

      The methods used in calculating yields on mutual funds and unit investment trusts, whose primary objective is the provision of income, and the manner in which such are presented to the public have been the subject of mounting interest and comment during the past year. The NASD has received complaints from its members, the staff of the Securities and Exchange Commission (SEC) and the public. In addition, articles have appeared in the media drawing attention to the disparate methods used in calculating yields.

      The NASD Board of Governors and the Investment Companies Committee, a standing committee of the Board, are deeply concerned that as the result of such presentations, the investing public may be ill informed about the nature of such yields and the risks associated with the purchase of unit investment trust or income fund shares. The Board, based upon information presented by the Investment Companies Committee, has concluded that the two major issues involved are the lack of uniformity in the methods used to calculate such yields and the lack of adequate disclosure in such presentations.

      The NASD recently received a copy of a proposal developed by the Investment Company Institute (ICI), the trade association of the mutual fund industry, which addresses both of these issues. The proposal requests that the SEC adopt a rule that, among other things, would require certain disclosures in advertisements for income funds and would also mandate a uniform method of calculating income fund yields for all communications with the public. The Board applauds this initiative by the ICI and supports the general thrust of its proposals.

      However, the Board believes that it must address the disclosure issue in a much broader context than that of advertisements. NASD members who offer income funds have a duty to provide prospective investors with adequate information about the nature of the securities being offered.

      The following are some of the major disclosure issues that the Board wishes to bring to the attention of NASD members that offer income funds and unit investment trusts to provide guidance in their presentations:

      1. Guarantees on the Securities in Which Income Funds Invest
      Many mutual funds investing in securities where the timely payment of interest and principal is guaranteed by the U.S. Government or its agencies have been brought to the market in recent years.
      The Board is convinced that many investors in such funds, particularly those who have purchased shares with proceeds derived from the sale of investment instruments that guarantee principal and/or interest, do not understand that the claimed guarantees do not extend to the shares of the "government securities" or "GNMA" fund that they have purchased. The Board believes that this problem is exacerbated by advertising and sales material that contains inappropriate comparisons between these funds and certificates of deposit. The Board is of the opinion that members that offer such funds should ensure that their customers fully understand the nature of such guarantees by adequately explaining and disclosing these differences.
      2. Failure to Disclose the Components of a Yield Figure
      Historically, yield is the relation of the interest and dividends distributed to the capital value of the security. Many current "yield" figures include distributions from sources other than interest and dividends. The implication that must not be left with investors is that a return of capital or a similar component is no different than the other components of the yield figure. The Board considers that when such "yields" include distributions other than dividends or interest, such should be fully explained to prospective investors.
      3. The Effect of Market Conditions on Yields
      Current yield quotations on income funds express the relationship of distributions to capital values at one point in time. They are a "snapshot" of the current yield situation and have no predictive value. The Board is concerned that in a period of declining interest rates, current yield presentations based on the previous 12 months' distributions may give customers the impression that the illustrated yield is likely to be achieved in the future, absent an explanation by the member of the effect of market conditions on such yields. It is the Board's opinion that members should ensure that their customers fully understand the effects of market conditions on yields.
      4. The Risk of Principal Fluctuation
      Under current market conditions, disclosure to income fund investors of the risk to principal is of paramount importance. The decline in interest rates has enhanced capital values. NASD members should advise their customers that if the direction of interest rates reverses, capital values will decline.

      * * * * *

      These issues and others not described fall within the purview of paragraph (d) of Article III, Section 35 of the NASD Rules of Fair Practice — Standards Applicable to Communications With the Public. These standards require members to disclose all facts material to the offer of an issue of securities. The omission of material information may result in a violation of the rule and subsequent disciplinary action.

      Apart from possible rule violations, lack of adequate disclosure and information will eventually result in customer dissatisfaction as market conditions change. The resulting loss in investor confidence could be extremely serious for the mutual fund distribution system and NASD members.

      It is apparent to the Board from the nature of the complaints received thus far that some NASD members are engaging in sales practices in the offer of income funds which are not in accord with the high standards expected of NASD members. The Board urges members that offer such funds to review their practices and procedures with regard to disclosure to ensure that customers have no basis for claiming that they were misled or inadequately informed about the nature or characteristics of income funds.

      Questions concerning this notice may be directed to R. Clark Hooper, Director, NASD Advertising, at (202) 728-8330.

