BackText onlyPrint

You need the Flash plugin.

Download Macromedia Flash Player



  • 1989

    • 89-81 NASDAQ National Market Additions, Changes, and Deletions As of November 13, 1989

      SUGGESTED ROUTING*

      Internal Audit
      Operations
      Systems
      Trading

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

      As of November 13, 1989, the following 19 issues joined the NASDAQ National Market, bringing the total number of issues to 2,712:

      Symbol

      Company

      Entry Date

      SOES Execution Level

      EBPI

      Employee Benefit Plans, Inc.

      10/13/89

      1000

      RLLY

      Rally's, Inc.

      10/13/89

      1000

      RDGCA

      Reading Company (Cl A)

      10/17/89

      1000

      SFSL

      Security Federal Savings and Loan Association of Cleveland

      10/17/89

      200

      VWBN

      Valley West Bancorp

      10/17/89

      200

      WOFG

      Wolf Financial Group, Inc.

      10/17/89

      1000

      EXBT

      Exabyte Corporation

      10/19/89

      1000

      STSN

      Sierra Tucson Companies, Inc.

      10/20/89

      1000

      ALII

      Allied Capital Corporation II

      10/26/89

      1000

      CRAY

      Cray Computer Corporation

      11/2/89

      1000

      HLTH

      Healthsource, Inc.

      11/2/89

      1000

      NUCOW

      Nucorp, Inc. (6/30/91 Wts)

      11/2/89

      500

      FTFC

      First Federal Capital Corp.

      11/3/89

      1000

      CELS

      Cellular, Inc.

      11/7/89

      1000

      HBCI

      Harmonia Bancorp, Inc.

      11/7/89

      1000

      NPHIF

      Nalcap Holdings, Inc.

      11/7/89

      200

      PNFI

      Pinnacle Financial Services, Inc.

      11/7/89

      200

      AMTC

      Amtech Corporation

      11/9/89

      1000

      LSCC

      Lattice Semiconductor Corporation

      11/9/89

      1000

      NASDAQ National Market Pending Additions

      The following issues have filed for inclusion in the NASDAQ National Market on effectiveness of their registration statements with the SEC or other appropriate regulatory authority. Their inclusion may commence prior to the next regularly scheduled phase-in date.

      Symbol

      Company

      Location

      SOES Execution Level

      ACRCA

      American Capital and Research Corporation (Cl A)

      Fairfax, VA

      1000

      CALLA

      Cellular Information Systems, Inc. (Cl A)

      New York, NY

      1000

      CYTOP

      Cytogen Corporation (Pfd)

      Princeton, NJ

      1000

      GEHL

      Gehl Company

      West Bend, WI

      1000

      HNSI

      Home Nutritional Services, Inc.

      Parsippany, NJ

      1000

      IMGN

      ImmunoGen, Inc.

      Cambridge, MA

      500

      LSCP

      Laserscope

      San Jose, CA

      1000

      PMTC

      Parametric Technology Corporation

      Waltham, MA

      1000

      PRCY

      ProCyte Corporation

      Redmond, WA

      1000

      RENL

      REN Corporation - USA

      Nashville, TN

      1000

      SLTN

      Solectron Corporation

      San Jose, CA

      1000

      SSPW

      Sun Sportswear, Inc.

      Kent, WA

      1000

      CARS

      URCARCO, INC.

      Fort Worth, TX

      1000

      YSCO

      Yes Clothing Co.

      Los Angeles, CA

      1000

      NASDAQ National Market Symbol and/or Name Changes

      The following changes to the list of NASDAQ National Market securities occurred since October 12, 1989.

      New/Old Symbol

      New/Old Security

      Date of Change

      BKUNA/UNSVA

      BankUnited, A Savings Bank (Cl A)/United Savings Association (Cl A)

      10/13/89

      LUND/LUND

      Lund International Holdings, Inc./Lund Enterprises, Inc.

      10/20/89

      MLOG/ODSI

      Microlog Corporation/Old Dominion Systems, Inc.

      10/20/89

      NVCR/INSP

      NovaCare/InSpeech, Inc.

      10/20/89

      RGCY/RGCY

      RELM Communications, Inc./Regency Electronics, Inc.

      10/26/89

      NATC/INDR

      NaTec Resources, Inc./Industrial Resources, Inc.

      10/31/89

      ENST/KNDR

      Enstar Group, Inc. (The)/Kinder-Care, Inc.

      11/6/89

      ASIAS/AEZNS

      Asiamerica Equities, Ltd./Asiamerica Equities, Ltd.

      11/10/89

      RELY/RELY

      Ingres Corporation/Relational Technology, Inc.

      11/13/89

      NASDAQ National Market Deletions

      Symbol

      Security

      Date

      AIMT

      AIM Telephones, Inc.

      10/13/89

      LDDSW

      LDDS Communications, Inc. (Wts)

      10/16/89

      RDGC

      Reading Company

      10/16/89

      PLNSP

      Plain Resources, Inc. (Pfd)

      10/18/89

      MALTZ

      Management Assistance Inc. Liquidating Trust

      10/20/89

      NUMR

      Numerex Corporation

      10/20/89

      ABQC

      ABQ Corporation

      10/23/89

      PCST

      Precision Castparts Corp.

      10/23/89

      HIBCA

      Hibernia Corporation (Cl A)

      10/26/89

      AHSC

      American Home Shield Corporation

      10/30/89

      CRAW

      Crawford & Company

      10/30/89

      LMED

      LyphoMed, Inc.

      10/30/89

      AAHS

      Alco Health Services Corporation

      11/1/89

      CAVN

      CVN Companies, Inc.

      11/1/89

      CFSF

      Coast Federal Savings and Loan Association

      11/1/89

      MFGC

      Midwest Financial Group, Inc.

      11/1/89

      POAIQ

      Properties of America, Inc.

      11/1/89

      MYFRA

      Mayfair Super Markets, Inc. (Cl A)

      11/2/89

      PANQE

      Pantera's Corporation

      11/2/89

      RCBI

      Robert C. Brown & Co., Inc.

      11/2/89

      CNVLZ

      City Investing Company Liquidating Trust

      11/6/89

      HMSS

      H.M.S.S., Inc.

      11/6/89

      RIHL

      Richton International Corporation

      11/9/89

      DYTR

      Dyatron Corporation

      11/10/89

      GPEC

      Gruber-Peters Entertainment Company (The)

      11/10/89

      RHPOY

      Rhone-Poulenc S.A.

      11/10/89

      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, NASD Market Surveillance, at (301) 590-6429.

    • 89-80 Christmas Day and New Year's Day: Trade Date-Settlement Date Schedule

      SUGGESTED ROUTING*

      Internal Audit
      Legal & Compliance
      Municipal
      Operations
      Syndicate
      Systems
      Trading

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

      Securities markets and the NASDAQ System will be closed Monday, December 25, 1989, Christmas Day, and Monday, January 1, 1990, New Year's Day. "Regular way" transactions made on the business days noted below will be subject to the following schedule:

      Trade Date

      Settlement Date

      Reg. T Date*

      Dec. 15, 1989

      22

      27

      18

      26

      28

      19

      27

      29

      20

      28

      Jan. 2, 1990

      21

      29

      3

      22

      Jan. 2, 1990

      4

      25

      Markets Closed

      26

      3

      5

      27

      4

      8

      28

      5

      9

      29

      8

      10

      Jan. 1, 1990

      Markets Closed

      2

      9

      11

      These settlement dates should be used by brokers, dealers, and municipal securities dealers to clear and settle transactions pursuant to the NASD 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) 858-4341.


      *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 "Reg. T Date."


    • 89-79 NASD 1990 Holiday Schedule

      SUGGESTED ROUTING*

      Internal Audit
      Legal & Compliance
      Operations
      Systems
      Trading

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

      The NASD will observe the following holiday schedule in 1990:

      January 1

      New Year's Day

      July 4

      Independence Day

      February 19

      Presidents'Day

      September 3

      Labor Day

      April 13

      Good Friday

      November 24

      Thanksgiving Day

      May 28

      Memorial Day (Observed)

      December 25

      Christmas Day

    • 89-78 Availability of Two New NASD Categories of Registration and Qualification Examinations

      SUGGESTED ROUTING*

      Legal & Compliance
      Operation
      Options
      Registration
      Training

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

      EXECUTIVE SUMMARY

      The Securities and Exchange Commission recently approved two additions to the NASD's qualification and registration programs. The two new tests, which will be available for member use beginning January 2, 1990, are:

      • Assistant Representative-Order Processing (Series 11)
      • Limited Principal-Introducing Broker-Dealer Financial and Operations (Series 28)

      Each of these tests correlates to a new registration category in Schedule C to the NASD By-Laws.

      ASSISTANT REPRESENTATIVE-ORDER PROCESSING (Series 11)

      In June 1989, the Securities and Exchange Commission approved a new level of registration for Assistant Representative-Order Processing that is contained in Part IV of Schedule C to the NASD By-Laws and is reprinted at the end of this notice. An Assistant Representative-Order Processing may accept unsolicited customer securities orders for direct submission for execution by the member. An Assistant Representative-Order Processing may not solicit transactions or new accounts, render investment advice, make recommendations, or act as a trader. Activity in municipal securities and direct participation programs is excluded from the purview of this category of registration. Further restrictions on compensation and supervision are delineated in paragraph (2) of Part IV. (Note: Sales assistants who relay last-sale price information to satisfy customer inquiries or who, during very high volume periods or brief absences of registered personnel, write memoranda of unsolicited customer instructions may continue to do so without the need of registering in any capacity.)

      Because this registration category is new to the industry and not presently shared by other regulators, members are urged to determine the appropriateness of their firm's utilization of this program in light of the regulations of the state securities commissions and stock exchanges under which they operate.

      The Series 11 Assistant Representative-Order Processing examination contains 50 questions on securities products and markets, customer account forms, providing price information, order processing,, and general regulations affecting the conduct of a customer business. Candidates have 60 minutes to complete the test. A total of 35 questions correct (70 percent) is required to receive a passing score. To apply for this registration, submit Form U-4 (on page 1, under "Type of Examination/Registration Requested," type "Series 11-AR" in the space labeled "Other").

      Study outlines are $4 each (add 20 percent if the outlines are to be shipped first class) and may be ordered from:

      NASD
      Book Order Department
      P.O. Box 9403
      Gaithersburg, MD 20898-9403

      Questions regarding this program may be directed to David Uthe, Senior Qualifications Analyst, at (301) 590-6695.

      LIMITED PRINCIPAL-INTRODUCING BROKER-DEALER FINANCIAL AND OPERATIONS (Series 28)

      The NASD Board of Governors, in November 1988, approved a new category of financial and operations principal registration for introducing member firms. The test developed for this new category of registration should soon be approved by the SEC and should be available for member use beginning January 2, 1990.

      The Series 28 is a derivative of the NASD's Financial and Operations Principal Examination (Series 27). It will test candidates registering with introducing broker-dealers or with $5,000-category general securities firms that neither carry customer accounts nor hold customer funds or securities pursuant to SEC Rule 15c3-l(a)(2)(i) or (vi) and SEC Rule 15c3-3(k)(2)(ii). The Series 28 will feature 75 multiple-choice questions plus a 25-point net capital computation appropriate to the financial and operational responsibilities of such firms. Candidates have up to three hours to complete the test, and an overall score of 70 percent or better is required for a passing grade.

      The amendment to Section (2)(c) in Part II of Schedule C to the By-Laws, creating this new category of registration, is reprinted at the end of this notice. Study outlines may be ordered for $10 each from the Book Order Department at the aforementioned address (add 20 percent for first class postage).

      Questions regarding the Series 28 program may be directed to Carole Hartzog, Senior Qualifications Analyst, at (301) 590-6696.

      SCHEDULE C TO THE NASD BY-LAWS

      (Note: New text is underlined; deleted text is in brackets.)

      (1) Registration Requirements
      (e) Requirement of Two Registered Principals for New Applications for Membership
      (i) An applicant for membership in the Corporation, except a sole proprietorship, shall have at least two officers or partners who are qualified to become registered as principals with respect to each aspect of the applicant's investment banking and securities business pursuant to the provisions of Part II, Section 2(a), [2(c)] 2(d) and [2(d)] 2e, whichever are applicable, before it shall be admitted to membership.
      (iii) In addition to the provisions of Part II Section (l)(e)(i) hereof, an applicant for membership, if the nature of its business so requires shall have at least one person qualified for registration pursuant to Part II, Section 2(b), 2(c), and 2(e) 2(f) hereof.
      (2) Categories of Principal Registration
      (a) General Securities Principal
      (b) Limited Principal-Financial and Operations
      (c) Limited Principal-Introducing Broker-Dealer Financial and Operations
      (i) Every member of the Corporation, which is operating pursuant to the provisions of SEC Rule 15c3-l (a)(2)(i) or (vi) and to the provisions of SEC Rule 15c3-3(k)(2)(ii), shall designate as Limited Principal-Introducing Broker-Dealer Financial and Operations those persons associated with it, at least one of whom shall be its chief financial officer, who perform the duties described in Part II, Section (2)(c)(ii) hereof. Each person associated with a member who performs such duties shall be required to register as a Limited Principal-Introducing Broker-Dealer Financial and Operations with the Corporation and shall pass an appropriate Qualification Examination before such registration may become effective.
      (ii) The term "Limited Principal-Introducing Broker-Dealer Financial and Operations" shall mean a person associated with a member whose duties include:
      (a) final approval and responsibilities for the accuracy of financial reports submitted to any duly established securities industry regulatory body;
      (b) final preparation of such reports;
      (c) supervision of individuals who assist in thepreparation of such reports;
      (d) supervision of and responsibility for individuals who are involved in the actual maintenance of the member's books and records from which such reports are derived;
      (e) supervision and/or performance of the member's responsibilities under all financial responsibility rules promulgated pursuant to the provisions of the Securities Exchange Act of 1934;
      (f) overall supervision of and responsibility for the individuals who are involved in the administration and maintenance of the member's back office operations; or
      (g) any other matter involving the financial and operational management of the member.
      (iii) Except as provided in Part II, Section (l)(c) hereof, a person designated pursuant to the provisions of Part II, Section (2)(c) hereof shall not be required to take the Limited Principal-Introducing Broker-Dealer Financial and Operations examination and shall be qualified for registration as a Limited Principal-Introducing Broker-Dealer Financial and Operations if such a person is qualified to be registered or is registered as a Limited Principal-Financial and Operations as defined in Part II, Section (2)(b)(ii) hereof.
      (iv) A person registered solely as a Limited Principal-Introducing Broker-Dealer Financial and Operations shall not be qualified to function in a principal capacity with responsibility over any area of business activity not prescribed in Part II, Section (2)(c)(ii) hereof. Such person shall not be qualified to function in a principal capacity at a member unless such member operates under Part II, Section (2)(c)(i).

      Subsequent sections to be renumbered accordingly.

      Schedule C

      IV

      Registration of Assistant Representatives-Order Processing

      (1) Registration of Assistant Representatives-Order Processing
      (1) Registration Requirements
      (a) All Assistant Representatives-Order Processing Must Be Registered — All persons associated with a member who are to function as Assistant Representatives-Order Processing shall be registered with the Corporation. Before their registrations can become effective, they shall pass a Qualification Examination for Assistant Representatives-Order Processing as specified by the Board of Governors.
      (b) Definition of Assistant Representative-Order Processing — Persons associated with a member who accept unsolicited customer orders for submission for execution by the member are designated as Assistant Representatives-Order Processing.
      (c) Requirement for Examination on Lapse of Registration — Any person whose most recent registration as an Assistant Representative-Order Processing has been terminated for a period of two (2) or more years immediately preceding the date of receipt by the Corporation of a new application shall be required to pass a Qualification Examination for Assistant Representative-Order Processing.
      (2) Restrictions
      (a) Prohibited Activities — An Assistant Representative-Order Processing may not solicit transactions or new accounts on behalf of the member, render investment advice, make recommendations to customers regarding the appropriateness of securities transactions, or effect transactions in securities markets on behalf of the member. Persons registered in this category may not be registered concurrently in any other capacity.
      (b) Compensation — Members may only compensate Assistant Representatives-Order Processing on an hourly wage or salaried basis and may not in any way, directly or indirectly, relate their compensation to the number or size of transactions effected for customers. This provision shall not prohibit persons registered in this capacity from receiving bonuses or other compensation based on a member's profit sharing plan or similar arrangement.
      (c) Supervision — The activities of Assistant Representatives-Order Processing may only be conducted at a business location of the member that is under the direct supervision of an appropriately registered principal.

      [Part IV added effective June 12, 1989.]

    • 89-77 Proposed Amendments to Article III, Section 12 of the NASD Rules of Fair Practice Re: Disclosure on Confirmations When Investment Companies Impose a Deferred Sales Charge on Redemption; Last Date For Comment: January 2, 1990

      SUGGESTED ROUTING*

      Senior Management
      Legal & Compliance
      Mutual Fund
      Training

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

      REQUEST FOR COMMENTS

      EXECUTIVE SUMMARY

      The NASD requests comments on a proposal to amend the NASD confirmation rule, Article III, Section 12 of the NASD Rules of Fair Practice. The amendment would add a new subsection requiring disclosure on confirmations when an investment company imposes a deferred sales charge on redeemed shares.

      BACKGROUND

      In April 1989, the NASD Board of Governors authorized a notice (Notice to Members 89-35) to be sent to members advising them that it would be a violation of the NASD Rules of Fair Practice for a registered representative to state or imply to a prospective investor that an investment company with a contingent deferred sales charge is a "no load fund."

      The notice resulted from a number of complaints from investors who claimed they were unaware of the existence of a sales charge on redemption and that they had been advised that the companies were "no load" or "no initial load" funds.

      In that notice, the NASD indicated that contingent deferred sales loads are sales loads that are charged on redemption on a declining-percentage basis annually and are usually reduced to zero percent by the sixth or seventh year of share ownership. The NASD concluded that to assert that a mutual fund with a contingent deferred sales load is a "no load" fund is an unacceptable misrepresentation and that to state that there is "no initial load" without explanation of the nature of the contingent deferred sales load is an omission of material information. In the Board's view, it is the responsibility of all members and their registered representatives to ensure that prospective investors understand the nature of the various charges made by mutual funds to defray sales and sales promotion expenses, regardless of whether they are deducted from an initial investor's purchase payment, charged on redemption, or levied against the net assets of the fund.

      PROPOSED AMENDMENTS

      The Board of Governors believes that many investors do not study the prospectus thoroughly before making a purchase of investment company shares and often rely only on the oral representations of a registered representative. Thus, through inadvertence or design, they may not be aware of the possibility of a sales charge on redemption.

      The Board, on the recommendation of the Investment Companies Committee, believes that disclosure on confirmations of the possibility of a deferred sales charge on redemption would help to alert prospective investors to the existence of such charges before they have paid for the shares.

      The proposed amendment to Section 12 would add a new paragraph (b) containing a short, simple disclosure statement that would be required Lo be included on all confirmations for investment company shares that impose a deferred sales charge on redemption.

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

      Mr. Lynn Nellius, Secretary
      National Association of Securities Dealers, Inc.
      1735 K Street, NW
      Washington, DC 20006-1506.

      Questions concerning this notice should be directed to A. John Taylor, Vice President, Investment Companies/Variable Contracts, at (202) 728-8328.

      Comments must be received no later than January 2, 1990. Changes to NASD Rules of Fair Practice must be approved by a vote of the NASD membership and filed with, and approved by, the Securities and Exchange Commission before becoming effective.

      PROPOSED AMENDMENT TO ARTICLE III, SECTION 12 OF THE NASD RULES OF FAIR PRACTICE.

      (Note: New text is underlined.)

      Disclosure on Confirmations

      Sec. 12(a) A member at or before the completion of each transaction with a customer shall give or send to such customer written notification disclosing (1) whether such member is acting as a broker for such customer, as a dealer for his own account, as a broker for some other person, or as a broker for both such customer and some other person; and (2) in any case in which such member is acting as a broker for such customer or for both such customer and some other person, either the name of the person from whom the security was purchased or to whom it was sold for such customer and the date and time when such transaction took place or the fact that such information will be furnished upon the request of such customer, and the source and amount of any commission or other remuneration received or to be received by such member in connection with the transaction.

      (b) In addition to the requirements in sub-section (a) of this section 12, if the transaction involves the purchase of shares of an investment company that imposes a deferred sales charge on redemption, such written notification shall also include the following, in at least 8-point type, "On selling your shares, you may pay a sales charge. For this charge and other fees, see the prospectus."

    • 89-76 Mandatory Participation by Self-Clearing Firms in the Automated Confirmation Transaction (ACT) Service Set for First Quarter 1990

      SUGGESTED ROUTING*

      Senior Management
      Legal & Compliance
      Operations
      Trading

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

      IMPORTANT

      EXECUTIVE SUMMARY

      Participation in the Securities and Exchange Commission-approved Automated Confirmation Transaction (ACT) service will become mandatory for all self-clearing firms during the first quarter of 1990. The service is designed to shorten the comparison cycle for telephone-negotiated trades in NASDAQ securities that are eligible for comparison processing through registered clearing corporations. Self-clearing members are urged to begin participating immediately in the ACT pilot program, which is currently in operation. A training disk is available from the NASD. The disk is a self-tutorial and allows a member to proceed at its own pace.

      To participate in ACT, members must have NASDAQ-compatible equipment — a Harris terminal, Unisys PW2 , Tandem 8NDQ, IBM-AT, IBM PS/2 models, or an NASD-approved foreign terminal interface. Any firm that does not now have NASDAQ-compatible equipment will need to take steps to get such equipment in order to comply with the mandatory participation requirements of ACT.

      BACKGROUND AND EXPLANATION

      The NASD has developed an on-line trade reporting and comparison system called the Automated Confirmation Transaction (ACT) service to shorten the comparison cycle for trades in NASDAQ securities. ACT locks in the post-" execution steps for telephone-negotiated, street-side trades.

      These steps include transaction reporting, when applicable; comparison; and sending locked-in trades to registered clearing corporations. The clearing corporations will report ACT trades to their members on their Contract Sheets the day after the trades have been compared.

      ACT has been in a pilot phase since August 30, 1989, when five members with NASDAQ-compatible terminals began using the system with test securities. On November 17, 1989, NASDAQ securities that have symbols starting with the letter "A" were made eligible for the pilot.

      Within a few weeks, NASDAQ securities with symbols beginning with "B" or "C" will be added to the list of securities eligible for ACT processing. Shortly thereafter, all other NASDAQ securities will be ACT eligible.

      The transactions entered into ACT will, when compared, be forwarded to the National Securities Clearing Corporation (NSCC) for trade comparison and processing. Also, for NASDAQ National Market securities, entry to ACT will satisfy NASDAQ National Market trade-reporting requirements with no other entry needed.

      All self-clearing members that clear through the facilities of a registered clearing corporation must participate in ACT. Self-clearing members should complete the ACT training program as soon as possible and enter the ACT pilot phase.

      To be an ACT participant, members must have NASDAQ-compatible equipmenta Harris terminal, Unisys PW2, Tandem 8NDQ, IBM-AT, IBM PS/2 models 50Z, 60, 70, and 80 (for Workstation™ service terminals only), or an NASD-approved foreign terminal interface. Information on fees for communications charges as well as cost of terminals may be obtained from Anne Pittman Durand at (301) 590-6526.

      TRAINING DISK

      The NASD will provide members using any of the NASDAQ compatible devices with a self-tutorial training program on a floppy disk.

      The disk encompasses the entire user functionality of the ACT service and is displayed in a NASDAQ Workstation™ format that allows the member to proceed at its own pace. Questions regarding the training disk should be directed to Raymond Nolting, ACT Supervisor, at (212) 858-4342 or Debby Chu, ACT Coordinator, at (212) 858-4344.

      HOW ACT HELPS NASD MEMBERS

      ACT provides for both one-sided input of trades with confirmation by the other side and two-sided input and matching. These features provide members with several benefits, many of which duplicate the post-execution features of the NASD's automated Small Order Execution System (SOES). They are:

      • Same-day comparison and locked-in clearing for all NASDAQ trades;
      • Less exposure to price movements for open items;
      • On-line access to the status of each trade report;
      • Faster, more efficient trade reconciliation and confirmation;
      • Increased efficiency of back-office operations.

      HOW ACT WORKS

      Under ACT rules market makers will be required to report ACT-eligible trades into the system within 90 seconds of execution for NASDAQ National Market securities, and within 15 minutes of execution for all other securities. The contra side on any transaction, including trades in NASDAQ National Market issues, will be allowed 20 minutes from the time of execution to accept or decline the ACT report. The information submitted by the market maker must indicate whether it acted as a buyer or seller, the quantity, security symbol, price, and the identity of the contra party.

      The order-entry firm, or contra party, has the option of either submitting its side of the trade, thereby generating an on-line match of the information submitted or waiting for the market maker's submission, and either accepting or rejecting it through what is called the "browse capability."

      Whether the order-entry firm uses on-line match or the browse feature, the order-entry firm must accept or reject the market maker's trade entry or enter its own version of the trade within 20 minutes of execution. ACT input will not only create the clearing entry, it will also satisfy the trade-reporting requirements for transactions in NASDAQ National Market securities involving at least one round lot. At a later date, when the system is capturing trade-reporting information for all NASDAQ securities, separate end-of-day reporting for regular NASDAQ securities will no longer be required.

      When a trade is compared in ACT, it will be submitted to the NSCC after the system's close, and it will appear as an ACT locked-in trade on the Contract Sheets, as SOES and Computer Assisted Execution System transactions appear today. ACT will provide trade-by-trade comparison (M-l) and, after the system's close, will attempt to match transactions that differ only as to quantity (M-2). When a trade is rejected by a participant, that trade will be dropped from ACT.

      T+1 DATE PROCESSING

      At the end of the trade date, transactions entered into ACT that are not rejected and which are uncompared or not responded to (one-sided) will be carried over for additional ACT processing on trade date + 1 (T+1). T+1 date processing will allow parties to transactions to compare or cancel open items and also will accept as-of submissions for T-date trades. There also will be an M-2 processing capability after the close of T+l activity. Trades that are uncompared — open or unanswered from trade date — will be locked in by the system after completion of the M-2 matching process on T+l. All locked-in transactions on T+l, compared through either member or system action, will appear as locked-in trades on the clearing NSCC's Supplemental Contract Sheets (T+2).

      CORRESPONDENT FIRMS

      At the present time, the NASD is working with those firms that clear for others to resolve a few remaining issues. Additional information will be forthcoming on the timing for bringing those firms into the ACT service.

      Questions concerning this Notice to Members may be directed to Donald Catapano at the NASD's New York office at (212) 858-4350

    • For Your Information (November)

      For Your Information

      National Association of Securities Dealers, Inc.

      November 1989

      NASD Files Lawsuit Charging Misuse of Qualification Examination

      The NASD filed a lawsuit in the United States District Court for the Northern District of Illinois against Jerry Keith Ostry and North American Chicago Corp. (NACC) for copyright infringement, breach of contract, and misappropriation and misuse of confidential information in connection with the NASD's Corporate Securities Limited Representative Qualification Examination (Series 62).

      Pursuant to statutory authorization and with the approval of the Securities and Exchange Commission, the NASD has developed and administered a substantial number of different qualification examinations for individuals seeking to enter the securities industry, including the Series 62 exam. The NASD contends in its complaint that defendant Ostry, owner and operator of NACC, has breached a contract of confidentiality and that both defendants have infringed the NASD's copyright on the examination and misappropriated and misused confidential information by reproducing and selling to other persons the 100 questions in the Series 62 Examination taken by defendant Ostry on June 3, 1988.

      In addition to monetary damages, the NASD is seeking an injunction against further distribution of the examination and destruction of all copies of the examination in the possession or control of the defendants.

      Series 7 December Exam Site Changes in Atlanta

      The December 16, 1989, Series 7 examination in Atlanta will be held at Ramada Inn Northeast, 1-85 and ShaUowford Road, 2960 N.E. Expressway, Atlanta, Georgia.

    • 89-75 NASDAQ National Market Additions, Changes, and Deletions as of October 12, 1989

      SUGGESTED ROUTING*

      Internal Audit
      Operations
      Systems
      Trading

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

      As of October 12, 1989, the following nine issues joined the NASDAQ National Market, bringing the total number of issues to 2,718:

      Symbol

      Company

      Entry Date

      SOES Execution Level

      VCOR

      Vencor, Incorporated

      9/19/89

      1000

      APPB

      Applebee's International, Inc.

      9/20/89

      1000

      CITY

      First City Bancorp, Inc.

      9/21/89

      500

      FAXM

      Hotelecopy, Inc.

      9/29/89

      1000

      SLTI

      Surgical Laser Technologies, Inc.

      9/29/89

      1000

      ERTS

      Electronic Arts

      10/3/89

      1000

      ENCL

      EnClean, Inc.

      10/3/89

      1000

      SRBC

      Sunrise Bancorp, Inc.

      10/3/89

      500

      DGII

      Digi International Inc.

      10/5/89

      1000

      NASDAQ National Market Pending Additions

      The following issues have filed for inclusion in the NASDAQ National Market upon effectiveness of their registration statements with the SEC or other appropriate regulatory authority. Their inclusion may commence prior to the next regularly scheduled phase-in date.

      Symbol

      Company

      Location

      SOES Execution Level

      AMTK

      Amtech Corporation

      Dallas, TX

      1000

      BVFSP

      Bay View Capital Corporation (Pfd)

      San Mateo, CA

      200

      EBPI

      Employee Benefit Plans, Inc.

      Minneapolis, MN

      1000

      EXBT

      Exabyte Corporation

      Boulder, CO

      1000

      IMNR

      Immune Response Corporation (The)

      San Diego, CA

      1000

      PBCI

      Pamrapo Bancorp, Inc.

      Bayonne, NJ

      500

      RLLY

      Rally's, Inc.

      Louisville, KY

      1000

      RECPZ

      Receptech Corporation

      Seattle, WA

      500

      STSN

      Siera Tuscon Companies, Inc.

      Tucson, AZ

      1000

      NASDAQ National Market Symbol and/or Name Changes

      The following changes to the list of NASDAQ National Market securities occurred since September 14, 1989:

      New/Old Symbol

      New/Old Security

      Date of Change

      ONBK/ONBK

      ONBANCorp, Inc./Onondaga Savings Bank

      9/18/89

      FAMRA/FAMR

      First American Financial Corporation (The) (Cl A)/First American Financial Corporation (The)

      9/19/89

      NYMG/NYMG

      NYMAGIC, Inc./New York Marine and General Insurance Company

      10/2/89

      CODA/CHPN

      Coda Energy, Inc./Chapman Energy, Inc

      10/10/89

      NASDAQ National Market Deletions

      Symbol

      Security

      Date

      KEAN

      Keane, Inc.

      9/15/89

      PFDR

      Preferred Risk Life Insurance Company

      9/18/89

      AMEA

      A.M.E.,Inc.

      9/21/89

      SRFI

      Super Rite Foods, Inc.

      9/21/89

      BISH

      Bishop Incorporated

      9/22/89

      BAYLC

      Bayly Corp.

      9/26/89

      EQBK

      Equity Bank (The)

      10/2/89

      LLSI

      LSI Logic Corporation

      10/2/89

      MAXEW

      Max & Erma's Restaurants, Inc. (Wts)

      10/2/89

      WWGPY

      Ward White Group pic

      10/2/89

      FCFIE

      First Capitol Financial Corporation

      10/3/89

      JUDY

      Judy's, Inc.

      10/3/89

      BRLYS

      Bradley Real Estate Trust

      10/5/89

      SCHC

      R. P. Scherer Corporation

      10/6/89

      TYLN

      Tylan Corporation

      10/6/89

      FEXCR

      First Executive Corporation (Rts)

      10/10/89

      TWSTQ

      Twistee Treat Corporation

      10/11/89

      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, NASD Market Surveillace, at (301) 590-6429.

    • 89-74 Thanksgiving Day: Trade Date-Settlement Date Schedule

      SUGGESTED ROUTING*

      Internal Audit
      Legal & Compliance
      Municipal
      Operations
      Syndicate
      Systems
      Trading

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

      Securities markets and the NASDAQ System will be closed on Thursday, November 23, in observance of Thanksgiving Day. "Regular way" transactions made on the business days noted below will be subject to the following schedule.

      Trade Date

      Settlement Date

      Reg. T Date*

      November 13

      20

      22

      14

      21

      24

      15

      22

      27

      16

      24

      28

      17

      27

      29

      20

      28

      30

      21

      29

      December 1

      22

      30

      4

      23

      Markets Closed

      24

      December 1

      5

      These settlement dates should be used by brokers, dealers, and municipal securities dealers for purposes of clearing and settling transactions pursuant to the NASD 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) 858-4341.

      Note: November 10, 1989 (the celebration of Veteran's Day), is considered a business/settlement date since the nation's banking institutions will be open.


      *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 "Reg. T Date."


    • 89-73 Revisions to Certain NASD Qualification Examinations

      SUGGESTED ROUTING*

      Legal & Compliance
      Operations
      Registration
      Training

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

      The Securities and Exchange Commission recently approved revisions to several of the NASD's qualification examinations. These changes become effective January 1, 1990. The revised examinations include the following:

      • Investment Company Products/VariableContracts Representative Examination (Series 6)
      • Direct Participation Programs Representative Examination (Series 22)
      • General Securities Principal Examination(Series 24)
      • Financial and Operations Principal Examination (Series 27)
      • Direct Participation Programs Principal Examination (Series 39)

      The revised testing programs incorporate the many product and regulatory changes that have occurred in recent years. In addition, the grading method for the Direct Participation Program Principal Examination (Series 39) will be changed to require a minimum passing score of 70 percent on both the entire examination and on an expanded Section 4 — Financial Responsibility Rules. A candidate who fails either the whole test or Section 4 will be required to take and pass the entire Series 39 examination, subject to the aforementioned dual grading standard, before registration as a direct-participation programs principal can be effected.

      Availability of Study Outlines

      The study outlines for the revised examination programs may be purchased from NASD Information Services, 9513 Key West Avenue, Rockville, MD 20850, or from any of the NASD's 14 district offices. The Series 6, 22, and 39 outlines are $4 each; and the Series 24 and 27 outlines are $10 each (add 20 percent if the outlines are to be shipped first class).

      Questions regarding this notice may be directed to Carole Hartzog, Senior Qualifications Analyst, at (301) 590-6696 or Mark Costley, Qualifications Analyst, at (301) 590-6697 in the NASD Qualifications Department.

    • 89-72 Broker-Dealer and Agent Renewals for 1989-90

      SUGGESTED ROUTING*

      Senior Management
      Legal & Compliance
      Operations
      Registration

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

      EXECUTIVE SUMMARY

      The 1989-90 NASD broker-dealer and agent registration renewal cycle will begin in early November. This program allows for simplification of the renewal process through the payment of one invoice amount that includes fees for NASD personnel assessments, NASD branch-office fees, New York Stock Exchange (NYSE) and American Stock Exchange (ASE) maintenance fees, state agent renewal fees, and state broker-dealer renewal fees. Members should read this notice and the instruction materials included in the forthcoming invoice package to ensure continued eligibility to do business in the states effective January 1, 1990.

      INITIAL RENEWAL INVOICES

      On or about November 10, 1989, initial renewal invoices will be mailed to all member firms. The invoices will include fees for NASD personnel assessments, NASD branch-office fees, New York Stock Exchange (NYSE) and American Stock Exchange (ASE) maintenance fees, state agent renewal fees, and state broker-dealer renewal fees. The NASD must receive full payment of the November invoice no later than December 18, 1989.

      This year's NASD personnel assessment is $10 per person. NASD branch-office fees remain at $50 per branch office. All NASD branch offices listed as active on Schedule E of a firm's Form BD as of September 30, 1989, will be assessed.

      Agent renewal fees for NYSE, ASE, and state affiliations will be listed in a table enclosed with each invoice. The table includes a list of state broker-dealer renewal fees for states that are participating in this year's broker-dealer renewal program. NYSE and ASE maintenance fees — collected by the NASD for firms that are registered with NYSE/ASE as well as the NASD — are based on the number of NYSE- and ASE-registered personnel employed by the member.

      If a state is not participating in this year's broker-dealer renewal program, members registered in that state must contact the state directly to assure compliance with renewal requirements. In addition, some participating states may require steps beyond the payment of renewal fees to complete the broker-dealer renewal process. Members should contact states directly for further information on state renewal requirements.

      Payment of the initial invoice should be in the form of a check drawn on the member firm's account with the firm Central Registration Depository (CRD) number included on the check. Submit the check with the top portion of the invoice and mail it in the return envelope provided with the invoice. To ensure prompt processing, the renewal invoice payment should not be included with other forms or fee submissions. Members should be aware that failure to return payment to the NASD by the December 18 deadline will mean a loss of eligibility to do business in the states effective January 1, 1990.

      FILING FORM U-5

      Members may wish to avoid unwanted renewals by filing Form U-5 for agent terminations in one or more affiliations. Because of the increased convenience and flexibility reported by members that used predated Form U-5 for renewals in the previous two years, the NASD will again process predated agent terminations this year. From November 1 to December 18, the NASD will accept and process Forms U-5 (both partial and full terminations) with predated dates of termination. Under this procedure, if the U-5 indicates a termination date of December 31, 1989, an agent may continue doing business in a jurisdiction until the end of the calendar year without being assessed renewal fees for that jurisdiction. Please ensure that Forms U-5 are filed by the renewal deadline date of December 18, 1989. Also, predated U-5s cannot be processed if the date of termination indicated is January 1, 1990, or after.

      Members should exercise care when submitting predated Forms U-5. The NASD will process these forms as they are received but cannot withdraw a predated termination once processed. To withdraw a predated termination, a member would have to file a new Form U-4 after the termination date. Meanwhile, members would remain obligated to update the Form U-5 with any disciplinary information received after the U-5 filing.

      FILING FORMS BDW

      Procedures regarding the filing for Forms BDW to terminate broker-dealer registrations in one or more affiliations will differ from those in past years. Because the CRD Phase II program has now been implemented, firms requesting terminations (either full or state only) will be able to file their Forms BDW with the CRD in order to avoid the assessment of renewal fees in those jurisdictions that are designated on the Form BDW, provided that the jurisdiction is a CRD Phase II participant. Currently, there are nine jurisdictions or entities that are not participating in Phase II. They are Arizona, Arkansas, Florida, Michigan, New Hampshire, New Jersey, Puerto Rico, the American Stock Exchange, and the New York Stock Exchange.

      Firms requesting termination in any of the above-listed jurisdictions must submit a Form BDW directly to the jurisdiction.

      The deadline for receipt of Forms BDW by the CRD for firms desiring to terminate an affiliation before year-end 1989 is December 18, 1989. This same date applies to the filing of Forms BDW with the jurisdictions that are not participating in Phase II. Predated Forms BDW filed with the CRD will be accepted and processed in the same manner as predated Forms U-5.

      REMOVING OPEN REGISTRATIONS

      For the third year, the NASD will include in the initial invoice package a roster of firm agents whose NASD registration is either terminated or purged but who have approved registrations with states. This roster should aid in the reconciliation of personnel registrations prior to year's end. Firms may terminate obsolete state registrations through the submission of a Form U-5 or reinstate NASD licenses through the filing of a Page 1 of Form U-4. No roster will be included if a firm does not have agents within this category.

      BILLING CODE BREAKDOWN

      This year's final invoice package will again include a breakdown of fees assessed by billing code for firms that use billing codes in the registration process. This breakdown will aid the firm in its internal research and allocation of fees.

      FINAL ADJUSTED INVOICES

      On or about January 12, 1990, the NASD will mail final adjusted invoices to members. These invoices will reflect the final status of firm and agent registrations as of December 31, 1989. Any adjustments in fees owed as a result of registration terminations or approvals subsequent to the initial invoice mailing will be made in this final reconciled invoice. If a member has more agents registered at year's end than it did on the November invoice date, additional fees will be assessed. If a member has fewer registered personnel at year's end than it did in November, a credit will be issued.

      Included with this adjusted invoice will be the member renewal rosters, which will list all renewed personnel registered with the NASD, NYSE, ASE, and each state. Persons whose registration is approved in any of these jurisdictions during November and December automatically will be included in this roster, while registrations that are pending approval or are deficient at year's end will not be included in the renewal process. Firms also will receive an NASD branch-office roster that lists all branches for which they have been assessed.

      Firms then will have a two-month period in which to reconcile any discrepancies on the rosters. All jurisdictions should be contacted directly in writing. Specific information and instructions concerning the final adjusted invoice package will appear in the January 1990 issue of Notices to Members, as well as on the inside cover of the renewal roster.

      Questions concerning this notice may be directed to NASD Information Services at (301) 590-6500.

    • 89-71 SEC Approval of Amendments to Article IV, Section 1, and Article VI of the Rules of Fair Practice on Notice to Membership of Disciplinary Actions, Publication of Sanctions, and Availability of NASD Manual — Effective September 19, 1989

      SUGGESTED ROUTING*

      Senior Management
      Legal & Compliance
      Operations

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

      EXECUTIVE SUMMARY

      The Securities and Exchange Commission recently approved amendments to Article IV, Section 1, and Article VI of the Rules of Fair Practice. Article VI allows the NASD to provide notice of disciplinary actions in Notices to Members, which are issued monthly, rather than in the NASD Manual, which is updated quarterly. Article VI leaves unchanged the current requirement that a list of members be provided to each member, but permits the member to make distribution within the firm as it deems necessary. Article IV, Section 1 requires that the NASD Manual be maintained in each branch office of a member. The amendments became effective September 19, 1989.

      The Board of Governors also approved an amendment to the Resolution of the Board of Governors that follows Article V, Section 1 of the Rules of Fair Practice to permit the NASD to provide notices to the membership and releases to the press of all orders and decisions issued by the NASD by means other than including such notices in the NASD Manual.

      BACKGROUND AND SUMMARY

      Recently, two changes occurred that warranted amendments to Article IV, Section 1, and Article VI of the Rules of Fair Practice. First, the NASD Manual is now being updated quarterly rather than monthly. Second, the NASD is now providing notice of the previous month's final disciplinary actions on a monthly basis by way of a Notice to Members that is distributed to all NASD members. Prior to the institution of this new procedure, the NASD provided notification to the membership of disciplinary actions and notification of suspensions and expulsions of firms for failure to pay monetary sanctions or failure to file financial information by including these notices in the monthly update to the NASD Manual.

      The previous procedure under Article VI of the Rules of Fair Practice required the Secretary of the Association to furnish every office of every member of the Association with a list of all members of the Association and, by amendments to the list, to keep every office of every member advised of all new members and of all suspensions and cancellations of membership. This list was provided to members of the Association in monthly updates to the NASD Manual, and members were entitled to rely on this list as last amended for purposes of complying with Article III, Section 25 of the Rules of Fair Practice. Article IV, Section 1 of the Rules of Fair Practice required "every office" of a member to maintain an NASD Manual.

      The resolution of the Board of Governors that was issued in connection with Article V, Section 1 of the Rules of Fair Practice contemplated that notice to the membership and press of any disciplinary action resulting in a suspension, bar, or monetary sanction in excess of $10,000 would be included in the Changes to the List of Members section of the NASD Manual.

      Under the amended Article VI of the Rules of Fair Practice, the list of all members of the Association will be provided to each member, but each member will be required to distribute the list within the firm as may be necessary. Article VI as amended also substitutes the words "pertinent Rules of Fair Practice" in place of "Rule 25" to clarify that members may need to rely on a current membership list in order to comply with other Rules of Fair Practice.

      The previous Article IV, Section 1 of the Rules of Fair Practice required that the NASD Manual be maintained in "every office" of a member. To clarify this requirement, particularly in light of the new definition of "branch office," effective on April 13, 1989, Article IV, Section 1 of the Rules of Fair Practice was amended to state that the NASD Manual will be required to be maintained in each branch office of the member.

      The amendment to the resolution eliminates the requirement that notification to the membership and releases to the press regarding suspensions, expulsions, revocations, and monetary sanctions in excess of $10,000 be included in the supplement to the list of members in the NASD Manual, and permits these notifications to be disseminated by way of Notices to Members. Publication of these matters in Notices to Members will substitute for inclusion in NASD Manual updates and will provide the membership with more timely notification of disciplinary actions.

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

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

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

      (Note: New text is underlined.)

      Sec. 1. Every member of the corporation shall keep in each branch office maintained by him, in the form to be supplied by the Board of Governors, a copy of the Certificate of Incorporation, By-Laws, Rules of Fair Practice, and Code of Procedure of the corporation and all additions and amendments from time to time made thereto, and of all published interpretive rulings made by the Board of Governors, all of which shall be available for the examination of any customer who makes requests therefore.

      AMENDMENT TO ARTICLE VI OF THE NASD RULES OF FAIR PRACTICE

      (Note: New text is underlined; deleted text is in brackets.)

      Current Membership List

      The Secretary of the Corporation shall furnish every [office of every] member of the Corporation a list of all members of the Corporation, and shall currently keep every [office of every] member advised, by amendments to the list or otherwise, of all new members and of all suspensions and cancellations of membership. Each member shall be responsible for providing such information to its offices and associated persons as appropriate. For purposes of complying with [Rule 25] pertinent Rules of Fair Practice, a member shall be entitled to rely on [such list as last amended] the information provided by the Corporation.

      AMENDMENT TO RESOLUTION OF THE BOARD OF GOVERNORS ARTICLE V, SECTION 1 OF THE NASD RULES OF FAIR PRACTICE

      Note: (Deleted text is in brackets.)

      Notice to Membership and Press of Suspensions, Expulsions and Revocations

      Paragraphs 1-8 — No change.

      Notices to the membership and releases to the press referred to above shall identify the section of the Association's Rules and By-Laws or the Securities and Exchange Commission Rules violated, and shall describe the conduct constituting such violation. Notices may also identify the member with which an individual was associated at the time the violations occurred if such identification is determined by the Association to be in the public interest. [Notice of all orders and decisions referred to above shall be included in the supplement to the list of members next published.]

    • 89-70 Automated Submission of Trading Data

      SUGGESTED ROUTING*

      Senior Management
      Internal Audit
      Legal & Compliance
      Operations
      Systems
      Trading

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

      EXECUTIVE SUMMARY

      As previously reported in Notice to Members 88-104 and 89-17, the NASD requires its members to respond to requests for trading data by using a standardized automated format. This format is consistent with that required by other self-regulatory organizations including the New York Stock Exchange (NYSE) and American Stock Exchange (Amex). This notice briefly addresses the various problems encountered by NASD staff with the submission of these data and reiterates several areas regarding compliance with these electronic filing requirements.

      BACKGROUND AND EXPLANATION

      In accordance with Part VI, Section 4 of Schedule D and Section 3 of Schedule H of the NASD's By-Laws, it is presently required that member firms submit trading data in a standardized automated format in response to an NASD request. The NASD employs the same automated format that was developed jointly by the NYSE, the Securities Industry Association (SIA), and the Securities and Exchange Commission (SEC). Members have been required to submit trading data to the NASD in this format since February 12, 1989.

      To assist member firms in their compliance with this requirement, the following reporting options are currently available:

      1. Joint NASD/NYSE Members — Self-Clearing — The NASD and Securities Industry Automation Corporation (SIAC) have developed a communications link that directs trading data from SIAC to the NASD Operations Center in Rock-ville, Maryland. This enables NASD/NYSE member firms to submit automated trading information to SIAC utilizing the same systems and procedures used when submitting trading information regarding securities listed on the NYSE.
      2. Sole NASD Member Firms — Self-Clearing — NASD member firms that self-clear and perform internal recordkeeping through the use of an in-house, automated system may submit automated trading information via computer tape or diskette directly to the NASD Operations Center in Rockville. For these types of responses, the specifications are detailed in Notice to Members 89-17.

      A label containing the requesting organization number (as assigned by NASD staff), a broker-dealer symbol, and security symbol must be placed on the tape or diskette prior to its mailing to the NASD.

      3. NASD and Exchange Members That Clear on a Fully Disclosed Basis — NASD and exchange member firms that introduce their business on a fully disclosed basis should check with their respective clearing broker-dealers to ensure that the clearing firm is able to provide automated trading information to the NASD on behalf of their firms.

      EXEMPTIONS

      In exceptional circumstances, the NASD will grant limited exemptions from automated submissions on an "as requested" basis. In considering such exemptions, the NASD reviews the nature of the firm's business requesting the exemption, including, but not limited to, the scope, complexity, and nature of the information requested, and the number of requests for trading information that the firm routinely receives. The NASD will not accept manually executed submissions of trading data unless a prior written exemption has been granted.

      CURRENT TRANSMISSION PROBLEMS

      Since the commencement of the automated "blue sheet" submissions, the NASD has experienced several problems with the information submitted by member firms. In order to rectify these problems, the following areas are noted below along with the appropriate method of submission.