      Sincerely,

      Frank J. Wilson
      Executive Vice President
      Legal and Compliance

    • 86-40 Request for Comments on Amendment to Free-Riding Interpretation Concerning Investment Partnerships

      TO: All NASD Members and Other Interested Persons

      LAST DATE FOR COMMENT: JUNE 23, 1986

      The National Association of Securities Dealers, Inc. (NASD), is publishing for comments a proposed amendment to the Interpretation of the Board of Governors, Free-Riding and Withholding (Free-Riding Interpretation) 1/ that would provide members an alternative means of complying with the Interpretation for sales of new issues to investment partnerships. The text of the proposed amendment is attached.

      The section of the Free-Riding Interpretation titled "Investment Partnerships and Corporations" 2/ currently prohibits members and their associated persons from selling securities of a new issue that trades at a premium ("hot issue" securities) to any investment partnership, corporation or similar account unless "the member receives from such account, prior to execution of the transaction, the names and business connections of all persons having any beneficial interest in the account." If the information discloses that any person restricted by the Interpretation has a beneficial interest in the account, the transaction can be effected only in compliance with the restrictions of the Interpretation.

      The NASD National Business Conduct Committee (NBCC) is aware that members encounter difficulty in complying with this requirement because persons responsible for the management of investment partnerships and similar accounts are often hesitant to release the names of persons holding beneficial interests in such accounts. In fact, investment partnerships and similar accounts are often created to provide confidentiality for investors.

      The Free-Riding Interpretation, however, has been interpreted strictly by the NASD and is intended to protect the integrity of the public offering system by assuring that underwriters make a bona fide public distribution of hot issue securities and do not retain those securities for their own profit or use those securities to favor persons who can direct future business to the firm. Without restricting purchases by investment partnerships, the restrictions of the Interpretation could be easily evaded.

      The NBCC and the NASD Board of Governors concluded that it would be appropriate to propose an amendment to the Free-Riding Interpretation in consideration of these concerns.

      EXPLANATION OF PROPOSED AMENDMENT

      The proposed amendment is intended to provide an alternative means for members to comply with the Interpretation in selling "hot issue" securities to investment partnerships and similar accounts. The proposed amendment would provide a "safe harbor" presumption of compliance with the Interpretation in that a member or associated person would be presumed to be in compliance with the requirements of the Interpretation's subsection on investment partnerships if the member or associated person provides an officer or general partner of the investment adviser or the firm managing the account with a written copy of the Interpretation and receives a written representation from such account manager stating that he or she:

      1. has reviewed the Interpretation and is knowledgeable as to its requirements, specifically including the Interpretation's restrictions on purchases by certain persons;
      2. is aware of the name and occupation of each person holding a beneficial interest in the account;
      3. has analyzed the applicability of the Interpretation's restric tions to each person holding a beneficial interest in the account;
      4. has concluded that no person holding a beneficial interest in the account is restricted by the Interpretation from pur chasing hot issue securities; and,
      5. prior to entering any orders with a member after any person holding a beneficial interest in the account becomes subject to the Interpretation's restrictions, will so notify the member or associated person in writing.

      In addition, the member will be required to maintain in its files a copy of the written representation received from the account manager for at least three years following the member's last sale of a new issue to that account.

      The NBCC believes that this proposed procedure will enable members to identify those investment partnerships to which hot issue securities may be sold without violating the Interpretation, while at the same time assuring that the regulatory purposes of the Interpretation are preserved.

      * * * * *

      The NASD encourages all members and other interested persons to comment on this proposed amendment. Comments should be directed to:

      Mr. Lynn Nellius
      Secretary
      National Association of Securities Dealers, Inc.
      1735 K Street, N.W.
      Washington, D.C. 20006

      Comments must be received no later than June 23, 1986. Comments received by this date will be considered by the NBCC and the NASD Board of Governors. If the proposed amendment is approved by the Board, the amendment must be filed with and approved by the Securities and Exchange Commission before becoming effective.

      Questions concerning this notice may be directed to either Dennis C. Hensley, NASD Vice President and Deputy General Counsel, or John F. Mylod, NASD Assistant General Counsel, at (202) 728-8294.