      • Submission of Data to SIAC — SIAC will process only trading data submitted to it between the hours of 1 a.m. and 12 noon. Trading data submitted outside this time period will be accepted by SIAC but will not be processed and transmitted to the NASD.
      • Requesting Organization Number — This number is assigned by the NASD. The NASD's letter that requests trading information identifies this number. Firms must submit the number precisely as it is reflected on the request letter. Because the requesting organization field is left justified (i.e., this field of 15 characters should be completed from left to right with all unused characters left blank), the computer will recognize all characters and spaces between and following characters as part of the requesting organization number. That makes it essential for firms to use the organization number exactly as assigned.
      • Requestor Code — For SIAC submissions, it is imperative that firms input the appropriate requestor code so that the trading data can be forwarded to the correct entity that requested the information. The requestor code for the NASD is R and must be used when submitting automated trading data to the NASD.
      • Opposing Broker Number — The opposing broker field has a length of four characters and should reflect the National Securities Clearing Corporation (NSCC) clearinghouse number or the appropriate regional clearing number of the broker on the other side of the trade. If a customer trade is executed from inventory, then the firm's own NSCC number must be reflected in this field. If a trade is executed on an agency basis, the contra broker's NSCC number then would be reflected in this field.
      • Buy/Sell Code — The buy/sell field length is one character in length. The following values represent the appropriate transaction: 0=Buy, l=Sell, 2=Short Sale, A=Buy Cancel, B=Sell Cancel, and C=Short Sale Cancel. Values 3 to 6 and D to G are for options transactions only.
      • Short Name — The short name field should contain the last name of the customer followed by a comma and then as much of the first name as the remaining field length allows. This is a field that a number of firms have neglected to submit. The field length is 20 characters, and the information is required to be submitted with the trading data.

      A response is not considered to be complete unless all the required fields, as detailed in Notice to Members 89-17, have been provided in the appropriate format.

      Additionally, it is important to stress that firms must respond to all requests for trading data as a singular request and not submit responses for two securities on the same tape, diskette, or SIAC transmission.

      MEMBER'S RESPONSIBILITY

      The NASD considers it the responsibility of the introducing firm to ensure that requests for trading information be received by the Market Surveillance Department within the standard 10 business-day time limit. Additionally, member firms using service bureaus are responsible for submissions made on their behalf by the service bureau with regard to the accuracy of the data, proper utilization of the automated format, and the timely receipt of the information by the NASD.

      All member firms that provide clearing services for introducing firms are responsible for clearly identifying to the NASD the name of the firm for which the trading information is being submitted. This may be done by furnishing, with the trading data, a key that allows the NASD to identify the introducing firm on behalf of which the data are submitted. This will enable the NASD to readily identify a specific firm's trading data. If an introducing firm has changed clearing firms, the NASD should be notified promptly of this change.

      All firms that respond to the NASD's request for trading information in an automated format are requested to provide the Market Surveillance Department with a confirmation letter stating the date on which the transmission was made to SIAC.

      To assist member firms in meeting the 10 business-day response requirement, the Association's Market Surveillance Department's requests for trading information will be forwarded to member firms by FAX. Member firms should provide Market Surveillance with a telephone number at which telefax transmissions may be received. Accordingly, please use the attached response form to provide the staff with the appropriate FAX number and include the person's name to whom all requests should be directed. Market Surveillance should be notified promptly if this information changes.

      Questions concerning the technical aspects of this notice should be directed to Robert A. Hitchcock, Assistant Director, Information Systems Development, at (301) 590-6631. Questions concerning the requirements in general should be directed to James M. Cangiano, Vice President, Market Surveillance, at (301) 590-6424.

      Copies of Notices to Members 88-104 and 89-17 are available to members without charge by calling Jackie Davis in NASD Administrative Services at (202) 728-8302.

      Reply Form for FAX Number

    • 89-69 SEC Proposes Significant Amendments to the Net Capital Rule; Last Date for Comments: December 18, 1989

      SUGGESTED ROUTING*

      Senior Management
      Internal Audit
      Legal & Compliance

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

      EXECUTIVE SUMMARY

      On September 15, 1989, the Securities and Exchange Commission issued Release No. 34-27249 containing proposed amendments to Rule 15c3-1 (the "Net Capital Rule"). The proposal would raise the minimum net capital requirement of certain registered broker-dealers. The change would be implemented over a four-year period. In addition, the proposal would standardize the "haircut" deductions for equity securities, and there would be changes to the computation of aggregate indebtedness. The SEC's comment period expires December 18, 1989. The text of the proposed amendments follows this notice.

      SUMMARY OF PROPOSED CHANGES

      I. MINIMUM NET CAPITAL
      A. Clearing and Carrying Firms
      For firms that clear and carry customer accounts, the commission is proposing a minimum net capital requirement of $250,000. However, carrying firms that do not hold customer funds or securities (i.e., those that are exempt from SEC Rule 15c3-3 by virtue of paragraph (k)(2)(i)) would have a requirement of $100,000.

      B. Introducing Firms
      The proposed amendments would create three classes of introducing firms, each with a different minimum requirement.
      •  Firms that routinely receive customer funds and securities for transmittal to the clearing firm would have a $100,000 minimum requirement.
      •  Firms that occasionally receive customer funds and securities for transmittal to the clearing firm would have a $50,000 minimum requirement.
      •  Firms that never receive customer funds or securities would retain the current $5,000 minimum requirement. (These firms need to take the utmost care in advising their customers not to send funds or securities to them.)
      However, in addition to the above dollar mini-mums, introducing firms would be required to maintain net capital of one-quarter of one percent (.0025) of the customer debit balances that they introduce.
      One other change is being proposed for introducing broker-dealers. The proposal would permit introducing broker-dealers with a capital requirement of at least $50,000 to participate in firm-commitment under writings as a selling dealer only, never as a statutory underwriter. The present prohibition against $5,000 introducing firms participating in a firm-commitment underwriting in any capacity will continue.

      C. Over-the-Counter Market Makers
      The minimum requirement would change from the current $25,000 to $100,000 for firms that compute under the basic method. However, market-maker firms that clear and carry customer accounts and are fully subject to the provisions of Rule 15c3-3 would have a $250,000 requirement. Another change proposed would raise the requirement for each security priced at $5 or less per share to $1,000 from $500. (The current capital requirement of $2,500 per share for securities priced over $5 remains unchanged). The present ceiling of $100,000 net capital for market makers would increase to $1 million.

      D. Broker-Dealers That Transact Business in Mutual Fund Shares
      The current $2,500 minimum net capital requirement will change to $25,000 except that mutual fund firms that do not handle customer funds or securities and are not direct wire-order firms would have a $5,000 requirement.

      E. Broker-Dealers That Trade Solely for Their Own Accounts
      These firms no longer will be permitted to elect the alternative method. They must use the basic method of the greater of $100,000 (an increase from $25,000) or 6 2/3 percent of aggregate indebtedness.

      F. All Other Broker-Dealers
      A $5,000 minimum category will be maintained for firms that do not handle customer funds and securities, such as firms that sell direct participation programs (DPPs) in real estate syndications or firms that engage exclusively in mergers and acquisitions. As noted in Section B above, certain fully introducing firms can qualify as $5,000 firms. These firms now are permitted to participate in under writings on a "best-efforts" basis that uses an independent escrow agent. The commission is requesting comments on whether it is appropriate to permit best-efforts underwriting firms to remain in this $5,000 category.
      Because firms in the $5,000 category would be prohibited from receiving customer funds or securities, should they do so, they would immediately be required to maintain the next higher level of net capital.
      NOTE: Under the proposal, only a broker-dealer that carries customer accounts, holds customer funds or securities, and is subject to the full provisions of Rule 15c3-3 can elect the alternative method. All other broker-dealers must compute their net capital under the basic method and be subject to the aggregate indebtedness ratio.

      Analysis of Changes to Minimum Net Capital Requirements

      Class of Broker-Dealer

      Present Requirement

      Proposed Requirement

      l.(a) Firms that carry customer accounts and fully compute under Rule 15c3-3

         

      Basic Method

      Greater of $25,000 or 6 2/3% of aggregate indebtedness (AI)

      Greater of $250,000 or 6 2/3% of AI

      Alternative Method

      Greater of $100,000 or 2% of Rule 15c3-3 Reserve Formula debits

      Greater of $250,000 or 2% of Rule 15c3-3 Reserve Formula debits (See Note on previous page.)

       

      (In addition, if also a market maker, there is a requirement based on the number of markets made. See Class 3 on next page.)

       

      (b) Firms that carry customer accounts, receive but do not hold customer funds or securities, and operate under the paragraph (k)(2)(i) exemption of Rule 15c3-3

      Greater of $25,000 or 6 2/3% of AI

      Greater of $100,000 or 6 2/3% of AI

      2. Firms that introduce accounts on a fully disclosed basis to another broker-dealer

      Greater of $5,000 or 6 2/3% of AI

      (a) Greater of $100,000 or 6 2/3% of AI plus 1/4 of 1% of customer debits introduced, if firm routinely receives customer funds or securities;

         

      or

         

      (b) Greater of $50,000 or 6 2/3% of AI plus 1/4 of 1% of customer debits introduced, if firm occasionally receives customer funds or securities;

         

      or

         

      (c) Greater of $5,000 or 6 2/3% of AI plus 1/4 of 1 % of customer debits introduced, if firm never receives customer funds or securities

      3. Over-the-counter market makers

         

      Basic Method

      Greater of $25,000 or 6 2/3% of AI

      Greater of $100,000 or 6 2/3% of AI

      Alternative Method

      Greater of $100,000 or 2% of Reserve Formula debits

      Firms that do not carry customer accounts will no longer be able to elect the alternative method (See l(a) above for firms that do carry customer accounts.)

       

      or

      or

       

      $2,500 for each security in which a market is made ($500 per security if the price is $5 or less per share

      Same, except the requirement will be $1,000 per security at $5 or less per share

       

      with

      with

       

      a maximum requirement of $100,000)

      a maximum requirement of $1 million

      4. Firms transacting a business solely in mutual fund shares

      Greater of $2,500 or 6 2/3% of AI

      Greater of $25,000 or 6 2/3% of AI

         

      with

         

      Greater of $5,000 or 6 2/3% of AI for firms that do not handle any customer funds or securities and are not direct wire order firms

      5. Broker-dealers that trade solely for their own accounts (Also see Class 3 above.)

         

      Basic Method

      Greater of $25,000 or 6 2/3% of AI

      Greater of $100,000 or 6 2/3% of AI

      Alternative Method

      Greater of $100,000 or 2% of aggregate debits in the Reserve Formula

      The alternative method will not be available to these broker-dealers.

      6. Other broker-dealers

         

      (a) Firms that deal only in direct participation programs (DPPs)

      Greater of $5,000 or 6 2/3% of AI

      Same

      (b) Firms that do not take customer orders, hold customer funds or securities, or execute customer trades, yet register with the commission because of the nature of their activities (e.g., mergers and acquisitions)

      Greater of $5,000 or 6 2/3% of AI

      Same

      The commission proposes to phase in these new requirements over a four-year period as follows:

         

      Minimum Net Capital Required By

      Class of Broker-Dealer

      Current Requirement

      12-31-90

      12-31-91

      12-31-92

      12-31-93

      l(a) Basic

      $25,000

      $81,250

      $137,500

      $193,750

      $250,000

      l(a) Alternative

      100,000

      137,500

      175,000

      212,500

      250,000

      l(b), 3, and 5

      25,000

      43,750

      62,500

      81,250

      100,000

      2

      5,000 or

      28,750

      52,500

      76,250

      100,000

       

      5,000

      16,250

      27,500

      38,750

      50,000

      4

      2,500 or

      8,125

      13,750

      19,375

      25,000

       

      2,500

      3,125

      3,750

      4,375

      5,000


      II. OTHER PROPOSED AMENDMENTS
      A. Securities Haircuts
      1. Equity Securities: Presently there are two methods of calculating haircuts depending on whether a firm computes under the basic or alternative method. The commission proposes to eliminate the dual methodologies and establish one standardized method for firms with $100,000 or more of net capital. It would be 15 percent of the market value of the greater of the long or short position and 15 percent of the lesser to the extent it exceeds 25 percent of the greater position.
      However, firms with less than $100,000 would apply the present basic method haircuts until their net capital reached $100,000 or more. It is 30 percent of the market value of the greater of the long or short positions and 15 percent of the lesser to the extent it exceeds 25 percent of the market value of the greater.
      Finally, the proposed amendments would adopt the alternative method for computing concentration charges. For equities, that would be 15 percent, effective immediately and not after 11 business days as in the basic method.
      2. Zero Coupon and Stripped Securities: Presently, based upon an interim interpretation, these types of instruments that include only principal or interest incur the securities haircuts depending on the maturity of the security. The commission notes in its release that the haircuts for debt instruments "... were drafted to reflect the price volatilities of securities that include both principal and interest and thus do not contemplate the risk inherent in stripped securities." Therefore, under the proposal, these zero-coupon securities (other than those issued by the Treasury) would be subject to the 15 percent haircut being proposed for equity securities.
      B. Aggregate Indebtedness
      In light of the proposed increases in the minimum net capital requirements, the commission has identified two items of aggregate indebtedness (AI) for which the current 6 2/3 percent charge may not be appropriate. Accordingly, it proposes to reduce the AI impact for the following two items:
      1. Mutual Funds Payable Offset by Fails to Deliver
      When a broker-dealer owes money to a mutual fund in connection with a purchase of shares of the fund that is offset by a receivable from another broker-dealer (fail to deliver) related to that transaction, the commission is proposing a change. Rather than the entire amount of the liability being subject to the 6 2/3 percent charge as is the case under the current rule, the commission is proposing that the AI requirement be only one percent of the liability amount.
      2. Stock Loan and Stock Borrowed
      Currently, when a broker-dealer borrows stock for money and in turn lends out those securities for money to another broker-dealer, no offset is permitted, and the entire payable amount is included in aggregate indebtedness and subject to the 6 2/3 percent calculation. The release notes that given "... the matched nature of those related payables and receivables, the commission does not believe that risk merits a charge of 6 2/3 percent on the dollar amount of the liability." Accordingly, the commission is proposing that when a security loan liability is related to a corresponding security borrowed asset, the AI requirement is only one percent of the liability amount.
      C. Contractual Charges
      With the increase in the capital requirements, the commission proposes to permit the use of that additional capital to offset the initial haircut related to a firm-commitment underwriting or any subsequent contractual commitment haircuts on positions associated with that underwriting. The proposed amendment would not require a broker-dealer that meets this $250,000 minimum to apply the contractual commitment haircut charge in certain circumstances in which that haircut would be $150,000 or less. The current open contractual commitment charge of 30 percent haircuts for securities not listed for trading on a national securities exchange or not designated as NASDAQ National Market will remain unchanged.

      NASD members that wish to comment on the proposed rule change should do so by December 18, 1989. Comment letters in triplicate should be sent to:

      Johnathan G. Katz,
      Secretary
      Securities and Exchange Commission
      450 Fifth Street, NW
      Washington, DC 20549

      Comment letters should refer to File No. S7-28-89. All comment letters received will be made available for public inspection and copying in the commission's Public Reference Room, 450 Fifth Street, NW, Washington, DC 20549.

      Members are requested to send copies of their comment letters to:

      Lynn Nellius, Corporate Secretary
      National Association of Securities Dealers, Inc.
      1735 K Street,
      NW Washington, DC 20006-1506

      Questions concerning this notice may be directed to Walter Robertson, NASD Associate Director, Financial Responsibility, at (202) 728-8236 or Samuel Luque, Associate Director, Financial Responsibility at (202) 728-8472.

      Proposed Rules

      Federal Register

      Vol. 54, No. 189

      Monday, October 2, 1989

      This section of the FEDERAL REGISTER contains notices to the pubtic of the proposed issuance of rules and regulations. The purpose of these notices is to give interested persons an opportunity to participate in the rule making prior to the adoption of the final rules.

      SECURITIES AND EXCHANGE COMMISSION

      17 CFR Part 240

      [Release No. 34-27249; File No. S7-28-89]

      RIN 3235-AD79

      Net Capita! Rule

      AGENCY: Securities and Exchange Commission.

      ACTION: Proposed rule amendments.

      SUMMARY: The Securities and Exchange Commission proposes to amend its net capital rule under the Securities Exchange Act. The proposal would raise the absolute minimum net capital required of certain registered broker-dealers. Broker-dealers that hold customer funds or securities would be required to maintain at least $250,000 in net capital. Those firms that clear customer transactions but do not hold customer funds or securities would need to maintain at least $100,000. Broker-dealers that introduce customer accounts would be required to maintain $50,000 or $100,000, depending on whether they occasionally or routinely receive customer funds and securities. In addition, market makers would be required to maintain greater net capital in proportion to the number of securities in which they make markets. The minimum net capital requirement of certain mutual fund brokers and dealers would also be increased to $25,000. A residual $5,000 minimum requirement would apply to those broker-dealers who do not receive customer funds or securities. This latter class also would include so-called direct participation firms. The raising of minimum capital levels for firms would be implemented over a period of four years. Additionally, deductions for equity securities positions ("haircuts") would be standardized under the proposal. Finally, some changes would be made to the computation of aggregate indebtedness.

      DATE: Comments must be received on or before December 18,1989.

      ADDRESSES: Persons wishing to submit written comments should file three copies thereof with Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,, Washington, DC 20549. Reference should be made to File No. S7-28-89. Copies of the submission and of all written comments will be available for public inspection at the Commission's Public Reference Room, 450 Fifth Street, NW., Washington, DC 20549.

      FOR FURTHER INFORMATION CONTACT:Michael A. Macchiaroli, (202) 272-2904, Michael P. Jamroz, (202) 272-2372, or David I. A. Abramovitz (202) 272-2398, Division of Market Regulation, 450 Fifth Street, NW., Washington, DC 20549.

      SUPPLEMENTAL INFORMATION:

      I. Introduction
      The primary purpose of the net capital rule (Securities Exchange Act Rule 15c3-1; 17 CFR 240.15c3-l) is to protect customers and creditors of registered broker-dealers from monetary losses and delays that can occur when a registered broker-dealer fails. The rule requires registered broker-dealers to maintain sufficient liquid assets to enable firms that fail below the minimum net capital requirements to liquidate in an orderly fashion without the need for a formal proceeding. In doing so, the rule enhances investor confidence in the financial integrity of securities firms. Similarly, the rule promotes transactions between broker-dealers, lenders, and creditors, on one hand, and the counterparty broker-dealers on the other, because those entities are more likely to consider a broker-dealer credit-worthy if it must comply with a liquidity-based capital adequacy standard. Presently, the net capital rule generally requires a registered broker-dealer's net capital to exceed the greater of $25,000 or 6% percent of its aggregate indebtedness ("aggregate indebtedness method" or "basic method") if the broker-dealer does not elect the alternative method.1 If it elects the alternative method under paragraph (f), the broker-dealer's net capital must exceed the greater of $100,000 or 2 percent of its aggregate debit items as computed in accordance with the Formula for Determination of Reserve Requirement for Brokers and Dealers contained in Securities Exchange Act Rule 15c3-3.2
      If the broker-dealer does not carry customer accounts and limits its business to certain specified activities, it need maintain only $5,000, rather than the $25,000 which would otherwise be required under the aggregate indebtedness method.3 If the broker-dealer makes markets in securities, it must maintain th« greater of its requirement under the aggregate indebtedness method or $2,500 for each security priced over $5 in which it makes a market plus $500 for each security priced at $5 or less in which it makes a market.4 Unless required to do so because of the level of its aggregate indebtedness, regardless of how many securities in which it makes a market, a market maker is not currently required to maintain net capital greater than $100,000 to support its market making activities.
      If the broker-dealer elects the alternative method, as opposed to the basic method as noted above, its minimum net capital will be $100,000 rather than $25,000, but it will generally incur smaller haircuts on the market value of its equity securities positions than those broker-dealers that elect the aggregate indebtedness method.5
      II. Minimum Net Capital
      While the idea of a net capital standard dates back to at least 1934, federal requirements as to a minimum amount of net capital were first introduced in 1965. In that year, principally in response to the Report of the Special Study of Securities Markets ("Special Study"),6 the Commission's net capital rule was amended to require firms to maintain certain minimum capital amounts.7
      The Special Study recommended minimum capital requirements as an essential qualification for broker-dealers entering the securities business. It based its recommendation on several factors: First, firms handling customer funds and securities should have sufficient capital so that they are not dependent upon customer assets to make up the principal working capital of the firm. Second, firms should have adequate capital, resources, and equipment so that the securities markets function smoothly and efficiently and market participants have the resulting confidence to carry out business responsibly. Finally, if the liability of a broker-dealer to its customers from violations of state and federal law is to be a deterrent to improper conduct, a firm should be required to maintain a reasonable financial stake in its business.
      The Commission is mindful of the argument that increased minimum capital requirements restrict free entry to the broker-dealer business. However, while capital barriers were not initially imposed after the enactment of the Securities Exchange Act, both Congress and the Commission later recognized the need to restrict under-capitalized firms from entry into the securities business. In the 1971 Committee Staff Study for a Special Subcommittee of the House Committee on Interstate and Foreign Commerce, Congress suggested that attention be directed to the need to increase the minimum net capital requirements of broker-dealers, "particularly those just entering the securities industry." 8 In 1971, the Commission issued its Study of Unsafe and Unsound Practices {"Practices Study") 9 in response to the paperwork crisis of the late 1960's, in which many firms experienced debilitating back-office failures due to the then heavy volume of securities transactions. In the Practices Study, the Commission specifically addressed the issue of ease of entry. Appendix F to the Practices Study contained a description of actions taken by the Commission against certain broker-dealers. In that Appendix-, the Commission noted that the principals of many of those firms, which were able to remain in business for periods ranging from only eight months to three years and eight months, had little or no background in the securities industry. The previous activities of some included such unlikely fields as advertising, insurance, automobile financing, personnel relations, engineering, and selling soft drinks.10
      The Commission was concerned then, as it is today, that undercapitalized new entrants to the business would cause harm to customers and potentially be a financial drain on the insurance-type fund maintained by the Securities Investor Protection Corporation ("SIPC"). SIPC, through the Commission, may draw up to $1 billion on the U.S. Treasury.11 The Practices Study concluded that:
      [t]o permit unprepared, irresponsible parties to enter the broker-dealer business without the restraining influence of adequate entry standards wouid be tantamount to the subsidization of incompetent and irresponsible individuals by SIPC and the United States Treasury.12
      In response, the Commission adopted the current $25,000 net capital minimum requirement for broker-dealers transacting a general securities business.13 The absolute minimum capital requirements of $5,000, $25,000 and $100,000 have remained since the Uniform Net Capital Rule was adopted over fourteen years ago.14 Both the relative value of the dollar and the nature of the securities industry have changed markedly since that time. Indeed, the dollar is now worth less than 50 percent of its 1976 value, making these minimum requirements less than half of what they were in absolute terms.15 The complexity of markets and the activities that broker-dealers are engaged in also have dramatically increased in the last decade. Proprietary trading by both institutions and by the broker-dealers themselves has greatly expanded. The penny stock markets have become much more active.
      Broker-dealers have also expanded the variety of their activities. The last fifteen years have seen firms engaging in not only a greater volume of transactions but in transactions involving more complex products, such as interest rate swaps, foreign currencies, mortgages, mortgage-backed securities, and over-the-counter ("OTC") options. The holdings of customer funds and securities also have increased greatly over the years; the Commission estimates that this figure has rib., t perhaps as much as ten-fold since the early 1970s. Finally, while the Commission notes that on a statistical basis price volatility has been relatively low in the last year, during the period from October 1988 through April 1989 there were 73 separate days in which the Standard and Poor's 500 Stock Index experienced intra-day price movements of more than two percent.
      The business of buying and selling securities, moreover, is one in which success, both to the firms and to the investing public, is strongly dependent upon confidence, continuity, and commitment. The Commission is concerned over the potential effects of broker-dealer firm failures on their counterparties, clearing agencies, and the financial system in general. Given the increasingly large customer and proprietary positions maintained by even relatively small broker-dealers, the pot 3ntial exists for a single firm failure to trigger substantial exposure to a number of broker-dealers and banks. The risks of such a chain reaction underline the importance of minimum capital requirements set at levels which may substantially reduce the likelihood of such failures.
      Thus, increasing the minimum capital requirements would ensure that those who do wish to establish a broker-dealer entity do so with that amount of capital necessary to maintain adequately a solvent venture. The increased minimum capital requirement would encourage potential entrants to exhibit a serious commitment to a business whose customer and capital nature demands such a commitment. Most importantly, as discussed earlier, raising minimum capital requirements would protect the investing public and the SIPC fund by requiring a greater, pool of liquid assets from which customer claims may be satisfied.
      The Commission's most serious concern is with the current amount of capital required of clearing firms. As discussed more fully below, firms with capital of only $25,000 can clear for a number of other securities firms and can hold customer funds and securities amounting to millions of dollars. When such firms experience financial difficulty, there are significant costs imposed on customers and on regulators (which ultimately are borne by the securities industry or by taxpayers) even if the firms do not ultimately have to be liquidated under SIPA, Customers can be frozen in their positions for weeks or months and administrative costs to monitor troubled firms and/or to administer liquidations can be high. The Commission believes that the potential costs to investors, to the SIPC fund, and to the self-regulatory organizations, in the event firms self-liquidate with a very limited cash cushion are inappropriately high when weighed against the potential costs to broker-dealers of increased minimum net capital requirements.
      Furthermore, the Commission's proposal to raise the minimum capital requirements of broker-dealers has drawn preliminary support from some of the self-regulatory organizations responsible for monitoring the activities of those firms and from one industry association. The National Association of Securities Dealers' ("NASD's") Capital and Margin Committee and the NASD's Advisory Council have expressed their belief that adopting higher minimum capital standards is a matter of some urgency.16 Furthermore, both the Securities Industry Association ("SIA")17 and the New York Stock Exchange ("NYSE")18 had previously endorsed the reconsideration and the increasing of the minimum net capital requirements.
      A. Clearing Firmsâ€"For purposes of Rule 15c3-l, a clearing firm is a broker-dealer that takes orders from customers, processes their trades and maintains custody of customer funds and securities. Clearing firms are frequently engaged in other lines of business such as securities lending, proprietary trading, and futures trading. A firm may also process trades and maintain custody of funds and securities of investors who give their orders to introducing firms. The clearing firm's duties, as outlined in the clearing agreement, include the proper disposition of the customer monies and securities after trade date, the holding of customer securities and funds as appropriate, and the handling of the paperwork associated with carrying customer accounts. These services involve such high fixed costs that, if they were incurred by the typical introducing firm, it would be prohibitively expensive for such a firm to enter the securities business. Such costs include the computer costs necessary to generate various customer statements and account records, as well as the personnel costs of maintaining back-office operations such as cashiering and margin departments. For its services, the clearing firm usually charges the introducing broker-dealer a fee based on a percentage of the retail securities commission revenue received by the introducing firm.
      If a broker-dealer carrying customer funds and securities fails, there is potential for significant harm to be suffered by its customers. Furthermore, the risks that clearing firms, particularly those with small amounts of capital, pose to customer accounts can be greatly exacerbated by the fact that there are no limits on the amount of customer funds and securities that can be held.
      SIPC's experience with liquidations demonstrates this latter point. In many cases, the SIPC trustee has had to use SIPC advances 19 at least in part to pay off customers' claims of securities and cash in amounts many times in excess of the firm's required net capital. For example, in one case, in which the firm's required net capital before it failed was only $119,000, the SIPC trustee paid out to customers from SIPC advances over $6,000,000 and from the debtor's estate over $25,000,000 in customer funds and securities. In another case, in which the firm's required net capital was less than $120,000, the SIPC trustee paid out to customers almost $14,000,000 in cash and securities; more than half this amount was paid out of SIPC advances.
      These SIPC liquidations reflect common risk exposures of many operating clearing firms. At the request of the Commission staff, the NASD randomly sampled NASD clearing firms having capital of less than $130,000. Of the 84 firms in this sample, 21 were found to be holding more than $1 million in securities. The Commission believes that SIPC liquidation experience and the random sampling demonstrate that a significant percentage of broker-dealers that clear and carry funds and securities and that do not maintain significant excess net capital control substantial customer assets that are potentially at risk.
      In order to evaluate the risks entailed in maintaining those low minimum capital requirements, the Commission also has evaluated instances of liquidations which did not require intervention by SIPC. While there were only eight SIPC liquidations in 1987 and 1988,20 there were more than twice as many self-liquidations under the auspices of the NASD Washington headquarters staff. In 1987 and 1988, there were 18 such self-liquidations in which the NASD oversaw the distribution of over $250,000,000 in customer property involving relatively undercapitalized firms. These cases provide examples of potential exposure to the SIPC fund. Of the many cases of firm self-liquidation that the NASD has had to supervise because of lack of substantial net capital, two are particularly noteworthy. One firm held $70 million of customer securities, although it had only $61,000 of net capital. The other firm held $8 million of customer securities and only $42,000 of net capital. Fortunately, because the NASD was aware of the problems suffered by the above firms before they failed, the NASD was able to have the firms move customer accounts to other clearing firms and thereby avoid SIPC liquidations.
      When the NASD monitors a firm self-liquidation, it commits from two to 25 of its staff personnel to the process of supervising the firm. In addition to the NASD personnel, employees of the firm being liquidated are retained in order to do the work associated with transferring the accounts. Those employees, along with the costs associated with maintaining the premises, and transferring and shipping securities, must be paid from whatever capital remains in the broker-dealer. Self-liquidations may take from three weeks to several months, depending on the condition of the records of the broker-dealer and whether the NASD is readily able to locate other broker-dealers willing to take the customer accounts.
      Self-liquidation costs to the self-regulatory authorities are difficult to measure since most of the incremental expenses other than employees' compensation time is mainly for per diem expenses of employees on travel status and for telecommunication expenses. On average, however, the NASD has advised the Commission staff that even the smallest liquidation requires two to three NASD employees on premises for a minimum of two weeks. The largest recent liquidation required staff of about 25 NASD employees for about 10 weeks on premises, with fewer people thereafter. ' The recorded average cost for the NASD including salaries is about $2,000 per week per employee.
      Beyond administrative costs, customers are usually unable to access their accounts when their broker-dealer is placed in a SIPC liquidation or a self-liquidation. Although every attempt is made to transfer accounts to a solvent broker as rapidly as possible, that goal is not always achievable, either because of the type of accounts, the poor condition of the broker-dealer's records, or the lack of adequate margin in customer accounts.
      While requiring additional amounts of net capital to be maintained will not prevent firms from failing or otherwise leaving the securities business, the additional capital provides a fund from which the expenses associated with the liquidation can be paid. If that fund is not adequate, either the NASD or SIPC must fund the administration of the liquidation. If the remaining capital in the firm is low and the NASD supervises the liquidation, the NASD will not have the means to pay the employees of the broker-dealer to perform the clerical tasks associated with the distribution of property to customers. Accordingly, the NASD would have to use its own employees to perform these tasks and would incur substantial additional expenses. If the amount of remaining capital is small and the amount of customer property to be distributed is very large, SIPC would likely have to administer the liquidation. The initiation of a SIPC proceeding would result in increased administrative expenses.
      More importantly, customers are adversely impacted from a SIPC liquidation because their funds and securities remain frozen until their property can be transferred to another broker-dealer or returned to them. Finally, to the extent their claims exceed their pro rata share of customer property, customers must rely on SIPC advances. Section 4 of SIPA limits SIPC advances to satisfy the claims of each customer up to a maximum of $500,000 for cash and securities, with a limit of $100,000 for cash claims.
      Failures of clearing firms also present risk to the system as a whole by putting a financial strain on clearing agencies. Clearing agencies or corporations act as the central location for matching security transactions of members. This facilitates determination of minimum quantities of particular securities to be received or delivered. Generally, the clearing corporation nets each broker-dealer's settling purchases and sales in each security to arrive at a daily net settlement obligation for each broker-dealer. Broker-dealers then settle those net obligations with the clearing corporation. The clearing corporation guarantees the settlement obligations of each broker-dealer's counter trading party.
      Losses to clearing firms from market disruptions such as the October market break can have the serious effect of causing losses to the related clearing corporations. While a single clearing firm failure probably would not put the entire system at risk, a combination of such failures could conceivably bring down a clearing system. If a clearing agency itself were to fail, the risk of a precipitous disaster to other financial service entities would be enormous.
      Based on these observations, the Commission preliminarily has concluded that broker-dealers who are responsible for customer funds and securities impose substantial actual and potential risks on customers, other broker-dealers and the financial system and therefore should have a required minimum net capital higher than other classes of broker-dealers covered under the Rule. The amount of capital these customer firms maintain demonstrates their level of commitment to the business. Accordingly, the Commission believes that the minimum level of net capital for this class of broker-dealers should be raised to $250,000.
      Because of the increased assurance of stability which would be provided by the proposed minimum capital level, the Commission proposes that the haircut associated with positions in firm commitment under writings, or the contractual commitment haircut, be relaxed for a portion of a firm's increased capital requirement.21 The proposed amendment would not require a broker-dealer who meets the $250,000 minimum to apply the contractual commitment haircut charge in certain circumstances in which that haircut would be $150,000 or less.
      In addition, because the Commission believes that capital requirements should be based largely on the risks created by firms in their securities activities, the Commission believes that it is appropriate to distinguish between those firms that hold funds and securities for other persons and those that do not hold funds or securities yet carry customer accounts. Because firms that do not hold funds and securities impose a lower level of risk, the Commission believes that lower minimum requirements for such firms are justified. The Commission therefore proposes for comment a minimum capital requirement of $100,000 for firms that are exempt from Rule 15c3-3 by virtue of paragraph (k)(2)(i). Firms that fall within the paragraph (k)(2)(i) exemption must effectuate all customer securities transactions through a Special Bank Account for the Exclusive Benefit of Customers. Such broker-dealers cannot carry margin accounts, must promptly forward all customer funds and deliver all securities received in connection with their activities as broker-dealers and cannot otherwise hold for, or owe money or securities to, customers.
      B. Introducing Firmsâ€"An, introducing broker-dealer is one that has a contractual arrangement with another t firm, the carrying or clearing firm, in ™ which the carrying firm agrees to perform certain services for the introducing firm. Generally, the introducing firm submits its customer accounts and customer orders to the carrying firm, which executes the orders and carries the accounts. The carrying firm's duties include the proper disposition of the customer monies and securities after trade date, the holding of customer securities and funds and the record keeping associated with carrying customer accounts.
      The Commission believes that introducing firms create risks for investors, clearing firms, and other firms with which they deal, and thus that there is ample justification for an increase in their minimum capital requirements. Even though the failure of an introducing firm does not normally result in a SIPC liquidation, it may result in substantial costs to the firms that carry the customer accounts for the introducing firm. In addition, customers may be unable to trade for some period of time until they can find another introducing or clearing firm to which they can transfer their accounts. Finally, because many introducing firms do in fact handle customer funds and securities for short periods of time, there is SIPC exposure from their activities. As a result, the Commission believes that increased minimums for introducing firms are risk-justified.
      As the Market Break Report pointed out,22 introducing broker-dealers pose risks to the investing public as well as to other broker-dealers. First, those broker-dealers do, in fact, receive customer funds and securities, although the funds and securities must be promptly forwarded to firms that carry the customer accounts.
      There is an obvious risk for the customer if the introducing firm fails while in possession of customer funds and securities. There have been several recent cases where an introducing firm failed and, because the firm was declared to have "customers" under SIP A, there was exposure and payout for the SIPC fund. Such "customers" are created, as mentioned above, when the introducing firm does not promptly forward the customer funds to the clearing firm and the introducing firm fails.
      Second, if an introducing firm fails, or even ceases doing business temporarily, its customers are often stranded. The carrying firms associated with introducing firms often will not accept orders from customers because the carrying firm may regard the customers as those of the introducing firm. As a result, customers may be unable to liquidate securities positions or open new positions with the proceeds of sales until their accounts are transferred to other broker-dealers.
      Finally, introducing broker-dealers can cause significant losses to carrying firms, exposing the customers and creditors of those firms to loss. Dining periods of market decline, customer accounts may become unsecured due to a precipitous drop in the value of the securities in margin accounts or because of changes in value of customer short options positions. If the account has been introduced, the introducing firm generally is obligated to the carrying firm for deficits in the introduced customer accounts. If the introducing broker-dealer does not have adequate resources to reimburse the carrying firm, the carrying firm may suffer significant losses.23
      Because of the loss exposure from introducing firms, many clearing firms will not clear for introducing firms without substantial capital or substantial deposits, which serve as collateral for unsecured customer debits.24 At the request pf the Commission staff, the NASD conducted an informal survey of the firms that clear introduced accounts. The NASD survey indicates that the practices varied greatly among the clearing firms that were contacted. For example, the following arrangements for introducing firms were included in the surveyed clearing arrangements: A requirement of $150,000 minimum net capital and a deposit if the firm has trading accounts; minimum deposit of $5,000, but could go as high as $300,000 for market makers; clearing deposits between $50,000 and $100,000 determined by credit committee; a requirement of 110 percent of the introducing firms' highest inventory position.
      The Commission believes that, while the NASD survey is informal and includes only a small number of clearing firms, it demonstrates that many firms have imposed capital and deposit requirements to protect themselves from the risk of failure of undercapitalized introducing firms. At the same time, because the standards are not uniform, weaknesses in the system tend to develop. Assuming that clearing firms that are more risk conscious require their introducing firms to maintain the greatest amount of capital, clearing firms that are not as sensitive to risk will tend to have a higher concentration of introducing firms that are poorly capitalized and engaging in riskier activities.
      Accordingly, the Commission proposes to raise the minimum capital requirement for introducing firms based upon the activities that they engage in and the commensurate risks created. Thus, three classes of introducing firms would be created under the proposed amendments. Some introducing broker-dealers now routinely receive customer funds and securities for transmittal to the clearing firm. Those firms are responsible for the funds and securities until received by the clearing firm. Under the proposal, this class of introducing firm would be required to maintain net capital of at least $100,000. Introducing firms that occasionally receive customers' funds and securities would be required to maintain at least $50,000. This covers instances of customers inappropriately sending funds or securities to the introducing firm.
      While the Commission preliminarily believes that the net capital minimums should be increased substantially to reflect the risks entailed in the operation of many introducing broker-dealers, it is also cognizant of the importance of providing relatively free access to the securities industry when firms do not pose risks to their customers or the SIPC fund. Accordingly, introducing firms that never receive customer funds or securities and do not handle margin accounts would be allowed to remain in the $5,000 minimum net capital category. In order to avoid classification as a $50,000 broker-dealer, introducing broker-dealers who wish to remain in the $5,000 category would need to take the utmost care in advising their customers not to send funds or securities to the introducing firm. In addition to the requirement imposed on such introducing firms under the basic method, they would be required to maintain additional net capital of Y* percent of the customer debit balances that they introduce.
      Finally, the Commission proposes to increase the ability of introducing firms to participate in firm commitment under writings. Under the current rule, broker-dealers that compute under the minimum required of introducing broker-dealers are prohibited from engaging in firm commitment under writings. In light of the proposed higher minimum levels, introducing broker-dealers would be allowed to participate in firm commitment under writings as long as they are only the selling dealer and not the statutory underwriter.25
      The Commission requests comment on its proposed classes of introducing firms and the minimum levels associated with each class. Furthermore, the Commission requests comment regarding practices of firms that clear introduced accounts for setting financial responsibility standards for introducing firms. Specifically, the Commission requests comment on the effectiveness of standard-setting by the industry and whether higher minimum capital requirements are necessary.
      C. Over-the-Counter Market Makersâ€"In its Market Break Report, the Division of Market Regulation expressed its belief that the minimum amount of capital necessary for a broker-dealer to qualify as a market maker should be reviewed.26 The Commission is also concerned about the limited amount of net capital the rule presently requires of a market maker. The market maker who maintains only the minimum amount of net capital required frequently is unable to assume even the smallest number of positions in the stocks in which it reportedly makes a market. Moreover, to the extent its net capital falls below the minimum amount required, such a firm is compelled to withdraw as market maker in at least some of its market making securities, an action which could impair the market in those securities. This has been a particular problem in the penny stock market, in which the failure of market making firms has resulted in the virtual elimination of a public market for many of the securities for which they made public markets. A sound marketplace requires that OTC market makers have the wherewithal to take positions in those securities in which they make markets.
      The NASD has recommended that the capital requirements of certain market makers be increased. The NASD has recently approved rule amendments to its Small Order Execution System ("SOES") which require not only mandatory participation in the SOES for all market makers in certain securities, but also different maximum SOES order-size limits based upon the market characteristics of the securities.27 Under mandatory SOES participation, market makers will be required to accept small orders received through the SOES system. Accordingly, the NASD Quality of Markets Committee has recommended that the Commission require an increase in capital to at least the amount required to support mandatory SOES positions.28
      In response to the concerns noted above, the Commission proposes for comment two separate amendments. The first would increase the present ceiling of $100,000 net capital required of market makers to $1,000,000. The second would raise the requirement for each security priced at $5.00 or less per share to $1,000 from $500. Thus, for example, a firm making markets in 100 securities priced in excess of $5 and 50 securities priced below $5 would have a minimum net capital requirement of $300,000.
      D. Broker-Dealers That Transact a Business in Mutual Fund Sharesâ€"The proposed amendments would also alter the capital requirements for broker-dealers that limit their activities to transactions in shares of registered investment companies. Currently, the minimum net capital requirement for this type of broker-dealer is the greater of $2,500 or 6% percent of their aggregate indebtedness. This minimum requirement seems inappropriately low, however, considering that these firms receive money from customers and may also transact business directly with issuers. The Commission thus proposes for comment that the basic minimum requirement for mutual fund broker-dealers be raised to $25,000. However, for those mutual fund firms which do not handle any customer funds or securities and are not direct wire order firms, the Commission proposes a $5,000 minimum net capital requirement.
      E. Broker-dealers Who Trade Solely for Their Own Accountsâ€"Firms that trade solely for their own accounts ("trading firms") are currently required to maintain net capital of the greater of 6% percent of their aggregate indebtedness or $25,000 under the basic method, or $100,000 under the alternative method. The Commission believes these firms should not be permitted to continue to compute under the alternative method.
      The theory underlying the alternative method of calculating net capital is that, for large firms, customer debits will provide an approximate proxy of the amount of business and exposure of the firm. Because proprietary firms have no customer accounts, the alternative method does not limit leverage for those firms. This means that a firm with the $100,000 minimum capital required under the alternative method could have very large aggregate indebtedness and therefore very substantial leverage in its business, thereby increasing its assets substantially in relation to its net worth, without restriction except for the haircuts on its positions.
      Yet, proprietary trading activities obviously are risky, and leverage exacerbates that risk. As pointed out in the October Market Break Report, several risk arbitrage firms lost an average of 41 percent of their combined net worth during the market break.29 Moreover, such firms often have positions concentrated in a few stocks and may suffer substantial losses from arbitrage positions in a hostile takeover battle. Furthermore, the trading firms' business involves substantial risk to the extent that it consists of investing in large risk arbitrage or speculative positions with less diversification than that usually undertaken by larger firms. While these firms do not deal directly with customers, they do expose other broker-dealers, clearing entities, and creditors to substantial risk.
      The Commission believes that failure of a proprietary firm with the relatively small cushion provided by the alternative method could impose financial risk on those contra parties and, in turn, their customers. Accordingly, the Commission proposes for comment that trading firms no longer be permitted to elect the alternative method. The Commission further proposes for comment that the minimum net capital requirement for those firms be raised to $100,000. As a consequence of these proposed amendments, most of those firms would be required to increase their capital by the difference between their current $100,000 minimum and 6% percent of their aggregate indebtedness.
      F. All Other Broker-Dealersâ€"As noted above, the Commission has preliminarily determined to maintain a $5,000 category for introducing brokers and dealers who do not handle customer funds or securities. In addition, under the current rule, broker-dealers that participate in under writings on a "best efforts" basis and who promptly forward all customer funds to the issuer or a designated independent escrow agent, are required to maintain minimum capital of only $5,000. This firm category should include primarily firms that sell direct participation programs ("DPP") in real estate syndications. Because of the limited business conducted by DPP firms, the Commission is making no specific proposal for change in the minimum capital requirements. However, the proposed amendments would provide that any firm that maintains only the $5,000 level of capital would be prohibited from receiving customer funds or securities. If they do so, they would immediately be required to maintain the next higher level. The Commission believes that this, new requirement would help to protect investors from having their cash and securities exposed while being handled by a broker-dealer with very limited capital. The Commission requests comments as to whether it is appropriate to permit best efforts underwriting firms to remain in the $5,000 residual category.
      Finally, some firms do not take customer orders, hold customer funds or securities, or execute customer trades, yet register with the Commission because of the nature of their activities. An example of such a broker-dealer is a firm that identifies and locates potential merger or acquisition opportunities on behalf of a client, and thereby earns a percentage fee. For these miscellaneous types of broker-dealers, the Commission also proposes a $5,000 minimum net capital requirement.
      For most firms that would be included in this category, this will not represent an increase in the required minimum net capital.30 Some mutual fund dealers that would fall into this category will go to a $5,000 requirement from a $2,500 requirement under the existing rule. Like the DPP firms, however, the Commission proposes that these firms be prohibited from having any contact with customer funds or securities. In addition, other firms, such as floor brokers, which may avail themselves presently of the $5,000 requirement, will continue to be able to comply with that requirement.
      G. Phase-In Scheduleâ€"Because of the impact of the increased minimum capital requirements on some broker-dealers, the Commission proposes that the minimums be staggered over a period of four years from the effective date. Each year after the effective date, the minimum requirements for affected broker-dealers would increase by 25 percent of the increase. Thus, for example, if the increase was from $25,000 to $250,000, the minimum requirement one year after the effective date would be $81,250 (($225,00OX.25)+$25,00O). The proposed timing of the increases is summarized below:
      i. Firms That Hold Customer Funds or Securities (Aggregate Indebtedness Method)
      a. Current rule: $25,000
      b. By 12/31/90: $81,250
      c. By 12/31/91: $137,500
      d. By 12/31/92: $193,750
      e. By 12/31/93: $250,000
      ii. Firms That Hold Customer Funds or Securities (Alternative Method)
      a. Current Rule: $100,000
      b. By 12/31/90: $137,500
      c. By 12/31/91: $175,000
      d. By 12/31/92: $212,500
      e. By 12/31/93: $250,000
      iii. Clearing Firms That Do Not Hold Customer Funds or Securities
      a. Current Rule: $25,000
      b. By 12/31/90: $43,750
      c. By 12/31/91: $62,500
      d. By 12/31/92: $81,250
      e. By 12/31/93: $100,000
      iv. Introducing Firms That Routinely Receive Customer Funds or Securities
      a. Current rule: $25,000
      b. By 12/31/90: $43,750
      c. By 12/31/91: $62,500
      d. By 12/31/92: $81,250
      e. By 12/31/93: $100,000
      v. Introducing Firms That Do Not Routinely Receive Customer Funds or Securities
      a. Current rule: $5,000
      b. By 12/31/90: $16,250
      c. By 12/31/91: $27,500
      d. By 12/31/92: $38,750
      e. By 12/31/93: $50,000
      vi. Mutual Fund Dealers That Routinely Receive Customer Funds
      a. Current Rule: $2,500
      b. By 12/31/90: $8,125
      c. By 12/31/91: $13,750
      d. By 12/31/92: $19,375
      e. By 12/31/93: $25,000
      The Commission specifically requests commentators to focus attention on the phase-in provisions and to indicate whether the proposed timing and method of phase-in are appropriate. In particular, the Commission is concerned that, given the significant level of risk present in the system, a four-year phase-in may be too long to achieve the maximum degree of customer and systemic protection contemplated by these proposals. On the other hand, given the size of some of the Increases in minimums proposed, the Commission is interested in permitting, to the extent practicable, a smooth transition with minimal disruption for both firms and customers.
      H. Request for Commentâ€"The Commission requests comment on the minimum capital requirements set forth in the proposed amendments to the rule. In this connection, the Commission recognizes that the determination of the appropriate levels of minimum net capital necessarily requires consideration of the benefits of higher standards, as well as the impact of those standards on broker-dealers. In arriving at the proposed new minimum net capital requirements, the Commission, on the basis of available data and its regulatory experience, has attempted to balance the cost of raising additional capital (and the effect on those that will not be able to raise it) against the above described benefits of a prudent financial responsibility standard. The Commission, nevertheless, requests comment on alternative methods that might be used to establish minimum net capital requirements. More specifically, the Commission asks if a minimum absolute dollar amount requirement could be based on quantifiable measures of risk.
      As discussed, the Commission is concerned with the large dollar amounts of customer fully-paid securities in the possession of broker-dealers with minimum capital. Some broker-dealers have access to several million dollars of fully-paid customer securities, but are required to maintain only $25,000 in net capital. This financial commitment does not appear commensurate with the resulting risk to SIPC or the investment community. The Commission requests comment as to whether this concern is best addressed by a larger minimum dollar requirement for broker-dealers that carry customer accounts or by requiring broker-dealers that carry customer accounts to regularly determine the dollar amount of customer fully-paid securities they have in their possession and take a charge against these amounts when computing their net capital requirement. The Commission also seeks comment regarding whether some combination of the above would be appropriate. Finally, the Commission requests comment as to whether it would be appropriate to have a smaller minimum dollar requirement (for example $100,000) for carrying firms that take a capital charge against customer fully-paid securities in their possession, and a larger minimum dollar requirement (for example $250,000) for firms that chose not to.
      The Commission also requests comment on the costs imposed by the proposed amendments. While a precise estimate of the costs of the proposals is difficult, a rough estimate can be made based on the relative cost of capital. Persons who enter the broker-dealer business generally do so through partnerships or through corporations. In either case, the individual or individuals who establish the firm can deposit into the entity assets they have or cash they have borrowed. These assets are deemed to be capital of the broker-dealer. Indeed, as has happened before, a person may borrow $5,000 on a credit card and deposit the money a's capital into a broker-dealer corporation and thus be in compliance with the net capital rule requirements for a $5,000 broker-dealer. In addition, a broker-dealer may, under the net capital rule, count as net capital monies borrowed from another person if subordinated in conformity with the net capital rule requirements.31
      Once in the broker-dealer corporation, the funds may be invested in high grade commercial paper, bank certificates of deposit or short-term government securities, all of which, as money market instruments, receive little or no haircut. The Commission estimates the difference between the lending rate and the rate the broker-dealer could earn on the above investments to be approximately three to four percent annually before taxes. Assuming a $45,000 borrowing for an introducing firm which only occasionally receives customer funds and securities (and thereby would qualify for the proposed $50,000 introducing level), the cost of the additional capital (assuming a net cost of 4%) would be only $1,800 per year.
      From recent financial filings with the NASD 32 compiled as of March 31,1989, it was determined that 173 clearing firms would need, on average, an additional $123,000 to comply with the new $250,000 minimum requirement. Using the above assumptions on the cost of capital (a four percent spread), in order to comply with the new minimum net capital requirement, it would cost each of the 173 clearing firms on average .-approximately $5,000 per year or a total of $850,000. Additionally, of the 763 market maker firms, 63 have required capital of between $100,000 and $1,000,000 and thus may be affected by the new higher ceiling on additional capital required of market makers.
      As to introducing firms, NASD data as of the same period does not distinguish between introducing firms that routinely handle funds and securities and those that do not. Assuming that every introducing firm handles customer property on a routine basis, the data indicate that 1428 introducing firms would need, on average, $65,702 each to comply with the new $100,000 minimum capital requirement. The total cost of raising this capital based on a 4 percent cost of capital assumption is $3.8 million or $2,600 per firm. Assuming every introducing firm only occasionally handles customer funds and securities and thus would have a $50,000 minimum requirement, it was determined that 1,063 firms would need to raise an average of $28,555. Making the same cost assumption as discussed above, the cost of raising their capital requirements would be $1.2 million or $1,100 per firm per year.
      The Commission acknowledges that broker-dealers may incur costs other than the estimated 4 percent referred to above in obtaining additional capital. For example, if the borrowing is done personally, the owner of the firm will likely be required to encumber personal assets. However, even if the estimated cost of obtaining additional capital were 8 percent, the average annual cost for a clearing firm would be only $10,000. At the 8 percent level, an introducing firm would incur annual costs of either $5,200 or $2,200 per year, depending on the method by which the firm elects to do business.
      The Commission preliminarily does not believe that the costs described above will have the effect of barring entry or making unprofitable any group of entrepreneurs who have a serious commitment to developing a brokerage firm. The Commission requests comment, however, on the specific costs to broker-dealers of its proposal. In this connection, the Commission asks for comment as to the amount of net capital in excess of the early warning levels 33 that firms would normally maintain as a business matter. Additionally, commentators are requested to provide information regarding their likely sources for obtaining additional capital, the cost of those funds, and the return on the investment they would likely obtain from the use of those funds.
      The Commission also asks if particular firms will change their operations so they can operate under one of the lower minimum net capital categories permitted under the proposals. Commentators are further encouraged to provide information regarding their lines of business and related revenues and the need for the Commission to determine if additional classes of firms should be created to accommodate the needs of smaller broker-dealers.
      The Commission also requests comment from those small broker-dealers that elect to carry customer accounts rather than to take advantage of the lower capital requirements that are currently in the rule for introducing firms. The Commission is particularly interested in receiving input from smaller carrying firms regarding the reasons they have elected to remain as carrying firms and be subject to the higher minimum requirements and how their business would be affected if they were to switch to introducing their customers to another firm. The Commission is specifically interested in receiving input from firms regarding the potential impact on revenues and expenses in the event these broker-dealers decided to conform to the limitations imposed under the provisions of the lower capital requirements (such as not handling in any way customer funds and securities).
      Finally, the Commission requests comment from those firms that may not be able to raise additional funds. The Commission requests input on whether the alternatives proposed by the Commission with respect to maintaining low levels of minimum net capital are flexible enough to permit those firms to continue to remain in businessâ€"even if that means they will have to forego handling funds and securitiesâ€"or whether those firms will have to cease doing business as registered broker-dealers. For those firms that would cease doing business because of the increase in minimums, the Commission asks what factors would be important in making that decision.
      III. Securities Haircuts
      A. Equity Securitiesâ€"The current rule requires different levels of deductions as to equity securities and different computations of those deductions depending on the broker-dealer's election of either the basic or alternative methods.34 Although the nation's equity securities markets experienced an extraordinary surge of volume and price volatility during October 1987, in most circumstances the deductions incurred for those securities appear adequate. However, the distinctions in the haircuts between the alternative and basic methods, given the proposed raising of the minimum requirements, do not seem appropriate.
      Haircuts generally are designed to provide a cushion of capital against adverse fluctuations in the prices of securities. The net capital rule haircut has varied over the years. Generally, equity haircuts were settled some 25 years ago at 30 percent of the greater of the long or short position. The lesser position was deemed by the rule to be hedged by the greater position but only to the extent that it did not exceed 25 percent of the greater position. The theory, of course, is since market movements are responsible for a substantial percentage of price movements for individual stocks, diversified long positions (or diversified short positions) will to some degree move in the same direction.
      In 1975, the Commission adopted the present rule and a new, alternative method for determining haircuts. In order to facilitate market-making, the Commission determined to allow firms electing the alternative method to take a 15 percent haircut on the long positions. The haircut on the short position, to the extent it exceeded in value 25 percent of the long position, was taken at 30 percent of the market value. Firms electing the alternative, however, were required to have a minimum net capital of $100,000, rather than the $25,000 minimum otherwise required. This additional cushion of capital was deemed necessary in the event the haircuts proved inadequate.
      Given the Commission's experience with the haircuts under the alternative method and because the Commission is revisiting its minimum net capital levels generally, the Commission preliminarily believes that the haircuts for equity positions under the aggregate indebtedness method should be lowered. However, haircuts may be appropriately reduced only if the minimum levels of net capital are raised because the value of a particular security could easily move more than the lower haircut. Moreover, generally, except for tender offer situations, a long would seem to be no less volatile or risky than a short position, and thus should not be subject to a different haircut.
      Under the proposed amendments, the calculation of haircuts for those under the alternative method and those on the aggregate indebtedness method would be standardized.35 The haircuts for both long and short positions would be 15 percent of the market value. An additional 15 percent would be assessed on the market value of the lesser position to the extent it exceeded 25 percent of the greater position. The 15 percent deduction for long positions would be available to those firms which have more than $100,000 in net capital. Under the proposed amendments, the alternative method for computing concentration charges would be adopted.
      The Commission invites comment on particular methods for determining haircuts on equity securities positions. The Commission further requests comment on whether the use of historical price volatility data, such as the Commission has used in the past for developing haircuts for debt securities, is an appropriate method for determining haircuts on equity securities.
      B. Zero Coupon and Stripped Securitiesâ€"The Commission also proposes to amend its securities deductions to exclude instruments that include only principal or interest. Under the current rule, for example, any security that is "* * * issued or guaranteed as to principal or interest by the United States or any agency thereof * * *" incurs a haircut of zero to six percent, depending upon the maturity of the security. These percentages, however, were drafted to reflect the price volatilities of securities that include both principal and interest and thus do not contemplate the risk inherent in "stripped" securities. Under the proposal, these zero-coupon securities (other than those issued by the Treasury) would be subject to the 15 percent haircut proposed for equity securities.
      The Commission recognizes that, while stripped securities have different price volatilities for differing maturities than corresponding coupon bonds, there is a distinct benefit in creating a uniform haircut across ali maturities. Preliminarily, the Commission believes that, given the relatively lower level of activity in coupon instruments as compared to Treasury instruments that contain principal and interest, a uniform haircut is more practical because it minimizes the complexity of the rule. If the Commission does not adopt a uniform haircut for coupon instruments, it is likely that a separate series of maturity categories will have to be created for those securities. The Commission requests comment as to the appropriate haircut for zero-coupon Treasury as well as other stripped instruments.
      IV. Aggregate Indebtedness
      The aggregate indebtedness test has been included in the net capital rule since its adoption in 1942. Generally, the term aggregate indebtedness includes all of the liabilities and/or obligations (contingent or otherwise) of the broker-dealer. By limiting the amount of indebtedness of registered broker-dealers to a percentage of net capital, the rule limits the leverage that broker-dealers that elect the basic method are able to attain. The rule however, specifically excludes from aggregate indebtedness certain prescribed liabilities. In the two classes of liabilities described below, the Commission believes the 6% percent aggregate indebtedness charge may not be appropriate, particularly in light of the proposed increases in the minimum requirements.
      A. Mutual Funds Payable Offset by Fails to Deliverâ€"The present rule requires a broker-dealer that owes money to a mutual fund in connection with a purchase of shares of that fund to include that amount in aggregate indebtedness even if offset by a receivable from another broker-dealer related to that transaction. This payable arises out of a purchase by the broker- dealer directly from the fund of shares of the fund for another broker-dealer {presumably for its customer). The first broker-dealer owes money to the fund secured by the investment company shares. The second broker-dealer owes money to the first broker-dealer. The debt on the first broker-dealer's books is offset by a receivable from the second broker-dealer, classified generally as a fail to deliver. That receivable is also secured by the mutual fund shares, since delivery of the shares will not occur until payment of the obligation by the second broker-dealer. Our experience indicates that, as a general rule, most of these fails to deliver are completed. The Commission believes that, to the extent that this class of fails to deliver is offset by a liability to the fund, a capital cushion of 6% percent to cover the liability is unnecessary. Rather than the 6% percent charge that results under the current rule, the Commission proposes that this requirement be lowered to one percent of the liability amount when an offset exists.
      B. Stock Loan and Stock Borrowedâ€" A stock loan payable is a liability arising from the receipt of cash collateral from a person who borrows securities from the broker-dealer. It is considered aggregate indebtedness even if the securities that were loaned were borrowed from another broker-dealer. When one broker-dealer lends securities to another broker-dealer, the lending broker-dealer generally receives cash collateral in excess of the value of the securities lent. That collateral is deemed to be a liability on the books of the lending broker-dealer, since that broker- dealer owes money to the borrowing broker-dealer.
      Much of the stock lent by one broker-dealer to another broker-dealer has been borrowed from yet a third broker-dealer or other person. That borrowing, if collateralized by cash, results in a receivable from the lending person. The borrowing broker-dealer has turned over cash to the lending entity which in turn was received from the second borrower of securities. In that situation, the firm has a stock loan payable versus a stock loan receivable analogous to a government securities repurchase book. Generally, excluding fraud, these are not risky positions. The major risk in such positions (normally characterized as a finder's book) is the liquidity risk. If a perception arises that a broker-dealer is in financial distress, stock borrowers will return stock to the lending broker-dealer for cash which cannot be as readily obtained from the persons to whom the failing broker-dealer has given cash. This run on a broker-dealer would likely impair its ability to function as a clearing agent.
      Given the matched nature of those related payables and receivables, the Commission does not believe that risk merits a charge of 6% percent on the dollar amount of the liability. The Commission believes, however, that a lower cushion (one percent) against the liquidity risk of a large finder's book is appropriate. The one percent number has previously been used by the Commission in the net capital rule in order to curtail leverage.36 The Commission thus proposes that liabilities related to a corresponding securities borrowing incur only a 1 percent charge against net capital.
      V. Technical Amendments
      Because of the proposed amendments to the minimum net capital requirements and the equity securities haircuts, it became possible for the Commission to merge paragraph (f) with paragraph (a) of the rule. As a result, the proposed rule amendments include several technical changes to the rule. For example, all references to paragraph (f) would be deleted. Other examples include the proposed amendments to the concentration charges under paragraph (c)(2)(vi)(M) and the contractual commitment charge under paragraph (c)(2)(viii). The proposed amendments would also delete a provision from paragraph (c)(2)(ix) of Rule 15c3-l that expired on January 1,1983.
      VI. Summary of Initial Regulatory Flexibility Analysis
      The Commission has prepared an Initial Regulatory Flexibility Analysis ("Analysis") in accordance with 5 U.S.C. 603 regarding the proposed amendments. The Analysis notes that the objective of the proposed amendments is to further the purposes of the various financial responsibility rules which provide safeguards with respect to the financial responsibility and related practices of brokers and dealers. In sum, the Analysis states that the proposed amendments would subject smaller broker-dealers to higher capital requirements. A copy of the Analysis may be obtained by contacting David LA. Abramovitz, Division of Market Regulation, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549, (202) 272-2398.
      VII. Statutory Analysis
      Pursuant to the Securities Exchange Act of 1934 and particularly sections 15(c)(3), 17 and 23 thereof, 15 U.S.C. 78o(c)(3), 78q and 78w, the Commission proposes to amend § 240.15c3-l, of Title 17 of the Code of Federal Regulations in the manner set forth below.
      VIII. List of Subjects in 17 CFR Part 240
      Reporting and record keeping requirements, Securities.
      IX. Text of the Proposed Amendments
      In accordance with the foregoing, 17 CFR part 240 is amended as follows:

      PART 240â€"GENERAL RULES AND REGULATIONS SECURITIES EXCHANGE ACT OF 1934

      1. The authority citation for part 240 continues to read as follows:
      Authority: Sec. 23, 48 Stat. 901, as amended; 15 U.S.C. 78w * * *. 240.15c3-l is also issued under sees. 15(c)(3), 15 U.S.C. 78o(c)(3).
      2. In § 240.15c3-l by removing paragraph (f) and paragraphs (a)(8) and (a)(9), removing and reserving paragraph (c)(2)(vi)(I), adding paragraphs (c)(l)(xiv) and (c)(l)(xv) and revising paragraphs (a)(l), (a)(2), (a)(3), (a)(4). ()() ())()() ()()() (c)(2)(ix), (c)(2)(x)(A) (2) through (4), (c)(2}(x)(A)(5), (c)(9), and (c)(10).

      § 240.15c3-1 Net capital requirements for brokers or dealers.

      (a) No broker or dealer shall maintain net capital less than the amounts required as to that broker or dealer under this paragraph.

      Ratio Requirements

      Aggregate Indebtedness Method

      (l)
      (i) No broker or dealer other than one that elects the provisions of paragraph (a)(l)(ii) of this section shall permit his aggregate indebtedness to all other persons to exceed 1500 percent of his net capital (or 800 percent of his net capital for 12 months after commencing business as a broker or dealer).

      Alternative Method

      (ii) A broker or dealer who carries customer accounts and holds customer funds or securities may elect not to be subject to the limitations of paragraph (a)(l)(i) of this section. Such broker or dealer shall not permit his net capital to be less than 2 percent of aggregate debit items computed in accordance with the Formula for Determination of Reserve Requirements for Brokers and Dealers (Exhibit A to Rule 15c3-3,17 CFR 240.15c3~3a). Such broker or dealer shall notify the Examining Authority for such broker or dealer, in writing, of his election to operate under this paragraph. Once a broker or dealer has notified its Examining Authority, he shall continue to operate under this paragraph unless a change is approved upon application to the Commission.
      (A) In addition to the foregoing, a broker or dealer electing this alternative shall;
      (1) make the computation required by 17 CFR 240.15e3-3(e) and set forth in Exhibit A, 17 CFR 240.15c3-3a, on a weekly basis and, in lieu of the 1 percent reduction of certain debit items required by Note E (3) in the computation of its Exhibit A requirement, reduce aggregate debit items in such computation by 3 percent;
      (2) include in Items 7 and 8 of Exhibit A, 17 CFR 240.15c3-3a, the market value of specified items therein more than 7 business days old;
      (3) exclude credit balances in accounts representing amounts payable for securities not yet received from the issuer or its agent which securities are specified in paragraphs (c](2}(vi) (A) and (E) of this section and any related debit items from the Exhibit A requirement for 3 business days; and
      (4) Deduct from net worth in computing net capital 1 percent of the contract value of all failed to deliver contracts or securities borrowed which were allocated to failed to receive contracts of the same issue and which thereby were excluded from Items 11 or 12 of Exhibit A, 17 CFR 240.15c3-3a.

      Futures Commission Merchants

      (iii) No broker or dealer registered as a futures commission merchant shall permit his net capital to be less than 4 percent of the funds required to be segregated pursuant to the Commodity Exchange Act and the regulations thereunder [less the market value of commodity options purchased by option customers on or subject to the rules of a contract market, each such deduction not to exceed the amount of funds in the customer's account).

      Minimum Requirements

      Brokers or Dealers That Carry Customer Accounts

      (2)
      (i) A broker or dealer that carries customer or broker or dealer accounts and holds funds or securities for those persons shall maintain net capital of not less than $250,000 (see paragraphs (a) and fb] of appendix (E) (17 CFR 240.15c3-le) for temporary minimum requirements].

      Brokers or Dealers That Carry Customer Accounts, Bui Do Not Generally Hold Customer Funds or Securities

      (ii) A broker or dealer who is exempt from the provisions of 17 CFR 240.15c3-3 under the Securities Exchange Act of 1934 pursuant to paragraph (k)(2)(i) shall maintain net capital of not less than $100,000 (see paragraph (c) of appendix (E) (17 CFR 240.15c3-le) for temporary minimum requirements).

      Dealers, Underwriters and Arbitragers

      (iii) A dealer shall maintain net capital of not less than $100,000 (see paragraph (c) of appendix (E) (17 CFR § 240.15c3-le) for temporary minimum requirements) if he does not receive, directly or indirectly, funds or securities from, or owe money or securities to, customers and does not carry accounts of, or for, customers. For purposes of this section, the term "dealer" includes underwriters and any broker or dealer who endorses or writes options otherwise than on a registered national securities exchange or a facility of a registered national securities association.

      Brokers Who Introduce Customers' Accounts and Routinely Receive Funds or Securities

      (iv) A broker or dealer shall maintain net capital of not less than $100,000 (see paragraph (d) of appendix (E) (17 CFR 240.15c3-le) for temporary minimum requirements) plus Vi percent of debit balances in introduced customers' cash and margin accounts if it is exempt from the provisions of 17 CFR 240.15c3-3 under the Securities Exchange Act of 1934 pursuant to paragraph (k)(2)(ii) of this section.
      (v) Those introducing brokers or dealers that receive, but do not promptly forward, customer funds and securities shall maintain the minimum net capital requirement as set forth in paragraph (a)(2)(i) of this section.

      Brokers Who Introduce Customer Accounts But Do Not Routinely Receive Funds or Securities

      (vi) An introducing broker or dealer that is exempt from the provisions of 17 CFR 240.15c3-3 under the Securities Exchange Act of 1934 pursuant to paragraph (k)(2)(ii) of this section but does not routinely receive customer funds or securities and effects ten or fewer transactions per year in securities for his own investment account with or through another registered broker or dealer shall maintain net capital of not less than $50,000 (see paragraph (e) of appendix (E) for temporary minimum requirements) plus 2A percent of debit balances in introduced customers' cash and margin accounts.
      (A) A broker or dealer operating under paragraph (a)(2)(iv) of this section and under this paragraph (a)(2)(vi) of this section may participate as a selling dealer in a firm commitment underwriting but may not enter into a contractual commitment with the issuer for the purchase of shares related to that underwriting.
      (B) A broker or dealer operating under this paragraph may engage in the activities allowed under paragraphs (a)(2)(vii) and (a)(2)(ix) of this section.

      Brokers or Dealers Engaged Solely in the Sale of Redeemable Shares of Registered Investment Companies and Certain Other Share Accounts

      (vii) A broker or dealer may maintain net capital of not less than $25,000 (see paragraph (f) of appendix (E) (17 CFR 24Q.15c3-le) for temporary minimum requirements) if he meets all of the following conditions:
      (A) His dealer transactions are limited to the purchase, sale and redemption of redeemable shares of registered investment companies or of interests or participations in an insurance company separate account directly from the issuer on other than on a subscription way basis, except that he may also effect ten or fewer transactions per year in other securities for his own investment account with or through another registered broker or dealer;
      (B) He promptly transmits all funds and delivers all securities received in connection with his activities as a broker or dealer, and does not otherwise hold funds or securities for, or owe money or securities to, customers; and
      (C) His transactions as broker are limited to one or more of the following;
      (1) The sale and redemption of redeemable shares of registered investment companies or of interests or participation in an insurance company separate account whether or not registered as an investment company;
      (2) The solicitation of share accounts for savings and loan associations insured by an instrumentality of the United States;
      (3) The sale of securities for the account of a customer to obtain funds for immediate reinvestment in redeemable securities of registered investment companies; and
      (4) The activities allowed under paragraph (a)(2){ix) of this section.

      Municipal Securities Brokers' Brokers

      (viii) A municipal securities brokers' broker, as defined in subsection (A) of this paragraph (a)(2)(viii), may elect not to be subject to the limitations of paragraphs (c)(2)(ix) of this section, provided that such brokers' broker complies with the requirements set out in paragraphs (a)(2)(viii)(B), (C) and (D) of this section.
      (A) The term municipal securities "brokers' broker" shall mean a municipal securities broker or dealer who acts exclusively as an undisclosed agent in the purchase or sale of municipal securities for a registered broker or dealer or registered municipal securities dealer, who has no "customers" as defined in paragraph (c)(6) of this section and who does not have or maintain any municipal securities in its proprietary or other accounts.
      (B) In order to qualify to operate under this paragraph (a)(2)(viii), a brokers' broker shall at all times have and maintain net capital of not less than $150,000.
      (C) For purposes of this paragraph (a)(2)(viii), a brokers' broker shall deduct from net worth 1 percent of the contract value of each municipal failed to deliver contract which is outstanding 21 business days or longer. Such deduction shall be increased by any excess of the contract price of the fail to deliver over the market value of the underlying security.
      (D) For purposes of this paragraph (a)(2)(viii), a brokers' broker may exclude from its aggregate indebtedness computation indebtedness adequately collateralized by municipal securities outstanding for not more than one business day and offset by municipal securities failed to deliver of the same issue and quantity. In no event may a brokers' broker exclude any overnight bank loan attributable to the same municipal securities failed to deliver contract for more than one business day. A brokers' broker need not deduct from net worth the amount by which the market value of securities failed to receive outstanding longer than thirty (30) calendar days exceeds the contract value of those failed to receives as required by Rule 15c3-l(c)(2)(iv)(E).

      Other Brokers or Dealers

      (ix) A broker or dealer that does not receive, directly or indirectly, funds or securities from, or owe money or securities to, customers and does not carry accounts of, or for, customers and that engages in ten or fewer transactions in securities per year for his own account with or through another registered broker or dealer, shall maintain net capital of not less than $5,000. Those brokers or dealers that introduce cash accounts under this paragraph must maintain net capital of not less than the amounts required under this paragraph (a) plus V* percent of debit balances in introduced customers' cash and margin accounts.

      Consolidated Minimum Requirements

      (3) A broker or dealer shall maintain net capital of not less than its net capital requirement plus the sum of each broker's or dealer's subsidiary or affiliate minimum net capital requirements, which is consolidated pursuant to appendix (C), 17 CFR 240.15c3-lc.

      Additional Capital Requirements for Market Makers

      (4) A broker or dealer engaged in activities as a market maker as defined in paragraph (c)(8) of this section shall maintain net capital in an amount not less than $2,500 for each security in which he makes a market (unless a security in which he makes a market has a market value of $5 or less, in which event the amount of net capital shall be not less than $1,000 for each such security) based on the average number of such markets made by such broker or dealer during the 30 days immediately preceding the computation date. Under no circumstances shall he have net capital less than that otherwise required by the other provisions of paragraph (a) of this section, or be required to maintain net capital of more than $1,000,000 unless otherwise required by the other provisions of paragraph (a).

      Additional Capital Requirements for Brokers or Dealers Engaging in Reverse Repurchase Agreements

      (5) A broker or dealer shall maintain net capital in addition to the amounts otherwise required under paragraph (a) of this section in an amount greater than 10 percent of:
      (i) The excess of the market value of United States Treasury Bills, Bonds and Notes subject to reverse repurchase agreements with any one party over 105 percent of the contract prices (including accrued interest) for reverse repurchase agreements with that party; and
      (ii) The excess of the market value of securities issued or guaranteed as to principal or interest by an agency of the United States or mortgage related securities as defined in Section 3(a)(41) of the Act subject to reverse repurchase agreements with any one party over 110 percent of the contract prices (including accrued interest) for reverse repurchase agreements with that party; and
      (iii) The excess of the market value of other securities subject to reverse repurchase agreements with any one party over 120 percent of the contract prices (including accrued interest) for reverse repurchase agreements with that party.

      * * * * *

      (c) * * *

      Exclusions From Aggregate Indebtedness

      (1) * * *
      (xiii) Deferred tax liabilities;
      (xiv) Eighty-five percent of amounts payable to a registered investment company related to fail to deliver receivables arising out of purchases of shares of those registered investment companies; and
      (xv) Eighty-five percent of amounts payable against securities loaned for which the broker or dealer has a receivable related to securities of the same class and issue that are securities borrowed by the broker or dealer.

      * * * * *

      (2)
      (i) * * *
      (C) * * *
      [1] The aggregate amount resulting from applying to the amount of the deductions computed in accordance with paragraph (c)(2)(vi) and Appendices (A) and (B), 17 CFR 240.15c3-la and 240.15c3-lb, the appropriate Federal and State tax rate(s) applicable to any unrealized gain on the asset on which the deduction was computed.

      Certain Unsecured and Partly Secured Receivables

      (iv)
      (A) * * *
      (B) All unsecured advances and loans, deficits in customers' and non-customers' unsecured and partly secured notes; deficits in special omnibus accounts maintained in compliance with the requirements of 12 CFR 220.4(b) of Regulation T under the Securities Exchange Act of 1934, or similar accounts carried on behalf of another broker or dealer, after application of calls for margin, marks to the market or other required deposits which are outstanding 5 business days or less; deficits in customers' and non-customers' unsecured and partly secured accounts after application of calls for margin, marks to the market or other required deposits which are outstanding 5 business days or less, except deficits in cash accounts as defined in 12 CFR 220.4(c) of Regulation T under the Securities Exchange Act of 1934 for which not more than one extension respecting a specified securities transaction has been requested and granted, and deducting for securities carried in any of such accounts the percentages specified in paragraphs (c)(2)(vi) or appendix A (17 CFR 240.15c3-la); the market value of stock loaned in excess of the value of any collateral received therefore; receivables arising out of free shipments of securities (other than mutual fund redemptions) in excess of $5,000 per shipment and all free shipments (other than mutual fund redemptions) outstanding more than 7 business days, and mutual fund redemptions outstanding more than 16 business days; any collateral deficiencies in secured demand notes as defined in Appendix D (17 CFR 240.15c3-ld);

      * * * * *

      [F] * * *
      [3]
      [i]
      [A] * * *
      [B] The excess of the aggregate repurchase agreement deficits with any one party over 25 percent of the broker or dealer's net capital before the application of paragraphs (c)(2)(vi) of this section (less any deduction taken with respect to repurchase agreements with that party under subparagraph (F)(3)(i)(A)) or, if greater:
      [C] The excess of the aggregate repurchase agreement deficits over 300 percent of the broker's or dealer's net capital before the application of paragraph (c)(2)(vi) of this section.

      * * * * *

      Securities Haircuts

      (vi) Deducting the percentages specified in paragraphs (C)(2)(vi}(A)-(M) of this section (or the deductions prescribed for securities positions set forth in Appendix (A), 17 CFR 240.15c3-la] of the market value of all securities, money market instruments or options in the proprietary or other accounts of the broker or dealer.

      Government Securities

      (A)
      (i) In the case of a security consisting of principal and interest (except for stripped instruments issued by the United States Treasury) issued or guaranteed as to principal or interest by the United States or any agency thereof, the applicable percentages of the market value of the net long or short position in each of the categories specified below are:

      * * * * *

      (5) In the case of a Government securities dealer which reports to the Federal Reserve System, which transacts business directly with the Federal Reserve System, and which maintains at all times a minimum net capital of at least $50,000,000, before application of the deductions provided for in paragraph (c)(2)(vi) of this section, the deduction for a security issued or guaranteed as to principal or interest by the United States or any agency thereof shall be 75 percent of the deduction otherwise computed under paragraph (c)(2)(vi)(A) of this section.

      Municipals

      (B) * * *
      (1) * * *
      (2) In the case of any municipal security (other than those specified in paragraph (c)(2)(vi)(B)(iJ) consisting of principal and interest which is not traded flat or in default as to principal or interest, the applicable percentages of the market value of the greater of the long or short position in each of the categories specified below are:

      * * * * *

      Nonconvertible Debt Securities
      (F)
      (1) In the case of nonconvertible debt securities consisting of principal and interest having a fixed interest rate and fixed maturity date and which are not traded flat or in default as to principal or interest and which are rated in one of the four highest rating categories by at least two of the nationally recognized statistical rating organizations, the applicable percentages of the market value of the greater of the long or short position in each of the categories specified below are:

      * * * * *

      [I] [Removed and reserved.]

      All Other Securities

      (J) In the case of all securities or evidences of indebtedness, except those described in Appendix (A), 17 CFR 240.15c3-la which are not included in any of the percentage categories enumerated in paragraphs (c)(2)(vi) (A)-(H) of this section or (K)(ii) of this section, the deduction shall be 15 percent (30 percent if the broker's or dealer's net capital requirement as computed under paragraph (c)(2) of this section is less than $100,000) of the market value of the greater of the long or short positions and to the extent the market value of the lesser of the long or short positions exceeds 25 percent of the market value of the greater of the long or short positions, the percentage deduction on such excess shall be 15 percent of the market value of such excess. No deduction need be made in the case of {1) a security which is convertible into or exchangeable for another security within a period of 90 days, subject to no condition other than the payment of money, and the other securities into which such security is convertible or for which it is exchangeable are short in the accounts of such broker or dealer or {2} a security which has been called for redemption and which is redeemable within 90 days.

      * * * * *

      Undue Concentration

      (M)
      (1) In the case of money market instruments or securities of a single class or series of an issuer, including any option written, endorsed or held to purchase or sell securities of such a single class or series of an issuer (other than "exempt securities" and redeemable securities of an investment company registered pursuant to the Investment Company Act of 1940), which are long or short in the proprietary or other accounts of a broker or dealer, including securities which are collateral to secured demand notes defined in appendix (D), 17 CFR 240.15c3-ld, and which have a market value of more than 10 percent of the "net capital" of a broker or dealer before the application of paragraphs (c)(2)(vi)(B)-(H) and appendix (A), 17 CFR 240.15c3-la, there shall be an additional deduction from net worth and/or the Collateral Value for securities collateralizing a secured demand note defined in appendix (D), 17 CFR 240.15c3~ld, equal to 50 percent of the percentage deduction otherwise provided by this paragraph (c)(2)(vi) (B-I) or appendix (A), 17 CFR 240.15c3-la, on that portion of the securities position in excess of 10 percent of the "net capital" of the broker or dealer before the application of paragraph (c)(2)(vi) and appendix (A), § 240.15c3-la.
      (2) In the case of securities underwritten, the deduction required by this paragraph (c)(2)(vi)(M) shall be applied after 11 business days.
      (3) In the case of securities described in paragraph (c)(2)(vi)(J), the additional deduction required by this paragraph (c)(2)(vi)(M) shall be 15 percent on that portion of the securities position and secured demand note collateral in excess of 10 percent of the net capital before the application of paragraph (c)(2)(vi) and appendix A, 17 CFR 240.15c3-la.
      (4) This paragraph (c)(2Hvi)(M) shall be applied to an issue of equity securities only on the market value of such securities in excess of $10,000 or the market value of 500 shares, whichever is greater, or $25,000 in the case of a debt security.
      (5) This paragraph (c)(2){vi)(M) shall apply notwithstanding any long or short position exemption provided for in paragraph (c)(2)(vi)(J) of this section (except for long or short position exemptions arising out of the first proviso to paragraph (c)(2)(vi)Q)) and the deduction on any such exempted position shall be 15 percent of that portion of the securities position in excess of 10 percent of net capital before the application of paragraph (c)(2)(vi) and appendix (A), 17 CFR 240.15c3-la.
      (6) This paragraph (c)(2)(vi)(M) will be applied to an issue of municipal securities having the same security provisions, date of issue, interest rate, day, month and year of maturity only if such securities have a market value in excess of $500,000 in bonds ($5,000,000 in notes) or 10% of tentative net capital, whichever is greater, and are held in position longer than 20 business days from the date the securities are received by the syndicate manager from the " issuer.
      (7) Any specialist who is subject to a deduction required by this paragraph (c)(2)(vi)(M), respecting his specialty stock, who can demonstrate to the satisfaction of the Examining Authority for such broker or dealer that there is sufficient liquidity for such specialist's specialty stock and that-such deduction need not be applied in the public interest for the protection of investors, may upon a proper showing to such Examining Authority have such undue concentration deduction appropriately decreased, but in no case shall the deduction prescribed in paragraph (c)(2)(vi)(J) of this section be reduced. Each such Examining Authority shall make and preserve for a period of not less than 3 years a record of each application granted pursuant to this subdivision, which shall contain a summary of the justification for the granting of the application.

      * * * * *

      Open Contractual Commitments

      (viii) Deducting, in the case of a broker or dealer who has open contractual commitments (other than those option positions subject to appendix (A), 17 CFR 240.15c3-la), the , respective deductions as specified in paragraph (c)(2)(vi) of this section or Appendix (B), 17 CFR 240.15c3-lb, from the market value (which shall be the market value whenever there is a market) on each net long and each net short position contemplated by any open contractual commitment in the proprietary or other accounts of the broker or dealer.
      (A) The deduction for contractual commitments in those securities that are treated in paragraph (c)(2)(vi)Q) of this section shall be 30 percent unless the class and issue of the securities subject to the open contractual commitment deduction are listed for trading on a national securities exchange or are designated as NASDAQ National Market System Securities.
      (B) A broker or dealer that maintains in excess of $250,000 of net capital need not deduct from net worth any amount computed under this paragraph that is less than $150,000.
      (C) The deduction with respect to any single commitment shall be reduced by the unrealized profit in such commitment, in an amount not greater than the deduction provided for by this paragraph (or increased by the unrealized loss), in such commitment, and in no event shall an unrealized profit on any closed transactions operate to increase net capital.
      (ix) Deducting from the contract value of each failed to deliver contract which is outstanding five business days or longer (21 business days or longer in the case of municipal securities) the percentages of the market value of the underlying security which would be required by application of the deduction required by paragraph (c)(2)(vi). Such deduction, however, shall be increased by any excess of the contract price over the market value of the underlying security or reduced by any excess of the market value of the underlying security over the contract value of the fail, but not to exceed the amount of such deduction. The designated examining authority for the broker or dealer may, application of the broker or dealer, extend for a period up to 5 business days, any period herein specified when it is satisfied that the extension is warranted. The designated examining authority upon expiration of the extension may extend for one additional period up to 5 business days, any period herein specified when it satisfied that the extension is warranted.

      * * * * *

      (x)
      (A) * * *
      (2) In the case of a bona fide hedged position as defined in this paragraph (c)(2)(x) involving a long position in a security, other than an option, and a short position in a call option, the deduction shall be 15 percent (or such other percentage required by paragraphs (c)(2)(vi) (A)-(K) of this section) of the market value of the long position reduced by any excess of the market value of the long position over the exercise value of the short option position. In no event shall such reduction operate to increase net capital.
      (3) In the case of a bona fide hedged position as defined in this paragraph (c)(2)(x) involving a short position in a security, other than an option, and a long position in a call option, the deduction shall be the lesser of 15 percent of the market value of the short position or the amount by which the exercise value of the long option position exceeds the market value of the short position; however, if the exercise value of the long option position does not exceed the market value of the short position, no deduction shall be applied.
      (4) In the case of a bona fide position as defined in this paragraph (c)(2)(x) involving a short position in a security other than an option, and a short position in a put option, the deduction shall be 15 percent (or such other percentage required by paragraphs (c)(2)(vi) (A)-(K) of this section) of the market value of the short security position reduced by any excess of the exercise value of the short option position over the market value of the short security position. No such reduction shall operate to increase net capital.
      (5) In the case of a bona fide hedged position as defined in this paragraph (c)(2)(x) involving a long position in a security, other than an option, and a long position in a put option, the deduction shall be the lesser of 15 percent of the market value of such long security position or the amount by which the market value of such long security position exceeds the exercise value of the long option position. If the market value of the long security position does not exceed the exercise value of the long option position, no deduction shall be applied.

      Promptly Transmit and Deliver

      (9) A broker or dealer is deemed to "promptly transmit" all funds and to "promptly deliver" all securities within the meaning of paragraph (a)(2)(vii) of this section where such transmission or delivery is made no later than noon of the next business day after the receipt of such funds or securities; provided, however, that such prompt transmission or delivery shall not be required to be effected prior to the settlement date for such transaction.

      * * * * *

      Forward and Promptly Forward

      (10) A broker or dealer is deemed to "forward" or "promptly forward" funds or securities within the meaning of paragraph (a)(2)(v) only when such forwarding occurs no later than noon of the next business day following receipt of such funds or securities.

      * * * * *

      3. By amending § 240.15c3-la by revising paragraphs (c)(l)-(c)(5), (c)(7), (c)(9) and (c)(10) as follows:

      § 240.15c3-1a Options (Appendix A to 17 CFR 240.15C3-1).

      * * * * *

      (c) * * *

      Uncovered Calls

      (1) Where a broker or dealer is short a call, deducting, after the adjustment provided for in paragraph (b) of this appendix (A), 15 percent (or such other percentage required by paragraphs (c)(2)(vi) (A]-(K) of 17 CFR 240.15c3-l) of the current market value of the security underlying such option reduced by an excess of the exercise value of the call over the current market value of the underlying security. In no event shall the deduction provided by this subparagraph be less than $250 for each option contract for 100 shares.

      Uncovered Puts

      (2) Where a broker or dealer is short a put, deducting, after the adjustment provided for in paragraph (b) of this appendix (A), 15 percent (or such other percentage required by paragraphs (c)(2)(vi) (A)-(K) of.17 CFR 240.15c3-l) of the current market value of the security underlying the option reduced by any excess of the market value of the underlying security over the exercise value of the put. In no event shall the deduction provided by this subparagraph be less than $250 for each option contract for 100 shares.

      Covered Calls

      (3) Where a broker or dealer is short a call and long equivalent units of the underlying security, deducting, after the adjustments provided for in paragraph (b) of this appendix (A), 15 percent (or such other percentage required by paragraphs (c)(2}(vi) (A)-(K) of 17 CFR 240.1c3-l) of the current market value of the underlying security reduced by any excess of the current market value of the underlying security over the exercise value of the call. No reduction under this subparagraph shall have the effect of increasing net capital.

      Covered Puts

      (4) Where a broker or dealer is short a put and short equivalent units of the underlying security, deducting, after the adjustment provided for in paragraph (b) of this appendix (A) 15 percent (or such other percentage required by paragraphs (c)(2)(vi) (A]-(K) of 17 CFR 240.15c3-l) of the current market value of the underlying security reduced by any excess of the exercise value of the put over the market value of the underlying security. No such reduction shall have the effect of increasing net capital.

      Conversion Accounts

      (5) Where a broker or dealer is long equivalent units of the underlying security, long an unlisted put written or endorsed by a broker or dealer and short an unlisted call in his proprietary or other accounts, deducting 5 percent (or 50 percent of such other percentage required by paragraphs (c)(2)(vi) (A)-(K) of 17 CFR 240.15c3-l) of the current market value of the long security.

      * * * * *

      Long Over-the-Counter Options

      (7) Where a broker or dealer is long an unlisted put or call endorsed or written by a broker or dealer, deducting 15 percent (or such other percentage required by paragraphs (c)(2)(vi) (A)-(K) of 17 CFR 240.15c3-l) of the market value of the underlying security, not to exceed any value attributed to such option in paragraph (c)(2)(i) of 17 CFR 240.15c3-l.

      * * * * *

      Certain Security Positions Wi*Ji Offsetting Options

      (9) Where a broker or dealer is long a security for which he is also long a listed put (such broker or dealer may in addition be short a call), deducting, after the adjustments provided in paragraph (b) of this appendix (A), 15 percent of the market value of the long security position not to exceed the amount by which the market value of equivalent units of the long security position exceeds the exercise value of the put. If the exercise value of the put is equal to or exceeds the market value of equivalent units of the long security position, no percentage deduction shall be applied.

      * * * * *

      (10) Where a broker or dealer is short a security for which he is also long a listed call (such broker or dealer may in addition be short a put deducting), after the adjustments provided in paragraph (b) of the appendix (A) 15 percent of the market value of the short security position not to exceed the amount by which the exercise value of the long call exceeds the market value of equivalent units of the short security position. If the exercise value of the call is less than or equal to the market value of equivalent units of the short security position no percentage deduction shall be applied.
      4. By amending & 240.15c3-lc by revising paragraph (b)(l), as follows:

      § 240.15c3-1c Consolidated computations of net Capital and aggregate indebtedness for certain subsidiaries and affiliates (Appendix C to 17 CFR 240.15C3-1).

      Required Counsel Opinions

      (b)
      (l) If the consolidation, provided for in paragraph (a) of this section of any such subsidiary or affiliate results in the increase of the broker's or dealer's net capital or the decrease of the broker's or dealer's minimum net capital requirement under paragraph (a) of 17 CFR 240.15c3-l, and an opinion of counsel described in paragraph (b)(2) has not been obtained, such benefits shall not be recognized in the broker's or dealer's computation required by this section.

      * * * * *

      5. By amending § 24Q.15c3-ld by revising paragraphs (b)(6)(iii), (b)(7), (b)(8), (b)(10)(ii)(b), (c)(2), (c)(5)(i), and (c)(5)(ii)(A) as follows:

      § 240.1Sc3-1d Satisfactory subordination agreements (Appendix D to 17 CFR 240.15C3-1).

      * * * * *

      [b]
      [6]
      (iii) The secured demand note agreement may also provide that, in lieu of the procedures specified in the provisions required by paragraph (b)(6)(ii) of this section, the lender with the prior written consent of the broker or dealer and the Examining Authority for the broker or dealer may reduce the unpaid principal amount of the secured demand note. After giving effect to such reduction: the aggregate indebtedness of the broker or dealer may not exceed 1000 percent of its net capital, or, in the case of a broker or dealer operating pursuant to paragraph (a)(l)(ii) of 17 CFR 240.15c3-l, net capital may not be less than the greater of 5 percent of aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or, if registered as a futures commission merchant, 7 percent of the funds required to be segregated pursuant to the Commodity Exchange Act and the regulations thereunder (less the market value of commodity options purchased by option customers subject to the rules of a contract market, each such deduction not to exceed the amount of funds in the option customer's account). No single secured demand note shall be permitted to be reduced by more than 15 percent of its original principal amount and after such reduction no excess collateral may be withdrawn. No Examining Authority shall consent to a reduction of the principal amount of a secured demand note if, after giving effect to such reduction, net capital would be less than 120 percent of the minimum dollar amount required by 17 CFR 240.15C3-1.

      Permissive Prepayments

      (7) A broker or dealer at its option but not at the option of the lender may, if the subordination agreement so provides, make a payment of all or any portion of the Payment Obligation thereunder prior to the scheduled maturity date of such Payment Obligation (hereinafter referred to as a "Prepayment"), but in no event may any Prepayment be made before the expiration of one year from the date such subordination agreement became effective. This restriction shall not apply to temporary subordination agreements which comply with the provisions of paragraph (c)[5) of this appendix D. No Prepayment shall be made, if, after giving effect thereto (and to all Payments of Payment Obligations under any other subordinated agreements then outstanding the maturity or accelerated maturities of which are scheduled to fall due within six months after the date such Prepayment is to occur pursuant to this provision or on or prior to the date on which the Payment Obligation in respect of such or on or prior to the date on which the Payment Obligation in respect of such or on prior to the date on which the Payment Obligation in respect of such Prepayment is scheduled to mature disregarding this provision, whichever date is earlier) without reference to any projected profit or loss of the broker or dealer, either:
      (i) aggregate indebtedness of the broker or dealer would exceed 1000 percent of its net capital or its net capital would be less than 120 percent of the minimum dollar amount required by 17 CFR 240.15c3-l or, in the case of a broker or dealer operating pursuant to paragraph (a)(l)(ii) of 17 CFR 240.15c3-l, its net capital would be less than the greater of 5% of its aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or if registered as a futures commission merchant, 7"percent of the funds required to be segregated pursuant to the Commodity Exchange Act and the regulations thereunder (less the market value of commodity options purchased by option customers subject to the rules of a contract market, each such deduction not to exceed the amount of funds in the option customer's account), or
      (ii) its net capital would be less than 120 percent of the minimum dollar amount required by paragraph (a)(l)(ii) of 17 CFR § 240.15c3-l. Notwithstanding the above, no Prepayment shall occur without the prior written approval of the Examining Authority for such broker or dealer.

      Suspended Repayment

      (8) The Payment Obligation of the broker or dealer in respect of any subordination agreement shall be suspended and shall not mature if, after giving effect to Prepayment of such Payment Obligation (and to all Payments of Payment Obligations of such broker or dealer under any other subordination agreement(s) then outstanding which are scheduled to mature on or before such Payment Obligation) either:
      (i) the aggregate indebtedness of the broker or dealer would exceed 1200% of its net capital, or in the case of a broker or dealer operating pursuant to paragraph (a)(l(ii)) of 17 CFR 240.15c3-l, its net capital would be less than the greater of 5 percent of aggregate debit items computed in accordance with 17 CFR 240.15c3-3a or, if registered as a futures commission merchant, 6 percent of the funds required to be segregated pursuant to the Commodity Exchange Act and the regulations thereunder (less the market value of commodity options purchased by option customers subject to the rules of a contract market, each such deduction not to exceed the amount of funds in the option customer's account), or
      (ii) its net capital would be less than 120 percent of the minimum dollar amount required by 17 CFR 240.15c3-l including paragraph (a)(l)(ii) if applicable. The subordination agreement may provide that if the Payment Obligation of the broker or dealer thereunder does not mature and is suspended as a result of the requirement of this paragraph (b)(8) for a period of not less than six months, the broker or dealer shall thereupon commence the rapid and orderly liquidation of its business, but the right of the lender to receive payment, together with accrued interest or compensation, shall remain subordinate as required by the provisions of 17 CFR 240.15C3-1 and § 240.15c3-ld.

      * * * * *

      (10)
      (ii) * * *
      (B) The aggregate indebtedness of the broker or dealer exceeding 1500 percent of its net capital or, in the case of a broker or dealer which has elected to operate under paragraph (a)(l)(ii) of 17 CFR 240.15c3-l, its net capital computed in accordance therewith is less than the greater of 2 percent of its aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or, if registered as a futures commission merchant, 4 percent of the funds required to be seqregated pursuant to the Commodity Exchange Act and the regulations thereunder (less the market value of commodity options purchased by option customers on or subject to the rules of a contract market, each such deduction not to exceed the amount of funds in the option customer's account), throughout a period of 15 consecutive business days, commencing on the day the broker or dealer first determines and notifies the Examining Authority for the broker or dealer, or the Examining Authority of the Commission first determines and notifies the broker or dealer of such fact;

      * * * * *

      [c] * * *

      Notice of Maturity or Accelerated Maturity

      (2) Every broker or dealer shall immediately notify the Examining Authority for such broker or dealer if, after giving effect to all payments of Payment Obligations under subordination agreements then outstanding which are then due or mature within the following six months without reference to any projected profit or loss of the broker or dealer:
      (i) either the aggregate indebtedness of the broker or dealer would exceed 1200 percent of its net capital or its net capital would be less than 120 percent of the minimum dollar amount required by 17 CFR 240.15c3-l, or, in the case of a broker or dealer operating pursuant to paragraph (a)(l)(ii) of 17 CFR 240.15c3-l, its net capital would be less than the greater of 5 percent of aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or, if registered as a futures commission merchant, 6 percent of the funds required to be segregated pursuant to the Commodity Exchange Act and the regulations thereunder (less the market value of commodity options purchased by option customers on or subject to the rules of a contract market, each such deduction not to exceed the amount of funds in the option customer's account), or
      (ii) less than 120 percent of the minimum dollar amount required by paragraph (a)(l)(ii) of 17 CFR 240.15c3-l.

      Temporary and Revolving Subordination Agreements

      (5)
      (i) For the purpose of enabling a broker of dealer to participate as an underwriter of securities or other extraordinary activities in compliance with the net capital requirements of 17 CFR 240.15c3-l, a broker or dealer shall be permitted, on no more than three occasions in any 12 month period, to enter into a subordination agreement on a temporary basis which has a stated term of no more than 45 days from the date such subordination agreement became effective. This temporary relief shall not apply to a broker or dealer if, at such time, it is subject to any of the reporting provisions of 17 CFR 240.17a-11 under the Securities Exchange Act of 1934, irrespective of its compliance with such provisions, or if immediately prior to entering into such subordination agreement either:
      [A] the aggregate indebtedness of the broker or dealer exceeds 1000 percent of its net capital or its net capital is less than 120 percent of the minimum dollar amount required by 17 CFR 240.15c3-l, or
      [B] in the case of a broker or dealer operating pursuant to paragraph (a)(l)(ii) of 17 CFR 240.15c3-l, its net capital is less than 5 percent of aggregate debits computed in accordance with 17 CFR 240.15c3-3a, or, if registered as a futures commission merchant, its net capital is less than 7 percent of the funds required to be segregated pursuant to the Commodity Exchange Act and the regulations thereunder (less the market value of commodity options purchased by option customers on or subject to the rules of a contract market, each such deduction not to exceed the amount of funds in the option customer's account), or is less than 120 percent of the minimum dollar amount required by paragraph (a) of this section, or
      [C] the amount of its then outstanding subordination agreements exceeds the limits specified in paragraph (d) of 17 CFR 240.15c3-l. Such temporary subordination agreement shall be subject to all other provisions of this appendix D.
      (ii} * * *
      [A] After giving effect thereto (and to all Payment Obligations under any other subordinated agreements then outstanding, the maturity or accelerated maturities of which are scheduled to fall due with six months after the date such prepayment is to occur pursuant to this provision or on or prior to the date on which the Payment Obligation in respect of such prepayment is scheduled to mature disregarding this provision, whichever date is earlier) without reference to any projected profit or loss of the broker or dealer, either
      [1] aggregate indebtedness of the broker or dealer would exceed 900 percent of its net capital or its net capital would be less than 200 percent of the minimum dollar amount required by 17 CFR 240.15c3-l, or in the case of a broker or dealer operating pursuant to paragraph (a)(l)(ii) of 17 CFR 240.15c3-l, its net capital is less than the greater of 6 percent of aggregate debits computed in accordance with 17 CFR 240.15c3-3a, or, if registered as a futures commission merchant, 10 percent of the funds required to be segregated pursuant to the Commodity Exchange Act and the regulations thereunder (less the market value of commodity options purchased by option customers on or subject to the rules of a contract market, each such deduction not to exceed the amount of funds in the option customer's account); or
      [2] less than 200 percent of the minimum dollar amount required by paragraph (a)(l)(ii) of this section or

      * * * * *

      6. By adding § 240.15c3-le as follows:

      § 240.15c3-1e Temporary minimum requirements (Appendix E to 17 CFR 240.15c3-1e).

      Brokers or Dealers That Carry Customer Accounts Aggregate Indebtedness Method

      (a) A broker or dealer that falls within the provisions of paragraph (a)(2)(i), of Rule 15c3-l and computes his required net capital under Rule 15c3-l(a)(l)(i) shall maintain net capital not less than the greater of the amount computed under that paragraph (a)(l)(i) or:
      (1) $25,000 until December 31,1990;
      (2) $81,250 after January 1,1991 but until December 31,1991;
      (3) $137,500 after January 1,1992 but until December 31,1992;
      (4) $193,750 after January 1,1993, but until December 31,1993; and
      (5) $250,000 after January 1,1994.

      Brokers or Dealers That Carry Customer Accounts

      Alternative Method

      (b) A broker or dealer that elects the provisions of Rule 15c3-l(a)(l)(ii) shall maintain net capital of not less than the greater of the amount computed under that paragraph (a)(l)(ii) or:
      (1) $100,000 until December 31,1990;
      (2) $137,500 after January 1,1991 but until December 31,1991;
      (3) $175,000 after January 1,1992 but until December 31,1992;
      (4) $212,500 after January 1,1993 but until December 31,1993; and
      (5) $250,000 after January 1,1994.

      Broker-Dealers That Carry Customer Accounts, But Do Not GeneraUy Hold Customer Funds or Securities and Dealers, Underwriting and Arbitragers

      (c) A broker or dealer that falls within the provisions of Rule 15c3-l(a)(2) (ii) or (iii) shall maintain net capital not less than the greater of the amount computed under Rule 15c3-l(a)(l)(i) or:
      (1) $25,000 until December 31,1990;
      (2) $43,750 after January 1,1991 but until December 31,1991;
      (3) $62,500 after January 1,1992 but until December 31,1992;
      (4) $81,250 after January 1,1993 but until December 31,1993; and
      (5) $100,000 after January 1,1994.

      Introducing Brokers That Routinely Receive Customer Funds or Securities

      (d) An introducing broker that falls within the provisions of Rule 15c3- l(a)(2)(iv) shall maintain net capital of not less than the greater of the amount computed under Rule 15c3-l(a)(l)(i) or V* percent of debit balances in introduced customers' cash and margin accounts plus:
      (1) $25,000 until December 31,1990;
      (2) $43,750 after January 1,1992 but until December 31,1991;
      (3) $62,500 after January 1,1992 but until December 31,1992;
      (4) $81,250 after January 1,1993 but until December 31,1993; and
      (5) $100,000 after January 1,1994.

      Introducing Brokers That Do Not Routinely Receive Customer Funds or Securities

      (e) An introducing broker that falls within the provisions of Rule 15c3- l(a)(2)(vi) shall maintain net capital of not less than the greater of the amount computed under Rule 15c3-l(a)(l)(i) or V* percent of debit balances in introducing customers' cash and margin accounts plus:
      (1) $5,000 until December 31,1990;
      (2) $16,250 after January 1,1991 but until December 31,1991;
      (3) $27,500 after January 2,1992 but until December 31,1992;
      (4) $38,750 after January 1,1993 but until December 31,1993; and
      (5) $50,000 after January 1,1994.

      Brokers or Dealers Engaged Solely in the Sale of Redeemable Shares of Registered Investment Companies and Certain Other Share Accounts

      (f) A broker or dealer that falls within the provisions of Rule 15c3-l(a}(2)(vii) shall maintain net capital of not less than the greater of the amount computed under Rule 15c3-l(a)(l)(i) or:
      (1) $2,500 until December 31,1990;
      (2) $8,125 after January 1,1991 but until December 31,1991;
      (3) $13,750 after January 2,1992 but until December 31,1992;
      (4) $19,375 after January 1,1993 but until December 31,1993;
      (5) $25,000 after January 1,1994.

      * * * * *

      By the Commission.

      Dated: September 15,1989.

      Jonathan G. Katz,

      Secretary.

      [FR Doc. 89-23022 Filed 9-29-89; 8:45 am] BILLING CODE 8010-01-M

      DEPARTMEMT OF HEALTH AND HUfdIAN SERVICES

      Food and Drug Administration

      21 CFR Part 341

      [Docket No. 89N-0411] P, iH 0905-AA06

      Cold, Cough, Allergy, Bronchodilator, and Antiasthmatic Drug Products for Over-the-Counter Human Use; Proposed Amendment to the Monograph for OTC Arstitussive Drug Products

      AGENCY: Food and Drug Administration. ACTION: Notice of proposed rulemaking.

      SUMMARY: The Food and Drug Administration (FDA) is proposing to amend the final monograph for over-the-counter (OTC) antitussive drug products to use only the term "lozenge" to describe a solid dosage form intended for dissolution in the mouth and to clarify that an oral antitussive drug product can be marketed in a lozenge dosage form. This proposal is part of the ongoing review of OTC drug products conducted by FDA.

      DATES: Written comments by December 1,1989; written comments on the agency's economic impact determination by January 30,1990.

      ADDRESS: Written comments to the Dockets Management Branch (HFA-305), Food and Drug Administration, Rm. 4-62, 5600 Fishers Lane, Rockville, MD 20857

      FOR FURTHER INFORMATION CONTACT: William E. Gilbertson, Center for Drug Evaluation and Research (HFD-210), Food and Drug Administration, 5600 Fishers Lane, Rockville, MD 20857, 301-295-8000.

      SUPPLEMENTARY INFORMATION: In the Federal Register of September 9,1976 (41 FR 38312), FDA published an advance notice of proposed rulemaking for OTC cold, cough, allergy, bronchodilator, and antiasthmatic drug products. The Panel referred to solid topical dosage forms intended for dissolution in the mouth as either a troche or a lozenge. (See 41 FR 38312 at 38343 to 38353.)

      In the Federal Register of October 19, 1983 (48 FDR 48576), FDA issued a notice of proposed rulemaking (tentative final monograph) for OTC antitussive drug products. One ingredient (menthol) was proposed as Category I in a lozenge dosage form. (See § 341.74(d)(2)(iiil.) In response to a comment's request, the agency also included a "compressed tablet" dosage form for products containing menthol to be dissolved in the mouth. (See comment 20 at 48 FR 485786 at 48588 and proposed § 341.3(k) and § 341.74(d)(2)(iii) at 48 FR 48576, 48593 and 48594.)

      In the Federal Register of August 12, 1987 (52 FR 30042), FDA issued a final monograph for OTC antitussive drug products (21 CFR part 341) that established conditions under which these products are generally recognized as safe and effective and not misbranded. The monograph provided for menthol to be used in a lozenge or compressed tablet dosage form. (See § 341.3(c) and § 341.74(d)(2)(iii) at 52 FR 30042, 30555 and 30056.)

      Since the publication of the antitussive final monograph, the United States Pharmacopeial Convention, Inc., in a proposed revision of the United States Pharmacopeia (U.S.P.) (ref. 1), and in the recently published U.S.P. XXII (ref. 2), included a definition for lozenges as follows:

      Lozenges are solid preparations containing one or more medicaments, usually in a flavored, sweetened base which are intended to dissolve or disintegrate slowly in the mouth. They can be prepared by molding (gelatin and/or fused sucrose or sorbitol base) or by compression of sugar based tablets. Molded lozenges are sometimes referred to as pastilles while compressed lozenges are often referred to as troches. They are usually intended for treatment of local irritation or infections of the mouth or throat but may contain active ingredients intended for systemic absorption after swallowing.

      Based on the new U.S.P. definition, the agency has reconsidered its position stated in comment 20 of the notice of proposed rulemaking for OTC antitussive drug products (see above) and intends to adopt the new U.S.P. definition. Accordingly, the agency is proposing (1) to amend the final monograph for OTC antitussive drug products to use only the term lozenge to describe a solid dosage form to be dissolved in the mouth for a local effect, and (2) to delete the term "compressed tablet" from the final monograph in § 341.3(c) and § 341.74{d)(2)(iii). In addition, the definition in § 341.3(b) for an "oral antitussive drug" is being revised slightly to clarify that such drugs may also be formulated as lozenges. This revision is being made because the U.S.P. definition of lozenges provides for this dosage form to be dissolved in the mouth and to contain ingredients intended to have a systemic effect and because the agency is aware that antitussive drug products intended for systemic use are currently being marketed as lozenges (ref. 3). Thus, the revised definition in § 341.3(b) will be consistent with the new U.S.P. definition of lozenges.

      The agency does not intend to finalize this amendment until the U.S.P. XXII becomes official in January 1990. In addition, the agency intends to use the term "lozenge" for solid dosage forms to be dissolved in the mouth in applicable rulemakings for other OTC drug categories, in future issues of the Federal Register. While the various types of lozenges such as compressed tablets, troches, or pastilles will not be described in final monographs, these terms may continue to be used in labeling. Accordingly, this proposed amendment, when finalized will not require any labeling revisions.

      References

      (1) "Pharmacopeial Forum," In-Process Revision, The United States Pharmacopeial Convention, Inc., 14:4390,1988.
      (2) "The United States Pharmacopeia XXIIâ€"The National Formulary XVII," The United States Pharmacopeial Convention, Inc., Rockville, MD, p. 1692,1989.
      (3) "Physicians' Desk Referenceâ€"For Nonprescription Drugs," 9th Ed., Medical Economics Co., Inc., Oradell, NJ, pp. 512. 515, 651, and 652,1988.

      The agency has examined the economic consequences of this proposed rulemaking in conjunction with other rules resulting from the OTC drug review. In a notice published in the Federal Register of February 8,1983 (48 FR 5806), the agency announced the availability of an assessment of these economic impacts. The assessment determined that the combined impacts of all the rules resulting from the OTC drug review do not constitute a major rule according to the criteria established by Executive Order 12291. The agency therefore concludes that no one of these rules, including this proposed rule for OTC drug products, is a major rule.

      The economic assessment also concluded that the overall OTC drug review was not likely to have a significant economic impact on a substantial number of small entities as defined in the Regulatory Flexibility Act (Pub. L. 96-354). That assessment included a discretionary Regulatory Flexibility Analysis in the event that an individual rule might impose an unusual or disproportionate impact on small entites. However, this particular rulemaking for OTC drug products is not expected to pose such an impact on small businesses. Therefore, the agency certifies that this proposed rule, if implemented, will not have a significant economic impact on a substantial number of small entities. The agency invites public comment regarding any substantial or significant economic impact that this rulemaking would have on OTC antitussive drug products. Comments regarding the impact of this rulemaking on OTC antitussive drug products should be accompanied by appropriate documentation.

      The agency has determined under 21 CFR 25.24(c)(6) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

      Interested persons may, on or before December 1,1989, submit written comments to the Dockets Management Branch (address above). Written comments on the agency's economic impact determination may be submitted on or before January 30,1990. Three copies of all comments are to be submitted, except that individuals may submit one copy. Comments are to be identified with the docket number found in brackets in the heading of this document and may be accompanied by a supporting memorandum or brief. Comments may be seen in the office above between 9 a.m. and 4 p.m., Monday through Friday.

      List of Subjects in 21 CFR Part 341

      Antitussive drug products, Labeling, Over-the-counter drugs.

      Therefore, under the Federal Food, Drug, and Cosmetic Act and the Administrative Procedure Act, it is proposed that subchapter D of chapter I of title 21 of the Code of Federal Regulations be amended in part 341 as follows:

      PART 341â€"COLD, COUGH, ALLERGY, BRONCHODILATOR, AND ANTIASTHMATIC DRUG PRODUCTS FOR OVER-THE-COUNTER HUMAN USE

      1. The authority citation for 21 CFR part 341 continues to read as follows:
      Authority: Sees. 201(p), 502, 505, 701, 52 Stat. 1041-1042 as amended, 1050-1053 as amended, 1055-1056 as amended by 70 Stat. 919 and 72 Stat. 948 (21 U.S.C. 321(p), 352, 355, 371); 5 U.S.C. 553; 21 CFR 5.10 and 5.11.
      2. Section 341.3 is amended by revising paragraphs (b) and (c) to read as follows:

      § 341.3 Definitions.

      * * * * *

      (b) Oral antitussive drug. A drug that either is taken by mouth or is dissolved in the mouth in the form of a lozenge and acts systemically to relieve cough.
      (c) Topical antitussive drug. A drug that relieves cough when inhaled after being applied topically to the throat or chest in the form of an ointment or from a steam vaporizer, or when dissolved in the mouth in the form of a lozenge for a local effect.

      * * * * *

      3. Section 341.74 is amended by revising paragraph (d)(2)(iii) to read as follows:

      § 341.74 Labeling of antitussive drug products.

      * * * * *

      (d) * * *
      (2) * * *
      (iii) For products containing menthol identified in § 341.14(b)(2) in a lozenge. The product contains 5 to 10 milligrams menthol. Adults and children 2 to under 12 years of age: Allow lozenge to dissolve slowly in the mouth. May be repeated every hour as needed or as directed by a doctor. Children under 2 years of age: consult a doctor.

      * * * * *

      Dated: September 12,1989.

      Ronald G. Chesemore,

      Acting Associate Commissioner for Regulatory Affairs.

      [FR Doc. 89-23137 Filed 9-29-89; 8:45 am]

      BILLING CODE 4160-O1-M

      DEPARTMENT OF THE INTERIOR

      Office of Surface Mining Reclamation and Enforcement

      30 CFR Part 917

      Kentucky Permanent Regulatory Program; Minor Field Revisions

      AGENCY: Office of Surface Mining Reclamation and Enforcement (OSMRE), Interior.

      ACTION: Proposed rule.

      SUMMARY: OSMRE is announcing the receipt of a proposed amendment to the Kentucky permanent regulatory program (hereinafter referred to as the Kentucky program) under the Surface Mining Control and Reclamation Act of 1977 (SMCRA). The amendment concerns new permit revision procedures that will allow minor field revisions to be processed in the Department for Surface Mining Reclamation and Enforcement's (DSMRE) Regional Offices rather than in the central Office in Frankfort. The proposal contains a list of permit revisions defined as minor field revisions.

      This notice sets forth the times and locations that the Kentucky program and the proposed amendment are available for public inspection, the comment period during which interested persons may submit written comments on the proposed amendment, and the procedures that will be followed regarding a public hearing, if one is requested.

      DATES: Written comments must be received on or before 4:00 p.m. on November 1,1989. If requested, a public hearing on the proposed amendment will be held at 10:00 a.m. on October 27, 1989. Requests to present oral testimony at the hearing must be received on or before 4:00 p.m. on October 17,1989.

      ADDRESSES: Written comments and requests for a hearing should be mailed or hand delivered to: Roger Calhoun, Acting Director, Lexington Field Office Office of Surface Mining Reclamation and Enforcement, 340 Legion Drive, Suite 28, Lexington, Kentucky 40504. Copies of the Kentucky program, the proposed amendment, and all written comments received in response to this notice will be available for review at the addresses listed below, Monday through Friday, 9:00 a.m. to 4:00 p.m., excluding holidays. Each requestor may receive, free of charge, one copy of the proposed amendment by contacting OSMRE's Lexington Field Office.

      Office of Surface Mining Reclamation and Enforcement, Lexington Field Office, 340 Legion Drive, Suite 28, Lexington, Kentucky 40504, Telephone: (606) 233-7327

      Office of Surface Mining Reclamation and Enforcement, 1100 "L" Street, NW., Room 5131, Washington, DC 20240 Telephone: (202) 343-5492

      Office of Surface Miming Reclamation and Enforcement, Eastern Field Operations, Ten Parkway Center, Pittsburgh, Pennsylvania 15220, Telephone: (412) 937-2828

      Department for Surface Mining Reclamation and Enforcement, No. 2 Hudson Hollow Complex, Frankfort, Kentucky 40601, Telephone: (502) 584-<6940

      If a public .hearing is held, its location will be: The Harley Hotel, 2143 North Broadway, Lexington, Kentucky 40505.

      FOR FURTHER INFORMATION CONTACT:

      Roger Calhoun, Acting Director,
      Lexington Field Office, Telephone (606)
      233-7327.

      SUPPLEMENTARY INFORMATION:

      I. Background
      On May 18,1982, the Secretary of the Interior conditionally approved the Kentucky program. Information pertinent to the general background, revisions, modifications, and amendments to the proposed permanent program submission, as well as the Secretary's findings, the disposition of . comments and a detailed explanation of the conditions of approval can be found in the May 18,1982, Federal Register (47 FR 21404-21435). Subsequent actions concerning the conditions of approval and program amendments are identified at 30.CFR 917.11, 917.15, 917.16, and 917.17.
      II. Discussion of Amendment
      By letter dated August 15,1989, (Administrative Record No. KY-911], Kentucky submitted proposed regulations to revise Kentucky Administrative Regulations (KAR) at 405 KAR 8:010. The proposed amendment defines and establishes a new procedure for permit revisions that are minor field revisions by amending 405 KAR 8:0M) section 20. The proposed amendment gives the Regional Offices of DSMRE the authority to process 27 types of minor field revisions as defined in the proposed amendment. The proposed regulations provide conditions for processing the various types of minor field revisions.
      III. Public Comment Procedures
      In accordance with the provisions of 30 CFR 732.17{hJ, OSMRE is now seeking comment on whether the amendment proposed by Kentucky satisfies the applicable program approval criteria of 30 CFR 732.15. If the amendment is deemed adequate, it will become part of the Kentucky program.

      Written Comments

      Written comments should be specific, pertain only to the issues proposed in this rulemaking, and includee explanations in support of the commentor's recommendations. Comments received after the time indicated under "DATES" or at locations other than the Lexington Field Office will not necessarily be considered in the final rulemaking or included in the Administrative Record.

      Public Hearing

      Persons wishing to comment at the public hearing should contact the person listed under "FOR FURTHER INFORMATION CONTACT" by 4:00 p.m. on October 17, 1989. If no one requests an opportunity to comment at a public hearing, the hearing will not be held.

      Filing of a written statement at the time of the hearing is requested as it will greatly assist the transcriber. Submission of written statements in advance of the hearing will allow OSMRE officials to prepare adequate responses and appropriate questions.

      The public hearing will continue on the specified date until all persons scheduled to comment have been heard. Persons in the audience who have not been scheduled to comment, and who wish to do so, will be heard following those scheduled. The hearing will end after all persons scheduled to comment and persons present in the audience who wish to comment have been heard.

      Public Meeting

      If only one person requests an opportunity to comment at a hearing, a public meeting, rather than a public hearing, may be held. Persons wishing to meet with OSMRE representatives to discuss the proposed amendments may request a meeting at the OSMRE, Lexington Field Office listed under "ADDRESSES" by contacting the person listed under "FOR FURTHER INFORMATION CONTACT." All such meetings will be open to the public and, if possible, notices of meetings will be posted in advance at the locations listed under "ADDRESSES." A written summary of each meeting will be made a part of the Administrative Record.

      VI. Procedural Determinations
      1. Compliance With the National Environmental Policy Act
      The Secretary has determined that, pursuant to section 702(d) of SMCRA, 30 LJ.S.C. 1292(d), no environmental impact statement need be prepared on this rulemaking.
      2. Executive Order 12291 and the Regulatory Flexibility Act
      On July 12,1984, the Office of Management and Budget (OMB) granted OSMRE an exemption from sections 3,4, 7 and 8 of Executive Order 12291 for actions directly related to approval or conditional approval of State regulatory programs. Therefore, this action is exempt from preparation of a Regulatory Impact Analysis and regulatory review by OMB.
      The Department of flie Interior has determined that this rule will not have a significant economic effect on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 etseq.). This rule will not impose any new requirements; rather, it will ensure that existing requirements established by SMCRA and the Federal rules will be met by the State.
      3. Paperwork Reduction Act
      This rule does not contain information collection requirements which require approval by the Office of Management and Budget under 44 U.S.C. 3507.

      List of Subjects in 30 CFR Part 917

      Coal mining, Intergovernmental relations, Surface mining, Underground mining.

      Dated: September 12,1989.

      Alfred E. Whitehouse,

      Acting Assistant Director, Eastern Field

      Operations.

      [FR Doc. 89-23144 Filed 9-29-89; 8:45 am]

      BILLING CODE 4310-05-M

      30 CFR Part S25

      Missouri Permanent Regulatory Program

      AGENCY: Office of Surface Mining Reclamation and Enforcement (OSM), Interior.

      ACTION: Withdrawal of proposed amendment.

      SUMMARY: OSM is announcing the withdrawal of a proposed amendment to the Missouri Permanent Regulation Program. The proposed amendment pertains to revegetation, permitting, and phase III liability release. Missouri is withdrawing this amendment because it intends to revise it and submit it as another formal amendment at a future date.

      DATE: This withdrawal is effective October 2,1989.


      1 See Securities Exchange Act Rulel5c3~l(a); 17 CFR 24G.15c3-l(a).

      2 See Securities Exchange Act Rule 15t3-3ii; 17 CFR 240.15c3-3a.

      3 See Securities Exchange Act Rule I5t:3-1.(«)(2); 17 CFR 240.15c3-l!a)(2).

      4 See Securities Exchange Act Rule 15c3-l[a)l4); 17CFR240.13c3-l(a)(4).

      5 Securities Exchange Act Rule 15c3-l(i;)[2jivi)(J) sets forth the deduction for equity securities positions and other securities positions that «r« not otherwise specifically provided for in Rule 15c3-l, That deduction is "30 percent of the market value of the greater of the long or short positions and to the extent the market value of the lesser of the long or short positions exceeds 25 percent of the market value of the greater of the long or short positions, there shall be a percentage deduction on such excess equal to 15 percent of the market value of such excess." Securities Exchange Act Rule 15c3-l(fl(a)!ii) sets forth the deduction incurred by broker-dealers that elect the alternative mrfhcid lor securities that wouid otherwise incur a deduction under subparagraph (c)(2)(vi)fj). Subparagraph (f)(3)(ii) requires the electing broker-dealer to deduct 15 percent of the market value of long positions and 30 percent of the market value of short positions but only to the extent those short positions exceed 25 percent of !h« long positions.

      6 See Report of Special Study of Securities Markets of the Securities and Exchange Commission, 88th Cong., 1st Sess., H.R. No. 95. April 3.1963.

      7 See note 14, infra.

      8 Review of SEC Records of the Demise of Selected Broker-Dealers, Staff Study for the Special Subcommittee on Investigations of the Committee on Interstate and Foreign Commerce. House of Representatives, 92nd Cong., 1st Sess.. pg. 33 (July 1971).

      9 Study of Unsafe and Unsound Practices of Brokers and Dealers, Report and Recommendations of the Securities and Exchange Commission. H.R. Doc. No. 231, 92d Cong., 1st Sess. 13 (1971).

      10 See Practices Study at p. 164.

      11 Under the Securities Investor Protection Act of 1970 ("SIPA"), SIPC maintains a fund consisting primarily of assessments received from its member broker-dealers. From that fund SIPC makes advances to customers, as defined in SIPA, of failed broker-dealers. In the event the SIPC fund should prove inadequate, SIPC may, through the Commission, borrow up to $1 billion from the U.S. Government. See Securities Investor Protection Act of 1970, Sec. 4(h).

      12 Id.

      13 Securities F.xchange Act Release No. 9633, June 14,1972, (37 FR 11970, June 16,1972).

      14 The absolute minimum of $25,000 under the basic method was adopted in 1972 (See footnote 12). The $100,000 absolute minimum under the alternative method was adopted in 1975 (Securities Exchange Act Release No. 11497 (June 26,1975). 40 FR 29795, (July 26,1975)). The $5,000 minimum currently applicable to most broker-dealers that do not hold customer funds and securities was adopted in 1965. At that time, the $5,000 minimum was applicable to all broker-dealers except those that limited their activities to transactions in shares of registered investment companies and federally insured savings and loan associations. (See Securities Exchange Act Release No. 7611, May 26. 1965, 30 FR 7276. June 2,1965.)

      15 The Consumer Price Index (CPI) in February 1976 was an adjusted 55.8 (based on a 1982-84 base year) and 121.6 in February 1989. This is an increase of 117.9 percent. See Department of Labor, Bureau of Labor Statistics, CPI. The Commission requests comment on whether the minimum net capital requirements should be regularly adjusted to take into account the effect of inflation. In this connection, should capital levels in the future automatically be adjusted or indexed to the rate of inflation? Commentators favoring indexing of minimum capital requirements should also indicate what measure they believe should be used by the Commission to index capital requirements and how often they believe adjustments based on the rate of inflation should be made.

      16 See Letter from John E. Pinto, Executive Vice President, Compliance, NASD, to Michael Macchiaroli, Assistant Director, Division of Market Regulation,-SEC, dated May 31,1989.

      17 See Comment letter to John Wheeler, Secretary, SEC, from Michael Minikes, Chairman, Capita! Committee, SIA, dated July 28,1985, concerning Concept Release, File No. S7-3-35, p. 8.

      18 See Comment letter to John Wheeler, Secretary, SEC, dated July 31,1985, from James Buck, Secretary, NYSE, concerning Concept Release, File No. S7-3-85, pp. 3-4.

      19 Under Section 9 of SIPA, SIPC makes advances to customers of a broker-dealer that is the subject of a SIPC proceeding. SIPC makes those advances from the SIPC fund. The SIPC fund had been established through assessment of SIPC member broker-dealers. (See Section 4 of SIPA).

      20 In this regard, the number of SIPC customer protection proceedings commenced in 1987 and 1988 is the lowest for any two-year period in SIPC's history. And the SIPC fund is at its highest level ever. See SIPC Annual Report 1988. P3.

      21 A contractual commitment haircut is a percentage deduction from net worth which must be taken by a broker-dealer that has open contractual commitments. Currently, the net capital rule requires that the appropriate haircut be applied to these positions reduced by any unrealized profits that the broker-deafer may have in these commitments. See Rule 15c3-l(c)(2)'(viii): (17 CFR 24O.15c3-l(c)(2)(viii)).

      22 See The' October 1987 Market Break, a Report by the Division of Market Regulation of the U.S. Securities and Exchange Commission, February 1988 ("The Market Break Report"). Approximately 55 firms that introduced customer transactions on a fully disclosed basis to a clearing broker-dsaler ceased operations because of violations of the net capital rule caused by losses directly related to the October 1987 market break. Most of the losses resulted from defaults by customers that failed to make payment to the clearing broker-dealers for which the introducing broker-dealers were contractually liable. At least eleven of the fifty-five introducing firms made markets in OTC securities.

      The losses sustained by these firms were a result of unsecured customer debits for which they were contractually liable and declines in the market value of proprietary inventory. Three of the 55 firms also suffered substantial trading losses related to their options market making business. See p. 5-9 of the Report.

      Approximately forty percent of the introducing firms that ceased operations re-opened within a week after they closed. A number of firms forced to close because of unsecured customer debits were able to increase the r net capital and therefore reopen by entering into subordination agreements with their clearing brokers. The remaining firms were able to acquire additional capital sufficient to bring them into compliance with the Commission's rules.

      23 During the October 1987 market break, Haas Securities Corporation, a market maker in 11 securities and a member of the NYSE, ceased operations. Haas introduced customer transactions on a fully disclosed basis to L.F. Rothschild. As a result of unsecured customer accounts introduced by Haas, Rothschild incurred a reduction in net capital of between $15 and $20 million. See Market Break Report pg. 5-11.

      24 Under the net capital rule, a bona fide clearing deposit made by an introducing firm with a clearing firm is treated as asset readily convertible into cash and therefore part of the net capital of the introducing firm. See Rule 15c3-l(c)(2)(iv)(E).

      25 In a firm commitment underwriting, the underwriters agree to buy tile entire issue of a security from the issuing corporation at a specified price. The current net capital rule allows introducing broker-dealers to participate in under writings only on a "best efforts" op "all or nothing" basis. The Commission proposes that as long as the firm is only a selling dealer, i.e. purchases the issue from the statutory underwriter and not the issuer in order to sell, it can participate in firm commitment under writings.

      26 See Market Break Report at p. 5-15.

      27 See File No. SR-NASD-88-1, Securities Exchange Act Release No. 25791 (June 9,1988).

      28 See Report of Special Committee of the Regulatory Review Task Force on the Quality of Markets, NASD publication. 1988.

      29 See Market Break Report at p. 5-7.

      30 To qualify presently for a $5,000 minimum net capiial requirement under paragraph (a)(2j of Rule 15c3-l. in addition to not carrying customer accounts, the broker-dealer must limit itself to certain specified activities in paragraph {a){2). The Division has issued no-action positions that make the $5,000 minimum requirement available to certain firms that do not handle customer funds or securities, but engage in activities not specified in paragraph (a)(2).

      31 See Appendix D to the net capital rule, Rule 15c3-ld.

      32 Under Securities Exchange Act Rule 17a-5 (17 CFR 240.17a- 5), registered broker-dealers are required to file reports containing certain financial and operational information with both their designated examining authority and the Commission. These reports are filed on the Uniform Financial and Operational Combined Uniform Single Report (commonly known as the FOCUS report).

      33 See 17 CFR 240.17a-ll.

      34 See note 4. supra.

      35 Under the proposed amendments, the broker-dealer would notify only its designated examining authority, and not the Commission (as is currently the case), of its election to operate under the alternative method.

      36 See Rule 15c3-l(f)(5)(iv).


    • For Your Information (October)

      For Your Information

      National Association of Securities Dealers, Inc.

      October 1989

      Three NASD District Offices to Hold Major Conferences This Month

      Three NASD offices — Districts 5, 8, and 13 - will sponsor major conferences this month.

      District 5

      The District 5 annual membership meeting and conference, co-sponsored with Tulane Law School, will be Friday, October 6, at the Windsor Court Hotel in New Orleans.

      The conference will feature 12 workshops on subjects such as regulation, legislation, arbitration, and new products. Speakers include NASD Chairman William L. Tedford, Jr.; Securities and Exchange Commission (SEC) officials Sarah Ackerson, T. Christopher Brown, Thomas Harmon, Michael Macchiaroli, and Richard Wessell; and state securities commissioners from Arkansas, Mississippi, Tennessee, Alabama, and Louisiana.

      Registration costs $175 per person ($150 if three or more registrants are from the same organization), plus a $25 surcharge for registering at the door. The registration fee includes four workshops, course materials, breakfast and lunch Friday, and a cocktail reception Thursday evening. For further information, call Keith Hinrichs of the NASD at (504) 522-6527.

      District 8

      District 8 will sponsor a securities conference Tuesday, October 24, at the Four Seasons Hotel in Chicago. It features nine workshops on topics including advertising requirements, financial and operational matters, and compliance and supervision issues.

      A general session will spotlight NASD President Joseph R. Hardiman, and former SEC Chairman David S. Ruder will speak at the luncheon. The 34 panelists include NASD and SEC staff and member-firm executives.

      Registration costs $160 per person for NASD members, $200 for nonmembers. Any organization with three or more registrations may reduce the per-person fee by $25. The hotel is holding a limited number of sleeping rooms at a rate of $165 per night that can be reserved by calling (800) 332-3442 or (312) 280-8800. For more information regarding the conference and for registration, call Rose Ursua of the NASD at (312) 899-4320.

      District 13

      District 13 will sponsor an educational seminar for its members at the John Hancock Institute in Boston, Tuesday, October 31. The program features such subjects as supervision and compliance, state regulation, direct participation investments, mutual fund problems, and variable contracts.

      Speakers, aside from NASD President Joseph R. Hardiman, include North American Securities Administrators Association President Susan E. Bryant, Assistant Regional SEC Administrator Peter F. Flynn, and securities regulators from Connecticut, Maine, and Massachusetts.

      Registration costs $150 per person and includes lunch. The Copley Plaza Hotel in Boston has reserved a limited number of rooms for the meeting. Members wanting to book them should call the hotel directly at (800) 826-7539 or (617) 267-5300. For further information and registration, call Geraldine Degurski of the NASD at (617) 439-4404.

      Maine Increases Agent, Broker-Dealer Fees

      Effective September 30, 1989, the Maine Securities Commission increased some of its registration and renewal fees. The new agent fees for initial registration, transfer, and renewal are now $30. The broker-dealer renewal fee rose to $100. If you have questions or need more information regarding these changes, contact NASD Information Services at (301) 590-6500.

      NASD Publishes New Guide to Rule Interpretations for Firms

      In the next few weeks, the NASD will be mailing to all NASD members one complimentary copy of its new NASD Guide to Rule Interpretations. The publication contains current NASD and SEC-approved interpretations to the SEC's Net Capital Rule (15c3-l) and the Customer Protection Rule (15c3-3). The interpretations stem from both SEC letters and also discussions between self-regulatory organizations and the SEC.

      Additional copies for members and copies for nonmembers are available for $25 each prepaid. Telephone orders are not accepted, and orders are shipped UPS or Book Rate. For further information, or to request an order form, write to the NASD Book Order Department, P.O. Box 9403, Gaithersburg, MD 20898-9403 or call (301) 590-6578.

      Test Date Change for October, Site Change for November Examinations

      Series 7 Test Site - Atlanta

      The November 18, 1989, Series 7 examination in Atlanta will be held at Sheraton Century Hotel, 2000 Century Boulevard, Atlanta, Georgia.

      First Saturday Date Change for Puerto Rico

      The first Saturday exam session for October has been changed to October 14, 1989, in Puerto Rico because of the Columbus Day holiday, which falls after the first weekend of the month.

      Reminder: Assessment Fees Depend on NASD's Fiscal Year

      All members are reminded that annual branch office assessment fees are calculated based on NASD's fiscal year, which ended September 30. Branch office assessment fees are charged for each branch office that is open during any part of the fiscal year. The fiscal 1989-1990 billing period began October 1.

      Members with branch offices that closed on or before September 30, 1989, will want to complete and submit Schedule E of Form BD now to report these closings. Offices that remain open on or after October 1 are subject to the fiscal 1989-1990 assessment fees, which will be billed later this year as part of the Central Registration Depository Renewal Assessment process. When completing Schedule E, be sure to indicate the date each office was closed in the "Effective Date" column.

    • 89-68 Nasdaq National Market Additions, Changes, and Deletions as of September 14, 1989

      SUGGESTED ROUTING*

      Internal Audit
      Operations
      Systems
      Trading

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

      As of September 14, 1989, the following 13 issues joined the NASDAQ National Market, bringing the total number of issues to 2,727.

      Symbol

      Company

      Entry Date

      SOES Executionl Level

      BZMT

      BizMart, Inc

      8/18/89

      1000

      SSIF

      Southeastern Savings Institutions Fund, Inc. (The)

      8/23/89

      500

      NIIS

      New Image Industries, Inc.

      8/24/89

      200

      ILFCW

      International Lease Finance Corporation (Wts)

      8/25/89

      200

      CLCM

      Cellcom Corp.

      9/5/89

      1000

      COCAW

      CoCa Mines, Inc. (Wts)

      9/5/89

      200

      FOFF

      50-Off Stores, Inc.

      9/5/89

      1000

      NUCOL

      Nucorp, Inc. (Paired Wts)

      9/5/89

      500

      WAMUP

      Washington Mutual Savings Bank (Pfd)

      9/5/89

      1000

      BVSI

      Brite Voice Systems, Inc.

      9/6/89

      1000

      FEXCR

      First Executive Corporation (Rts)

      9/12/89

      1000

      FEXZV

      First Executive Corporation (10/9/92 Wts) (WI)

      9/12/89

      1000

      FEXNV

      First Executive Corporation (Dep Pfd Shrs) (WI)

      9/12/89

      1000

      NASDAQ National Market Pending Additions

      The following issues have filed for inclusion in the NASDAQ National Market upon effectiveness of their registration statements with the SEC or other appropriate regulatory authority. Their inclusion may commence prior to the next regularly scheduled phase-in date.

      Symbol

      Company

      Location

      SOES Execution Level

      APPB

      Applebee's International, Inc.

      Kansas City, MO

      1000

      AZTR

      Aztar Corporation

      Phoenix, AZ

      1000

      CSMAF

      Cosma International Inc

      Brampton,

      1000

      DEMAF

      Decoma International Inc

      Concord, Ontario,Canada

      1000

      VCOR

      Vencor, Inc

      Louisville, KY

      1000

      NASDAQ National Market Symbol and/or Name Changes

      The following changes to the list of NASDAQ National Market securities occurred since August 14, 1989

      New/Old Symbol

      New/Old Security

      Date of Change

      LDDSA/ADCO

      LDDS Communications, Inc. (Cl A)/Advantage Companies, Inc.

      8/14/89

      LDDSW/ADCOW

      LDDS Communications, Inc.(Wts)/Advantage Companies, Inc. (Wts)

      8/14/89

      MWSB/FCDA

      Mountain West Savings Bank, F.S.B./First Federal Savings &Loan Association of Coeur d'Alene

      8/14/89

      FFHP/FFHP

      First Harrisburg Bancor, Inc./First Federal Savings & Loan Association of Harrisburg

      8/21/89

      HWEC/SAXO

      Hall wood Energy Corp./Saxon Oil Company

      8/21/89

      HVFD/HFNO

      Haverfield Corporation/Home Federal Savings Bank, Northern Ohio

      8/24/89

      WATFZ/WATFZ

      Waterford Wedgwood PLC/Waterford Glass Group PLC

      8/24/89

      WCBC/CNBL

      West Coast Bancorp/Centennial Beneficial Corp.

      8/29/89

      CODNW/CODNW

      Codenoll Technology Corporation (9/10/90 Wts)/CodenollTechnology Corporation (9/10/89 Wts)

      8/31/89

      CAFS/CAFS

      Cardinal Financial Group, Inc./Cardinal Federal Savings Bank

      9/1/89

      DAZX/DAZY

      Daisy Systems Corporation/Daisy Systems Corporation

      9/5/89

      GPEC/BRRS

      Gruber-Peters Entertainment Company (The)/Barris Industries, Inc.

      9/7/89

      FLAG/FLAG

      First Federal Savings Bank of LaGrange/First Federal Savings & Loan Association of LaGrange

      9/13/89

      NASDAQ National Market Deletions

      Symbol

      Security

      Date

      CLRXW

      Colorocs Corporation (Cl C Wts)

      8/14/89

      GWSH

      George Washington Corporation

      8/14/89

      MINL

      Minnetonka Corp.

      8/14/89

      OGIL

      Ogilvy Group, Inc. (The)

      8/14/89

      INGN

      Integrated Genetics, Inc.

      8/15/89

      OSWI

      Old Spaghetti Warehouse, Inc.

      8/15/89

      UBKR

      United Bankers, Inc.

      8/17/89

      HRLN

      Harlyn Products, Inc.

      8/18/89

      MSLA

      Metropolitan Financial Savings & Loan Association

      8/21/89

      ULTB

      Ultra Bancorporation

      8/21/89

      LOCL

      Local Federal Savings & Loan Association

      8/22/89

      PBNC

      Peoples Bancorporation

      8/22/89

      ACGI

      American Capacity Group, Inc.

      8/23/89

      CUCD

      CUC International, Inc.

      8/23/89

      NHIC

      Nichols-Homeshield, Inc.

      8/23/89

      CNCAA

      Centel Cable Television Company (Cl A)

      8/24/89

      CRZYQ

      Crazy Eddie, Inc.

      8/24/89

      FSHG

      Fisher Scientific Group Inc.

      8/25/89

      MCRO

      Micro Mask, Inc.

      8/25/89

      WHGP

      Wheelabrator Group Inc. (The)

      8/25/89

      WHTI

      Wheelabrator Technologies Inc.

      8/25/89

      RABT

      Rabbit Software Corporation

      8/28/89

      MLAB

      Monitor Technologies, Inc.

      8/29/89

      SRSL

      Sunrise Bancorp, Inc.

      8/29/89

      ACTP

      Advanced Computer Techniques Corporation

      8/30/89

      AVRY

      Avery, Inc.

      8/30/89

      CSTIF

      Challenger International, Ltd.

      8/30/89

      CYTR

      CytRx Corporation

      8/30/89

      CYTRW

      CytRx Corporation (Wts)

      8/30/89

      DVIS

      Datavision, Inc.

      8/30/89

      GTAM

      Great American Corporation

      8/30/89

      HOGI

      Harken Energy Corporation

      8/30/89

      HEMO

      HemoTec, Inc.

      8/30/89

      HSPA

      Home Savings Association of Penna.

      8/30/89

      IHKS

      Imperial Holly Corporation

      8/30/89

      MSHR

      Mischer Corporation (The)

      8/30/89

      OCIL

      Ocilla Industries, Inc.

      8/30/89

      MRDNP

      Meridian Bancorp, Inc. (Pfd)

      8/31/89

      NVCO

      Nodaway Valley Co.

      8/31/89

      SHKRF

      SHL Systemhouse Inc. (Rts)

      8/31/89

      SFOK

      Sooner Federal Savings & Loan Association

      8/31/89

      FPBT

      Fountain Powerboat Industries, Inc.

      9/1/89

      RBNH

      Rockingham Bancorp

      9/1/89

      HIPT

      Hi-Port Industries, Inc.

      9/8/89

      GMED

      GMI Group, Inc. (The)

      9/11/89

      SLHC

      Southlife Holding Company

      9/11/89

      CBTB

      CB&T Bancshares, Inc.

      9/12/89

      PHMT

      PhoneMate, Inc.

      9/12/89

      VMIG

      View-Master Ideal Group, Inc.

      9/12/89

      EPAI

      El Pollo Asado, Inc.

      9/13/89

      HSRC

      HEALTHS OUTH Rehabilitation Corporation

      9/13/89

      SWMC

      Stan West Mining Corp.

      9/13/89

      WHLSP

      Wholesale Club, Inc. (The) (Pfd)

      9/13/89

      WRTC

      Writer Corporation (The)

      9/14/89

      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, NASD Market Surveillance, at (301) 590-6429.

    • 89-67 SOES Tier Levels to Change for 521 Issues on October 9, 1989

      SUGGESTED ROUTING*

      Senior Management
      Internal Audit
      Operations
      Trading

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

      On June 30, 1988, the maximum SOES order size for all NASDAQ National Market securities was established as follows:

      • A 1,000-share maximum order size was applied to those NASDAQ National Market securities that had an average daily nonblock volume of 3,000 shares or more a day, a bid price that was less than or equal to $100, and three or more market makers.
      • A 500-share maximum order size was ap plied to those NASDAQ National Market securities that had an average daily nonblock volume of 1,000 shares or more a day, a bid price that was less than or equal to $150, and two or more market makers.
      • A 200-share maximum order size was ap plied to those NASDAQ National Market securities that had an average daily nonblock volume of less than 1,000 shares or more a day, a bid price that was less than or equal to $250, and less than two market makers.

      These order-size tiers were set by the NASD after extensive research and polling of all NASDAQ National Market market makers. The purpose of establishing these tiers was to provide public investors with the most efficient means of handling their small orders while ensuring that market makers were not required to assume unrealistic risks under the new mandatory SOES participation rules.

      At the time of their establishment, the NASD Trading Committee and Board of Governors decided that the tier levels applicable to each security would be reviewed periodically to determine if the trading characteristics of the issue had changed so as to warrant a SQES tier-level move. Such a review was conducted as of June 30, 1989, using the aforementioned formula and second-quarter trading data. The results of this review were analyzed by the Mandatory SOES Subcommittee and the NASD Trading Committee, which recommended that changes in SOES tier levels should be implemented per the formula calculation with the exception that an issue would not be permitted to move more than one level.

      To further explain, if an issue previously was categorized in the 200-share tier, it would not be permitted to move to the 1,000-share tier even if the formula calculated that such a move was warranted. The issue could move only one level to the 500-share tier as a result of any single review. Likewise, a security previously assigned to the 1,000-share tier could move only to 500 shares, regardless of the formula calculation. Only 23 issues were affected by this change. In adopting this policy, the committee was attempting to minimize market-maker exposure on issues for which the tier level increased and to maintain adequate public investor access on issues for which the tier level decreased.

      The committee also recognized that the formula used to assign the tier levels cannot always Accurately reflect the trading characteristics for each issue. As such, market makers are reminded that the Mandatory SOES Subcommittee will review on a case-by-case basis suggested tier-level changes if a significant number of market makers in that issue believe such a change is warranted. For more information regarding this process, please contact NASDAQ CompanyOperations at (202) 728-8039.

      Following is a listing of the NASDAQ National Market issues that will require a SOES tier-level change on October 9, 1989.