      Sincerely,

      Frank J. Wilson
      Executive Vice President
      Legal and Compliance

      Attachment

      PROPOSED AMENDMENT TO FREE-RIDING INTERPRETATION

      Amend the section titled "Investment Partnerships and Corporations" of the Interpretation of the Board of Governors, Free-Riding and Withholding as follows:*

      Investment Partnerships and Corporations

      A member may not sell securities of a public offering which trade at a premium in the secondary market whenever such secondary market begins ("hot issue"), to the account of any investment partnership or corporation, domestic or foreign (except companies registered under the Investment Company Act of 1940) including but not limited to, hedge funds, investment clubs, and other like accounts unless the member receives from such account, prior to the execution of the transaction, the names and business connections of all persons having any beneficial interest in the account, and if such information discloses that any person enumerated in paragraphs (1) through (4) hereof has a beneficial interest in such account, any sale of securities to such account must be consistent with the provisions of this Interpretation; provided, however, that [if the disclosure of such information by the account is prohibited by law, then in such case, the member must receive written assurance from the account that no person enumerated in paragraphs (1) through (4) hereof has a beneficial interest in such account] a member or person associated with a member shall be presumed to be in compliance with the requirements of this subsection if:

      (a) the member or associated person provides an officer or general part ner of the investment adviser or other firm that manages the account ("account manager") with a written copy of this Interpretation;
      (b) the member or associated person receives a written representation from the account manager that states that he or she:
      (i) has reviewed this Interpretation and is knowledgeable as to its requirements, specifically including its restrictions on purchases by certain persons;
      (ii) is aware of the name and occupation of each person holding a beneficial interest in the account;
      (iii) has analyzed the applicability of the Interpretation's restrictions to each person holding a beneficial interest in the account;
      (iv) has concluded that no person holding a beneficial interest in the account is restricted from purchasing securities by the terms of this Interpretation;
      (v) prior to entering any further orders with the member after any person holding a beneficial interest in the account becomes subject to the restrictions of the Interpretation, will so notify the member or associated person in writing; and
      (c) the member maintains a copy of the written representation in its files for at least three years following the member's last sale of a new issue to the account.

      The term beneficial interest means not only ownership interests, but every type of direct financial interest of any persons enumerated in paragraphs (1) through (4) hereof in such account, including, without limitation, management fees based on the performance of the account.


      1/ The complete text of the Free-Riding Interpretation may be found beginning on page 2039-3 of the NASD Manual.

      2/ NASD Manual (CCH), p. 2043.

      * Deleted language is bracketed; new language is underlined.


    • 86-39 Request for Comments on Proposed Amendment to the Code of Procedure to Grant Discretion to the NASD to Hold Hearings in Eligibility Proceedings

      TO: All NASD Members and Other Interested Persons

      LAST DATE FOR COMMENT: JUNE 23 1986

      The National Association of Securities Dealers, Inc. (NASD), is publishing for comments by members and other interested persons a proposed amendment to the Code of Procedure that would grant the NASD the discretion to determine whether a hearing should be held in an eligibility proceeding under Article VII, Section 2 of the Code.

      The text of the proposed amendment is attached. A discussion of the background of the amendment and the proposed provisions follows.

      BACKGROUND

      Any person who is subject to a statutory disqualification, as that term is defined in Article II, Section 4 of the NASD By-Laws, must apply and be approved by the NASD before becoming associated with a member firm. If a person is currently registered with a member firm and subsequently becomes subject to a statutory disqualification, the person must apply and be approved by the NASD to remain associated with the member firm.

      The procedure that the NASD uses to determine whether to grant this approval is found in Article VII of the Code of Procedure. Under this section, the NASD may permit the approval of an application without a hearing. When approval is not granted, a hearing is usually held.

      A problem has arisen because the NASD receives a number of applications each year from persons who, because their statutory disqualification is recent or because adequate supervision by their employers is lacking, do not provide the minimal evidence that the NASD deems necessary for consideration for approval. The proposed amendment would allow the NASD to avoid hearings that would be of limited use in making a decision on the application.

      ANALYSIS OF PROPOSED AMENDMENT

      The proposed amendment to the Code of Procedure would give the NASD the discretion to determine whether a hearing is to be held in an eligibility proceeding under Article VII of the Code.

      The eligibility proceeding would be unchanged in all other material respects. The firm submitting the application would continue to be entitled to make any written submissions for consideration and the application would continue to be considered by the National Business Conduct Committee (NBCC) and the Board of Governors. The NASD will continue to file its decision to approve or deny any application pursuant to SEC Rule 19h-l or 19d-l. A person whose application is denied will continue to be able to appeal the NASD's decision to the SEC.