      NASDAQ NATIONAL MARKET SOES CHANGES

      All Issues in Alphabetical Order by Name

      Symbol

      Company Name

      Old Tier Level

      New Tier Level

      SRCE

      1ST SOURCE CORP

      500

      1000

      A

           

      ABSI

      A B S INDS

      500

      1000

      ALTI

      ALTAIINC

      500

      200

      ARM

      A RIX CORP

      500

      1000

      ACPT

      ACCEPTANCE INS HLDGS

      1000

      500

      AAST

      ACTION AUTO STORES

      500

      1000

      ANSL

      ACTION SAV BK S L A

      500

      1000

      JAIL

      ADTECINC

      1000

      500

      ACTP

      ADVANCE COMP TECH

      1000

      500

      AROS

      ADVANCE ROSS CORP

      500

      1000

      ADMG

      ADVANCED MAGNETICS

      500

      1000

      ADCOW

      ADVANTAGE COS INC WT

      200

      500

      AIMT

      AIM TELEPHONES INC

      1000

      500

      AIRC

      AIRCOA HOSPITALITY SV

      500

      200

      AKZOY

      AKZO N V ADR

      200

      500

      ATNG

      ALATENN RESOURCES

      1000

      500

      ALCO

      ALICO INC

      500

      1000

      ALLPW

      ALLIANCE PHARM WTS

      200

      500

      ABGA

      ALLIED BANKSHARES

      500

      200

      ALLC

      ALLIED CAPITAL CORP

      500

      1000

      ALET

      ALOETTE COSMETICS

      500

      1000

      ALRN

      ALTRON INC

      500

      1000

      AFGI

      AMBASSADOR FIN GP

      1000

      500

      ACGI

      AMER CAPACITY GP

      500

      200

      AMJX

      AMER FED SV BK DUVAL

      500

      1000

      AMEI

      AMER MED ELEC INC

      1000

      500

      ARIG

      AMER RELIANCE GP INC

      1000

      500

      ARBC

      AMER REPUBLIC BNCP

      200

      500

      AMFLP

      AMERSLFLPFDA

      500

      1000

      RODS

      AMER STEEL WIRE CORP

      500

      1000

      ASBI

      AMERIANA SAV BK FSB

      500

      1000

      AMOS

      AMOSKEAG CO

      200

      500

      AMSR

      AMSERV INC

      500

      1000

      ANDR

      ANDERSEN GROUP INC

      200

      500

      SOLR

      APPLIED SOLAR

      500

      1000

      ARSD

      ARABIAN SHIELD DEV

      1000

      500

      AIND

      ARNOLD INDUSTRIES

      500

      1000

      ARTW

      ARTS WAY MFG CO INC

      500

      1000

      AEZNS

      ASIAMERICA EQUIT SBI

      500

      1000

      ASBC

      ASSOC BANCORP

      500

      1000

      ASTE

      ASTEC INDS INC

      1000

      500

      AFED

      ATLANFED BNCP INC

      500

      200

      ATBC

      ATLANTIC BANCORP

      500

      200

      ATTC

      AUTO TROL TECH

      500

      1000

      AUTR

      AUTOTROL CORP

      500

      1000

      B

           

      BHAGB

      B H A GP INC CL B

      500

      1000

      BNHB

      B N H BCSHS INC

      1000

      500

      BPMI

      BADGER PAPER MILLS

      500

      200

      BAIB

      BAILEY CORP

      500

      1000

      BLCC

      BALCHEM CORP

      500

      200

      BPAO

      BALDWIN PIANO ORGAN

      1000

      500

      BMCC

      BANDO MCGLOCKLIN CAP

      1000

      500

      ASAL

      BANKATLANTIC FED

      500

      200

      BIOW

      BANKS OF IOWA INC

      500

      1000

      BOMA

      BANKS OF MID AMER

      1000

      500

      BARC

      BARRETT RES CORP

      500

      1000

      BAYLC

      BAYLY CORP

      500

      1000

      BGAS

      BERKSHIRE GAS CO

      500

      200

      BTHL

      BETHEL BANCORP

      200

      500

      BFEN

      BF ENTERPRISES INC

      1000

      500

      BFSI

      BFS BANKORP INC

      500

      1000

      BNGO

      BINGO KING CO

      1000

      500

      BGENP

      BIOGEN INC PFD

      500

      1000

      BGENW

      BIOGEN INC WTS

      200

      500

      BLIS

      BLISS LAUGHLIN INDS

      1000

      500

      BOGO

      BOGERT OIL CO

      1000

      500

      BOOL

      BOOLE BABBAGE INC

      500

      1000

      BOSA

      BOSTON ACOUSTICS INC

      500

      1000

      BRLYS

      BRADLEY RL EST SBI

      500

      1000

      BTSB

      BRAINTREE SAV BK THE

      1000

      500

      BSBC

      BRANFORD SAVINGS BK

      200

      500

      BRLN

      BROOKLYN SAV BK THE

      1000

      500

      BTCIE

      BROWN TRANSPORT CO

      500

      1000

      BCKY

      BUCKEYE FIN CORP

      500

      1000

      BNBGA

      BULL BEAR GP INC A

      1000

      500

      BANQ

      BURRITTINTRFIN BNCP

      1000

      500

      C

           

      CBTF

      C B T FINANCIAL CORP

      200

      500

      CKSB

      C K FED SAV BK

      200

      500

      CPBI

      C P B INC

      200

      500

      CCLPZ

      CALLON CON LP UTS

      500

      1000

      CCBT

      CAPE COD BK TR CO

      500

      200

      CATA

      CAPITOL TRANSAMERICA

      200

      500

      CAFS

      CARDINAL FED SAV BK

      500

      200

      CPLSZ

      CARE PLUS WTS 90 A

      500

      1000

      FFCA

      CAROLINA BNCP INC

      500

      1000

      CAYB

      CAYUGA SAVINGS BANK

      200

      500

      CNBL

      CENTENNIAL BENEF CORP

      200

      500

      CHOL

      CENTRAL HOLDING CO

      500

      1000

      CPSA

      CENTRAL PENN FIN CORP

      1000

      500

      CSBC

      CENTRAL SOUTHERN HLD

      200

      500

      CHLN

      CHALONEINC

      500

      1000

      CHCR

      CHANCELLOR CORP

      200

      500

      CFED

      CHARTER FED SV BK NJ

      500

      1000

      CHTT

      CHATTEM INC

      500

      200

      CFIXW

      CHEMFIX TECH WTS 89

      500

      200

      CMFB

      CHEMICAL FABRICS CORP

      500

      1000

      CLEA

      CHEMICAL LEAMAN INC

      500

      200

      CHER

      CHERRY CORP

      1000

      500

      CHPK

      CHESAPEAKE UTIL CORP

      200

      500

      CDCRA

      CHILDREN'S DISCOVR A

      1000

      500

      CPCI

      CIPRICO me

      1000

      500

      CINNA

      CITIZENS INC CL A

      500

      1000

      CIZCF

      CITY RESOURCE CANADA

      1000

      500

      CLSC

      CLINICAL SCIENCES

      500

      1000

      COBB

      COBB RESOURCES CORP

      500

      1000

      CODN

      CODENOLL TECH CORP

      1000

      500

      CODNW

      CODENOLL TECH WTS 89

      500

      200

      CACCB

      COLONIAL LIFE ACC B

      500

      1000

      CLRXW

      COLOROCS CORP WTS C 89

      500

      1000

      CMDT

      COMDATA HOLDINGS CORP

      500

      1000

      CTIA

      COMMUN TRANSMISSION

      500

      1000

      CBNH

      COMMUNITY BANKSHARES

      1000

      500

      CBPA

      COMMUNITY BNCP INC

      200

      500

      CMRE

      COMSTOCK RESOURCE

      500

      1000

      CSTP

      CONGRESS STREET PROP

      500

      200

      CTLC

      CONS TOMOKA LAND

      200

      500

      CFINP

      CONSUMERS FIN CORP PFD

      500

      200

      CGIC

      CONTL GENERAL CORP

      200

      500

      CORC

      CORCOM INC

      1000

      500

      CNPGF

      CORNUCOPIA RES LTD

      200

      500

      CRAN

      CROWN ANDERSEN INC

      1000

      500

      COILP

      CRYSTAL OIL CO PFD A

      500

      200

      D

           

      DOCO

      DOC OPTICS CORP

      500

      200

      DMCVB

      DAIRY MART STORES B

      500

      1000

      DATX

      DATA TRANSLATION INC

      500

      1000

      DSCC

      DATASOUTH COMPUTER

      500

      200

      DTSI

      DATRON SYSTEMS INC

      1000

      500

      DAVX

      DAVOX CORP

      1000

      500

      DOCP

      DELAWARE OTSEGO CORP

      200

      500

      DLTK

      DELTAK CORP

      200

      500

      DEVN

      DEVON GROUP INC

      500

      1000

      DEAL

      DIAL REIT INC

      500

      1000

      DCPI

      DICK CLARK PROD INC

      500

      1000

      TRBK

      DOMINION FED SAV LN

      1000

      500

      DRTK

      DURATEK CORP

      1000

      500

      E

           

      EACO

      EAENGRGSCITECH

      500

      1000

      EILI

      EILINSTRUMENTS

      500

      1000

      EWAT

      E TOWN CORP

      500

      200

      EZEM

      E z EM me

      500

      1000

      ETEX

      EASTEX ENERGY INC

      500

      1000

      EASTS

      EASTOVER CORP SBI

      500

      200

      EECN

      ECOGEN me

      500

      1000

      EDCO

      EDISON CONTROL CORP

      200

      500

      ELCN

      ELCO INDSINC

      1000

      500

      EORR

      EMPIRE ORR me

      1000

      500

      EMCO

      ENGINEERING MEASURE

      1000

      500

      ETRC

      ENTREE CORP

      1000

      500

      EPSI

      EPSILON DATA MGMT

      1000

      500

      EQICB

      EQUITABLE OF IOWA B

      500

      1000

      EVAN

      EVANS INC

      500

      1000

      F

           

      FFES

      FIRST FED S L HRTFD

      500

      1000

      FLAG

      FIRST FED S L LAGRNG

      200

      500

      FFSD

      FIRST FED SAV BK AL

      1000

      500

      FSBG

      FIRST FED SAV BK GA

      200

      500

      FGHC

      FIRST GEORG HLDGS

      500

      200

      FISB

      FIRST INDIANA CORP

      500

      1000

      FLFC

      FIRST LIBERTY FIN

      1000

      500

      FRME

      FIRST MERCHANTS CORP

      500

      200

      MTCL

      FIRST NATL BANK CORP

      500

      200

      FBAC

      FIRST NATL BNCP GA

      500

      1000

      FNPC

      FIRST NATL PENN CORP

      200

      500

      FIRO

      FIRST OHIO BCSHS

      500

      1000

      FLGLA

      FLAGLER BANK CORP CL A

      200

      500

      FLAEF

      FLORIDA EMP INS CO

      500

      1000

      FOOT

      FOOTHILL INDEPENDENT

      200

      500

      FSNR

      FORSCHNER GROUP THE

      200

      500

      FWNC

      FORT WAYNE NATL CORP

      500

      1000

      FRMBF

      FORUM RE GP BERMUDA

      500

      200

      DNNY

      FRANCES DENNEY CO

      1000

      500

      FSAK

      FRANKLIN SV GUAR STK

      200

      500

      G

           

      GBCB

      G B C BANCORP

      500

      1000

      XRAY

      G E N D E X CORP

      200

      500

      GMED

      G MI GP INC THE

      1000

      500

      GNUC

      G NI GROUP me THE

      500

      1000

      GWCC

      G W C CORP

      500

      1000

      GBAN

      GATEWAY BANCORP INC

      200

      500

      GBLD

      GEN BLDG PRODS CORP

      1000

      500

      GCCC

      GEN COMPUTER CORP

      1000

      500

      GGNS

      GENUS INC

      500

      1000

      GDYN

      GEODYNAMICS CORP

      500

      1000

      GMFD

      GERMANIA BANK FSB

      1000

      500

      GOOD

      GOODY PRODUCTS INC

      500

      1000

      GSBI

      GRANITE STATE BKSHS

      500

      1000

      GBBS

      GREAT BAY BANKSHARES

      1000

      500

      GFGC

      GREAT FALLS GAS CO

      200

      500

      GREY

      GREY ADVERTISING INC

      200

      500

      H

           

      HDRP

      H D R POWER SYS INC

      500

      1000

      THCO

      HAMMOND CO THE

      200

      500

      HRLN

      HARLYN PRODUCTS INC

      500

      200

      HRMN

      HARMON INDS INC

      500

      1000

      HASR

      HAUSERMAN INC

      500

      200

      HAVT

      HAVERTY FURNITURE CO

      500

      1000

      HWKN

      HAWKINS CHEMICAL INC

      200

      500

      HERS

      HERITAGE FINL SVC IL

      500

      1000

      HRLY

      HERLEY MICROWAVE

      1000

      500

      HIPT

      HI PORT INDS me

      500

      1000

      HSBK

      HIBERNIA SAV BK THE

      1000

      500

      HIPC

      HIGH PLAINS CORP

      500

      1000

      HIWDF

      HIGHWOOD RESOURCES

      1000

      500

      RVEE

      HOLIDAY RV SUPERSTRS

      500

      1000

      HFNO

      HOME FED SAV BK OH

      200

      500

      HROK

      HOME FED SAV ROCKIES

      500

      200

      HSLD

      HOME SAVINGS LOAN

      1000

      500

      HMSD

      HOMESTEAD HOLDING CORP

      200

      500

      HFIN

      HORIZON FIN SVC INC

      500

      1000

      HTEK

      HYTEK MICROSYSTEMS

      1000

      500

      I

           

      IEHC

      IE H CORP

      1000

      500

      IFRS

      I F R SYSTEMS INC

      500

      1000

      IMRI

      I M C O RECYCLING

      500

      1000

      INvG

      I N V G MTG SECS CORP

      500

      1000

      IFEI

      IMAGINE FILMS ENTER

      500

      1000

      IFEIW

      IMAGINE FILMS WTS

      500

      1000

      INCRF

      INCA RESOURCES

      1000

      500

      IBCP

      INDEP BK CORP MI

      1000

      500

      INRD

      INRAD INC

      500

      200

      IGLWF

      INSITUFORM GP LTD WT

      200

      500

      INSMA

      INSITUFORM MIDAMER A

      500

      200

      ISEC

      INSITUFORM SOUTHEAST

      500

      1000

      IFED

      INTER FED SAV BANK

      200

      500

      INTP

      INTERPOINT CORP

      500

      1000

      ICSI

      INTL CONTAINER SYS

      500

      1000

      ISLH

      INTL HOLDING CAP CORP

      200

      500

      INSH

      INTL SHIPHOLDING CORP

      500

      1000

      IUTL

      IOWA SOUTHERN INC

      500

      1000

      IYCOY

      ITO YOKADO CO ADR

      500

      200

      J

           

      JMBRS

      J M B REALTY TR SBI

      500

      200

      JKHY

      JACK HENRY AND ASSOC

      1000

      500

      JACO

      JACO ELECTRONICS INC

      500

      1000

      JASN

      JASON INC

      500

      1000

      JFFN

      JEFFERSON BANK

      200

      500

      JBNK

      JEFFERSON BKSHS VA

      500

      1000

      JHSN

      JOHNSON ELECTRONICS

      1000

      500

      JSBK

      JOHNSTOWN SAV BK FSB

      500

      200

      JMED

      JONES MEDICAL INDS

      500

      1000

      JOSL

      JOSLYN CORP

      500

      1000

      JUDY

      JUDY'S INC

      200

      500

      K

           

      KEAN

      KEANE INC

      200

      500

      KEQU

      KEWAUNEE SCIENTIFIC

      200

      500

      KNAP

      KNAPE AND VOGT MFG

      1000

      500

      L

           

      LCSI

      L C S INDS INC

      500

      200

      LSNB

      LAKE SHORE BANCORP

      500

      200

      LMACE

      LANDMARK AMERICAN CORP

      500

      200

      LDMK

      LANDMARK BK FOR SAV

      200

      500

      LSER

      LASER CORP

      500

      1000

      LEXP

      LEXINGTON PRECISION

      1000

      500

      LIB HA

      LIBERTY HOMES INC A

      200

      500

      LNBC

      LIBERTY NATL BNCP

      500

      1000

      LIFE

      LIFELINE SYSTEMS INC

      1000

      500

      LLOG

      LINCOLN LOGS LTD

      200

      500

      LNDL

      LINDAL CEDAR HOMES

      500

      1000

      LIQB

      LIQUI BOX CORP

      1000

      500

      LOCL

      LOCAL FED SVGS LOAN

      1000

      500

      LOGC

      LOGIC DEVICES INC

      200

      500

      LUND

      LUND ENTERPRISES INC

      500

      1000

      M

           

      MKCO

      M KAMENSTEIN INC

      200

      500

      MMIM

      M MI MEDICAL INC

      500

      1000

      MMRH

      M M R HOLDING CORP

      500

      1000

      MACD

      MACDERMID INC

      500

      200

      MLRC

      MALLON RESOURCES CORP

      1000

      500

      MRGO

      MARGO NURSERY FARMS

      500

      1000

      MRTA

      MARIETTA CORP

      500

      1000

      MCOR

      MARINE CORP ILL

      500

      1000

      MTLI

      MARINE TRANS LINES

      500

      1000

      MAXE

      MAX & ERMAS RESTR INC

      500

      1000

      MAXC

      MAXCO INC

      500

      1000

      MFLR

      MAYFLOWER CO OP BK

      1000

      500

      MFFC

      MAYFLOWER FIN CORP

      500

      1000

      MCCL

      MCCLAIN INDUSTRIES

      500

      200

      MGLL

      MCGILL MANUFACTURING

      200

      500

      MGRC

      MCGRATH RENT CORP

      500

      1000

      MDST

      MEDSTAT SYSTEMS INC

      500

      1000

      MDTA

      MEGADATA CORP

      1000

      500

      MCBKB

      MERCHANTS CAP CP B

      500

      200

      MRET

      MERET INC

      1000

      500

      MRDNP

      MERIDIAN BNCP PFD

      200

      500

      KITS

      MERIDIAN DIAGNOSTICS

      1000

      500

      METC

      METCALF EDDY COS INC

      500

      1000

      MTRO

      METRO TEL CORP

      1000

      500

      MFGR

      METROBANK FIN GP INC

      500

      1000

      MAJL

      MICHAEL ANTHONY JEWL

      1000

      500

      MWAV

      MICROWAVE LABS INC

      1000

      500

      MABC

      MID AMERICA BNCP

      500

      1000

      MHBK

      MID HUDSON SAV FSB

      500

      200

      MIDS

      MID SOUTH INS CO

      1000

      500

      MILT

      MILTOPE GROUP INC

      500

      1000

      MNES

      MINE SAFETY APPLS CO

      1000

      500

      MVBC

      MISSION VALLEY BNCP

      200

      500

      MTTL

      MOBILE TELECOMM TECH

      500

      1000

      MAHI

      MONARCH AVALON INC

      500

      200

      MNRTS

      MONMOUTH REIT SBI

      200

      500

      MOTOP

      MOTO PHOTO INC PFD

      500

      200

      MOTOZ

      MOTO PHOTO INC WTS

      500

      200

      MOTR

      MOTOR CLUB OF AMER

      500

      1000

      MTNR

      MOUNTAINEER BKSHS WV

      200

      500

      MUEL

      MUELLER PAUL CO

      200

      500

      LABL

      MULTI COLOR CORP

      500

      1000

      MYCO

      MYCOGEN CORP

      500

      1000

      N

           

      NSCB

      N B S C CORP

      200

      500

      NHDI

      N H D STORES INC

      500

      1000

      NWGI

      N W GROUP INC

      500

      1000

      NVBC

      NAPA VALLEY BNCP

      500

      1000

      NHMO

      NATL HMO CORP

      500

      1000

      NPBC

      NATLPENN BCSHS INC

      500

      200

      NETG

      NETWORK GENERAL CORP

      500

      1000

      NWRK

      NETWORKS ELECTRONICS

      200

      500

      NEWE

      NEWPORT ELECTRONICS

      1000

      500

      NRES

      NICHOLS RESEARCH CORP

      500

      1000

      NVCO

      NODAWAY VALLEY CO

      200

      500

      NOLD

      NOLAND CO

      500

      200

      NRTI

      NOONEY REALTY TRUST

      200

      500

      NOHL

      NORTH HILLS ELECTRON

      500

      1000

      CBRYA

      NORTHLAND CRANBERR A

      500

      1000

      NOWT

      NORTHWEST TELECOMMUN

      500

      1000

      NWTL

      NORTHWEST TELEPROD

      200

      500

      NSTS

      NORTHWESTN ST PORT

      500

      200

      NOVXM

      NOVA PHARM CORP WTS C

      500

      1000

      NOVXL

      NOVA PHARM CORP WTS D

      500

      1000

      NUCO

      NUCORP INC DELAWARE

      500

      1000

      NYCOP

      NYCORINC PFD

      500

      1000

      O

           

      OICO

      OI CORP

      500

      1000

      OILC

      OIL DRI CORP OF AMER

      500

      1000

      OLDB

      OLD NATL BANCORP IND

      500

      1000

      OSWI

      OLD SPAGHETTI WHSE

      500

      1000

      OSBW

      OLYMPIC SAVING BK

      200

      500

      OCGI

      OMNI CAP GP INC

      500

      1000

      OVWV

      ONE VALLEY BNCP W VA

      500

      1000

      OSBN

      OSBORN COMMUN CORP

      500

      1000

      OCOMA

      OUTLET COMMUN CL A

      500

      1000

      P

           

      PHPH

      PHP HEALTHCARE CORP

      200

      500

      PABC

      PACIFIC BANCP

      500

      200

      PHSY

      PACIFICARE HEALTH

      500

      1000

      PALM

      PALFED INC

      1000

      500

      PBFI

      PARIS BUSINESS FORMS

      200

      500

      PVSA

      PARKVALE FINL CORP

      1000

      500

      PRLX

      PARLEX CORP

      1000

      500

      PATK

      PATRICK INDS INC

      1000

      500

      PENT

      PENN ENTRPR INC

      500

      1000

      PTAC

      PENN TREATY AMER CORP

      500

      1000

      PVIR

      PENN VIRGINIA CORP

      500

      1000

      PTRL

      PETROLINDS INC

      500

      1000

      PHXA

      PHOENIX AMERICAN INC

      1000

      500

      PHMT

      PHONEMATE INC

      1000

      500

      PLAB

      PHOTRONIC LABS INC

      500

      1000

      PMAN

      PIEDMONT MGMT CO INC

      500

      1000

      PSBN

      PIONEER BNCP INC NC

      500

      1000

      PLNSP

      PLAINS RESOURCES PFD

      500

      1000

      PLXS

      PLEXUS CORP

      500

      1000

      POLK

      POLK AUDIO INC

      500

      1000

      POCI

      PORTS OF CALL INC

      1000

      500

      PSLA

      PREFERRED SAVINGS BK

      500

      200

      PBKC

      PREMIER BANKSHARES

      200

      500

      PRCO

      PRICOR INC

      500

      1000

      PENG

      PRIMA ENERGY CORP

      500

      200

      PSAB

      PRIME BANCORP INC

      1000

      500

      PROF

      PROFESSIONAL INV INS

      500

      1000

      PFNC

      PROGRESS FIN CORP

      500

      200

      PNET

      PRONET INC

      500

      1000

      POAI

      PROPERTIES OF AMER

      1000

      500

      PPSA

      PROSPECT PK FIN CORP

      500

      1000

      Q

           

      QEDX

      Q E D EXPLORATION

      500

      200

      QLTIF

      QUADRA LOGIC TECH

      200

      500

      QFCI

      QUALITY FOOD CENTERS

      500

      1000

      QTEC

      QUESTECH INC

      500

      200

      QUIP

      QUIPP INC

      200

      500

      R

           

      RANG

      RANGAIRE CORP

      1000

      500

      RCHI

      RAUCH INDS INC

      500

      1000

      RCOT

      RECOTON CORP

      500

      1000

      REDX

      RED EAGLE RESOURCES

      500

      1000

      REED

      REEDS JEWELERS INC

      500

      1000

      RFTN

      REFLECTONE INC

      1000

      500

      RFSB

      REISTERSTOWN FED SAV

      500

      200

      REAL

      RELIABILITY INC

      1000

      500

      RAUT

      REPUBLIC AUTO PARTS

      1000

      500

      RBNC

      REPUBLIC BANCORP INC

      500

      1000

      RSFC

      REPUBLIC SAV FIN CORP

      1000

      500

      RESR

      RESEARCH INC

      500

      200

      ROIL

      RESERVE INDS CORP

      1000

      500

      REXI

      RESOURCE AMERICA INC

      500

      1000

      RCOA

      RETAILING CORP OF AMER

      500

      200

      REXL

      REXHALL INDS INC

      200

      500

      RMCI

      RIGHT MGMT CONSUL

      200

      500

      RSGI

      RIVERSIDE GP INC

      200

      500

      RBSN

      ROBESON INDS CORP

      500

      1000

      RNIC

      ROBINSON NUGENT INC

      1000

      500

      RBNH

      ROCKINGHAM BANCORP

      500

      1000

      ROYLW

      ROYALPAR INDS WTS A

      500

      200

      RBCO

      RYAN BECK CO INC

      1000

      500

      S

           

      SBTC

      S B T CORP

      500

      200

      SDNB

      SDNB FINANCIAL CORP

      200

      500

      SJNB

      SJNB FINANCIAL CORP

      200

      500

      SKFB

      S K FAMOUS BRANDS

      200

      500

      SNLFA

      S N L FINANCIAL CORP A

      500

      1000

      SGHB

      SAG HARBOR SAV BK

      500

      1000

      SHRE

      SAHARA RESORTS

      1000

      500

      SAXO

      SAXON OIL CO

      500

      1000

      SCFM

      SCANFORMS INC

      1000

      500

      SWARA

      SCHWARTZ BROS INC A

      500

      1000

      STIZ

      SCIENTIFIC TECH INC

      500

      200

      SCOT

      SCOTT AND STRINGFELLOW

      500

      200

      SEAB

      SEABOARD SAVINGS LN

      500

      200

      SEWY

      SEAWAY FOOD TOWN INC

      200

      500

      SFGI

      SECURITY FINL GP INC

      200

      500

      SLTM

      SELECTERM INC

      200

      500

      SLFX

      SELFIX INC

      500

      1000

      SLRV

      SELLERSVILLE SAV LN

      500

      1000

      SERF

      SERVICE FRACTURING

      500

      1000

      SHLB

      SHELBY FED SAVS BK

      200

      500

      SHOP

      SHOPSMITH INC

      500

      1000

      SHBZ

      SHOWBIZ PIZZA TIME

      500

      1000

      SIVB

      SILICON VALLEY BNCSH

      500

      1000

      SMET

      SIMETCO INC

      500

      1000

      SKAN

      SKANEATELES SAV BANK

      200

      500

      HAMS

      SMITHFIELD CO INC

      1000

      500

      SOMR

      SOMERSET GP INC THE

      200

      500

      SESL

      SOUTHEASTERN SAV BK

      1000

      500

      SWTR

      SOUTHERN CA WATER CO

      500

      1000

      SFNS

      SPEAR FIN SVCS INC

      500

      1000

      SOME

      STATE O MAINE TNC

      500

      1000

      SPAIB

      STRATEGIC PLANNING B

      1000

      500

      STRC

      STRATFORD AMER CORP

      200

      500

      STRM

      STURM RUGER AND CO

      200

      500

      SUBBA

      SUBURBAN BANCORP A

      1000

      500

      SUMI

      SUMITOMO BANK OF CA

      200

      500

      SMMT

      SUMMIT SAV ASSOC

      200

      500

      SNLT

      SUNLITE INC

      500

      1000

      SUNF

      SUNSTAR FOODS INC

      500

      1000

      SURV

      SURVIVAL TECH INC

      500

      1000

      SYMC

      SYMANTEC CORP

      200

      500

      SNTC

      SYNETIC INC

      200

      500

      SYRA

      SYRACUSE SUPPLY CO

      200

      500

      T

           

      TCII

      T C IINTL INC

      1000

      500

      TSII

      T S I INC

      500

      1000

      TSRI

      T S R INC

      1000

      500

      TECN

      TECHNALYSIS CORP

      500

      1000

      TCGN

      TECOGENINC

      500

      1000

      TOPTW

      TELE OPTICS INC WTS

      500

      200

      TOPT

      TELE OPTICS INC

      1000

      500

      TNII

      TELECOMMUN NETWORK

      500

      1000

      TMTX

      TEMTEX INDS INC

      500

      200

      TMSTA

      THOMASTON MILLS A

      500

      200

      TAVI

      THORN APPLE VALLEY

      500

      200

      TODDA

      TODD A O CORP CL A

      500

      1000

      TOMKY

      TOMKFNS PLC ADR

      200

      500

      TLAM

      TONY LAMA CO INC

      200

      500

      TRGL

      TOREADOR ROYALTY CORP

      1000

      500

      TGDGF

      TOTAL ENERGOLD CORP

      1000

      500

      TRKA

      TRAK AUTO CORP

      1000

      500

      TRNI

      TRANS INDS INC

      500

      1000

      TRSL

      TRANSNATIONAL INDS

      500

      1000

      TWBC

      TRANSWORLD BNCP

      200

      500

      TRST

      TRUSTCO BANK CORP NY

      200

      500

      TDRLF

      TUDOR CORP LTD

      500

      200

      TUSC

      TUSCARORA PLASTICS

      500

      1000

      TTOYW

      TYCO TOYS INC WTS 93

      200

      500

      U

           

      UNSL

      U N S L FIN CORP

      200

      500

      USAB

      USA BANCORP INC

      500

      1000

      INTK

      U S INTEC INC

      500

      1000

      ULTB

      ULTRA BNCP

      500

      1000

      UGNEW

      UNIGENE LABS WTS A

      500

      1000

      UBNK

      UNION BK

      500

      1000

      UBKR

      UNITED BANKERS TX

      1000

      500

      UBSI

      UNITED BKSHS INC

      500

      1000

      UICI

      UNITED INS COS INC

      1000

      500

      UMSB

      UNITED MISSOURI BCSH

      500

      1000

      BNKS

      UNITED N M FIN CORP

      500

      1000

      USBK

      UNITED SAV BK VA

      200

      500

      UBMT

      UNITED SAV BK F A MT

      200

      500

      TOTE

      UNITED TOTE INC

      500

      1000

      UHCO

      UNIV HOLDING CORP

      1000

      500

      UPEN

      UPPER PENINSULA ERGY

      500

      200

      V

           

      VSLF

      VMS STRA LND FD H

      500

      1000

      VSBC

      V S B BNCPINC

      500

      1000

      VLCM

      VALCOM INC

      500

      200

      VCCN

      VALLEY CAPITAL CORP

      1000

      500

      VANF

      VANFED BNCP

      500

      1000

      VCRE

      VARI CARE INC

      500

      1000

      VFSC

      VERMONT FIN SVCS CORP

      500

      1000

      VTEX

      VERTEX COMMUN CORP

      500

      1000

      VSTR

      VESTAR INC

      500

      1000

      VIDE

      VIDEO DISPLAY CORP

      500

      1000

      VOLT

      VOLT INFO SCIENCES

      1000

      500

      W

           

      WCRSY

      W C R S PLC ADR

      200

      500

      WLRF

      WLR FOODS INC

      500

      1000

      WNSI

      W N S INC

      500

      200

      WSMP

      W S M P INC

      1000

      500

      WAIN

      WAINWRIGHT BK TR CO

      1000

      500

      WTWS

      WALL TO WALL SOUND VID

      1000

      500

      WIMI

      WARWICK INS MGRS INC

      500

      200

      WSBX

      WASHINGTON SAV BK

      500

      200

      WGNR

      WEGENER CORP

      500

      1000

      WLPI

      WELLINGTON LEISURE

      500

      1000

      WCCC

      WESTERN COMMERCIAL

      500

      200

      WFPR

      WESTERN FED SAV P R

      500

      200

      WWIN

      WESTERN WASTE INDS

      500

      1000

      WBAT

      WESTPORT BNCP INC

      200

      500

      WTPR

      WETTERAU PROPERTIES

      500

      200

      WHLSP

      WHOLESALE CLUB PFD

      500

      200

      WSVS

      WILAND SVCS INC

      500

      200

      WSGC

      WILLIAM SONOMA INC

      500

      1000

      WTOY

      WISCONSIN TOY CO INC

      500

      1000

      XPLR

      XPLOR CORP

      500

      200

      Y

           

      YESS

      YANKEE ENERGY WI

      1000

      500

      YFED

      YORK FINANCIAL CORP

      500

      1000

      YCSL

      YORKRIDGE CALVERT SV

      200

      500

      Z

           

      ZEUS

      ZEUS COMPONENTS INC

      1000

      500

      ZIGO

      ZYGO CORP

      500

      200

    • 89-66 Size of "Normal" Unit of Trading For NASDAQ-Listed Debentures

      SUGGESTED ROUTING*

      Senior Management
      Legal & Compliance
      Systems
      Trading

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

      The NASD Trading Committee, after a recent study, decided that a $10,000 principal amount should continue to be considered the "normal" unit of trading for NASDAQ-listed convertible debentures.

      The decision, confirming a ruling in an NASD letter sent to members July 18, 1972, means that a NASDAQ-registered market maker is expected to trade at least one such unit at its quotation appearing on NASDAQ terminals at the time it receives either a buy or sell order.

      The committee based its new decision on statistics showing that 95 of the 110 convertible debentures listed on NASDAQ had a minimum of $20 million of bonds each outstanding and that the debentures were generally available for borrowing purposes. In addition, committee members said their bond traders regarded the $10,000 principal as a reasonable, accepted standard for a unit of trading.

      Questions concerning this notice can be directed to Glen R. Shipway, Senior Vice President, Market Operations, at (212) 858-4448

    • 89-65 SEC Adoption of Rule 15c2-6 Re: Sales Practice and Suitability Requirements for Certain Low-Priced Securities

      SUGGESTED ROUTING*

      Senior Management
      Legal & Compliance
      Operations
      Trading

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

      EXECUTIVE SUMMARY

      The SEC recently adopted Rule 15c2-6, which is effective January 1, 1990. It imposes sales-practice requirements on broker-dealers that recommend transactions in certain low-priced, non-NASDAQ over-the-counter securities (designated securities) to persons who are not "established customers." Such broker-dealers involved in the "penny stock" market are required to make a documented suitability determination regarding a nonestablished customer, and to obtain such customer's written agreement to the first three purchases of these designated securities. The rule specifically excludes all NASDAQ and exchange-listed securities.

      BACKGROUND

      In February 1989, the SEC proposed Rule 15c2-6 (see Notice to Members 89-26) in response to the widespread incidence of misconduct by some broker-dealers in connection with high-pressure sales tactics in low-priced securities. In proposing this rule, the SEC "intended to prevent the indiscriminate use by broker-dealers of fraudulent, high-pressure telephone sales campaigns to sell such securities to unsophisticated investors."

      The Commission received letters from numerous commenters, including the NASD, about the proposed rule. Commenters, according to the SEC, generally agreed that serious problems existed in the market for low-priced, non-NASDAQ OTC securities, and overwhelmingly supported increased enforcement efforts against broker-dealers and individuals who engaged in such misconduct.

      The final rule defines an "established customer" as a customer who has maintained an account for at least one year, or has had three purchases of designated securities on separate days involving different issuers.

      It also establishes procedures that must be followed before designated securities are recommended to nonestablished customers. Included is the requirement to obtain oral or written information concerning a new customer's previous investment experience, investment objectives, and financial situation. With that information, the broker or dealer must reasonably determine whether transactions in designated securities are suitable for the particular customer.

      If the designated securities are determined to be suitable, the firm's written suitability determination must be delivered to the customer, who is required to manually sign and return the statement, if it is accurate, as a condition for opening the account. Also, the firm must obtain from the customer a written agreement to enter into each of the first three transactions in designated securities. The objectives of these requirements, the SEC said, are to provide the customer with an opportunity to make an investment decision "outside of a pressured telephone conversation with a salesperson," and enable the customer to decide whether the broker-dealer has made a good-faith attempt at a suitability determination.

      The rule's recordkeeping requirements are partly designed to provide the basis for "simple and direct enforcement actions against broker-dealers that fail to comply." In this regard, the NASD will be responsible for examining firms for their compliance with Rule 15c2-6.

      NASD ACTIVITIES

      The NASD supports increased enforcement efforts to eliminate fraudulent, deceptive, and manipulative acts and practices in the penny stock market. As a top priority of the NASD, the Association continues to commit significant resources to its enforcement efforts in order to reach this objective.

      Working on its own cases, as well as in cooperation with the SEC, state securities administrators, and federal law-enforcement agencies, the NASD has concluded or filed well in excess of 200 disciplinary actions involving penny stocks, producing sanctions including expulsions of firms, bars of individuals, and fines in excess of $500,000. More than 175 additional investigations are actively under way. Furthermore, certain of these cooperative efforts with federal law-enforcement agencies have resulted in criminal prosecution relating to securities fraud.

      In its explanation of the rationale for the final adopted rule, the SEC noted that the NASD has implemented a program that requires broker-dealers to report to the NASD volume and price information concerning their principal transactions in non-NASDAQ OTC securities. "This program should provide assistance to regulators in monitoring the non-NASDAQ OTC market, and in identifying fraudulent or manipulative trading activities in that market," the Commission said. But it added that a comprehensive program to deter fraud in connection with transactions in low-priced securities must address the sales practices of broker-dealers actively involved in selling such securities to new customers.

      MAJOR RULE PROVISIONS

      The Rule makes it unlawful for a broker-dealer to recommend a "designated security" (defined as a non-NASDAQ OTC equity security issued by a company with less than $2 million in net tangible assets) unless:

      1. The transaction is exempt under paragraph (c) of the Rule (as discussed below); or
      2. Prior to the transaction, the broker-dealer has:
      (a) approved and determined the customer's account to be suitable for transactions in designated securities;
      (b) delivered to the customer the written suitability determination, which must be manually signed, dated, and returned by the customer, and
      (c) received a written agreement for the recommended transaction from the customer.

      The exempted transactions under paragraph (c) of the Rule are:

      • Transactions in which the price of the security is $5 or more;1
      • Transactions in which the purchaser is an accredited investor or an established customer of the broker-dealer;
      • Transactions that are not recommended by the broker-dealer; and
      • Transactions by a broker-dealer that has not been a market maker in the designated security in the 12 months preceding the transaction and which does not derive specified sales-related revenue from transactions in designated securities exceeding 5 percent of its total specified sales-related revenue from securities transactions.2

      The text of the SEC rule follows. Members wishing to obtain the complete version of the Commission's Release No. 34-27160, File No. S7-3-89 should contact the Commission.

      TEXT OF SEC RULE 15c2-6

      CHAPTER II, TITLE 17 OF THE CODE OF FEDERAL REGULATIONS

      Part 240 - General Rules and Regulations, Securities Exchange Act of 1934

      1. The authority citation for Part 240 is amended by adding the following citation:
      Authority: Sec. 23, 48 Stat. 901, as amended (15 U.S.C. 78w) . . . Section 240.15c2-6, also issued under sees. 3, 10, and 15, 15 U.S.C. 78c, 78j, and 78o;
      2. By adding Section 240.15c2-6 as follows:
      Section 240.15c2-6 Sales practice requirements for certain low-priced securities.
      (a) As a means reasonably designed to prevent fraudulent, deceptive, or manipulative acts or practices, it shall be unlawful for a broker or dealer to sell a designated security to, or to effect the purchase of a designated security by, any person unless:
      (1) The transaction is exempt under paragraph (c) of this section: or
      (2) Prior to the transaction:
      (i) The broker or dealer has approved the person's account for transactions in Designated Securities in accordance with the procedures set forth in paragraph (b) of this section; and
      (ii) The broker or dealer has received from the person a written agreement to the transaction setting forth the identity and quantity of the designated security to be purchased.
      (b) In order to approve a person's account for transactions in Designated Securities, the broker or dealer must:
      (1) Obtain from the person information concerning the person's financial situation, investment experience, and investment objectives;
      (2) Reasonably determine, based on the information required by paragraph (b)(l) of this section and any other information known by the broker-dealer, that transactions in Designated Securities are suitable for the person, and that the person (or the person's independent adviser in these transactions) has sufficient knowledge and experience in financial matters that the person (or the person's independent adviser in these transactions) reasonably may be expected to be capable of evaluating the risks of transactions in Designated Securities;
      (3) Deliver to the person a written statement:
      (i) Setting forth the basis on which the broker or dealer made the determination required by paragraph (b)(2) of this section;
      (ii) Stating in a highlighted format that it is unlawful for the broker or dealer to effect a transaction in a designated security subject to the provisions of paragraph (a)(2) of this section unless the broker or dealer has received, prior to the transaction, a written agreement to the transaction from the person; and
      (iii) Stating in a highlighted format immediately preceding the customer signature line that:
      (A) The broker or dealer is required by this section to provide the person with the written statement; and
      (B) The person should not sign and return the written statement to the broker or dealer if it does not accurately reflect the person's financial situation, investment experience, and investment objectives; and
      (4) Obtain from the person a manually signed and dated copy of the written statement required by paragraph (b)(3) of this section.
      (c) For the purposes of this section, the following shall be exempt transactions —
      (1) Transactions in which the price of the Designated Security is five dollars or more; provided, however, that if the Designated Security is a unit composed of one or more securities, the unit price divided by the number of components of the unit other than warrants, options, rights, or similar securities, must be five dollars or more, and any component of the unit that is a warrant, option, right, or similar securities, or a convertible security must have an exercise price or conversion price of five dollars or more.
      (2) Transactions in which the purchaser is an accredited investor or an established customer of the broker or dealer.
      (3) Transactions that are not recommended by the broker or dealer.
      (4) Transactions by a broker or dealer:
      (i) Whose commissions, commission equivalents, and mark-ups from transactions in Designated Securities during each of the immediately preceding three months, and during eleven or more of the preceding twelve months, did not exceed five percent of its total commissions, commission-equivalents, and mark-ups from transactions in Securities during those months; and
      (ii) Who has not been a market maker in the Designated Security that is the subject of the transaction in the immediately preceding twelve months.
      (5) Any transaction or transactions that, upon prior written request or upon its own motion, the Commission conditionally or unconditionally exempts as not encompassed within the purposes of this section.
      (d) For the purpose of this section —
      (1) The term "accredited investor" shall have the same meaning as in 17 CFR 230.501(a)
      (2) The term "designated security" shall mean any equity security other than a security:
      (i) Registered, or approved for registration upon notice of issuance, on a national securities exchange that makes transaction reports available pursuant to 17 CFR Part 11Aa3-l;
      (ii) Authorized, or approved for authorization upon notice of issuance, for quotation in the NASDAQ system;
      (iii) Issued by an investment company registered under the Investment Company Act of 1940;
      (iv) That is a put option or call option issued by The Options Clearing Corporation; or
      (v) Whose issuer has net tangible assets in excess of $2,000,000, as demonstrated by financial statements dated less than fifteen months previously that the broker or dealer has reviewed and has a reasonable basis to believe are true and complete in relation to the date of the transaction with the person, and
      (A) In the event the issuer is other than a foreign private issuer, are the most recent financial statements for the issuer that have been audited and reported on by an independent public accountant in accordance with the provisions of 17 CFR 210.2-02; or
      (B) In the event the issuer is a foreign private issuer, are the most recent financial statements for the issuer that have been filed with the Commission; furnished to the Commission pursuant to 17 CFR 240.12g3-2(b); or prepared in accordance with generally accepted accounting principles in the country of incorporation, audited in compliance with the requirements of that jurisdiction, and reported on by an accountant duly registered and in good standing in accordance with the regulations of that jurisdiction.
      (3) The term "established customer" shall mean any person for whom the broker or dealer, or a clearing broker on behalf of such broker or dealer, carries an account, and who in such account:
      (i) Has effected a securities transaction, or made a deposit of funds or securities, more than one year previously; or
      (ii) Has made three purchases of designated securities that occurred on separate days and involved different issuers.

      1If a designated security is a unit comprised of one or more securities, the unit price divided by the components, exclusive of warrants, options, rights, or similar securities, must be $5 or more. So, for example, a unit selling for S10 comprised of 100 shares of common stock and 100 warrants would have an equivalent price of 10 cents ($10 unit divided by 100 shares common) and thus is a designated security subject to the rule.

      2Market makers, however, regardless of the percentage of sales-related revenue, are fully subject to the rule for transactions in those designated securities in which they make a market.


    • 89-64 SEC Approval of Rule of Fair Practice Amendment Re: The Conduct of Accounts Engaged in Uncovered Short Option Transactions

      SUGGESTED ROUTING*

      Senior Management
      Legal & Compliance
      Options

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

      EXECUTIVE SUMMARY

      The Securities and Exchange Commission recently approved amendments to Appendix E to Article III, Section 33, of the NASD Rules of Fair Practice. These amendments will require members to develop and maintain written procedures for the approval, review, and supervision of customer accounts engaged in uncovered short option transactions. The revised rules also require members to distribute to customers a risk disclosure document concerning uncovered option writing. Members must be in compliance with these rule changes no later than March 1, 1990.

      BACKGROUND AND SUMMARY

      The amendments to Appendix E of the NASD Rules of Fair Practice conform to rule changes also made by the American Stock Exchange, the Chicago Board Options Exchange, the Midwest Stock Exchange, the new York Stock Exchange, the Pacific Stock Exchange, and the Philadelphia Stock Exchange (the "exchanges"). The NASD and the exchanges (the "SROs") have prepared the attached notice containing guidelines for compliance with the new rules for uncovered short option accounts.

      The rule changes were promulgated by the SROs in consultation with industry representatives. The NASD supports these rule changes as a means of assuring that member firms that have public customers engaged in uncovered short option transactions focus increased attention on the suitability of such transactions for their customers and monitor activity in customer accounts on an ongoing basis.

      In this regard, amendments to Section 16 of Appendix E will require firms to develop, implement, and maintain specific written procedures for the conduct of accounts engaged in short uncovered options transactions. Such procedures must include account approval, Senior Registered Options Principal (SROP) and/or Compliance Registered Options Principal (CROP) approval of exceptions to standards established by the member, minimum net equity requirements for such accounts, and delivery of a special disclosure statement to customers intended to increase awareness of the risks entailed in uncovered short option transactions.

      Section 20 of Appendix E also has been amended. It will require that members develop and implement specific written procedures about supervision of customer accounts, maintaining un-covered short option positions, including specific standards for frequent supervisory review of such accounts.

      Questions concerning this notice can be directed to P. William Hotchkiss, Director, Surveillance, at (202) 728-8235.

      AMENDMENTS TO APPENDIX E TO ARTICLE III, SECTION 33 OF THE NASD RULES OF FAIR PRACTICE.

      (Note: New language is underlined.)

      Appendix E

      Sec. 2

      (y) Uncovered — The term "uncovered" in respect of a short position in an option contract means the short position is not covered. For purposes of Section 16 (Opening of Accounts), Section 20 (Supervision of Accounts) and Section 11 (delivery of Current Disclosure Document(s)), the term "writing uncovered short option positions" shall include combinations and any other transactions which involve uncovered writing.

      Sec. 16

      Opening of Accounts

      * * * *

      (e) Uncovered Short Option Contracts — Each member transacting business with the public in writing uncovered short option contracts shall develop, implement and maintain specific written procedures governing the conduct of such business which shall include, at least, the following:
      1. Specific criteria and standards to be used in evaluating the suitability of a customer for writing uncovered short option transactions;
      2. Specific procedures for approval of accounts engaged in writing uncovered short option contracts, including written approval of such accounts by a Registered Options Principal;
      3. Designation of the Senior Registered Options Principal and/or Compliance Registered Options Principal as the person responsible for approved customer accounts that do not meet the specific criteria and standards for writing uncovered short option transactions and for maintaining written records of the reasons for every account so approved;
      4. Establishment of specific minimum net equity requirements for initial approval and maintenance of customer accounts writing uncovered short option transactions; and
      5. Requirements that customers approved for writing uncovered short option transactions be provided with a special statement for uncovered option writers approved by the Association that describes the risks inherent in writing uncovered short option transactions, at or prior to the initial writing of an uncovered short option transaction.

      * * * *

      Sec. 20

      Supervision of Accounts

      (a) Duty to Supervise: Senior Registered Options Principal. Every member shall develop and implement a written program providing for the diligent supervision of all of its customer accounts, and all orders in such accounts, to the extent such accounts and orders relate to options contracts, by a general partner (in the case of a partnership) or officer (in the case of a corporation) of the member who is a Registered Options Principal and who has been specifically identified to the Corporation as the member's Senior Registered Options Principal. A Senior Registered Options Principal, in meeting his responsibilities for supervision of customer accounts and orders, may delegate to qualified employees (including other Registered Options Principals) responsibility and authority of supervision and control of each branch office handling transactions in option contracts, provided that the Senior Registered Options Principal shall have overall authority and responsibility for establishing appropriate procedures of supervision and control over such employees. Every such member shall also develop and implement specific written procedures concerning the manner of supervision of customer accounts maintaining uncovered short option positions and specifically providing for frequent supervisory review of such accounts.

    • For Your Information

      For Your Information

      National Association of Securities Dealers, Inc.

      September 1989

      District 12 Sponsors September Seminar in New York

      NASD District 12 will sponsor its third annual educational seminar September 26 at the Vista International Hotel in New York City. Directed toward management and financial/operational personnel of NASD members, the seminar will feature more than 30 speakers on topics such as supervision, arbitration, state regulatory issues, and advertising.

      The luncheon speaker will be Hardwick Simmons, chairman of the Securities Industry Association and vice chairman of Shearson Lehman Hutton Inc. Other notable speakers include Joseph Hardiman, president, NASD; Theodore Focht, president and general counsel, Securities Investors Protection Corp.; Lawrence Iason, regional administrator, Securities and Exchange Commission; and Mark Hanson, assistant U.S. attorney, Southern District of New York.

      Throughout the day, NASD staff will offer demonstrations and answer questions on such services as the NASDAQ Workstation, ACT, ACES, PORTAL, OTC Bulletin Board, and enhanced OCT.

      The seminar fee is $175, which includes the program, reference materials, luncheon, and refreshments. Space is limited, so register early. For more information on the seminar or to register, contact Rosalie Tardi, District 12, at (212) 858-4178.

      Texas Reduces Agent and Broker Registration and Renewal Fees

      Effective September 1, 1989, the Texas Securities Commission reduced all registration and renewal fees by $110. The new fees are:

      Agent Registration — $30
      Agent Renewal Fee — $15

      Broker-Dealer Registration — $70
      Broker-Dealer Renewal — $35

      If you have any questions regarding this change, please contact NASD Information Services at (301) 590-6500.

      Series 7 Site Change in Atlanta for October

      The October 21, 1989, Series 7 examination in Atlanta will be held at Ramada Inn Northeast, 1-85 and Shallowford Road, 2960 N.E. Expressway, Atlanta, Georgia.