      * * * *

      The NASD encourages all members and other interested persons to comment on this proposed amendment. Comments should be directed to:

      Mr. Lynn Nellius
      Secretary
      National Association of Securities Dealers, Inc.
      1735 K Street, N.W.
      Washington, D.C. 20006

      Comments must be received no later than June 23, 1986. Comments received by the indicated date will be considered by the NBCC and the NASD Board of Governors. If the proposed amendment is approved by the Board it must then be filed with and approved by the Securities and Exchange Commission before becoming effective.

      Questions concerning this notice may be directed to Craig L. Landauer, Attorney, NASD Office of the General Counsel, at (202) 728-8291.

      Sincerely,

      Frank J. Wilson
      Executive Vice President
      Legal and Compliance

      Attachment

      PROPOSED AMENDMENT TO NASD CODE OF PROCEDURE*

      Article VII, Section 2:

      (b) The member or broker or dealer or person may make application to the Corporation requesting relief and shall demonstrate why the application should be granted. [Should the Corporation decline to grant such request, then if requested in writing by any party, or if] If directed by the Corporation, a hearing shall be held before a hearing panel designated by the Board of Governors, and a record shall be kept. At the hearing the parties shall be entitled to be heard in person and be represented by counsel and to submit any relevant matter. If no hearing is held, the application shall be considered by a hearing panel designated by the Board of Governors on the basis of the written record. The parties shall be entitled to submit any relevant material in writing. The hearing panel shall make a recommendation as to the application which shall be forwarded to the Board of Governors together with the record.

      * New language is underlined. Deleted language is in brackets.


    • 86-38 Membership Vote on Proposed Amendments to Article III, Section 28 of the NASD Rules of Fair Practice and Article VII, Section 8 of the NASD By-Laws

      IMPORTANT MAIL VOTE

      OFFICERS, PARTNERS AND PROPRIETORS

      TO: All NASD Members

      LAST VOTING DATE IS JUNE 21, 1986.

      Members of the National Association of Securities Dealers, Inc. (NASD), are invited to vote on certain amendments to the NASD Rules of Fair Practice and By-Laws contained in Exhibits A and B to this notice. These amendments are described below. Prior to becoming effective, the amendments must be approved by the membership and by the Securities and Exchange Commission.

      Amendments Concerning Associated Persons' Accounts with Investment Advisers, Banks and Other Financial Institutions

      The proposed changes to the Rules of Fair Practice relate to associated persons who have securities accounts at firms that are not NASD members, such as investment advisers, banks and other financial institutions. The Board of Governors is concerned that the inapplicability of the Rules of Fair Practice to securities accounts of associated persons with non-members may undermine members' ability to supervise their associated persons and may possibly lead to abuses. On June 20, 1985, the NASD issued Notice to Members 85-41 soliciting comments on proposed amendments to Article III, Section 28 of the Rules of Fair Practice. These amendments would impose disclosure requirements on associated persons of members in connection with their securities accounts with investment advisers, banks and other financial institutions.

      A total of 13 comment letters were received. Of these, nine expressed unqualified approval. Two comments suggested amending the transactional exemption to include unit investment trusts, direct participation programs and other pro-duets not subject to free-riding and withholding restrictions or market manipulation, and shares of money market funds, certificates of deposit and like instruments. One of these comments suggested adopting requirements similar to NYSE Rule 407 to avoid unnecessary correspondence between the associated person and his or her member firm. One comment suggested that expansion to investment advisers and other financial institutions was too broad and placed an unnecessary burden on compliance by broker-dealers. One comment favored the approach but questioned the consequences if the associated person failed to notify the broker-dealer. An informal comment noted that under Subsection (d)(l) a literal reading might require notice for each transaction, even though a blanket notice had already been given. Lastly, one comment suggested that the proposal placed an unnecessary burden on broker-dealers that outweighed any benefits. This comment suggested that the rule should be limited to securities transactions. To accomplish this, it recommended deleting the language in paragraph (d)(l) after the word "transaction" and limiting paragraph (d)(2) to require duplicate copies of confirmations and statements.

      In response to the comments received, the Board adopted three changes to the proposed amendments:

      1. Unit investment trusts were added to the transactional exemption contained in the rule.
      2. The rule was changed to reflect its applicability to an initial transaction only.
      3. An affirmative obligation was imposed on the associated person to notify his or her member firm.