    • 89-63 NASDAQ National Market Additions, Changes, and Deletions as of August 11, 1989

      SUGGESTED ROUTING*

      Internal Audit
      Operations
      Systems
      Trading

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

      As of August 11, 1989, the following 28 issues joined the NASDAQ National Market, bringing the total number of issues in the NASDAQ National Market to 2,766:

      Symbol

      Company

      Entry Date

      SOES Execution Level

      CCAR

      CCAIR, Inc.

      7/13/89

      1000

      PFBK

      Pioneer Federal Savings Bank

      7/18/89

      500

      CELL

      Cell Technology, Inc.

      7/18/89

      1000

      CELLW

      Cell Technology, Inc. (Wts)

      7/18/89

      1000

      PWRR

      Providence and Worchester Railroad Company

      7/20/89

      200

      CGNX

      Cognex Corporation

      7/20/89

      1000

      GIDL

      Giddings & Lewis, Inc.

      7/21/89

      1000

      BISH

      Bishop Incorporated

      7/21/89

      500

      LECH

      Lechters, Inc.

      7/21/89

      1000

      VREOS

      Vanguard Real Estate Fund I, A Sales Commission-Free Income Properties Fund

      7/24/89

      200

      GZEA

      GZA GeoEnvironmental Technologies, Inc.

      7/27/89

      1000

      PMBS

      Prime Bancshares, Inc.

      7/27/89

      1000

      EGLE

      Eagle Food Centers, Inc.

      7/28/89

      1000

      MDCO

      Marine Drilling Company

      7/28/89

      1000

      NNCXF

      Newbridge Networks Corporation

      7/28/89

      1000

      AKLMD

      Acclaim Entertainment, Inc.

      8/1/89

      1000

      AKLMZ

      Acclaim Entertainment, Inc. (Cl B Wts)

      8/1/89

      1000

      BEII

      BEI Electronics, Inc.

      8/1/89

      1000

      CRRS

      Crown Resources Corporation

      8/1/89

      1000

      GENIP

      Genetics Institute, Inc. (Pfd)

      8/1/89

      200

      TTOR

      Transtector Systems, Inc.

      8/2/89

      1000

      CGNEP

      Calgene, Inc. (Pfd)

      8/3/89

      500

      VKSI

      Vikonics, Inc.

      8/3/89

      1000

      ASFN

      Allstate Financial Corporation

      8/8/89

      1000

      TIBI

      Image Bank, Inc. (The

      8/10/89

      200

      PFSIP

      Pioneer Financial Services, Inc. (Pfd)

      8/10/89

      500

      HEBC

      Heritage Bankcorp, Inc

      8/11/89

      500

      SHKRF

      SHL Systemhouse, Inc. (Rts)

      8/11/89

      1000

      NASDAQ National Market Pending Additions

      The following issues have filed for inclusion in the NASDAQ National Market upon effectiveness of their registration statements with the SEC or other appropriate regulatory authority. Their inclusion may commence prior to the next regularly scheduled phase-in date.

      Symbol

      Company

      Location

      SOES Execution Level

      BZMT

      BizMart, Inc.

      Arlington, TX

      1000

      BVSI

      Brite Voice Systems, Inc.

      Wichita, KS

      1000

      NIIS

      New Image Industries, Inc.

      Canoga Park, CA

      200

      NASDAQ National Market Symbol and/or Name Changes

      The following changes to the list of NASDAQ National Market securities occurred since July 15, 1989.

      New/Old Symbol

      New/Old Security

      Date of Change

      MAAR/MAAR

      MarCor Resorts, Inc./MarCor Development Company, Inc.

      7/17/89

      SPKR/SPBD

      Spinnaker Software Corporation/Springboard Software, Inc.

      7/20/89

      FFSW/FFSW

      Financial Services Corp./First Federal Savings & Loan Association of Wooster

      7/24/89

      VCELA/VCEL

      Vanguard Cellular Systems, Inc. (Cl A)/Vanguard Cellular Systems, Inc.

      7/24/89

      DEFI/DEFI

      Defiance, Inc./Defiance Precision Products, Inc.

      7/28/89

      BVFS/BVFS

      Bay View Capital Corporation/Bay View Federal Savings & Loan Association

      8/1/89

      GNBC/ATBC

      Glendale Bancorporation/Atlantic Bancorporation

      8/1/89

      MOTOZ/MOTOZ

      Moto Photo, Inc. (11/25/90 Wts)/Moto Photo, Inc. (11/25/89 Wts)

      8/1/89

      PBNB/PBNB

      People's Savings Financial Corporation/People's Savings Bank of New Britain (The)

      8/1/89

      FCIT/CSBF

      First Citizens Financial Corporation/Citizens Savings

      8/3/89

      BPILF/BBAHF

      Basic Petroleum International Limited/Basic Resources International (Bahamas) Ltd

      8/7/89

      LPLI/LPLI

      LPL Technologies, Inc. (Cl A)/LPL Investment Group, Inc. (Cl A)

      8/9/89

      NASDAQ National Market Deletions

      Symbol

      Security

      Date

      EDGC

      Edgcomb Corporation

      7/12/89

      WAXM

      Waxman Industries, Inc.

      7/12/89

      MHCI

      Maione Companies, Inc.

      7/17/89

      ACTM

      Actmedia, Inc.

      7/20/89

      USEC

      Universal Security Instruments, Inc.

      7/25/89

      BECHY

      Beecham Group plc

      7/27/89

      DOMNQ

      Domain Technology, Incorporated

      7/27/89

      HIGBC

      J. Higby's, Inc.

      7/27/89

      ANDO

      Andover Controls Corporation

      7/28/89

      CHLI

      Chili's, Inc.

      7/28/89

      IMMCW

      International Mobile Machines Corporation (8/5/89 Wts)

      7/31/89

      BTCIE

      Brown Transport Company, Inc.

      8/1/89

      PNCR

      Pancretec, Inc.

      8/1/89

      PRMEE

      Prime Capital Corporation

      8/1/89

      SMNI

      Satellite Music Network, Inc.

      8/1/89

      CSTK

      Comstock Group, Inc.

      8/3/89

      SLTG

      Sterner Lighting Systems Incorporated

      8/7/89

      TOPTW

      Tele-Optics, Inc. (Wts)

      8/7/89

      LMACE

      Landmark American Corporation

      8/8/89

      QMAXE

      Qmax Technology Group, Inc.

      8/8/89

      DIFD

      Diversified Foods, Inc.

      8/9/89

      FRMBF

      Forum Re Group (Bermuda) Ltd.

      8/9/89

      MTEC

      Machine Technology, Inc.

      8/9/89

      RUDY

      Rudy's Restaurant Group, Inc.

      8/9/89

      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, NASD Market Surveillance, at (301) 590-6429.

    • 89-62 Columbus Day Trade Date-Settlement Date Schedule

      SUGGESTED ROUTING*

      Internal Audit
      Legal & Compliance
      Municipal
      Operations
      Syndicate
      Systems
      Trading

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

      The schedule of trade dates-settlement dates below reflects the observance by the financial community of Columbus Day, Monday, October 9, 1989. 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

      Reg. T Date*

      September 28

      October 5

      October 9

      29

      6

      10

      October 2

      10

      11

      3

      11

      12

      4

      12

      13

      5

      13

      16

      6

      16

      17

      9

      16

      18

      10

      17

      19

      Note: October 9, 1989, is considered a business day for receiving customers' payments under Regulation T of the Federal Reserve Board.

      Transactions made on Monday, October 9, will be combined with transactions made on the previous business day, October 6, for settlement on October 16. Securities will not be quoted ex-dividend, and settlements, marks to the market, reclamations, and buy-ins and sell-outs, as provided in the Uniform Practice Code, will not be made and/or exercised on October 9.

      These settlement dates should be used by brokers, dealers, and municipal securities dealers to clear and settle transactions pursuant to the NASD 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) 858-4341.


      *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 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."


    • 89-61 NASDAQ National Market Additions, Changes, and Deletions as of July 12, 1989

      SUGGESTED ROUTING*

      Internal Audit
      Operations
      Systems
      Trading

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

      As of July 12, 1989, the following 16 issues joined the NASDAQ National Market, bringing the total number of issues in the NASDAQ National Market to 2,761:

      Symbol

      Company

      Entry Date

      SOES Execution Level

      BGENP

      Biogen, Inc. (Pfd)

      6/20/89

      500

      CDCC

      ChemDesign Corporation

      6/20/89

      1000

      CABL

      Communication Cable, Inc.

      6/20/89

      1000

      FRME

      First Merchants Corporation

      6/20/89

      500

      FLAI

      Fleet Aerospace, Inc.

      6/20/89

      500

      POPX

      POP Radio Corporation

      6/20/89

      1000

      YESS

      Yankee Energy System, Inc.

      6/21/89

      1000

      REXL

      Rexhall Industries, Inc.

      6/22/89

      200

      SYMC

      Symantec Corporation

      6/23/89

      200

      SNTC

      Synetic, Inc.

      6/28/89

      200

      HAND

      Handex Environmental Recovery, Inc.

      6/29/89

      1000

      FFRV

      Fidelity Federal Savings Bank

      7/5/89

      200

      GARN

      Garnet Resources Corporation

      7/5/89

      1000

      SAVO

      Schultz Sav-0 Stores, Inc.

      7/5/89

      1000

      CRHCY

      CRH, public limited company

      7/10/89

      200

      TOCRZ

      Tocor, Inc.

      7/11/89

      500

      NASDAQ National Market Pending Additions

      The following issues have filed for inclusion in the NASDAQ National Market upon effectiveness of their registration statements with the SEC or other appropriate regulatory authority. Their inclusion may commence prior to the next regularly scheduled phase-in date.

      Symbol

      Company

      Location

      SOES Execution Level

      CCAR

      CCAIR, Inc.

      Charlotte, NC

      1000

      CGNX

      Cognex Corporation

      Needham, MA

      1000

      GIDL

      Giddings & Lewis, Inc.

      Fond du Lac, WI

      1000

      MDCO

      Marine Drilling Company

      Corpus Christi, TX

      1000

      NNCXF

      Newbridge Networks Corporation

      Kanata, Ontario, Canada

      1000

      PFBK

      Pioneer Federal Savings Bank

      Lynwood, WA

      500

      VRAX

      Verax Corporation

      Lebanon, NH

      500

      NASDAQ National Market Symbol and/or Name Changes

      The following changes to the list of NASDAQ National Market securities have occurred since June 13, 1989.

      New/Old Symbol

      New/Old Security

      Date of Change

      FLGF/FSAM

      Flagship Financial Corporation/First American Savings, F.A.

      6/16/89

      WDST/MPRO

      Wordstar International, Inc./MicroPro International, Inc.

      6/22/89

      GTWY/GTWY

      Gateway Financial Corporation/Gateway Bank

      7/3/89

      TRBK/DFED

      Trustbank Savings, FSB/Dominion Federal Savings & Loan Association

      7/3/89

      CMETS/CCSTS

      Continental Mortgage and Equity Trust/Consolidated Capital Special Trust

      7/5/89

      NIRTS/CCITS

      National Income Realty Trust/Consolidated Capital Income Trust

      7/5/89

      VIPTS/CCPLS

      Vinland Property Trust/Consolidated Capital Realty Investors

      7/5/89

      NHTB/LSSB

      New Hampshire Thrift Bancshares, Inc./Lake Sunapee Savings Bank, FSB

      7/7/89

      NASDAQ National Market Deletions

      Symbol

      Security

      Date

      SSSL

      Sun State Savings and Loan Association

      6/14/89

      TJCK

      Timberjack Corporation

      6/14/89

      STKR

      Stocker and Yale, Inc.

      6/15/89

      BNDY

      Brandywine Savings and Loan Association

      6/16/89

      CTEC

      Component Technology Corporation

      6/19/89

      CRITA

      Criterion Group, Inc. (Cl A)

      6/19/89

      HARYE

      Harvard Group, PLC

      6/19/89

      LOLS

      Land of Lincoln Savings & Loan

      6/19/89

      VLABW

      Vipont Pharmaceutical, Inc. (6/25/89 Wts)

      6/19/89

      EXLN

      Excelan, Inc.

      6/21/89

      PICI

      Polymer International Corp.

      6/21/89

      ACIXQ

      American Carriers, Inc.

      6/22/89

      CURYE

      Bombay Palace Restaurants, Inc.

      6/22/89

      PTRAS

      Property Trust of America

      6/27/89

      SCHCP

      R. P. Scherer Corporation (Pfd)

      6/27/89

      XOVR

      Exovir, Inc.

      6/28/89

      KRUE

      W. A. Krueger Co.

      6/28/89

      BRRYA

      Berry Petroleum Company (Cl A)

      6/29/89

      SUPE

      Superior Electric Company

      6/29/89

      BRIX

      BRIntec Corporation

      6/30/89

      EGLA

      Eagle Telephonics, Inc

      6/30/89

      MBSX

      MBS Textbook Exchange, Inc.

      6/30/89

      STAAE

      Staar Surgical Company

      6/30/89

      TFTY

      Thrifty Rent-A-Car System, Inc.

      6/30/89

      CHMXZ

      Chemex Pharmaceuticals, Inc. (5/20/90 Wts)

      7/3/89

      CCMC

      Commonwealth Mortgage Company, Inc.

      7/3/89

      HIMGP

      Health Images, Inc. (Ser A Pfd)

      7/3/89

      PGEN

      Plant Genetics, Inc.

      7/3/89

      SFIN

      Southland Financial Corporation

      7/3/89

      AIMAZ

      American Insured Mortgage Investors

      7/7/89

      AIMAZ

      Integrated Resources American Insured Mortgage Investors-85

      7/7/89

      GCER

      General Ceramics, Inc.

      7/10/89

      MABS

      Monoclonal Antibodies, Inc.

      7/11/89

      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, NASD Market Surveillance, at (301) 590-6429.

    • 89-60 Labor Day Trade Date-Settlement Date Schedule

      SUGGESTED ROUTING*

      Internal Audit
      Legal & Compliance
      Municipal
      Operations
      Syndicate
      Systems
      Trading

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

      Securities markets and the NASDAQ System will be closed on Monday, September 4, 1989, in observance of Labor Day. "Regular way" transactions made on the business days noted below will be subject to the following schedule:

      Trade Date

      Settlement Date

      Reg. T Date*

      August 25

      September 1

      September 6

      28

      5

      7

      29

      6

      8

      30

      7

      12

      31

      8

      12

      September 1

      11

      13

      4

      Markets Closed

      5

      12

      14

      These settlement dates should be used by brokers, dealers, and municipal securities dealers to clear and settle transactions pursuant to the NASD 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) 858-4341.


      *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 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."


    • 89-59 Report on Group of Thirty Recommendations Regarding Clearance and Settlement and Request for Comments

      SUGGESTED ROUTING*

      Senior Management
      Corporate Finance
      Institutional
      Systems
      Trading

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

      EXECUTIVE SUMMARY

      In a report titled "Clearance and Settlement Systems in the World's Securities Markets," a private-sector group published nine recommendations proposing standards for clearance and settlement of corporate securities to reduce risk and maximize efficiency. Targeted for implementation by 1990 or 1992, the report's nine recommendations address both risk and efficiency. Briefly, the authors suggest containing risk by shortening the time between trade date and settlement, promoting trade guarantees, and assuring the simultaneous exchange of payment and securities. To promote efficiency, they recommend eliminating the physical movement of certificates, encouraging the use of netting systems where appropriate, and standardizing communications methods and settlement schedules.

      At a recent meeting of the heads of the various U.S. securities and options markets, the Group of Thirty recommendations were a major agenda item. In light of differing views on the merits of the Group's recommendations, particularly as they relate to individual investors, a determination was made that the proposals should be circulated to members for comment. Since virtually all firms that do a public business are NASD members, the NASD was asked to undertake this task.

      BACKGROUND

      The Group of Thirty includes high-level international businesspeople, bankers, and others concerned with the workings of the international financial system. The Group met in London to discuss the state of clearance and settlement practices in the principal securities markets of the world as well as the plans of countries for making those practices more compatible. Their conclusion was that while the development of a single global clearing facility was not practical, agreement on a set of practices and standards that could be embraced by the markets that, in essence, constitute the world's securities system was highly desirable. The group found the need for such an agreement especially compelling because present standards of clearance and settlement are not acceptable. They are inefficient and generate undue costs, overt and hidden, and undue risks for participants.

      According to the report, the risk and inefficiency associated with the system are apparent in the following areas:

      • The current process lacks compatible trade-comparison systems for both domestic and international trades.
      • Different settlement periods exist for different markets and range from same-day settlement to several weeks.
      • The lack of delivery versus payment (DVP) leaves one party to a transaction unduly exposed.
      • Standardized trade guarantees are not available.
      • Many markets have not developed book-entry processing for settlement of securities transactions.

      Listed below are the specific recommendations. Most of the recommendations would not affect the U.S. since effective clearance and settlement systems exist. However, Recommendations 6 and 7, relating to payment in same-day funds and shrinking the settlement cycle to T+3, would have a significant impact on U.S. broker-dealers. In addition, Recommendation 9 would require introduction of a new numbering standard.

      SPECIFIC RECOMMENDATIONS

      Recommendation 1: By 1990, all comparisons of trades between direct market participants (i.e., brokers, broker-dealers, and other exchange members) should be accomplished by T+l.

      The lack of timely, efficient, and disciplined matching systems creates significant risk for participants in the securities processing cycle. The report recommends that comparison (or trade matching) should occur no later than trade date plus 1 (T+l) and that all markets should accomplish this T+l matching goal by 1990.

      This T+l standard gives both sides to a trade a chance to correct any discrepancies or conflicts while reducing risk in the settlement system and helping to ensure timely settlement. To achieve this standard will require an automated system that can report trade detail to counterparties, match trades, resolve trade errors, and "lock in" matching trades.

      Present plans are for both the NASD and the NYSE to share systems in operation that meet this goal.

      Recommendation 2: Indirect market participants (such as institutional investors or any trading counterparties that are not broker-dealers) should, by 1992, be members of a trade comparison system that achieves positive affirmation of trade details.

      Affirmation systems exist for institutional investors that are unwilling or unable to participate in a risk-sharing arrangement, such as that found in a two-sided comparison system. In the former system, the institution (and its agent bank) receives a list of trades to which it is a counterparty. The institution then must affirm or question the trades within a preset time frame.

      These systems link indirect members to a central clearing system or securities depository. The most efficient systems are highly automated and provide participants with on-line, real-time access to information, such as clearing and settlement data (to manage positions) and accounts (to manage cash).

      The identification system operated by the Depository Trust Company (DTC) provides U.S. conformance with this goal.

      Recommendation 3: Each country should have an effective and fully developed central securities depository organized and managed to encourage the broadest possible industry participation (directly and indirectly) in place by 1992.

      A central securities depository's (CSD) main function is to immobilize stock certificates to facilitate "book entry" processing of securities transactions. With the book-entry method in place, securities can be transferred from one account to another by a simple debit or credit on the books of the CSD. The CSD can include the capability for trade clearance, safe custody, and settlement/postsettlement processing of securities and information, such as corporate actions and dividend/interest processing. In addition, it may include a payments system that could credit or debit the cash account of the member financial institution at the same time it processes the securities side of the transaction. The DTC fulfills this function for the United States.

      Recommendation 4: Each country should study its market volumes and participation to determine whether a trade netting system would be beneficial in terms of reducing risk and promoting efficiency. If a netting system would be appropriate, it should be implemented by 1992.

      Trade-netting systems work best in high-volume markets. Three basic options exist for netting transactions. These are bilateral netting with all trades in the same security between the same counterparties netting to one final delivery versus payment; multilateral netting with all trades in the same security netting to a final long or short position for each participant; and continuous net settlement with all trades in a particular security plus failed trades continuously netting to a final long or short position and the clearing corporation standing in as the counterparty to the trade.

      The National Securities Clearing Corporation (NSCC) currently operates a continuous net settlement system that meets this objective.

      Recommendation 5: Delivery versus payment (DVP) should be employed as the method for settling all securities transactions. A DVP system should be in place by 1992.

      Simultaneous exchange of value is important to eliminate the risks of price change and failure to perform according to contract. DVP effectively removes any exposure resulting from delivery delay by a counterparty. Although CSDs are useful, DVP can be accomplished through linkage to a final payment system, a system of bank guarantees, or a clearance or depository agency's financial guarantees. The NSCC and DTC do provide DVP settlement.

      Recommendation 6: Payments associated with the settlement of securities transactions and the servicing of securities portfolios should be made consistent across all instruments and markets by adopting the " same day" funds convention.

      Same-day funds refers to the availability of funds on the same day as they are deposited. Adoption of this convention should help increase the efficiency of the accounting and payment systems. As noted above, this is not the current practice in the United States.

      Recommendation 7: A "rolling settlement" system should be adopted by all markets. Final settlement should occur on T+3 by 1992. As an interim target, final settlement should occur on T+5 by 1990 at the latest, except where it hinders the achievement of T+3 by 1992.

      In a rolling settlement environment, trades settle on all business days of the week. This process limits the number of outstanding trades, thereby reducing market exposure. The primary objective of this proposal is to reduce the delay between trade date and settlement date. The secondary objective is to standardize settlement time frames throughout international markets.

      T+3 settlement would require that the NSCC change its settlement cycle from T+5.

      Recommendation 8: Securities lending and borrowing should be encouraged as a method of expediting the settlement of securities transactions. Existing regulatory and taxation barriers that inhibit the practice of lending securities should be removed by 1990.

      In many countries, restrictions and taxation apply that make it impossible or excessively expensive for market participants to lend or borrow securities to achieve timely settlement of transactions. These impediments to the lending and borrowing of securities should be removed in order to allow the maximum possible number of transactions to settle in the recommended time frame.

      Securities lending and borrowing is common practice in this country.

      Recommendation 9: Each country should adopt the standard for securities messages developed by the International Organization of Standardization [ISO Standard 7775]. In particular, countries should adopt the ISIN numbering system for securities issues as defined in the ISO Standard 6166, at least for cross-border transactions. These standards should be universally applied by 1992.

      No worldwide securities numbering system exists. Many countries with highly developed securities businesses identify issues by code numbers, but these numbers have little significance outside the country concerned. Securities of the same issue are identified by different numbers in different countries where they may be physically held and/or booked. As a result, the national numbers are not satisfactory for cross-border transactions. The rapid expansion of the international securities business has created an urgent need for a universally applicable international securities identification number (ISIN).

      Various standards for numbering securities exist today, including CUSIP, SEDOL, and others. For trade information to be communicated in a consistent format and handled by computers, a single numbering standard and message system would be ideal. Such a system is provided by the international ISO Standards 6166 and 7775. The ISIN consists of a country code, a security's domestic code number, and a check digit to validate the code.

      This would require some change but should be feasible if applied only to cross-border transactions.

      REQUEST FOR COMMENTS

      Member comments on the Group of Thirty recommendations are earnestly solicited to guide us in our discussions on these recommendations. They should be directed to Mr. Lynn Nellius, Secretary, National Association of Securities Dealers, Inc., 1735 K Street, NW, Washington, DC 20006. All comments received will be shared with other interested U.S. markets

    • 89-58 Amendment Re: Predispute Arbitration Clauses in Customer Agreements

      SUGGESTED ROUTING*

      Senior Management
      Legal & Compliance
      Operations
      Training

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

      EXECUTIVE SUMMARY

      In conjunction with its approval of various amendments to the NASD Code of Arbitration Procedure, the Securities and Exchange Commission recently approved an amendment to Article III, Section 21, of the NASD Rules of Fair Practice. The amendment will require each member using a predispute arbitration clause in a customer agreement after September 7, 1989, to highlight that clause and to include similarly highlighted disclosures concerning the nature of arbitration and the waiver of the customer's right to litigate disputes arising under the agreement.

      The amendment also prohibits the use in any agreement of any language that limits or contradicts the arbitration rules of any self-regulatory organization, limits the ability of a party to file a claim in arbitration, or limits the ability of the arbitrators to make an award under the arbitration rules of a self-regulatory organization and applicable law. The text of the proposed amendment follows this notice.

      BACKGROUND AND ANALYSIS

      In keeping with its support for the continued improvement of securities industry arbitration as a fair, expeditious, and economical means for the resolution of disputes, the NASD, responding to suggestions of the Securities and Exchange Commission and others seeking more explicit disclosure of the existence and meaning of predispute arbitration clauses in customer agreements, filed with the SEC following approval by membership vote an amendment to Article III, Section 21, of the NASD Rules of Fair Practice.

      On May 10, 1989, the SEC approved the NASD's proposed amendment to Article III, Section 21, set forth in NASD Notice to Members 89-21 (March 1989). The amendment applies to any member using a predispute arbitration clause in new agreements signed by an existing or new customer after September 7, 1989, the effective date of the amendment. The amendment will require each member using a predispute arbitration clause in a customer agreement to highlight that clause and to include similarly highlighted disclosures concerning the nature of arbitration and the waiver of the customer's right to litigate disputes arising under the agreement. The amendment also will prohibit the use in any agreement of any language that limits or contradicts the arbitration rules of any self-regulatory organization, limits the ability of a party to file a claim in arbitration, or limits the ability of arbitrators to make an award under the arbitration rules of a self-regulatory organization and applicable law.

      Questions concerning this notice may be directed to Norman Sue Jr., Assistant General Counsel, NASD Office of General Counsel, at (202)728-8117.

      PROPOSED AMENDMENT TO ARTICLE III, SECTION 21, OF THE NASD RULES OF FAIR PRACTICE

      (Note: New language is underlined.)

      Books and Records

      Sec. 21. Requirements When Using Predispute Arbitration Agreements With Customers

      (f)
      (l) Any predispute arbitration clause shall be highlighted and shall be immediately preceded by the following disclosure language (printed in outline form as set forth herein) which shall also be highlighted:
      (i) Arbitration is final and binding on the parties.
      (ii) The parties are waiving their right to seek remedies in court, including the right to jury trial.
      (iii) Pre-arbitration discovery is generally more limited than and different from court proceedings.
      (iv) The arbitrators' award is not required to include factual findings or legal reasoning and any party's right to appeal or to seek modification of rulings by the arbitrators is strictly limited.
      (v) The panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities industry.
      (2) Immediately preceding the signature line, there shall be a statement which shall be highlighted that the agreement contains a predispute arbitration clause. The statement shall also indicate at what page and paragraph the arbitration clause is located.
      (3) A copy of the agreement containing any such clause shall be given to the customer who shall acknowledge receipt thereof on the agreement or on a separate document.
      (4) No agreement shall include any condition which limits or contradicts the rules of any self-regulatory organization or limits the ability of a party to file any claim in arbitration or limits the ability of the arbitrators to make any award.
      (5) The requirements of this subsection (f) shall apply only to new agreements signed by an existing or new customer of a member after September 7, 1989.

    • 89-57 SEC Approval of By-Law and Rule of Fair Practice Amendments on Providing Terminated Employees With Form U-5 and Obtaining Prior Form U-5 for Potential Employees — Effective September 1, 1989

      SUGGESTED ROUTING*

      Senior Management
      Legal & Compliance
      Registration
      Training

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

      EXECUTIVE SUMMARY

      The Securities and Exchange Commission recently approved amendments to Article IV, Section 3, of the NASD By-Laws and Article III, Section 27, of the Rules of Fair Practice. These amendments require NASD members to provide a copy of the Form U-5 to persons who terminate or are terminated by the member. Members will be required to provide the Form U-5 concurrently with the filing of the Form U-5 with the NASD. In addition, each NASD member will be required to use its best efforts to obtain the most recent Form U-5 from any person seeking employment in a registered capacity.

      BACKGROUND AND SUMMARY

      The amendment to Article IV, Section 3, of the By-Laws will require that a member submitting to the NASD a Uniform Termination Notice of Securities Industry Registration (Form U-5), pursuant to Article IV, Section 3, of the NASD By-Laws, should also provide a copy to the employee who has been terminated. As in the past, the member is required to exercise good faith and to disclose the circumstances of the termination in a manner reasonably designed to inform the NASD and future employers of these circumstances. The NASD believes that the policy of providing broader access to the information on the Form U-5 requires that terminated persons be given the Form U-5 so they can verify the accuracy and completeness of the representations in the form. The terminated individual then can express any disagreement with the Form U-5 to his or her subsequent NASD member employer. In addition, the amendments codify the requirement that an amendment to the Form U-5 be filed if later-discovered information causes any statements in the form to be inaccurate or incomplete.

      The amendment to Article III, Section 27, of the Rules of Fair Practice will require NASD members that employ persons previously registered with another NASD member to obtain a copy of the Form U-5 (and any amendments thereto) filed by the person's most recent employer. Article III, Section 27(e), requires that "each member shall have the responsibility and duty to ascertain by investigation the good character, business repute, qualifications and experience of any person prior to making such a certification in the application of such person for registration with this Association." The NASD believes that, by making the U-5 Form available in this manner, members will be better able to meet their obligation under this section of the Rules of Fair Practice to adequately investigate the background of potential employees.

      The NASD believes that the circumstances of a termination, as disclosed on the Form U-5, may well be relevant to the hiring decision and that this information should be readily available to any NASD member for that purpose. This information is particularly pertinent in the situation where the person was terminated for cause or where affirmative answers have been provided to Items 13-15 of the Form U-5 regarding possible rule violations during the period of employment. As part of the hiring process, members should be allowed to compare the Form U-5 with any statements made by the potential employee regarding the termination. The amendments will establish the requirement to obtain the Form U-5, set forth timeliness standards for compliance, and provide for obtaining the Form U-5 through the NASD Firm Access Query System (FAQS) for FAQS subscribers or from the prospective employee for firms that do not subscribe to FAQS.

      Questions concerning this notice may be directed to Craig L. Landauer, Senior Attorney, NASD Office of General Counsel, at (202) 728-8291.

      AMENDMENT TO ARTICLE IV, SECTION 3, OF THE NASD BY-LAWS

      (Note: New language is underlined.)

      Registered Representatives and Associated Persons

      Notification by Member to Corporation and Associated Person of Termination; Amendments to Notification.

      Sec. 3(a). 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, and concurrently shall provide to the person whose association has been terminated a copy of said notice as filed with the Association. A member who does not submit such notification in writing, and provide a copy thereof to the person whose association has been terminated, within the time period prescribed shall be assessed a late filing fee as specified by the Board of Governors. Termination of registration of such person associated with a member shall not take effect 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 of person associated with such member is in process. The Corporation, however, may in its discretion declare the termination effective at any time.

      (b) The member shall notify the Association in writing by means of an amendment to the notice filed pursuant to paragraph (a) above in the event that the member learns of facts or circumstances causing any information set forth in said notice to become inaccurate or incomplete. Such amendment shall be filed with the Association and provided to the person whose association with the member has been terminated not later than thirty (30) calendar days after the member learns of the facts or circumstances giving rise to the amendment.

      AMENDMENT TO ARTICLE III, SECTION 27, OF THE RULES OF FAIR PRACTICE

      (Note: New language is underlined.)

      Supervision

      Qualifications investigated, (e) Each member shall have the responsibility and duty to ascertain by investigation the good character, business repute, qualifications and experience of any person prior to making such a certification in the application of such person for registration with this Association. Where an applicant for registration has previously been registered with the Association, the member shall obtain from the Firm Access Query System (FAQS) or from the applicant a copy of the Uniform Termination Notice of Securities Industry Registration ("Form U-5") filed with the Association by such person's most recent previous NASD member employer, together with any amendments thereto that may have been filed pursuant to Article IV, Section 3 of the Association's By-Laws. The member shall obtain the Form U-5 as required by this section no later than sixty (60) days following the filing of the application for registration or demonstrate to the Association that it has made reasonable efforts to comply with the requirement. A member receiving a Form U-5 pursuant to this section shall review the Form U-5 and any amendments thereto and shall take such action as may be deemed appropriate.

      Applicant's Responsibility, (f) Any applicant for registration who receives a request for a copy of his or her Form U-5 from a member pursuant to this section shall provide such copy to the member within two (2) business days of the request if the Form U-5 has been provided to such person by his or her former employer. If a former employer has failed to provide the Form U-5 to the applicant for registration, such person shall promptly request the Form U-5, and shall provide it to the requesting member within two (2) business days of receipt thereof. The applicant shall promptly provide any subsequent amendments to a Form U-5 he or she receives to the requesting member.

      (Current subsection (f) is renumbered as (g).)

    • 89-56 Proposed Amendments To Nasd Uniform Practice Code Re: Mandatory Buy-In for Short Sales; Last Date for Comments: September 1, 1989

      SUGGESTED ROUTING*

      Senior Management
      Corporate Finance
      Legal & Compliance
      Operations
      Trading

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

      REQUEST FOR COMMENTS

      EXECUTIVE SUMMARY

      The NASD requests comments on proposed amendments to Section 59 of the NASD Uniform Practice Code regarding buying in. The proposed amendments would impose a mandatory buy-in for guaranteed delivery 10 days after normal settlement date in connection with a short sale in certain NASDAQ securities. The rule would apply to short sales for the accounts of customers and the proprietary accounts of registered broker-dealers in securities that have a clearing short position of 10,000 shares or more that is equal to at least one half of one percent of the total shares outstanding. Short sales as a result of bona fide market-making activity and short sales in which the resulting position is fully hedged or arbitraged would be exempt from the rule.

      BACKGROUND

      A mandatory buy-in rule was first suggested in the 1986 Report on Short Sale Regulation of NASDAQ Securities. The report included the following recommendation:

      A mandatory buy-in requirement for guaranteed delivery should be adopted. The fail-to-deliver/fail-to-receive problem has the potential for causing serious difficulties in a lengthy bear market. While the evidence does not suggest that delivery problems exist in many securities, the fact that there is no automatic mechanism preventing the substantial buildup of short positions at the clearing corporation and of fails to receive in brokerage firms carries the potential for serious problems, particularly in the event of crisis market conditions, such as existed in the late 1960s. A mandatory buy-in requirement would force short sellers to borrow and deliver or cover; and a requirement for guaranteed delivery would prevent short sellers from again selling short to the brokers executing the buy-in.

      The NASD Board of Governors deferred action on this recommendation until it had an opportunity to assess the effect that other recommendations — set forth in the report and implemented by the Association — had on abusive short-selling practices. In July 1988, the Quality of Markets Committee submitted its final report to the NASD Board. That Committee also examined short selling in NASDAQ and again recommended that "... the NASD formulate the necessary rules to require a mandatory buy-in for the account of the short-selling party if it fails to deliver after a short period of time." The Trading Committee took this recommendation under consideration and formed, along with the Uniform Practice Committee, a mandatory buy-in subcommittee to study the issue further. The subcommittee's efforts culminated in the Board's determination to request comment on the proposed rule amendment.

      PROPOSED AMENDMENTS

      The mandatory buy-in requirement is aimed primarily at curbing "naked" or abusive short selling in NASDAQ securities. The mandatory buy-in rale is designed to specifically address "problem situations," e.g., where shorts to clearing equal a significant percentage of a company's total shares outstanding. The rule has been drafted so as to identify securities whose short positions at the clearing corporation represent a significant percentage of the issues' total shares outstanding. These securities could be placed on a "restricted list," meaning that any subsequent short sale would be subject to a mandatory buy-in after a specified period of time.

      The mandatory buy-in rule would apply to NASDAQ securities only. As proposed, the rule would impose a mandatory buy-in for guaranteed delivery in connection with short sales if a fail-to-deliver exists 10 days after the normal settlement date. The rale would apply to short sales in securities that have a clearing short position of 10,000 shares or more that is equal to at least one half of one percent of the total shares outstanding. According to NASD staff research, application of this parameter as of March 7, 1989, would have resulted in a total of 91 NASDAQ securities being covered by the rule.

      The buy-in requirement would be applicable to short sales for the accounts of customers and the proprietary accounts of registered broker-dealers. Short sales as a result of bona fide market-making activity and short sales in which the resulting position is fully hedged or arbitraged would be exempt from the rule.

      The buy-in requirement will be triggered 10 business days after normal settlement date. This is consistent with the approach taken in SEC Rule 15c3-3, which requires a broker-dealer to close a transaction with a customer by purchasing securities of like kind and quantity when a fail-to-deliver exists 10 business days after settlement date in a customer long sale.

      As drafted, the mandatory buy-in requirement would be added to Section 59 of the Code as a new subsection. The new subsection (o) would be mandatory and would incorporate by reference the provisions of Section 59 otherwise available on a discretionary basis.

      The NASD encourages all members and 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, NW, Washington, DC 20006.

      Questions concerning this notice can be directed to Ms. Therese M. Haberle, Special Counsel, at (202) 728-8287.

      Comments must be received no later than September 1, 1989. Changes to the Uniform Practice Code must be approved by the Board of Governors and filed with, and approved by, the SEC before becoming effective.

      PROPOSED AMENDMENT TO THE UNIFORM PRACTICE CODE

      (Note: New text is underlined.)

      UNIFORM PRACTICE CODE

      Sec. 59. Close-Out Procedure; Buying-in ((a) through (n) are unchanged.)

      Mandatory Buy-in for Short Sales

      (o)(i) A contract involving a short sale in NASDAQ securities described below, for the account of a customer or for a member's own account, which has not resulted in delivery by the seller within 10 business days of the normal settlement date, must be closed by the buyer for guaranteed delivery in accordance with the procedures set forth in this Section.
      (o)(ii) This requirement shall apply to NASDAQ securities, as published from time to time by the Association, which have clearing short positions of 10,000 shares or more that are equal to at least one-half (1/2) of one percent of the issue's total shares outstanding.
      (o)(iii) This mandatory buy-in requirement shall not apply to bona fide market making transactions that result in fully hedged or arbitraged positions.

    • 89-55 Proposed Amendments to the NASD Uniform Practice Code Re: Clearly Erroneous Trades; and Proposed Amendments to Article IX of the NASD Code of Procedure Re: Non-NASDAQ Grievances; Last Date for Comments: September 1, 1989

      SUGGESTED ROUTING*

      Senior Management
      Legal & Compliance
      Operations
      Trading

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

      REQUEST FOR COMMENTS

      EXECUTIVE SUMMARY

      The NASD requests comments on proposed amendments to the NASD Uniform Practice Code regarding "clearly erroneous trades" and on an amendment to Article IX of the NASD Code of Procedure to include certain non-NASDAQ grievances. The proposed amendments to the NASD Uniform Practice Code would (1) enable the Association to declare clearly erroneous trades null and void and (2) establish procedures for such determinations and appeals of such determinations. The proposed amendment to Article IX of the NASD Code of Procedure would expand its applicability from grievances involving only NASDAQ operations to grievances involving the operations of NASDAQ and of any other automated quotation, execution, or communication system owned or operated by the Corporation or one of its subsidiaries registered with the SEC.

      BACKGROUND

      NASD rules now are silent on the subject of clearly erroneous trades. In situations where a trade is obviously in error, the matter must be resolved by the members involved. The Association currently lacks the authority to declare such trades null and void, even though the erroneous quotation, execution, or report of such trade may be detrimental to the fair and orderly functioning of the market.

      The proposed amendments reflect the NASD's observations that:

      • The Association should have the capability, as do exchange floor governors, to resolve disputes involving obvious errors in an expeditious manner;
      • Such capability would be beneficial to the membership in that it would provide an efficient mechanism for the disposition of disputes; and
      • Any such capability should provide for Board of Governors review.

      In its consideration of these issues, the NASD has also noted that the Code of Procedure does not provide procedures for the resolution of grievances arising out of systems other than NASDAQ operated by the Association.

      PROPOSED AMENDMENTS

      As a result of these observations, the Board of Governors, the Trading Committee and the Uniform Practice Committee have discussed possible amendments to the Uniform Practice Code to address these concerns. These discussions have resulted in a proposal to amend the Uniform Practice Code to add a new section, Section 70.

      Proposed Section 70 of the Uniform Practice Code would initially provide the Association the authority to declare a transaction null and void on the grounds that one or more terms of the transaction is clearly erroneous in cases where it "deems it necessary to maintain a fair and orderly market, and to protect investors and the public interest." The authority would extend to any transactions arising out of the use or operation of any automated quotation, execution, or communication system owned or operated by the Corporation or its subsidiaries that is approved by the SEC. The section is therefore intended to apply to transactions occurring not only in NASDAQ but also involving other systems such as the Order Confirmation Transaction (OCT) system.

      The amendments set forth the procedures for declaring a transaction void. These procedures have been formulated to make them as expeditious as possible. A member may initiate the procedure orally (with written confirmation) on the same business day the transaction occurs by contacting a designated officer of the Corporation and requesting that a transaction be declared null and void. The initiating member, as well as all other members involved in the transaction, would be obligated to provide the Association such information as may be requested.

      Under the procedures, the designated officer may determine that the transaction is "clearly erroneous and detrimental to the maintenance of a fair and orderly market and the protection of investors and the public interest" and may declare the transaction null and void. The officer may also decline to act if he or she believes that action is unnecessary or inappropriate. That may occur, for example, if the error is such that, although obvious, it has no bearing on the functioning of the market or would otherwise appear more appropriately resolved by other channels such as arbitration.

      The procedures would require a written determination, although in most cases it is anticipated that oral notice of the determination will be given. The determination would then be appealable to the SOES Review Committee, provided the appeal was made within four market hours of notice of the determination. The SOES Review Committee, which was established by the Board in 1988, is proposed to be the appellate body in this instance because it is a committee that meets regularly and on short notice. The SOES Review Committee would be required to act within two business days of the determination. Under the procedures, it would consider the matter on the record or after a hearing, if it so ordered. Its determination would constitute final action by the Association and would be appealable to the Securities and Exchange Commission under the Securities Exchange Act of 1934.

      Finally, in connection with its consideration of issues involving clearly erroneous trades, the Board noted that Article IX of the Code of Procedure is limited to grievances involving the NASDAQ System and its operations. The Code does not provide separate procedures for grievances involving other systems whose implementation has postdated the adoption of Article IX. The Board is proposing that Article IX be amended to expand its scope to cover redress for grievances arising out of the operation of "any automated quotation, execution, or communication system owned or operated by the Corporation or subsidiary thereof registered with the SEC," the grievances of which are not otherwise addressed by the Code of Procedure.

      The Board of Governors believes that the proposed amendments to the Uniform Practice Code will enhance the integrity of the market and be beneficial to members and that the amendment to the Code of Procedure is necessary to provide a mechanism for redress of grievances that arise from systems other than NASDAQ.

      The NASD encourages all members and 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, NW, Washington, DC 20006.

      Questions concerning this notice can be directed to Ms. Therese M. Haberle, Special Counsel, at (202) 728-8287.

      Comments must be received no later than September 1, 1989. Changes to the Uniform Practice Code and Code of Procedure must be approved by the Board of Governors and filed with, and approved by, the SEC before becoming effective.

      PROPOSED AMENDMENT TO THE UNIFORM PRACTICE CODE

      (Note: New text is underlined.)

      UNIFORM PRACTICE CODE

      Clearly Erroneous Trades

      Sec. 70.

      Authority to Declare Transaction Void

      (a)
      (1) In circumstances in which the Association deems it necessary to maintain a fair and orderly market, and to protect investors and the public interest, the Association may, pursuant to the procedures set forth in paragraph (b), declare any transaction arising out of the use or operation of any automated quotation, execution, or communication system owned or operated by the Corporation or any subsidiary thereof approved by the Securities and Exchange Commission, null and void on the grounds that one or more of the terms of the transaction are clearly erroneous.
      (2) For the purposes of this section, the terms of a transaction are clearly erroneous when there is an obvious error in any term, such as price, number of shares or other unit of trading, or identification of the security.
      Procedures for Declaring a Transaction Void
      (b)
      (1) Any member or person associated with a member that seeks to have a transaction declared null and void pursuant to paragraph (a) shall notify an officer of the Corporation designated by the President of the transaction during NASDAQ operating hours on the same business day the transaction occurs, and shall provide such official all facts and information necessary for a determination under paragraph (a). Information communicated orally shall be confirmed promptly in writing. Each member and/or person associated with a member involved in the transaction shall provide the Association with any information requested by the Association in order to resolve the matter on a timely basis.
      (2) An officer of the Corporation designated by the President shall review the information submitted and determine whether the transaction in dispute is clearly erroneous and detrimental to the maintenance of a fair and orderly market and the protection of investors and the public interest and may declare that the transaction be null and void. The official may decline to act upon a disputed transaction if he or she believes that action is unnecessary or inappropriate. The Association shall issue a written determination of the matter, setting forth the actions taken and the reasons therefore.
      (3) A member or person associated with a member may appeal the determination under sub-paragraph (2) to the Board SOES Review Committee provided such appeal is made within four market hours of notification of such determination. For the purposes of this section, "market" hours shall mean those hours the NASDAQ market is open in the United States, Eastern Time. Upon consideration of the record, and after such hearings as it may order, the SQES Review Committee shall affirm, modify, reverse, dismiss, or remand the determination under subparagraph (2). The SOES Review Committee shall set forth specific grounds upon which its determination is based. The determination of the SOES Review Committee shall be issued within two business days of the determination under subparagraph (2). In any case where a person feels aggrieved by any decision of the SOES Review Committee taken pursuant to subparagraph (3), the person may make application for review to the Securities and Exchange Commission in accordance with the Securities Exchange Act of 1934, as amended.
      (4) The decision of the SOES Review Committee shall be final and binding upon any member or person associated with a member and shall constitute final Association action on the matter in issue.

      PROPOSED AMENDMENT TO THE CODE OF PROCEDURE

      (Note: New text is underlined, deleted text is in brackets.)

      NASD Code of Procedure Article IX

      Procedures on Grievances Concerning [the NASDAQ] Automated Systems

      Purpose

      Sec. 1. The purpose of this Article is to provide, where justified, redress for persons aggrieved by the [operations of the NASDAQ system] operation of any automated quotation, execution, or communication system owned or operated by the Corporation, or any subsidiary thereof registered with the Securities and Exchange Commission, not otherwise provided for by this Code, and to provide procedures for the handling of qualification matters pursuant to NASDAQ rules.

    • 89-54 Correction to Notice to Members 89-48 — All Non-NASDAQ OTC Securities Are Subject to Price and Volume Reporting Effective August 1, 1989

      SUGGESTED ROUTING*

      Senior Management
      Internal Audit
      Legal & Compliance
      Operations
      Systems
      Trading

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

      The correct effective date for the requirement for daily price and volume reporting on all non-NASDAQ OTC equity securities is August 1, 1989. The cover page on the recently mailed NASD Notices to Members and the headline on Notice to Members 89-48 erroneously gave the wrong effective date. The complete notice appears below.

      EXECUTIVE SUMMARY

      Effective August 1, 1989, the requirement to report daily price and volume in non-NASDAQ OTC equity securities (NNOTC) pursuant to Schedule H to the NASD's By-Laws is extended to the entire universe of non-NASDAQ issues. This expands the group of securities subject to the electronic reporting requirement from the list of 5,700 National Securities Clearing Corporation cleared NNOTC securities that was established on September 1, 1988 to approximately 47,000 securities.

      BACKGROUND

      Notice to Members 88-54 announced the adoption of Schedule H to the NASD By-Laws, requiring the reporting of price and volume in non-NASDAQ over-the-counter equity securities.Specifically, all members executing principal transactions in NNOTC equity securities must electronically report if their aggregate daily volume of purchases or sales exceeds either a minimum of 50,000 shares or $10,000. Members that are NASDAQ subscribers must use their NASDAQ/ Harris terminals, NASDAQ Workstations, or authorized foreign terminal emulations to report, while other firms must use the NASD's Automated Regulatory Reporting System (ARRS) to meet the electronic reporting mandate of Schedule H.

      Schedule H is being implemented in two phases. Phase I, which began September 1, 1988, and is still in effect, requires the reporting of price and volume for the group of securities that were being cleared through the National Securities Clearing Corporation (NSCC) at the time Schedule H became effective.

      PHASE II IMPLEMENTATION

      The second and final implementation phase of Schedule H reporting becomes effective August 1, 1989. In Phase II, all NNOTC equity securities are subject to daily price and volume reporting pursuant to the requirements of Schedule H. Refer to the text of Schedule H and Notice to Members 88-54, herein incorporated, for more details as to the requirements and mechanics of NNOTC daily price and volume reporting.

      It should be emphasized that all non-NASDAQ equity securities are now subject to the requirements of Schedule H, including foreign securities and preferreds.

      Symbols for all NNOTC securities can be obtained through the automated symbol directory located on NASDAQ Level 2 and 3 terminals using the XDN.O command. For those firms using the NASD's ARRS system, symbols are available in a look-up table. Consult the NNOTC User Guide for help in use of either the NASDAQ or ARRS reporting vehicles.

      For a security that meets the minimum threshold reporting criteria under Schedule H but for which you cannot locate a symbol in the automated directory, call Dottie Kennedy at (212) 858-4340 to obtain symbol information. Members are not relieved of this reporting requirement because of the apparent absence of a symbol in the directory. Similarly, for issue name changes, symbol conflicts, or any matter related to symbols, contact Ms. Kennedy.

      For copies of the User Guide, assistance in reporting, or to ask any general questions, call the NNOTC hotline at (800) 321-NASD.

      ENFORCEMENT ACTIONS

      The price and volume reporting requirements under Schedule H were adopted to enhance the NASD's regulatory capabilities to routinely surveil for trading abuses in the NNOTC market. In this regard, an automated surveillance system has been implemented, thereby creating a centralized data base of price and transactions information that is subject to computerized analysis to detect violative practices and abuses such as manipulation, fraudulent pricing and markups, and other serious sales/trading practices.

      Recently, the NASD has taken a number of enforcement actions as part of its increased efforts to eliminate fraud in the NNOTC securities market. In addition to carrying out its own investigations, the NASD routinely cooperates with other self-regulatory organizations, the SEC, and governmental law enforcement agencies. Several of these cooperative efforts have resulted in filing criminal charges relating to securities fraud. The NASD intends to continue cooperating with federal and state authorities as part of its efforts to vigorously enforce the securities law, particularly with regard to fraud and other serious sales practice abuses.

    • For Your Information (July)

      For Your Information

      National Association of Securities Dealers, Inc.

      July 1989

      Nebraska Begins Participation in CRD Phase II Program

      Effective July 1, 1989, the State of Nebraska began participation in CRD Phase II, receipt and review of broker-dealer filings. Nebraska will continue to collect the initial Form BD as well as the fee associated with a request for BD registration in the state. Questions regarding Nebraska's filing requirements should be directed to the State Securities Commission at (402) 471-3445.

      Series 7 Test Site Changed Temporarily in Atlanta, Permanently in Phoenix and Portland Series 7 Test Site — Atlanta

      The July 15, 1989, and August 19, 1989, Series 7 exam in Atlanta will be held at:

      Sheraton Century Hotel
      2000 Century Boulevard
      Atlanta, GA.

      Permanent Site Changes

      The Series 7 test site in Phoenix has been permanently relocated to:

      Phoenix College
      Public Service Building
      11th Ave. & Flower
      Phoenix, AZ.

      The Portland Series 7 test site is now located at:

      University of Portland
      5000 North Willamette Blvd.
      Engineering Building, Room 216
      Portland, OR.

      Nevada Imposes Agent Transfer Fee; North Dakota Boosts Fees

      Effective June 1, 1989, the Nevada Securities Commission imposed an agent transfer fee in the amount of $50.

      Effective July 1, 1989, the North Dakota Securities Commission increased all agent and broker-dealer fees. As of that date, the fees for initial registration, transfer, and renewal of agents became $35. The fees for broker-dealer registration and renewal rose to $175.

      If you have any questions regarding these changes, please contact NASD Information Services at (301) 590-6500.

    • 89-53 NASDAQ National Market Additions, Changes, and Deletions as of June 14, 1989

      SUGGESTED ROUTING*

      Internal Audit
      Operations
      Systems
      Trading

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

      As of June 14, 1989, the following 18 issues joined the NASDAQ National Market, bringing the total number of issues in the NASDAQ National Market to 2,778:

      Symbol

      Company

      Entry Date

      SOES Execution Level

      JLMC

      James Madison Limited

      5/16/89

      200

      KYMDA

      Kentucky Medical Insurance Company (CRA)

      5/16/89

      1000

      CMPX

      Comptronix Corporation

      5/18/89

      1000

      UTOG

      Unitog Company

      5/18/89

      1000

      TCMRV

      Tele-Communications, Inc. (Rts)(WI)

      5/26/89

      1000

      UAEAV

      United Artists Entertainment Company (Cl A) (WI)

      5/26/89

      1000

      UAEBV

      United Artists Entertainment Company (Cl B) (WI)

      5/26/89

      1000

      UNRIW

      UNR Industries Inc. (5/31/95 Wts)

      6/5/89

      1000

      ALBC

      Alameda Bancorporation

      6/6/89

      200

      AFFFZ

      America First Financial Fund 1987 - A Limited Partnership

      6/6/89

      500

      BIGO

      Big O Tires, Inc.

      6/6/89

      1000

      CSIM

      Consilium, Inc.

      6/6/89

      1000

      DFII

      Duty Free International, Inc.

      6/6/89

      1000

      FOOT

      Foothill Independent Bancorp

      6/6/89

      200

      NCEL

      Nationwide Cellular Service, Inc.

      6/6/89

      1000

      NCELW

      Nationwide Cellular Service, Inc. (5/4/92 Wts)

      6/6/89

      1000

      CRUS

      Cirrus Logic, Inc.

      6/9/89

      1000

      COKR

      Cooker Restaurant Corporation

      6/13/89

      1000

      NASDAQ National Market Pending Additions

      The following issues have filed for inclusion in the NASDAQ National Market on effectiveness of their registration statements with the SEC or other appropriate regulatory authority. Their inclusion may commence prior to the next regularly scheduled phase-in date.

      Symbol

      Company

      Location

      SOES Execution Level

      BGENP

      Biogen, Inc. (Pfd)

      Cambridge, MA

      500

      PMBS

      Prime Bancshares, Inc.

      Decatur, GA

      1000

      SYMC

      Symantec Corporation

      Cupertino, CA

      200

      YESS

      Yankee Energy System, Inc.

      Rocky Hill, CT

      1000

      NASDAQ National Market Symbol and/or Name Changes

      The following changes to the list of NASDAQ National Market securities occurred since May 15, 1989.

      New/Old Symbol

      New/Old Security

      Date of Change

      CFIXW/CFIXW

      Chemfix Technologies, Inc. (12/15/89 Wts)/Chemfix Technologies, Inc. (6/15/89 Wts)

      5/16/89

      SHBS/BLII

      ShareBase Corporation/Britton Lee, Inc.

      5/16/89

      DETA/TVLA

      Del Taco Restaurants, Inc./Taco Villa, Inc.

      5/26/89

      PATL/PNRE

      Pan Atlantic, Inc./Pan Atlantic Re, Inc.

      5/26/89

      CNBA/CSBA

      County Bank, F.S.B./CountySavings Bank

      6/1/89

      UNSL/UNSL

      UNSL Financial Corporation/ United Savings and Loan Association

      6/6/89

      MESA/MESL

      Mesa Airlines, Inc./Mesa Airlines, Inc.

      6/13/89

      CLRXW/CLRXW

      Colorocs Corporation (Cl C)(8/18/89 Wts)/ Colorocs Corporation (Cl C) (6/30/89 Wts)

      6/14/89

      NASDAQ National Market Deletions

      Symbol

      Security

      Date

      MAYF

      Mayfair Industries, Inc.

      5/15/89

      CAKE

      Charlotte Charles, Inc.

      5/16/89

      GSFB

      Great Southern Federal Savings Bank

      5/16/89

      APCI

      Apollo Computer, Inc.

      5/19/89

      KEMC

      Kemper Corporation

      5/23/89

      NUCOZ

      Nucorp, Inc. (10/31/89 Matched Wts)

      5/23/89

      ASCI

      Associated Companies, Inc.

      5/24/89

      VITR

      Vitronics Corporation

      5/24/89

      AMCCQ

      American Continental Corporation

      5/25/89

      BRIK

      Brinkmann Instruments, Inc.

      5/25/89

      DESTQ

      DEST Corporation

      5/25/89

      TCFC

      TCF Financial Corporation

      5/26/89

      UACI

      United Artists Communications, Inc.

      5/26/89

      SALN

      Sahlen & Associates, Inc.

      5/30/89

      UFURF

      Universal Furniture, Ltd.

      5/30/89

      CHMXW

      Chemex Pharmaceuticals, Inc.(6/16/89 Wts)

      5/31/89

      CVSNF

      Conversion Industries, Inc.

      5/31/89

      ROWE

      Rowe Furniture Corporation

      5/31/89

      CADX

      Cadnetix Corporation

      6/1/89

      CLZR

      Candella Laser Corporation

      6/2/89

      DTOMC

      DeTomaso Industries, Inc.

      6/2/89

      EMSIF

      EMS Systems, Inc.

      6/2/89

      ENVR

      Envirodyne Industries, Inc.

      6/2/89

      KENSE

      Kenilworth Systems Corporation

      6/2/89

      MRGXQ

      Margaux, Inc.

      6/2/89

      NWVI

      New Visions Entertainment Corporation

      6/2/89

      NWVIP

      New Visions Entertainment Corporation (Pfd)

      6/2/89

      OCGT

      OCG Technology, Inc.

      6/2/89

      SSIX

      Scribe Systems, Inc.

      6/2/89

      UBSCQ

      United Building Services Corporation

      6/2/89

      USAC

      United States Antimony Corporation

      6/2/89

      VFOX

      Vicon Fiber Optics Corp.

      6/2/89

      NCCO

      Enseco Incorporated

      6/5/89

      NBSFC

      National Business Systems, Inc.

      6/7/89

      TSYS

      Total System Services, Inc.

      6/7/89

      STOT

      Stotler Group, Inc.

      6/9/89

      LUNDW

      Lund Enterprises, Inc. (Wts)

      6/12/89

      BOFR

      Bank of Redlands

      6/12/89

      NETX

      Network Equipment Technologies, Inc.

      6/12/89

      RWPI

      Ridgewood Properties, Inc.

      6/12/89

      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, NASD Market Surveillance, at (301) 590-6429.

    • 89-52 SEC Approval of Amendment to Schedule C of By-Laws to Establish Waiting Periods Between Attempts to Pass Qualification Examinations — Effective July 17, 1989

      SUGGESTED ROUTING*

      Legal & Compliance
      Registration
      Training

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

      EXECUTIVE SUMMARY

      The Securities and Exchange Commission recently approved an amendment to Schedule C of the By-Laws that establishes waiting periods between attempts to pass qualification examinations.

      BACKGROUND AND SUMMARY

      In response to certain recommendations of the NASD Regulatory Review Task Force, the Qualifications Committee of the NASD Board of Governors has reviewed the NASD qualification system to consider additional means to maintain an appropriate level of knowledge and professionalism for persons associated with NASD members. This review not only addressed the adequacy of existing NASD qualifications standards, but also considered issues relating to the need to provide the investing public that registered persons remain knowledgeable about products and services available to investors, as well as applicable rules, regulations, and policies governing the investment banking and securities business.

      The Securities and Exchange Commission has approved an amendment to Part VI of Schedule C to the NASD By-Laws to establish waiting periods between attempts to pass NASD qualification examinations. Waiting periods were in effect in the NASD qualification program until 1979 and now are used in connection with the qualification examinations of the Municipal Securities Rulemaking Board (MSRB). The extensive automation of the registration and qualification process has made it possible for applicants to make multiple attempts to pass examinations in rapid succession, often within very brief periods.

      The NASD believes this practice promotes "test learning" rather than a proper understanding of the substantive material covered in the various qualification examinations. The waiting periods are intended to encourage a more professional approach to the examination process and to training applicants, as well as to protect the integrity of the qualification examinations.

      In the interest of uniformity, the waiting periods, except for the Series 7 examination, are the same as those prescribed by the MSRB — 30 days between the first and second attempts, 30 days between the second and third attempts, and six months after the third and all subsequent attempts. For the Series 7 examination, the waiting period is based on the monthly administration of that examination.

      Questions concerning this notice can be directed to Craig L. Landauer, Senior Attorney, Office of General Counsel, at (202) 728-8291.

      AMENDMENT TO PART VI, SCHEDULE C OF THE NASD BY-LAWS

      (Note: New text is underlined; deleted text is in brackets.)

      VI

      QUALIFICATION OF EXAMINATIONS AND WAIVER OF REQUIREMENTS

      (6) Any person associated with a member who fails to pass a qualification examination prescribed by the Corporation shall be permitted to take the examination again after either a period of 30 calendar days has elapsed from the date of the prior examination or the next administration of an examination administered on a monthly basis, except that any person who fails to pass an examination three or more times in succession shall be prohibited from again taking such examination either until a period of 180 calendar days has elapsed from the date of such person's last attempt to pass the examination or until the sixth subsequent administration of an examination administered on a monthly basis.

    • 89-51 Proposed Amendments to Article III, Section 26, of the NASD Rules of Fair Practice Re: Cash and Noncash Concessions in Connection with the Retail Sale of Investment-Company Securities — Last Date for Comments: August 4, 1989

      SUGGESTED ROUTING*

      Internal Audit
      Legal & Compliance
      Mutual Fund
      Operations
      Training

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

      EXECUTIVE SUMMARY

      The NASD requests comments on proposed amendments to subsections (b)(7) — Definitions — and (I) — Dealer Concessions— of Article III, Section 26 of the Rules of Fair Practice. The proposed amendments would revise and simplify the current rule governing dealer concessions paid to members that retail investment-company shares. It would also add a requirement that members keep detailed records of noncash concessions received and paid to their associated persons.

      BACKGROUND

      Subsection (1), Article III, Section 26 of the NASD Rules of Fair Practice requires disclosure in the prospectus of an investment company of items of material value, cash and noncash, that members will receive from the underwriters for the retail sale of investment company securities. Descriptions of items that are and are not considered to be of material value are also included in the rule.

      The rule also requires that underwriters pay concessions, cash and noncash, to members and not directly to associated persons of members.

      When underwriters offer cash and noncash concessions to all members that retail their securities on a uniform basis, a general description of such compensation is permitted in prospectuses. When "special deals" or "special arrangements" are made with individual members that are not made available to all retailing members, the details of the arrangements and the names of the members must be included in the prospectus.

      THE PROPOSED AMENDMENTS

      Purpose

      The proposed amendments aim to revise and simplify the current rule and to enhance member control over registered representatives by introducing a record-keeping requirement for noncash concessions.

      The major requirement of the current rule, prospectus disclosure of compensation, cash and noncash, is retained, as are the disclosure requirements with respect to "special deals."

      The requirement that a member must be given the opportunity to take cash in lieu of a noncash concession has been eliminated.

      Subsection (b)(7) - Definitions

      The current rule is narrowly drawn to apply to relationships between underwriters and other member firms and is headed "dealer concessions." This term was used originally to describe that portion of a front-end sales load reallowed to retail dealers by underwriters.

      Currently, with the advent of other methods of financing the cost of sales and sales promotion, utilizing sources other than front-end sales loads, the provisions of the rule need to be broadened to apply to all compensation received by members for retailing investment-company securities.

      It is proposed to achieve this by adopting the term "offeror" to broadly define any source of member income and to replace "dealer concessions" with the term "member compensation." The definitional section will also include separate definitions of "cash" and "noncash" compensation.

      Subsection (1)(1)

      This subsection is new. It will require members to keep detailed records of the amount and nature of all compensation, cash and noncash, received from offerors for the retail sale of investment-company securities and distribution of such to members' associated persons. This will enhance a member's ability to control and supervise its associated persons.

      Subsection (1)(2)

      This subsection is similar in intent to subsection (1)(2) in the current rule. It prohibits an associated person of a member firm from receiving any compensation, cash or noncash, for selling investment-company securities except from the member with which the associated person is affiliated.

      Subsection (1)(3)

      This subsection reiterates the prohibition in the current rule against member compensation in the form of securities of any kind.

      Subsection (1)(4)

      This subsection reiterates the requirements in the current rule governing disclosure in prospectuses of cash and noncash compensation.

      Subsection (1)(5)

      The current rule contains extensive descriptions of items that are and are not of material value. In the Board's opinion, it is not possible to describe all such items in a rule of general application.

      The concept of an item of material value has, therefore, been eliminated from the rule. The Board proposes that there will be only two items of compensation that will not require prospectus disclosure provided that they are not conditioned on sales or the promise of sales.

      First, the monetary limit on gifts by offerors to associated persons has been increased from $50 to $100 per person per annum. Such gifts must be approved by members but need not be recorded by the member firm.

      Second, members may accept compensation from offerors to defray the costs associated with training or educational meetings held at locations appropriate to the purpose of such meetings. Such locations would normally be the offices of offerors or members or facilities located in the vicinity of such offices. No member may realize a profit from the receipt of such compensation.

      Subsection (1)(6)

      Subsections 6(a) and 6(b) reiterate exemptive provisions in the current rule. Subsection 6(c) has been rewritten to exclude from the provisions of the rule compensation arrangements between a member firm and its own associated persons.

      The NASD encourages all members and other interested parties to comment on the proposed amendments to Article III, Section 26, of the NASD Rules of Fair Practice. Comments should be directed to:

      Mr. Lynn Nellius, Secretary
      National Association of Securities Dealers, Inc.
      1735 K Street, NW
      Washington, DC 20006

      Questions concerning this notice should be directed to A. John Taylor, Vice President, Investment Companies/Variable Contracts, at (202) 728-8328.

      PROPOSED AMENDMENTS TO ARTICLE III, SECTION 26 OF THE NASD RULES OF FAIR PRACTICE

      (Note: New text is underlined; deleted text is in brackets.)

      Definitions

      (b)(7)["Associated persons of an underwriter," as used in subsection (1) of this section, shall include an issuer for which an underwriter is the sponsor or a principal underwriter, any investment adviser to such issuer, or any affiliated person (as defined in Section 2(a)(3) of the Investment Company Act of 1940) of such underwriter, issuer or investment adviser.]

      (b)(7)The terms "offeror," "cash compensation" and "non-cash compensation" as used in subsection (1) of this section shall have the following meanings:

      "Offeror" shall mean an investment company, an adviser to an investment-company, an underwriter and persons associated with such entities and their affiliates.

      "Cash compensation" shall mean compensation received by a member in cash, by check and by electronic means.

      "Non-cash compensation" shall mean any form of compensation received by members that is not cash compensation, including but not limited to merchandise, gifts and prizes, and payment of travel expenses, meals and lodging.

      [Dealer Concessions

      (1)
      (1) No underwriter or associated person of an underwriter shall offer, pay, or arrange for the offer or payment to any other member, in connection with retail sales or distribution of investment-company securities, any discount, concession, fee or commission (hereinafter referred to as "concession") which:
      (A) is in the form of securities of any kind, including stock, warrants or options;
      (B) is in a form other than cash (e.g., merchandise or trips), unless the member earning the concession may elect to receive cash at the equivalent of no less than the underwriter's cost of providing the noncash concession; or
      (C) is not disclosed in the prospectus of the investment company. If the concessions are not uniformly paid to all dealers purchasing the same dollar amounts of securities from the underwriter, the disclosure shall include a description of the circumstances of any general variations from the standard schedule of concessions. If special compensation arrangements have been made with individual dealers, which arrangements are not generally available to all dealers, the details of the arrangements, and the identities of the dealers, shall also be disclosed.
      (2) No underwriter or associated person of an underwriter shall offer or pay any concession to an associated person of another member, but shall make such payment only to the member.
      (3)
      (A) In connection with retail sales or distribution of investment company shares, no underwriter or associated person of an underwriter shall offer or pay to any member or associated person, anything of material value, and no member or associated person shall solicit or accept anything of material value, in addition to the concessions disclosed in the prospectus.
      (B) For purposes of this paragraph (1)(3), items of material value shall include but not be limited to:
      (i) gifts amounting in value to more than $50 per person per year.
      (ii) gifts or payments of any kind which are conditioned on the sale of investment company securities.
      (iii) loans made or guaranteed by a non-controlled member or person associated with a member.
      (iv) wholesale overrides (commissions) granted to a member on its own retail sales unless the arrangement, as well as the identity of the member, is set forth in the prospectus of the investment company.
      (v) payment or reimbursement of travel expenses, including overnight lodging, in excess of $50 per person per year unless such payment or reimbursement is in connection with a business meeting, conference or seminar held by an underwriter for informational purposes relative to the fund or funds of its sponsorship and is not conditioned on sales of shares of an investment company. A meeting, conference or seminar shall not be deemed to be of a business nature unless: the person to whom payment or reimbursement is made is personally present at, or is enroute to or from, such meeting in each of the days for which payment or reimbursement is made; the person on whose behalf payment or reimbursement is made is engaged in the securities business; and the location and facilities provided are appropriate to the purpose, which would ordinarily mean the sponsor's office.
      (C) For purposes of this paragraph (1)(3), items of material value shall not include:
      (i) an occasional dinner, a ticket to a sporting event or the theatre, or comparable entertainment of one or more registered representative which is not conditioned on sales of shares of an investment company and is neither so frequent nor so extensive as to raise any question of propriety.
      (ii) a breakfast, luncheon, dinner, reception or cocktail party given for a group of registered representatives in conjunction with a bona fide business or sales meeting, whether at the headquarters of a fund or its underwriter or in some other city.
      (iii) an unconditional gift of a typical item of reminder advertising such as a ballpoint pen with the name of the advertiser inscribed, a calendar pad, or other gifts amounting in value to not more than $50 per person per year.
      (4) The provisions of this subsection (1) shall not apply to:
      (A) Contracts between principal underwriters of the same security.
      (B) Contracts between the principal underwriter of a security and the sponsor of a unit investment trust which utilizes such security as its underlying investment.
      (C) Compensation arrangements of an underwriter or sponsor with its own sales personnel.]

      Member Compensation

      (1) In connection with the retail sale and distribution of investment company securities:
      (1) A member shall maintain records of all compensation, cash and noncash, received from offerors and the distribution by the member of any such compensation to its associated persons. The records shall include the names of the offerors, the names of the associated persons and the amount and nature of the compensation received and distributed.
      (2) No associated person of a member shall accept any compensation, cash or noncash, from anyone other than the member with which the person is associated.
      (3) No member shall accept any compensation from an offeror which is in the form of securities of any kind.
      (4) Except as described in paragraph (5) of this subsection (1), no member shall accept any compensation, cash or noncash, from an offeror unless such is described in the current prospectus of the investment company. When special compensation arrangements are offered by an offeror to a member, which arrangements are not made available on the same terms to all members who distribute the investment company securities of the offeror, a member shall not enter into such arrangements unless the name of the member and the details of the arrangements are disclosed in the prospectus.
      5) Notwithstanding the provisions of subsections (2) and (4) of this section, the following items of compensation are not required to be dis closed in a prospectus provided that they are not conditioned on sales or the promise of sales:
      a) Gifts by an offeror to associated persons of members, with the approval of the member, that do not exceed $100 in value per annum, per person.
      b) Payment or reimbursement by offerors to members in connection with training or education al meetings where the location is appropriate to the purpose of such meetings, which would ordinarily mean a business location where the offeror or the member has an office.
      6) The provisions of this Section (1) shall not apply to:
      a) Compensation arrangements between principal underwriters of the same security.
      b) Compensation arrangements between the principal underwriter of a security and the sponsor of a unit investment trust which utilizes such security as its underlying investment.
      c) Compensation arrangements between a member and its own associated persons.

    • 89-50 NASD Initiates Computerized Extension Request Service for Regulation T And SEC Rule 15c3-3; New Form Required

      SUGGESTED ROUTING*

      Legal & Compliance
      Operations
      Trading

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

      EXECUTIVE SUMMARY

      The NASD has initiated an electronic filing system for use by members in submitting Regulation T/SEC Rule 15c3-3 extension requests. Subscribers to this Automated Regulatory Reporting System (ARRS) are encouraged to submit extension requests directly through their personal computers to the NASD.

      Effective September 1, 1989, all members submitting extension requests to the NASD and not utilizing the reporting system must use the new Regulation T/SEC Rule 15c3-3 Extension Request Form.

      Automated Regulatory Reporting System (ARRS) Reg T/15c3-3 Service

      NASD members should now take steps to subscribe to ARRS, which will permit firms to enter Reg T/SEC Rule 15c3-3 extension requests directly through their own personal computers. This service, which members are urged to use, is being offered as part of the Automated Regulatory Reporting System (ARRS) and can be accessed through a direct dial-up via Telenet, the GTE public network phone system. There are several advantages to this service, including:

      • Immediate and direct on-line notification of approval/modification/denial of most routine extension requests.
      • Weekly, monthly, and ad hoc management reports.

      A brochure about the ARRS system is enclosed with this month's Notices to Members. The ARRS brochure contains additional information about the service in general, its use in facilitating other regulatory reports by members, hardware specifications, and software requirements.

      If you wish to subscribe to this service, simply fill out your indication of interest on the survey portion of the ARRS brochure and return the business reply card. Instructions for accessing ARRS, along with a listing of reason codes for extension requests, are contained in a Member Firm Quick Reference Guide that will be forwarded on receipt of the business reply card.

      New Combined Regulation T/SEC Rule 15c3-3 Extension Request Form

      The NASD has created a new combined form for use in submitting extension requests pursuant to Regulation T and SEC Rule 15c3-3. Those firms not subscribing to ARRS, effective September 1, 1989, must use the new Regulation T/SEC Rule 15c3-3 Extension Request Form for all extension requests filed with the Association. The new form requires additional information including the account representative's Central Registration Depository (CRD) number, the account Social Security or tax identification number, and a reason code that describes the rationale for the extension request.

      Step-by-step instructions for completing the new Regulation T/SEC Rule 15c3-3 Extension Request Form, along with a listing of reason codes, are contained in a Member Firm Quick Reference Guide. The new form is reproduced below.

      A supply of forms and a copy of the Quick Reference Guide will be mailed to all firms currently submitting extension request forms through the NASD. Additional forms and Guides can be obtained by contacting the Automated Reports department at (800) 537-8192 or your local NASD district office.

      Questions concerning this notice may be directed to Elizabeth Wollin, Associate Director, NASD Automated Reports, at (301) 590-6887.

      REGULATION T AND SEC RULE I5C3-3 EXTENSION REQUEST FORM

    • 89-49 SEC Approval of Amendment to Schedule C of NASD By-Laws to Require Members To Submit Applications for and Maintain the Registration of Only Such Persons Who Intend to Engage or Are Engaged in the Investment Banking or Securities Business For the Member

      SUGGESTED ROUTING*

      Internal Audit
      Legal & Compliance
      Operations
      Registration

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

      EXECUTIVE SUMMARY

      The Securities and Exchange Commission has approved amendments to Parts II and III of Schedule C of the NASD By-Laws that will require a member to submit applications for and maintain the registrations of only such persons who intend to engage or are engaged in the investment banking or securities business for the member. These amendments apply to both principal and representative registration categories.

      BACKGROUND AND SUMMARY

      In response to certain recommendations of the NASD Regulatory Review Task Force, the Qualifications Committee of the NASD Board of Governors reviewed the NASD qualification system to consider additional means to maintain an appropriate level of knowledge and professionalism for persons associated with NASD members.

      This review not only addressed the adequacy of existing NASD qualifications standards, but also considered issues relating to the need to provide the investing public reasonable assurance that registered persons remain knowledgeable about products and services available to investors, as well as applicable rules, regulations, and policies governing the investment banking and securities business.

      The Securities and Exchange Commission has approved an amendment to Part II, Section (l)(a) and Part III, Section (l)(a) of Schedule C to the NASD By-Laws to require that members register only persons who are engaged or will engage in the investment banking or securities business on behalf of the member in the capacities of principal and representative.

      The amendments specifically prohibit members from maintaining registrations for persons who no longer function as principals or representatives of the firm and who no longer are active in the member's investment banking or securities business, or who wish to avoid the re-examination requirement applicable to persons who are not registered for more than two years.

      Members are also prohibited from sponsoring an application for registration where there is no intent to maintain the applicant's employment with the member after examination. The NASD believes this amendment is fully consistent with the historic intent of the qualification and registration program and that the proposed rule change is necessary to prevent such unacceptable practices as "parking" registrations and using NASD membership to gain a competitive advantage in operating a commercial training business.

      The amendments also allow a member to maintain or make application for the registration of those persons who are engaged in the investment banking securities business of a foreign securities affiliate or subsidiary.

      Questions concerning this notice should be directed to Craig L. Landauer, Senior Attorney, Office of General Counsel, at (202) 728-8291.

      AMENDMENT TO PARTS II AND III, SCHEDULE C OF THE NASD BY-LAWS

      (Note: New text is underlined; deleted text is in brackets.)

      II

      REGISTRATION OF PRINCIPALS

      (1) Registration Requirements
      (a) All Principals Must be Registered - All persons [associated with] engaged or to be engaged in the investment banking or securities business of a member who are to function as principals shall be registered as such with the Corporation in the category of registration appropriate to the function to be performed as specified in Part II, Section (2) hereof. Before their registrations can become effective, they shall pass a Qualification Examination for Principals appropriate to the category of registration as specified by the Board of Governors. A member shall not maintain a principal registration with the Corporation for any person (i) who is no longer active in the member's investment banking or securities business, (ii) who is no longer functioning as a principal, or (iii) where the sole purpose is to avoid the examination requirement prescribed in Section (l)(c) hereof. A member shall not make application for the registration of any person as principal where there is no intent to employ such person in the member's investment banking or securities business. A member may, however, maintain or make application for the registration as a principal of a person who performs legal, compliance, internal audit, or similar responsibilities for the member or a person engaged in the investment banking or securities business of a foreign securities affiliate or subsidiary of the member.

      Ill

      REGISTRATION OF REPRESENTATIVES

      (1) Registration Requirement
      (a) All Representatives Must be Registered -All persons [associated with] engaged or to be engaged in the investment banking or securities business of a member who are to function as representatives shall be registered as such with the Corporation in the category of registration appropriate to the function to be performed as specified in Part III, Section (2) hereof. Before their registrations can become effective, they shall pass a Qualification Examination for Representatives appropriate to the category of registration as specified by the Board of Governors. A member shall not maintain a representative registration with the Corporation for any person (i) who is no longer active in the member's investment banking or securities business, (ii) who is no longer functioning as a representative, or (iii) where the sole purpose is to avoid the examination requirement prescribed in Section (2)(c) hereof. A member shall not make application for the registration of any person as representative where there is no intent to employ such person in the member's investment banking or securities business. A member may, however, maintain or make application for the registration as a representative of a person who performs legal, compliance, internal audit, or similar responsibilities for the member, or a person who performs administrative support functions for registered personnel, or a person engaged in the investment banking or securities business of a foreign securities affiliate or subsidiary of the member.

    • 89-48 All Non-NASDAQ OTC Securities Are Subject To Price And Volume Reporting Effective September 1, 1989

      SUGGESTED ROUTING*

      Senior Management
      Internal Audit
      Legal & Compliance
      Operations
      Systems
      Trading

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

      EXECUTIVE SUMMARY

      Effective August 1, 1989, the requirement to report daily price and volume in non-NASDAQ OTC equity securities (NNOTC) pursuant to Schedule H to the NASD's By-Laws is extended to the entire universe of non-NASDAQ issues. This expands the group of securities subject to the electronic reporting requirement from the list of 5,700 National Securities Clearing Corporation cleared NNOTC securities that was established on September 1, 1988 to approximately 47,000 securities.

      BACKGROUND

      Notice to Members 88-54 announced the adoption of Schedule H to the NASD By-Laws, requiring the reporting of price and volume in non-NASDAQ over-the-counter equity securities. Specifically, all members executing principal transactions in NNOTC equity securities must electronically report if their aggregate daily volume of purchases or sales exceeds either a minimum of 50,000 shares or $10,000. Members that are NASDAQ subscribers must use their NASDAQ/Harris terminals, NASDAQ Workstations, or authorized foreign terminal emulations to report, while other firms must use the NASD's Automated Regulatory Reporting System (ARRS) to meet the electronic reporting mandate of Schedule H.

      Schedule H is being implemented in two phases. Phase I, which began September 1, 1988, and is still in effect, requires the reporting of price and volume for the group of securities that were being cleared through the National Securities Clearing Corporation (NSCC) at the time Schedule H became effective.

      PHASE II IMPLEMENTATION

      The second and final implementation phase of Schedule H reporting becomes effective August 1, 1989. In Phase II, all NNOTC equity securities are subject to daily price and volume reporting pursuant to the requirements of Schedule H. Refer to the text of Schedule H and Notice to Members 88-54, herein incorporated, for more details as to the requirements and mechanics of NNOTC daily price and volume reporting.

      It should be emphasized that all non-NASDAQ equity securities are now subject to the requirements of Schedule H, including foreign securities and preferreds.

      Symbols for all NNOTC securities can be obtained through the automated symbol directory located on NASDAQ Level 2 and 3 terminals using the XDN.O command. For those firms using the NASD's ARRS system, symbols are available in a look-up table. Consult the NNOTC User Guide for help in use of either the NASDAQ or ARRS reporting vehicles.

      For a security that meets the minimum threshold reporting criteria under Schedule H but for which you cannot locate a symbol in the automated directory, call Dottie Kennedy at (212) 858-4340 to obtain symbol information. Members are not relieved of this reporting requirement because of the apparent absence of a symbol in the directory. Similarly, for issue name changes, symbol conflicts, or any matter related to symbols, contact Ms. Kennedy.

      For copies of the User Guide, assistance in reporting, or to ask any general questions, call the NNOTC hotline at (800) 321-NASD.

      ENFORCEMENT ACTIONS

      The price and volume reporting requirements under Schedule H were adopted to enhance the NASD's regulatory capabilities to routinely surveil for trading abuses in the NNOTC market. In this regard, an automated surveillance system has been implemented, thereby creating a centralized data base of price and transactions information that is subject to computerized analysis to detect violative practices and abuses such as manipulation, fraudulent pricing and markups, and other serious sales/trading practices.

      Recently, the NASD has taken a number of enforcement actions as part of its increased efforts to eliminate fraud in the NNOTC securities market. In addition to carrying out its own investigations, the NASD routinely cooperates with other self-regulatory organizations, the SEC, and governmental law enforcement agencies. Several of these cooperative efforts have resulted in filing criminal charges relating to securities fraud. The NASD intends to continue cooperating with federal and state authorities as part of its efforts to vigorously enforce the securities law, particularly with regard to fraud and other serious sales practice abuses.

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

      SUGGESTED ROUTING*

      Senior Management
      Legal & Compliance
      Operations
      Registration

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

      IMPORTANT MAIL VOTE

      EXECUTIVE SUMMARY

      The NASD invites members to vote on proposed amendments to Article IV, Section 1 and Article VI of the Rules of Fair Practice. The amendments to Article VI would allow the NASD to provide notice of disciplinary actions in Notices to Members, which are issued monthly, rather than in the NASD Manual, which is updated quarterly. The amendments would leave unchanged the current requirement that a list of members be provided to each member, but would permit the member to make distribution within the firm as it deems necessary. The amendments to Article IV,Section 1 would require that the NASD Manual be maintained in each branch office of a member.

      NASD members are also advised that the Board of Governors has approved an amendment to the Resolution of the Board of Governors that follows Article V, Section 1. The amendment will permit the NASD to provide notices to the membership and releases to the press of all orders and decisions issued by the NASD by means other than including such notices in the NASD Manual. The text of the proposed amendments and the Board Resolution follows this notice.

      BACKGROUND

      Article VI of the Rules of Fair Practice requires the Secretary of the NASD to furnish every office of every member of the NASD with a list of all members and, by amendments to the list, to keep every office of every member advised of all new members and of all suspensions and cancellations of membership. This list has been provided to members of the NASD in monthly updates to the Manual. Members are entitled to rely on this list as last amended for purposes of complying with Article III, Section 25 of the Rules of Fair Practice. Article IV, Section 1 of the Rules of Fair Practice requires that the NASD Manual be maintained in "every office" of a member.

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

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

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

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

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

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

      EFFECTIVE DATE

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

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

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

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

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

      (Note: New text is underlined.)

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

      Section 1 - Every member of the corporation shall keep in each branch office maintained by him, in the form to be supplied by the Board of Governors, a copy of the Certificate of Incorporation, By-Laws, Rules of Fair Practice, and Code of Procedure of the corporation and all additions and amendments from time to time made thereto, and of all published interpretive rulings made by the Board of Governors, all of which shall be available for the examination of any customer who makes requests therefore.

      PROPOSED AMENDMENT TO ARTICLE VI OF THE NASD RULES OF FAIR PRACTICE

      (Note: New text is underlined; deleted text is in brackets.)

      Current Membership List

      The Secretary of the Corporation shall furnish every [office of every] member of the Corporation a list of all members of the Corporation, and shall currently keep every [office of every] member advised, by amendments to the list or otherwise, of all new members and of all suspensions and cancellations of membership. Each member shall be responsible for providing such information to its offices and associated persons as appropriate. For purposes of complying with [Rule 25] pertinent Rules of Fair Practice, a member shall be entitled to rely on [such list as last amended] the information provided by the Corporation.

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

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

      Paragraphs 1-8 — No change.

      Notices to the membership and releases to the press referred to above shall identify the section of the Association's Rules and By-Laws or the Securities and Exchange Commission Rules violated, and shall describe the conduct constituting such violation. Notices may also identify the member with which an individual was associated at the time the violations occurred if such identification is determined by the Association to be in the public interest. [Notice of all orders and decisions referred to above shall be included in the supplement to the list of members next published.]

    • For Your Information (June)

      For Your Information

      National Association of Securities Dealers, Inc.

      June 1989

      Test Date and Site Changes for June and July Examinations Announced

      July First Saturday Date Change

      The first Saturday exam session date for July has been changed to July 8, 1989, for all test centers because of the Independence Day holiday that falls after the first weekend of the month.

      Requests for appointments for the July 8, 1989, session must be received no later than June 27, 1989 (the eighth business day prior to the session).

      Series 7 Test Site — Atlanta

      The June 17, 1989, and July 15, 1989, Series 7 exams in Atlanta will be held at: Sheraton Century Hotel, 2000 Century Boulevard, Atlanta, Georgia.

      Colorado Imposes $10 Annual Fee on Registered Agents

      Effective May 12, 1989, the Colorado legislature revised the state law to require an annual fee of $10 for all agents to maintain registration in the state.

      The Colorado Securities Commission has contracted with the NASD to handle the fee collection process. Invoices were sent to all firms registered in the state during the week of May 15, 1989. The procedures for this fee payment follow the annual renewal program procedures. Fees must be received by the NASD no later than June 22, 1989.

      If you wish to terminate any agents in Colorado, a partial Form U-5 must also be received by the NASD no later than June 22, 1989. Final adjusted invoices and rosters of agents registered in Colorado will be forwarded to your firm shortly after that date.

      If you have any questions regarding the invoice, or if you have not received your invoice, please contact NASD Information Services at (301) 590-6500.

      NASD Clarifies What Constitutes Branch Office for Regulation Purposes

      In Notice to Members 89-34, the NASD indicated that an office of a member that is listed on a lobby directory would be a branch office. It was further stated that the NASD was considering whether a door sign on an interior hallway would cause a location to be a branch office.

      The NASD has concluded that a door sign on an interior hallway that is for identification (e.g., required by state law or firm policy) rather than advertising purposes will not cause a location to be a branch office. Consistent with this position, the NASD has determined that a listing on a lobby directory will not cause a location to be a branch office. As indicated in Notice to Members 89-34, a location identified by an exterior sign visible to the general public will require designation as a branch office.

    • 89-46 NASDAQ National Market System Additions, Changes, and Deletions As of May 15, 1989

      SUGGESTED ROUTING*

      Internal Audit
      Operations
      Systems
      Trading

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

      As of May 15, 1989, the following 18 issues joined the NASDAQ National Market System, bringing the total number of issues in NASDAQ/NMS to 2,798:

      Symbol

      Company

      Entry Date

      SOES Execution Level

      BYTX

      Bytex Corporation

      4/13/89

      1000

      AFWY

      Arkansas Freightways Corporation

      4/18/89

      1000

      COND

      Condor Services, Inc.

      4/18/89

      1000

      FSVA

      Fidelity Savings Association

      4/18/89

      200

      MAAR

      MarCor Development Company, Inc.

      4/18/89

      1000

      OCLB

      Office Club, Inc. (The)

      4/18/89

      1000

      PREM

      Premier Financial Services, Inc.

      4/18/89

      200

      RHCC

      Rocking Horse Child Care Centers of America, Inc. (The)

      4/18/89

      1000

      SEVN

      Sevenson Environmental Services, Inc.

      4/19/89

      1000

      SPLS

      Staples, Inc.

      4/28/89

      1000

      BFEN

      BF Enterprises, Inc.

      5/2/89

      1000

      FWBI

      First Western Bancorp, Inc.

      5/2/89

      200

      MVBC

      Mission-Valley Bancorp

      5/2/89

      200

      RCHI

      Rauch Industries, Inc.

      5/2/89

      500

      TSNG

      Tseng Labs, Inc.

      5/2/89

      1000

      AKZOY

      Akzo, N.V.

      5/8/89

      200

      GOAL

      Goal Systems International, Inc.

      5/9/89

      1000

      CHEM

      Chempower, Inc.

      5/11/89

      1000

      NASDAQ/NMS Pending Additions

      The following issues have filed for inclusion in NASDAQ/NMS upon effectiveness of their registration statements with the SEC or other appropriate regulatory authority. Their inclusion may commence prior to the next regularly scheduled phase-in date.

      Symbol

      Company

      Location

      SOES Execution Level

      CMPX

      Comptronix Corporation

      Guntersville, AL

      1000

      UTOG

      Unitog, Inc.

      Kansas City, MO

      1000

      VTRN

      Vitarine Pharmaceuticals, Inc.

      Springfield Gardens, NY

      1000

      NASDAQ/NMS Symbol and/or Name Changes

      The following changes to the list of NASDAQ/NMS securities occurred since April 13, 1988.

      New/Old Symbol

      New/Old Security

      Date of Change

      CATLB/STNIB

      Cantel Industries, Inc. (Cl B)/Stendig Industries, Inc. (Cl B)

      4/18/89

      WEST/MFGI

      West One Bancorp/Moore Financial Group, Inc.

      4/21/89

      CLRXL/CLRXL

      Colorocs Corporation (Cl D 5/4/89 Wts)/Colorocs Corporation (Cl D Wts)

      4/24/89

      FFSB/FFSL

      Fulton Federal Savings Bank/Fulton Federal Savings & Loan Association

      4/25/89

      INBF/INAT

      INB Financial Corporation/Indiana National Corporation

      4/26/89

      SRSL/SRSL

      Sunrise Bancorp, Inc./Sunrise Federal Savings & Loan Association

      4/26/89

      OLCC/PFSL

      Olympus Capital Corp./Prudential Financial Services Corp.

      4/28/89

      FFOM/FFOM

      FirstFed Michigan Corporation/First Financial Services Corp.

      5/1/89

      FHCT/FHCT

      First Chattanooga Financial Corp./First Federal Savings & Loan Association of Chattanooga

      5/1/89

      LLSL/LLSL

      Lakeland First Financial Group, Inc./Lakeland Savings Bank, SLA

      5/1/89

      MSSB/MSSL

      Mid-State Federal Savings Bank/Mid-State Federal Savings & Loan Association

      5/1/89

      CISI/CISIF ARTW/ARTW

      CIS Technologies, Inc./CIS Technologies, Inc.

      5/5/89

      ARTW/ARTW

      Art's-Way Manufacturing Co., Inc./Art's-Way Manufacturing Company Incorporated

      5/8/89

      MFGR/MFGR

      Metrobank Financial Group, Inc./Morsemere Financial Group, Inc

      5/8/89

      WGNR/TLCR

      Wegener Corporation/Telecrafter Corporation

      5/9/89

      FNGB/FNGB

      First Northern Savings Bank, S.A./First Northern Savings & Loan Association

      5/12/89

      NASDAQ/NMS Deletions

      Symbol

      Security

      Date

      IRWN

      Irwin Magnetic Systems, Inc

      4/13/89

      PAWB

      Pacific Western Bancshares

      4/13/89

      PVDC

      Princeville Corporation

      4/14/89

      CPIC

      CPI Corporation

      4/17/89

      HWCD

      HWC Distribution Corporation

      4/17/89

      MAXQC

      Maxicare Health Plans, Inc.

      4/25/89

      BBEC

      Blockbuster Entertainment Corporation

      4/27/89

      SRVI

      Servico, Inc.

      4/27/89

      CLRXL

      Colorocs Corporation (Cl D 5/14/89 Wts)

      4/28/89

      CABK

      Colonial American Bankshares Corporation

      5/1/89

      FHFC

      Farm House Foods Corporation

      5/1/89

      AINC

      American Income Life Insurance Company

      5/2/89

      BGBR

      Big Bear, Inc.

      5/2/89

      KRSL

      Kreisler Manufacturing Corporation

      5/3/89

      ITEL

      Itel Corporation

      5/4/89

      ITELM

      Itel Corporation (Cl B Pfd)

      5/4/89

      SWHI

      Sound Warehouse, Inc.

      5/5/89

      ISCS

      ISC Systems Corporation

      5/8/89

      CEXX

      Circle Express, Inc.

      5/9/89

      HLME

      D. H. Holmes Company, Limited

      5/10/89

      CHKE

      Cherokee Group (The)

      5/11/89

      ALBM

      Alpha 1 Biomedicals, Inc.

      5/15/89

      AFCO

      American First Corporation

      5/15/89

      VETS

      Animed, Inc.

      5/15/89

      ADCC

      Applied Data Communications, Inc.

      5/15/89

      AVGA

      Avant-Garde Computing, Inc.

      5/15/89

      BIAC

      BI Incorporated

      5/15/89

      BMRA

      Biomerica, Inc.

      5/15/89

      BISH

      Bishop Incorporated

      5/15/89

      BUTL

      Butler National Corporation

      5/15/89

      CRLNF

      Carolin Mines Ltd.

      5/15/89

      CHAR

      Chaparral Resources, Inc.

      5/15/89

      CMUC

      Comp-U-Check, Inc.

      5/15/89

      CRCT

      Crescott, Inc.

      5/15/89

      DGTC

      Digitech, Inc.

      5/15/89

      ECTH

      Electro-Catheter Corporation

      5/15/89

      GTSC

      GTS Corporation

      5/15/89

      HABE

      Haber, Inc.

      5/15/89

      HABEP

      Haber, Inc. (Pfd)

      5/15/89

      KPRO

      Kaypro Corporation

      5/15/89

      KIMB

      Kimbark Oil & Gas Company

      5/15/89

      KREN

      Kings Road Entertainment, Inc

      5/15/89

      MUNI

      Municipal Development Corporation

      5/15/89

      NEST

      Nestor, Inc.

      5/15/89

      OLSN

      Olson Industries, Inc.

      5/15/89

      QEKG

      Q-Med, Inc.

      5/15/89

      RTII

      RTI, Inc.

      5/15/89

      RAGN

      Ragen Corporation

      5/15/89

      ROYG

      Royal Business Group, Inc

      5/15/89

      STGM

      Status Game Corporation

      5/15/89

      TNDS

      CTS Industries, Inc.

      5/15/89

      TLHT

      Total Health Systems, Inc

      5/15/89

      TTOR

      Transtector Systems, Inc.

      5/15/89

      VANZ

      Vanzetti Systems, Inc.

      5/15/89

      VKSI

      Vikonics, Inc.

      5/15/89

      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, NASD Market Surveillance, at (301) 590-6429.

    • 89-45 Independence Day Trade Date-Settlement Date Schedule

      SUGGESTED ROUTING*

      Internal Audit
      Legal & Compliance
      Municipal
      Operations
      Syndicate
      Systems
      Trading

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

      Securities markets and the NASDAQ System will be closed on Tuesday, July 4, 1989, in observance of Independence Day. "Regular way" transactions made on the business days noted below will be subject to the following schedule:

      Trade Date

      Settlement Date

      Reg. T Date*

      June 26

      July 3

      July 6

      27

      5

      7

      28

      6

      10

      29

      7

      11

      30

      10

      12

      July 3

      11

      13

      4

      Markets Closed

      5

      12

      14

      These settlement dates should be used by brokers, dealers, and municipal securities dealers to clear and settle transactions pursuant to the NASD 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) 858-4341.


      *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 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 lake such action is shown in the column entitled "Regulation T Date."


    • 89-44 Amendment to Uniform Practice Code Re: Mandatory Buy-Ins for Cash or Guaranteed Delivery, Effective June 1, 1989

      SUGGESTED ROUTING*

      Legal & Compliance
      Operations
      Systems
      Trading

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

      EXECUTIVE SUMMARY

      The Securities and Exchange Commission has approved an amendment to Section 59 of the NASD's Uniform Practice Code, which requires that, for transactions in NASDAQ securities where the buyer is a customer, other than another member, and a clearing corporation fails to effect delivery in accordance with a buy-in notice, the contract must be closed by purchasing for cash or for guaranteed delivery. This provision will be effective for buy-ins instituted after June 1, 1989. The text of the amendment to Section 59 follows this notice.

      EXPLANATION

      The Securities and Exchange Commission has approved an amendment to the NASD's Uniform Practice Code that was adopted by the NASD Board of Governors in response to a study by Irving M. Pollack on "Short Sale Regulation of NASDAQ Securities." The purpose of the new provision is to ensure that customers who are entitled to and who seek to do so are able to obtain delivery of their securities purchases, notwithstanding the fact that a clearing corporation buy-in has not produced delivery. This rule change provides that, upon the failure of a clearing corporation to make delivery of securities after a buy-in has been attempted, members will be required to close the contract by purchasing, for cash or guaranteed delivery, any portion of the securities not delivered through the clearing corporation buy-in process. The provision applies only to purchases of NASDAQ securities by customers, other than another NASD member, who seek to obtain delivery of their securities. Members should note that, as with other buy-ins, the amendment requires that members be prepared to defend the price at which the buy-in is executed relative to the current market price at the time of the buy-in.

      Failure to comply with the provisions of the Code may subject members to disciplinary action in appropriate cases.

      To provide members with an opportunity to notify appropriate personnel of this change and to make procedural changes as necessary, the requirements of the rule will become effective for buy-ins initiated after June 1, 1989.