      The Board of Governors approved amending Article III, Section 28 of the Rules of Fair Practice to require any associated person to notify his or her employer member when opening a securities account with an investment adviser, bank or other financial institution or before placing an order to buy or sell securities with such an organization. The amendment would apply to any account or transaction in which the associated person has a financial interest or discretionary authority. The amendment would also require associated persons to arrange for the employer member to receive duplicate confirmations and account statements upon request. The amendments appear in Exhibit A.

      Proxy Voting by Members of the NASD Board of Governors

      The change to the By-Laws relates to voting by proxy by members of the NASD Board of Governors who are absent from Board meetings. Questions have arisen from time to time as to whether a member of the Board of Governors who is absent from a meeting of the Board can vote by proxy on issues before the Board. To avoid any further confusion in this area, the Board of Governors approved an amendment to Article VII, Section 8 of the By-Laws specifically stating that Board members may not vote by proxy. This is consistent with the law in Delaware, the NASD's state of incorporation. The amendment appears in Exhibit B.

      * * * * *

      The Board of Governors believes these amendments to the Rules of Fair Practice and By-Laws are necessary and appropriate. It recommends that members vote their approval.

      Please mark the attached ballot according to your convictions and return it in the enclosed, stamped envelope to "The Corporation Trust Company." Ballots must be postmarked no later than June 21, 1986.

      Any questions regarding this notice should be directed to Craig L. Landauer, Attorney, NASD Office of the General Counsel, at (202) 728-8291.

      Sincerely,

      Frank J. Wilson
      Executive Vice President and General Counsel

      Attachments

      Exhibit A

      PROPOSED AMENDMENTS TO ARTICLE III, SECTION 28 OF THE NASD RULES OF FAIR PRACTICE

      The following are the proposed changes to the NASD Rules of Fair Practice. New language is underlined; deleted language is in brackets.

      See. 28

      Transactions for [Personnel of Another Member] or by Associated Persons

      Determine Adverse Interest

      (a) A member ("executing member") who knowingly executes a transaction for the purchase or sale of a security for the account of a person associated with another member ("employer member"), or for any account over which such associated person has discretionary authority, shall use reasonable diligence to determine that the execution of such transaction will not adversely affect the interests of the employer member.

      Obligations of Executing Member

      (b) Where an executing member knows that a person associated with an employer member has or will have a financial interest in, or discretionary authority over, any existing or proposed account carried by the executing member, the executing member shall:
      (1) notify the employer member in writing, prior to the execution of a transaction for such account, of the executing member's intention to open or maintain such an account;
      (2) upon written request by the employer member, transmit duplicate copies of confirmations, statements, or other information with respect to such account; and
      (3) notify the person associated with the employer member of the executing member's intention to [transmit] provide the notice and [the] information required by paragraphs (1) and (2) of this subsection (b)

      Obligations of Associated Persons_ [Associated] Concerning an Account with a Member

      [(d)]
      (c) A person associated with a member who opens an account or places an order for the purchase or sale of securities with [any other] another member, shall[, where such associated person has a financial interest in such transaction and/or any discretionary authority over such account] notify the executing member of his or her association with [an] the employer member [regardless of any other function, capacity, employment or affiliation of such associated person. If]; provided, however, that if the account [is] was established prior to the association of [such] the person with [an] the employer member, the associated person shall notify the executing member promptly after becoming so associated.

      Obligations of Associated Persons Concerning an Account with an Investment Adviser, Bank, or Other Financial Institution

      (d) A person associated with a member who opens a securities account or places an order for the purchase or sale of securities with a domestic or foreign investment adviser, bank, or other financial institution, except a member, shall:
      (1) notify his or her employer member in writing, prior to the execution of any initial transaction, of the intention to open the account or place the order; and
      (2) upon written request by the employer member, request in writing and assure that the investment adviser, bank, or other financial institution provides the employer member with duplicate copies of confirmations, statements, or other information concerning the account or order;
      provided, however, that if an account subject to this subsection (d) was established prior to a person's association with a member, the person shall comply with this subsection promptly after becoming so associated.
      (e) Subsections (c) and (d) of this section shall apply only to an account or order in which an associated person has a financial interest or with respect to which such person has discretionary authority.
      Exemption for Transactions in Invesment Company Shares and Unit Investment Trusts
      [(c)]
      (f) The provisions [of subsection (b)] of this section shall not be applicable to transactions in unit investment trusts and variable contracts or redeemable securities of companies registered under the Investment Company Act of 1940, as amended