      Questions concerning this notice may be directed to Donald Catapano, Director of NASD Uniform Practice/TARS at (212) 858-4350.

      TEXT OF RULE CHANGE

      (Note: New text is underlined; deleted text is in brackets.)

      Close-Out Procedure

      Sec. 59. 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."]
      (c)
      (i)
      (b) For transactions in NASDAQ Securities where the buyer is a customer (other than another member), upon the failure of a clearing corporation to effect delivery in accordance with a buy-in notice, the contract must be closed 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.

    • For Your Information (May)

      For Your Information

      National Association of Securities Dealers, Inc.

      May 1989

      Test Site Changes for May in Kansas, New York, Georgia, and Florida

      New PLATO Test Centers in Kansas

      Effective May 1, 1989, Control Data PLATO Development Centers began operating at the following locations:

      • Farmers State Bank Building, 718 MainStreet, Suite 202, Hays, KS 67601 (913) 232-1690.


      • Epic Office Center, 301 North Main Street,Suite 470, Wichita, KS 67202 (316) 265-5234.

      PLATO Center Relocation in New York

      Effective April 21, 1989, the Rochester Control Data PLATO Development Center was relocated to: Woodcliff I, 345 Woodcliff Drive, 2nd Floor, Fairport, NY 14450 (716) 383-5630.

      Series 7 Test Site Changes

      Atlanta

      The May 20, 1989, Series 7 exam in Atlanta will be held at: Sheraton Century Hotel, 2000 Century Boulevard, Atlanta, GA.

      Orlando

      Effective May 20, 1989, all Series 7 exams in Orlando will be held at: University of Central Florida, 4000 Central Florida Boulevard, CEBAII, Orlando, FL.

      For information on exams, locations, or dates, contact the Information Services Department at (301) 590-6500.

      District 10 Schedules Member Seminar June 19-20, in Washington, DC

      The NASD's District 10, headquartered in Washington, DC, has scheduled its 1989 membership meeting and educational seminar for June 19-20 at the Mayflower Hotel in Washington.

      Seminar topics are compliance-oriented and designed to provide continuing education for management and operations personnel, with topics of special interest to securities lawyers and accountants. District 10 encompasses the District of Columbia, Maryland, North Carolina, and Virginia.

      Correction to Disciplinary Actions for April

      PDS Securities International, Inc., Chicago, IL was incorrectly identified in the April issue of Notices to Members as PBS Securities International, Inc.

      New Phone, Fax Numbers for Market Surveillance Take Effect May 15

      The Market Surveillance division of the NASD is expected to move to the Gordon E. Macklin Building in Rockville, Maryland, on May 15, 1989. Most of the phone numbers for the division will change as a result of the move. The new phone numbers are:

      Market Surveillance, main number (301) 590-6410.

      Market Surveillance, general Fax (301) 590-6481.

      Stock Watch (301) 590-6411.

      StockWatch Fax (301) 590-6482.

      StockWatch answering machine (301) 590-6413.

      The toll-free number will remain the same, (800) 537-3929.

    • 89-43 NASDAQ National Market System Additions, Changes, and Deletions As of April 13, 1989

      SUGGESTED ROUTING*

      Internal Audit
      Operations
      Systems
      Trading

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

      As of April 13, 1989, the following six issues joined the NASDAQ National Market System, bringing the total number of issues in NASDAQ/NMS to 2,838:

      Symbol

      Company

      Entry Date

      SOES Execution Level

      ASIPY

      Anangel-American Shipholdings Limited

      3/21/89

      1000

      CSBC

      Central & Southern Holding Company

      3/21/89

      200

      PETTV

      Pettibone Corporation (WI)

      3/21/89

      500

      UTMD

      Utah Medical Products, Inc.

      3/21/89

      1000

      MTTL

      Mobile Telecommunications Technologies Corp.

      4/5/89

      500

      ECFC

      Eastchester Financial Corporation

      4/12/89

      1000

      NASDAQ/NMS Pending Additions

      The following issues have filed for inclusion in NASDAQ/NMS upon effectiveness of their registration statements with the SEC or other appropriate regulatory authority. Their inclusion may commence prior to the next regularly scheduled phase-in date.

      Symbol

      Company

      Location

      SOES Execution Level

      BYTX

      Bytex Corporation

      Southborough, MA

      1000

      SEVN

      Sevenson Environmental Services, Inc.

      Niagara Falls, NY

      1000

      NASDAQ/NMS Symbol and/or Name Changes

      The following changes to the list of NASDAQ/NMS securities occurred since March 13, 1989.

      New/Old Symbol

      New/Old Security

      Date of Change

      RFBK/RFBK

      RS Financial Corp ./Raleigh Federal Savings Bank

      3/15/89

      NLON/KCOP

      New London, Inc./Kencope Energy Companies

      3/16/89

      FLOW/FLOW

      Flow International Corp./Flow Systems, Inc

      3/20/89

      IMGE/CCAB

      IMNET, Inc./Communications & Cable, Inc.

      3/22/89

      LGNT/DUQN

      LEGENT Corporation/Duquesne Systems, Inc.

      3/22/89

      HFSLP/HFSLP

      Home Owners Savings Bank, FSB (Ser A Pfd)/ Home Owners Federal Savings & Loan Association (Ser A Pfd)

      4/3/89

      SESL/SESL

      Southeastern Savings Bank, Inc./ Southeastern Savings and Loan Company

      4/5/89

      FNYB/FWNY

      First New York Business Bank Corp./First Women's Bank (The)

      4/6/89

      STRZ/FNAC

      Star Bane Corp./First National Cincinnati Corp.

      4/12/89

      NASDAQ/NMS Deletions

      Symbol

      Security

      Date

      CSOU

      Citizens & Southern Corp.

      3/13/89

      BAYA

      Federal Savings Bank of Puerto Rico (The)

      3/13/89

      EATO

      Eaton Financial Corporation

      3/16/89

      MGCO

      Medicare-Glaser Corporation

      3/21/89

      MRNO

      Morino, Inc.

      3/21/89

      FMDB

      First Maryland Bancorp

      3/22/89

      SPCM

      Specialty Composites Corporation

      3/23/89

      SIBR

      Sybra, Inc.

      3/28/89

      RPAL

      Royal Palm Savings Bank

      3/29/89

      BDGT

      Budget Rent A Car Corporation

      3/31/89

      TRATS

      Travelers Real Estate Investment Trust

      3/31/89

      TRIIS

      Travelers Realty Income Investors

      3/31/89

      BDEL

      Bank of Delaware Corporation

      4/3/89

      EQUI

      Equion Corporation (The)

      4/3/89

      RAWC

      Republic American Corporation

      4/3/89

      UFSB

      University Savings Bank

      4/3/89

      FSBK

      First Service Bank for Savings

      4/5/89

      MCCAA

      Mobile Communications Corporation of America (Cl A)

      4/5/89

      MCCAB

      Mobile Communications Corporation of America (Cl B)

      4/5/89

      SHONC

      Shoney's, Inc.

      4/5/89

      POLY

      Poly-Tech, Inc.

      4/10/89

      REGIE

      Regina Company, Inc. (The)

      4/11/89

      CRTR

      Charter-Crellin, Inc.

      4/13/89

      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, NASD Market Surveillance, at (202) 728-8192.

    • 89-42 Memorial Day Trade Date-Settlement Date Schedule

      SUGGESTED ROUTING*

      Internal Audit
      Legal & Compliance
      Municipal
      Operations
      Syndicate
      Systems
      Trading

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

      Securities markets and the NASDAQ System will be closed Monday, May 29, 1989, in observance of Memorial Day. "Regular way" transactions made on the business days noted below will be subject to the following schedule:

      Trade Date

      Settlement Date

      Reg. T Date*

      May 19

      May 26

      May 31

      22

      30

      June 1

      23

      31

      2

      24

      June 1

      5

      25

      2

      6

      26

      5

      7

      29

      Markets Closed

      30

      June 6

      8

      These settlement dates should be used by brokers, dealers, and municipal securities dealers to clear and settle transactions pursuant to the NASD 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) 858-4341.


      *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 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."


    • 89-41 SEC Approval of By-Laws Amendment on Filling Vacancies on District Committees — Effective March 8, 1989

      SUGGESTED ROUTING*

      Senior Management
      Legal &Compliance

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

      EXECUTIVE SUMMARY

      The Securities and Exchange Commission recently approved an amendment to Article VIM, Section 5 of the NASD By-Laws that will expedite the filling of vacancies created by departures of District Business Conduct Committee (DBCC) members during their terms and avoid the necessity of holding interim elections.

      The amendment provides for appointment of a person by the remaining DBCC members to fill the departing Committee member's seat until the next regularly scheduled election. At that time, the normal election process will produce a new Committee member to serve for the duration of the departing Committee member's term. The amendment became effective March 8, 1989

      BACKGROUND AND SUMMARY

      The previous procedure under Sections 5 (a) and (b) of Article VIII of the NASD By-Laws set forth a two-step mechanism for filling vacancies on a DBCC. If the unexpired term of the Committee member causing the vacancy was less than 12 months, the vacancy was filled by appointment by the remaining members of the DBCC of a representative of a member firm having a place of business in the same district. If the unexpired term of the Committee member causing the vacancy was 12 months or more, the vacancy was filled by an election conducted in accordance with the provisions of Section 4 of Article VIII.

      District Committees encountered practical problems, including the necessity for holding special interim elections, when vacancies occurred as a result of departures of Committee members during their terms. The recently adopted amendment to Article VIII, Section 5 of the By-Laws will alleviate these burdensome and unnecessary problems. The amendment eliminates the requirement for a special election to be conducted to fill a vacancy of 12 months or more. Instead, regardless of the length of the remaining term, the remaining members of the DBCC will appoint a representative of a member firm doing business in the same district to fill the departing Committee member's seat until the next regularly scheduled election. A new Committee member will then be elected to serve for the duration of the departing Committee member's term.

      The NASD Board of Governors recommended that, in each instance, the DBCC should seriously consider former DBCC members for appointment to a vacancy. Because of prior experience, such persons would readily be able to assume the position and make a meaningful contribution.

      Questions concerning this notice can be directed to Deborah F. McIlroy, Attorney, NASD Office of General Counsel, at (202) 728-8816.

      AMENDMENT TO ARTICLE VIII, SECTION 5 OF THE NASD BY-LAWS

      (Note: New text is underlined; deleted text is in brackets.)

      Filling of Vacancies on District Committees

      Sec. 5. All vacancies in any District Committee other than those caused by the expiration of a Committee 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 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 district.
      (b) If the unexpired term of the member causing the vacancy 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 4 of this Article.]

      The District Committee shall appoint a representative of a member firm having a place of business in the same district to fill any vacancy resulting from the unexpired term of a departed Committee member. Such appointment shall be effective until the next regularly scheduled election occurs, in accordance with the provisions of Section 4 of this Article. Following this election, the" newly elected Committee member will serve only the duration of the departed Committee member's term.

    • 89-40 Proposed Amendment to Code of Procedure Re: Summary Remedial Proceedings; Last Date for Comments: June 1, 1989

      SUGGESTED ROUTING*

      Senior Management
      Legal & Compliance
      Registration
      Trading
      Training

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

      REQUEST FOR COMMENTS

      EXECUTIVE SUMMARY

      The NASD requests comments on a proposed amendment to the Code of Procedure that would create a new procedure by which the NASD could take appropriate remedial actions against an NASD member or an associated person if such member or person had engaged and there was a reasonable likelihood that the member or person would again engage in securities-law violations.The text of the proposed amendment follows this notice.

      BACKGROUND

      The Board of Governors is concerned because the NASD has been confronted on several occasions recently with instances of members that have violated various SEC and NASD rules and regulations and, when advised to cease such activities, have evidenced an intent to continue the violative conduct. The NASD, under the present Code of Procedure, has no expeditious method specifically designed to handle such situations. In order to address these situations, the Board of Governors is requesting comment on an amend ment to the Code of Procedure that would allow the NASD to take appropriate action.

      EXPLANATION

      The proposed amendment would permit the NASD to deny membership to, or condition the membership of a broker-dealer, or bar or condition a person's association with a broker-dealer if the broker-dealer or person has engaged and there is a reasonable likelihood the broker-dealer or person will again engage in acts or practices inconsistent with just and equitable principles of trade. The amendment provides the NASD with a wide range of actions it could take against a member or associated person for ongoing violations, including imposing limitations or conditions on or the cancellation or revocation of the firm's membership or the person's registration. This range of permissible actions would allow the NASD to tailor the action taken to meet the needs of the situation. The firm or person that is the subject of such a proceeding would have the right to a hearing prior to the NASD taking any action and, once the Board acts, that decision could be appealed to the SEC.

      The Board of Governors believes that Sections 15A(g)(3)(A) and (B) of the Securities Exchange Act of 1934 ("Act") authorize the NASD to take such action and that the proposed procedure meets the hearing requirement of Section 15A(h)(l)of the Act.

      Under the proposed amendment, the NASD Executive Committee would be required to authorize the initiation of such a proceeding only after a finding by that Committee that the proceeding was needed to protect the public interest. The NASD would notify the member and/or associated person of the time and place of the hearing. The matter would be considered by a District Committee hearing panel consisting of at least three persons, and this panel would render its decision within five days of the hearing.

      Any party aggrieved by the decision or the Board itself could ask that this decision be reviewed by a committee of the Board of Governors. Any such request would not operate as a stay of the District panel's decision. Upon any application for review, a hearing before a Special Hearing Committee of the Board would be held within five days. Any decision rendered by the Special Hearing Committee would be a final action of the NASD and could be appealed to the SEC. All decisions rendered would be in writing, and any member or person would have the right to appear in person, submit any relevant evidence, and be represented by counsel.

      The NASD encourages all members and other interested persons to comment on the proposed amendment. Comments should be directed to: Mr. Lynn Nellius, Secretary, National Association of Securities Dealers, Inc., 1735 K Street, NW, Washington, DC 20006-1506.

      Comments must be received no later than June 1, 1989. Comments received by this date will be considered by the NASD National Business Conduct Committee and the Board of Governors. Any changes to the NASD Code of Procedure must be approved by the Board and filed with, and approved by, the Securities and Exchange Commission before becoming effective.

      Questions concerning this notice may be directed to Craig L. Landauer, Senior Attorney, NASD Office of General Counsel, at (202) 728-8291.

      PROPOSED AMENDMENT TO CODE OF PROCEDURE

      (Note: All of the proposed text is new language, and therefore is underlined.)

      ARTICLE

      Summary Remedial Proceedings Purpose

      Sec. 1. This Article provides procedures, in addition to those contained for summary suspension or revocation pursuant to Article VIII or VI of this Code of Procedure, for the Corporation to condition, or suspend the membership of a member or to suspend a person from being associated with a member. Such actions would be instituted pursuant to the authority of the Corporation under Section 15(g)(3)(A) and (B) of the Securities Exchange Act of 1934 to deny membership to, or condition the membership of, a broker or dealer or to bar a person from being associated with a member or condition such person's association, if the broker or dealer or person has engaged, and there is a reasonable likelihood the broker or dealer or person will again engage, in acts or practices inconsistent with just and equitable principles of trade.

      Commencement of Summary Remedial Proceedings

      Sec. 2. Should the Corporation determine to commence a summary remedial proceeding pursuant to Section 1, the Corporation shall give notice thereof to the member or person associated with a member. Such notification shall contain a statement of the specific grounds on which such action is taken and shall be issued only after approval of the Executive Committee of the Board of Governors, which shall conclude that proceeding is in the public interest. The date and location of the hearing shall be sent to the member or person at least five (5) business days prior to the hearing. The matter shall be presented to a hearing panel designated by the District Business Conduct Committee, and the panel shall have at least three members.

      District Committee Decision

      Sec. 3. A written decision shall be issued by the District Committee hearing panel within five calendar days of the date of the hearing, and a copy shall be sent to the party against whom the Corporation has taken summary action and, in the case of a person associated with a member, the member with which the party is presently an associated person. The decision shall contain the reasons supporting the action taken. The duration of any condition or restriction imposed will be set forth in the decision and limited to a period no longer than that required to protect the public interest.

      Review by Board

      Sec. 4. The District Committee decision shall be subject to review by the Board of Governors on its own motion within five calendar days after issuance of the written decision. Any such decision shall also be subject to review upon application of any person aggrieved thereby if filed within five days after issuance. The institution of review, whether on application or on the initiative of the Board, shall not operate as a stay of the decision. Upon receipt of an application for review, a hearing will be held within five calendar days after receipt of such application.

      Findings of Board on Review

      Sec. 5. Upon consideration of the record, and after such further hearings as it shall order, the Board <- :1 affirm, modify, reverse, dismiss, or remand the decision. The Board shall set forth specific grounds upon which its determination is based ' « hearing is held, a decision rendered by a special three-member hearing panel designated by the Board shall constitute final action by the Corporation.

      Hearings

      Sec. 6. At any hearing held under this Article, a record shall be kept and the member or person associated with a member, and the Corporation shall be entitled to be heard in person and berepresented by counsel and to submit any relevant evidence.

      Decisions

      Sec. 7. Following any hearing held under this Article, a written decision shall be issued setting forth the findings made and the grounds upon which that determination is based. Any decision conditioning or suspending a member or person associated with a member under this Article shall specify the time period, not to exceed one year, for which the conditions or suspension shall remain in effect and the conditions, if any, which must be fulfilled during the specified time period in order to have the conditions or suspension removed. Any conditions or suspension imposed pursuant to this Article shall be reviewable on the motion of any party 90 days after the date of the decision.

      Other Action Not Foreclosed

      Sec. 8. Action by the Corporation under this Article shall not foreclose action by the Corporation under any other provisions of this Code or the Rules of Fair Practice where a violation of the Rules of the Corporation may be involved.

      Application to Commission for Review

      Sec. 9. Any party against whom summary action has been taken by the Board of Governors may make application for review to the Securities and Exchange Commission in accordance with Section 19 of the Securities Exchange Act of 1934, as amended. There shall be no stay of the Board's action upon appeal unless the Commission determines otherwise.

    • 89-39 Proposed New Rule Re: Handling Customer Limit Orders Last Voting Date: June 1, 1989

      SUGGESTED ROUTING*

      Senior Management
      Legal & Compliance
      Operations
      Trading
      Training

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

      IMPORTANT MAIL VOTE

      EXECUTIVE SUMMARY

      Members are invited to vote on a proposed new Section 45 to Article III of the NASD Rules of Fair Practice that would set forth obligations of member firms that accept customer limit orders and continue their own market-making activities in the security that is the subject of the limit order. The rule would also provide a model statement that the NASD believes constitutes adequate disclosure to customers of the manner in which their order may be handled. The text of the proposed rule follows this notice.

      BACKGROUND AND ANALYSIS

      In Notice to Members 85-12 (February 15, 1985), the NASD set forth its views that, on accepting a customer limit order, a member undertakes a fiduciary obligation and cannot trade for its own account at prices more favorable than the customer limit order unless there is an understanding by the customer as to the priorities that will govern the order. At the time it issued Notice to Members 85-12, the NASD contemplated an amendment to the Rules of Fair Practice that would codify this position. Because an appeal of an NASD disciplinary action involving this issue was pending, however, the NASD did not proceed with such rule making. The Commission has now ruled in that disciplinary action and has affirmed the conclusion reached by the NASD.1 The NASD Board has, therefore, determined that it is now appropriate to provide guidance to NASD member firms on the type of communication with customers that would satisfy member firms' obligations regarding handling customer limit orders.

      The proposed rule change requires that each member firm that accepts and holds an unexecuted customer limit order, and anticipates continuing to trade for its own market-maker account in the security that is the subject of this order at prices equal to or better than the limit price, provide a written statement to each existing customer at the time the rule is adopted and to each new customer upon the opening of an account. This statement would be required to clearly disclose the circumstances under which the firm accepts limit orders and the policies and procedures followed by the firm in handling those orders. The rule further provides the text of a model disclosure statement that the NASD deems to constitute adequate disclosure of the fact that a firm may accept a limit order but not grant the order priority over its own market-making activities.

      The NASD Board of Governors believes the proposed rule amendments will provide necessary guidance to NASD members as to what steps they must take to ensure that customers placing limit orders with the firm are treated in a manner consistent with the firm's obligations under Article III, Section 1 of the Rules of Fair Practice. Thus, the Board believes the proposed amendments 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 June 1, 1989.

      Questions concerning this notice may be directed to T. Grant Callery, NASD Associate General Counsel, at (202) 728-8285.

      PROPOSED NEW SECTION 45 TO ARTICLE III OF THE NASD RULES OF FAIR PRACTICE

      (Note: All of the proposed text is new language.)

      Sec. 45. Customer Limit Orders

      (a) A member firm that has accepted and holds an unexecuted limit order from a customer and continues to trade the subject security for its own market-maker account at prices equal to or better than the limit order price shall not be deemed to have acted in a manner inconsistent with Article HI, Section 1 of the Rules of Fair Practice if the member firm provides to its existing customers as of the effective date of this rule and to each new customer at the time his or her account is opened a written statement clearly disclosing:
      (i) the circumstances in which the firm accepts limit orders, and
      (ii) the policies and procedures followed by the firm in handling such orders.
      (b) If it is the policy of a member firm that acts as a market maker to accept limit orders from its customers but not to grant priority to such orders over transactions for its own market-maker account, a written statement substantially as follows provided by the member firm would be deemed to constitute adequate disclosure to its customers for purposes of paragraph (a) of this Section:
      "By accepting your limit order for transactions in securities in the NASDAQ or over-the-counter market, we undertake to monitor the interdealer market and to seek to execute your order only if the inside bid (in the case of a limit order to sell, the highest price at which a dealer is being quoted as willing to buy securities) or the inside asked (in the case of a limit order to buy, the lowest price at which a dealer is being quoted as willing to sell securities) reaches your limit price. We reserve the right, while your limit order remains unexecuted, to trade for our own market-maker account at prices equal to or better than your limit order price and not to execute your order against incoming orders from other customers. For example, if the inside market is 10 bid, 10 1/4 asked and you place a limit order to sell securities at 10 1/8, we" will seek to execute your order only if the inside bid reaches your limit price of 10 1/8 (exclusive of any markdown or commission equivalent that we may charge in connection with the transaction) and, while your order remains unexecuted, we may continue to sell securities for our market-maker account at prices at or above 10 1/8."

      1In the Matter of E. F. Hutton & Co., Securities Exchange Act Release No. 25587 (July 6,1988).


    • 89-38 Quarterly Check List of NASD Notices to Members

      SUGGESTED ROUTING*

      Corporate Finance
      Government Securities
      Internal Audit
      Legal & Compliance
      Municipal
      Mutual Fund
      Operations
      Registration
      Research
      Syndicate
      Systems
      Trading
      Training

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

      The following NASD Notices to Members were issued during the first quarter of 1989. Each monthly issue costs $15 and can be obtained by sending the payment and a self-addressed mailing label to: NASD Administrative Services, 1735 K Street, NW, Washington, DC 20006-1506.

      Notice

      Date

      Topic

      89-1

      1/89

      Proposed By-Laws Amendment on Filling Vacancies on District Committees

      89-2

      1/89

      Proposed New Rule Re: Business Conduct Of Members

      89-3

      1/89

      Proposed Rule to Restrict Payment of Referral Fees by NASD Members

      89-4

      1/89

      Proposed Mandatory Participation By Clearing Members in Reconfirmation and Pricing Services

      89-5

      1/89

      Insider Trading and Securities Fraud Enforcement Act

      89-6

      1/89

      State Participation in CRD Form BD and BDW Processing

      89-7

      1/89

      Renewal Rosters and Final Adjusted Invoices

      89-8

      1/89

      NASD 1989 Holiday Schedule

      89-9

      1/89

      Trade Date-Settlement Date (for all of 1989)

      89-10

      1/89

      NASDAQ/NMS Additions, Deletions, and Changes as of 12/13/88

      89-11

      2/89

      Approval of Amendment Re: Advertising and Sales Literature for Investment Company Securities

      89-12

      2/89

      Reporting Suspicious Currency and Other Questionable Transactions to the IRS/Customs Hotline

      89-13

      2/89

      Access to Disciplinary Information on Prospective Employees

      89-14

      2/89

      Approval of Amendments Re: Lost and Stolen Securities Program

      89-15

      2/89

      Rule Amendment to Permit Withdrawal of Quotations from NASDAQ for Market-Maker Vacations

      89-16

      2/89

      Amendment Permitting Indeterminate Compensation in Public Direct Participation Programs

      89-17

      2/89

      Adoption of Rule Amendments Mandating the Automated Submission of Trading Data —Technical Specifications

      89-18

      2/89

      Presidents' Day Trade Date-Settlement Date Schedule

      89-19

      2/89

      NASDQA/NMS Additions, Deletions and Changes of 1/12/89

      89-20

      2/17/89

      Proposed Amendments to Article III, Sections 1 - 28 of the NASD Rules of Fair Practice — Last Voting Date: March 20, 1989

      89-21

      3/89

      Proposed Amendment Re: Predispute Arbitration Clauses in Customer Agreements

      89-22

      3/89

      Proposed Amendment Re: Use and Disclosure of Member Names

      89-23

      3/89

      Proposed Amendment Re: Providing Terminated Employees with Form U-5 and Obtaining Prior Form U-5 for Potential Employees

      89-24

      3/89

      Proposed Amendment Re: Definition of a Direct Participation Program

      89-25

      3/89

      SIPC Reimposes Assessments Based on Percentage of Gross
      Revenue

      89-26

      3/89

      SEC Request for Comments — Re: Sales Practices in Pink Sheet Stocks

      89-27

      3/89

      Treasury Finalizes Two Amendments Re: Currency Transactions

      89-28

      3/89

      Approval and Immediate Effectiveness of Definition of "Bona Fide Research"

      89-29

      3/89

      SOES Tier Levels to Change on March 17, 1989, for All NASDAQ/NMS Securities

      89-30

      3/89

      Good Friday Trade Date-Settlement Date Schedule

      89-31

      3/89

      NASDAQ/NMS Additions, Deletions, and Changes as of February 10, 1989

      89-32

      3/89

      Temporary Receiver Appointed for Investors Center, Inc

    • For Your Information (April)

      For Your Information

      National Association of Securities Dealers, Inc.

      April 1989

      NASD Releases Interpretive Summaries Under SEC Rule 19c-4

      The NASD recently made available summaries of interpretive letters issued under Securities and Exchange Commission Rule 19c-4. That rule prohibits the major securities markets from listing companies that issue securities or take other corporate actions that disenfranchise existing shareholders. These summaries are expected to be published by the reporting services, including the Bureau of National Affairs and Commerce Clearing House.

      The summaries reflect the conclusions reached by the NASD in analyzing the effect of specific issuer proposals and therefore don't necessarily set precedent for future transactions, each of which must be evaluated in light of its own facts SEC Rule 19c-4 and circumstances. Copies of the summaries may be obtained by sending a written request to the NASD Office of General Counsel, 1735 K Street, NW, Washington, DC 20006.

      NASD staff members are available to discuss Rule 19c-4 issues, but, binding determinations will be issued only in response to written inquiries. Requests for such determinations must identify the company, describe the proposed transaction, and include copies of relevant documents, e.g., draft proxy or registration statements. A request also should include an analysis of the rule's application to the proposed transaction. In addition, it should indicate whether inquiries have been made of any other market and, if so, identify such contacts.

      Reminder — Use the Form U-4 Disclosure Reporting Page

      Members are reminded that all details relating to Item 22 on Page 3 of Form U-4 must be submitted on a fully completed Disclosure Reporting Page (DRP).

      Submission of details on a blank attachment page are no longer acceptable and may result in delays in the Special Registration Review process. Please refer to Notice to Members 88-97 for further details regarding the DRP.

      Questions regarding the DRP may be directed to Ellen J. Badler, Assistant Director, Special Registration Review at (301) 590-6743. Copies of the DRP and/or Form U-4 may be obtained by calling NASD Information Services at (301) 590-6500.

      Series 7 Test Changes for April; Atlanta, Memphis, Rochester, and Dallas

      Atlanta Test Site for April

      The April 15, 1989, Series 7 exam in Atlanta will be held at:

      Sheraton Century Hotel
      2000 Century Boulevard
      Atlanta, GA

      Free parking is available in the hotel parking lot.

      Permanent Site Change in Memphis

      Effective April 15, 1989, all Series 7 exams in Memphis will be held at:

      The Fogelman Executive Center
      Memphis State University
      330 Deloach Street
      Room 315
      Memphis, TN

      Free parking is available across from the Center.

      Date Change for Dallas and Rochester

      The Series 7 exams in Dallas, TX and Rochester, NY will be given on May 13, 1989 instead of the third Saturday of the month.

      NASAA CRD User Committee Targets Registration Requirements in National Seminar

      The North American Securities Administrators Association (NASAA) CRD User Committee has scheduled a CRD (Central Registration Depository) National Seminar at the Ramada Inn in Nashville, Tennessee, June 2-3, 1989, from 9 a.m. to 5 p.m. each day.

      The seminar aims to provide a forum for NASAA and the industry to jointly address issues on Phase I, Phase II, Special Registration Review (SRR), non-CRD state requirements, and enforcement issues and to provide better overall communication between NASAA members and industry representatives.

      Registrations cost $150 each, including lunches, and must be made by April 24. Hotel reservations should be sent directly to the Ramada Inn, 2401 Music Valley Drive, Nashville, TN 37214 by May 1.

      For further information regarding this seminar and to obtain a registration form, please contact the NASAA corporate office at (202) 737-0900.

      March Notices to Members Incorrectly Reports Disciplinary Action

      In the complaint against William J. McLaren (Registered Principal, Mentor, OH), the second cause of complaint, which alleged that McLaren made recommendations to a customer for the purchase and sale of securities without having reasonable grounds for believing that the recommendations were suitable, was dismissed.

      The March issue of Notices to Members erroneously reported that McLaren was found in violation of the second cause of complaint.

      NASD Implements New Subscription Policy for Notices to Members

      NASD members can purchase an additional subscription to Notices to Members for $150 a year. Single issues can be purchased for $15 and individual notices for 50 cents per page. The full NASD subscription service, which costs $300 per year, includes Notices to Members, Guide to Information and Services, IR Report, Subscriber Bulletin, Executive Digest, Regulatory and Compliance Alert, NASDAQ Notes, NASDAQ News, the NASDAQ Fact Book, the NASD Annual Report, two editions of the NASDAQ Company Directory, and special reports.

      To order a subscription, send a check payable to the National Association of Securities Dealers, Inc., to:

      NASD Publications, Treasurer's Department
      9513 Key West Avenue
      Rockville, MD 20850-3389.

      District 7 to Sponsor Membership Meeting and Educational Seminar in Florida

      NASD District 7 will sponsor a compliance-oriented seminar for management and operations personnel of NASD members that will include topics of special interest to securities lawyers and accountants. Seminar participants can choose among 18 subjects in five sessions. The seminar will be held May 18-19 at the Pier 66 Hotel and Marina in Fort Lauderdale, Florida. The fee for registration is $240 for members and $265 for non-members. Discounts are available for members registering more than three people and for early registration.

      Call Deborah Hampel at (404) 239-6145 for more information.

    • 89-37 NASDAQ National Market System Additions, Changes, and Deletions As Of March 13, 1989

      SUGGESTED ROUTING*

      Internal Audit
      Operations
      Systems
      Trading

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

      As of March 13, 1989, the following six issues joined the NASDAQ National Market System, bringing the total number of issues in NASDAQ/NMS to 2,859:

      Symbol

      Company

      Entry Date

      SOES Execution Level

      TMAS

      TriMas Corporation

      2/14/89

      1000

      FAHSP

      Farm & Home Financial Corporation (Pfd)

      2/15/89

      500

      CHMLV

      Chemex Pharmaceuticals, Inc.(1989-1 Wts) (WI)

      3/7/89

      1000

      EQBK

      Equity Bank (The)

      3/7/89

      200

      TRNS

      Transmation, Inc.

      3/7/89

      1000

      WLRF

      WLR Foods, Inc.

      3/7/89

      500

      NASDAQ/NMS Symbol and/or Name Changes

      The following changes to the list of NASDAQ/NMS securities occurred since February 10, 1989:

      New/Old Symbol

      New/Old Security

      Date of Change

      NATR/AMTC

      Nature's Sunshine Products, Inc./ Nature's Sunshine Products, Inc.

      2/15/89

      SSBC/SSAL

      Shelton Bancorp, Inc./Shelton Bank

      2/15/89

      VSLF/VSLF

      VMS Strategic Land Fund II/VMS Strategic Land Trust II

      2/21/89

      ALLP/OBPI

      Alliance Pharmaceutical Corp./Otisville BioPharm, Inc.

      2/27/89

      ALLPW/OBPIW

      Alliance Pharmaceutical Corp. (Wts)/Otisville BioPharm, Inc. (Wts)

      2/27/89

      CMTK/TKAI

      Cimflex Teknowledge Corp./Teknowledge, Inc.Seattle Film Works, Inc./American Passage Marketing Corp.

      2/27/89

      FOTO/APAS
      FFNS/FFNS

      First Savings Bancorp/First Financial Savings Association, F.A.

      2/27/89

      INTP/INTP

      Interpoint Corp./Integrated Circuits, Inc.

      3/1/89

      NCBR/NCBR

      National Community Banks, Inc./National Community Bank of New Jersey

      3/1/89

      MSBI/MSBI

      Montclair Bancorp, Inc./Montclair Savings Bank

      3/2/89

      SSLN/SSLN

      Security Investments Group, Inc./Security

      3/6/89

      CLRXW/CLRXW

      Colorocs Corp. (Cl C 6/30/89 Wts)/ Colorocs Corp. (Cl C 3/31/89 Wts)

      3/13/89

      NASDAQ/NMS Deletions

      Symbol

      Security

      Date

      CESC

      Computer Entry Systems Corporation

      2/13/89

      LAGR

      L.A. Gear, Inc.

      2/13/89

      GALCF

      Galactic Resources Ltd.

      2/14/89

      APER

      Atlantic Permanent Savings Bank, FSB

      2/14/89

      SCIE

      Scicom Data Services, Ltd.

      2/15/89

      ENZNW

      Enzon, Inc. (Wts)

      2/16/89

      HRCLY

      Huntingdon International Holdings, plc

      2/16/89

      MALR

      Malrite Communications Group, Inc.

      2/22/89

      MALRA

      Malrite Communications Group, Inc. (Cl A)

      2/22/89

      MCRD

      Micro D, Inc.

      2/23/89

      FARKC

      First Federal Savings of Arkansas, FA

      2/24/89

      PUBO

      Pubco Corporation

      2/27/89

      TOOT

      202 Data Systems, Inc.

      2/28/89

      AFSL

      AmFed Financial Corporation

      2/28/89

      AITX

      Automatix Incorporated

      2/28/89

      DLTAQ

      DeltaUS Corporation

      2/28/89

      ENER

      Energy Conversion Devices, Inc.

      2/28/89

      FARR

      Farragut Mortgage Co., Inc.

      2/28/89

      ITXI

      Interactive Technologies, Inc.

      2/28/89

      ITXIW

      Interactive Technologies, Inc. (Wts)

      2/28/89

      NAFI

      Northern Air Freight, Inc.

      2/28/89

      SISB

      SIS Corp.

      2/28/89

      TELQ

      TeleQuest, Inc.

      2/28/89

      FFWS

      First Farwest Corporation

      3/1/89

      RADX

      Radionics, Inc.

      3/1/89

      WDMR

      Windmere Corporation

      3/1/89

      LAUR

      Laurel Entertainment, Inc.

      3/2/89

      TEMC

      Temco Home Health Care Products, Inc.

      3/3/89

      TEMCW

      Temco Home Health Care Products, Inc. (Wts)

      3/3/89

      WNDT

      Wendt-Bristol Co. (The)

      3/3/89

      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, NASD Market Surveillance, at (202) 728-8192.

    • 89-36 SIPC Trustee Appointed for Investors Center, Inc.

      SUGGESTED ROUTING*

      Municipal
      Operations
      Systems

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

      On March 7, 1989, the United States District Court for the Eastern District of New York appointed a SIPC Trustee for:

      Investors Center, Inc.
      110 Ricefield Lane
      Hauppauge, NY 11788

      Members may use the "immediate close-out" procedures provided for in Section 59(i) of the NASD's Uniform Practice Code to close out open OTC contracts with this firm. Also, Municipal Securities Rulemaking Board Rule G-12(h)(iv) provides that members may use identical procedures to close out transactions in municipal securities.

      Questions should be directed to the SIPC Trustee:

      Irving R. Picard, Esq.
      Olshan Grundman & Frome
      505 Park Avenue, 16th Floor
      New York, NY 10022
      (212) 753-7200

      Previously, Mr. Picard had been appointed Temporary Receiver.

    • 89-35 Misuse of "No Load" Terminology in the Offer of Mutual Funds That Have Contingent Deferred Sales Loads

      SUGGESTED ROUTING*

      Institutional
      Legal & Compliance
      Mutual Fund
      Operations
      Training

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

      EXECUTIVE SUMMARY

      The NASD has received a number of complaints from investors in mutual funds that have no front-end sales loads but that have contingent deferred sales loads (CDSLs). The NASD intends to investigate the circumstances that generated each of the complaints received and to pursue disciplinary action against persons associated with NASD members who misrepresented the sales load structure of any of the mutual funds purchased by the complainants.

      Background and Explanation

      CDSLs are sales loads that are charged on redemption on a declining percentage basis annually and are usually reduced to zero percent by the sixth or seventh year of share ownership. The complaining investors allege that registered representatives, when offering the securities, described the funds as "no load" or as having "no initial load." The investors claim they were unaware of the CDSL until they decided to redeem their shares.

      To assert that a mutual fund with a CDSL is a "no load fund" is an unacceptable misrepresentation. To state that there is "no initial load" without explaining the nature of the CDSL is an omission of material information.

      Stated simply, such funds are not "no load" funds, and to say or imply that they are is a violation of Article III, Section I of the NASD Rules of Fair Practice that is not alleviated by the disclosures about a CDSL in a mutual fund's prospectus.

      All members and their registered representatives must ensure that prospective investors understand the nature of the various charges made by mutual funds to defray sales and sales promotion expenses, whether they are deducted from an investor's purchase payment, charged on redemption, or levied against the net assets of a fund.

      Please ensure that this notice is distributed to all persons associated with your firm who are engaged in the sale or distribution of mutual funds.

      Questions about this notice should be directed to A. John Taylor, Vice President, Investment Companies/Variable Contracts Department at (202)728-8328.

    • 89-34 Guidelines For Compliance With Article III, Section 27 of the NASD Rules of Fair Practice Re: Supervisory Practices and Procedures

      SUGGESTED ROUTING*

      Senior Management
      Legal & Compliance
      Registration
      Training

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

      EXECUTIVE SUMMARY

      On April 13, 1989, significant amendments to Article III, Section 27 of the NASD Rules of Fair Practice will take effect. This notice sets forth, in question and answer format, certain guidelines for compliance with the new provision.

      BACKGROUND

      As announced in Notice to Members 88-84 (November 1, 1988), significant amendments to Article III, Section 27 of the Rules of Fair Practice, pertaining to supervision, will take effect April 13, 1989. The amendments (1) prescribe specific supervisory practices and procedures for all member firms and (2) revise the definitions of office of supervisory jurisdiction and branch office. Since the publication of Notice to Members 88-84, several NASD members have raised questions concerning the new provisions. The NASD is publishing the answers to certain of these questions for the benefit of all members.

      QUESTIONS AND ANSWERS

      Supervisory Practices and Procedures

      (1)
      Q: Must the supervisory system established in compliance with Article III, Section 27 cover all operations of the firm or only retail sales?
      A: The supervisory system must cover all aspects of the firm's investment banking and securities business, including back office; corporate financing; trading activity; market services such as SOES, OCT, and NASDAQ/NMS trade reporting; and so forth. The degree of detail in the plan for a given aspect of business will vary, depending on, for example, the extent to which detailed regulatory requirements apply to that aspect. Thus, the supervisory procedures for retail activity are likely to be more extensive than for other areas.
      (2)
      Q: Section 27(a)(2) requires the designation, where applicable, of an appropriately registered principal with authority to carry out the supervisory responsibilities of the member for each type of business in which it engages for which registration as a broker-dealer is required. Has the NASD established any specific requirements for these individuals?
      A: No specific requirements have been established for purposes of Article III, Schedule 27. The applicable standards are contained in Part II of Schedule C, which sets forth the qualifications for functioning in the various principal capacities. Thus, for example, the principal designated as responsible for the review of the firm's options business must be qualified under Schedule C to function in a principal capacity with respect to options transactions. Similarly, the principals and representatives who are assigned to carry out supervisory functions in the members' offices pursuant to Section 27(a)(4) must be qualified to function as principals or representatives as to the products sold in the offices they supervise.
      (3)
      Q: Section 27(a)(6) requires members to make reasonable efforts to determine that all supervisory personnel are properly qualified. What constitutes reasonable efforts?
      A: It would be impossible for the NASD to prescribe specific steps to be taken to determine the proper qualification of supervisory personnel. Generally speaking, such persons should be knowledgeable with respect to both regulatory requirements and the firm's product line, experienced in the activities that take place in the office they are supervising, and capable of exercising authority over their subordinates. In addition, factors such as relevant industry experience, previous employment, and disciplinary history should be taken into account.
      (4)
      Q: Section 27(a)(7) requires that each representative participate in an annual compliance interview.
      (a) Is a telephone interview adequate?
      A: Neither a telephone interview nor a video conference complies with the rule. The interview or meeting must be "in person," although, as the rule states, it may be individual or collective, and the compliance discussions may take place in conjunction with discussions or presentations on other topics. It would, however, be permissible to include the showing of a videotape prior to or as a part of the presentation.
      (b) Must the interview be conducted by a principal? By an employee from the compliance department or main office?
      A: The interview or meeting is not required to be conducted by a registered principal or by an employee from the main office or compliance department. A qualified branch manager may conduct the interview or meeting, as may a qualified registered representative. A member may also engage a third party to conduct the interview or meeting; however, the firm cannot avoid ultimate responsibility for any inaccuracies or other problems in the contents presented or procedures employed.
      (c) What should be discussed and what type of records should the firm maintain to establish compliance?
      A: It would be impossible for the NASD to provide an exhaustive list of the topics that should be addressed at the compliance interview or meeting. Generally speaking, the purpose of the requirement is threefold: (1) to provide the member an opportunity to review the product mix and method of operation of each representative and emphasize compliance issues related thereto; (2) to provide the representative an opportunity to ask any questions he or she may have and receive authoritative guidance; and (3) to communicate regulatory developments, firm policies, and similar information to the representatives. As to evidencing compliance, members may wish to maintain records that reflect the date and location of the interview or meeting, the attendees, and the subjects discussed.
      (d) Is the requirement limited to those representatives who engage in retail sales?
      A: The rule requires that all registered representatives must attend an interview or meeting; it is not intended to be restricted to those representatives engaged in retail sales.
      (5)
      Q: Section 27(a)(8) requires members to designate and "specifically identify" to the NASD one or more principals to review the member's supervisory system and take or recommend appropriate action. How should members identify such individuals to the NASD?
      A: Members should maintain a record of the individual(s) so designated so that it may be provided to the NASD on request. Sometime in the future, the identification will be made by means of the Form BD. Members will be advised of any changes in this regard.
      (6)
      Q: Section 27(c) continues the existing requirement that each member review the activities of each office, including the periodic examination of customer accounts to detect and prevent irregularities or abuses. By the phrase "each office,"does the NASD mean to include nonbranch offices?
      A: This review requirement (as contrasted to the inspection requirements applicable to offices of supervisory jurisdiction and branch offices) encompasses all offices of the member, regardless of whether they are OSJs or branch offices. The NASD believes that it is essential for a member to be aware, on an ongoing basis, of the individuals located in and activities of each office at which the member's business is conducted, and to be able to monitor all customer accounts, wherever they are handled, for irregularities and abuses.
      (7)
      Q: May a member employ outside entities to perform the branch office inspections required by Section 27(c)?
      A: Yes. As with the compliance interview, however, the member cannot avoid regulatory responsibility for the conduct of the inspections.

      Definition of Office of Supervisory Jurisdiction

      (8)
      Q: If an individual located away from an office of the firm telephones an order to the firm's clearing broker, does that person's location become an Office of Supervisory Jurisdiction (OSJ) under Section 27(f)(l)(i), "order execution and/or market making"?
      A: The individual's location would not be an OSJ because the order is executed by the clearing broker, not the introducing broker. Such a practice, however, does raise concerns about the introducing broker/employer's ability to supervise the transaction.

      Definition of Branch Office

      (9)
      Q: If, prior to April 13, 1989, a member has contracted for a telephone directory listing that does not comply with the exception to the branch office definition, must the office be designated as a branch office until a complying listing is published?
      A: No, provided that the listing is modified to comply in the next-published directory and that the contract was entered into prior to November 1, 1988, the date when the membership was notified of the effective date of the amendments.
      (10)
      Q: Must a "white pages" listing also contain the address and telephone number of the supervising office in light of the exclusion of a routine listing from the definition of advertisement in Section 35(a)(l) of the Rules of Fair Practice?
      A: Yes, a "white pages" or routine listing must contain the address and telephone number of the supervising office if the member wishes to avail itself of the exception from the definition of branch office. The definition of advertisement does not affect this requirement.
      (11)
      Q: The NASD has proposed amendments to Article III, Section 35 that would affect the form of business cards and letterhead (see Notice to Members 89-22). Is it possible to delay compliance with Article III, Section 27(f)(2) until those provisions go into effect?
      A: No. The NASD has already provided a six-month phase-in period for the new branch office definition and does not believe it is appropriate to delay further the effectiveness of this key aspect of the new rules. In order to reduce the financial burden of compliance with both changes, it may be possible to affix the supervising office identification to existing cards and letterhead until the new advertising rules take effect. As an alternative, a member may wish to prepare new business cards that comply with both rules even though the advertising rules are not yet effective.
      (12)
      Q: Under Section 27(f)(2), would the branch office definition include:
      (a) An exhibit booth in a shopping mall?
      A: If an "exhibit booth" is permanent or regularly used, it would be covered by the definition.
      (b) An office listed on a building lobby directory?
      A: Such an office would be subject to the definition because it is being identified to the general public as an office of the member.
      (c) An office identified by a sign on the door?
      A: The NASD believes that, if a door sign is visible to the general public, it would cause the location to be a branch office. In response to member inquiries concerning certain state law requirements regarding door signs, the NASD is considering whether a sign that appears only on a door inside a building on an interior hallway and is not placed in an area of general public access would cause the location to be a branch office.
      (d) A sign at a desk in a savings and loan office?
      A: If the member does business at that location, it must be designated as a branch office; however, a sign that merely advertises the member's business and directs interested parties to a telephone number or an office of the firm would not give rise to the branch office designation.
      (e) An office where only the local telephone number (not an address) is printed in a newspaper advertisement?
      A: A nonbranch location may not advertise. If a newspaper advertisement lists a local telephone number, the location at which that telephone is answered would be a branch office regardless of whether the address is given. Such an advertisement identifies that location as a place where the public, via telephone, can do business with the member.
      (f) A location to which individuals are referred when they respond to a newspaper or magazine advertisement listing the main office telephone number?
      A: The identification of a location otherwise excepted from the definition of a branch office under such circumstances is unlikely to cause that location to become a branch office. It is the main office that is being identified to the public; the local office is identified only after the prospective customer has initiated the contact.

      Questions concerning this notice can be directed to Jacqueline D. Whelan, Assistant General Counsel, Office of the General Counsel, at (202) 728-8270.

    • 89-33 Proposed Amendments to Article III, NASD Code of Procedure Re: Board of Governors' Reviews of Disciplinary Actions; Last Date for Comments: May 1, 1989

      SUGGESTED ROUTING*

      Senior Management
      Legal & Compliance

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

      REQUEST FOR COMMENTS

      EXECUTIVE SUMMARY

      The NASD requests comments on proposed amendments to Article III of the NASD Code of Procedure concerning Board of Governors' reviews of disciplinary actions taken by District Business Conduct Committees (DBCC) and the Market Surveillance Committee (MSC).

      The proposed amendments would (i) establish procedures for hearings in connection with such reviews, (ii) convert such reviews into truly appellate-type proceedings, (iii) limit the duration of oral argument at such hearings to 15 minutes, with hearing panels empowered to extend that time, (iv) codify practices as to matters reviewed on the basis of the written record, (v) prohibit the introduction of new evidence before Board review panels, (vi) provide for a remand to the District Business Conduct Committee or Market Surveillance Committee in any appeal where the appealing party did not participate in the DBCC or MSC proceedings but shows good cause for such failure to participate, (vii) provide for review by the Board panel on the basis of the written record when the appealing party did not participate in the DBCC or MSC proceedings or offer a valid explanation for such failure to participate, unless the appealing party seeks and obtains leave to introduce evidence before the Board review panel, and (viii) provide for the dismissal of appeals that are not pursued by the appealing party.

      BACKGROUND

      Under Article III of the NASD Code of Procedure, respondents in disciplinary actions taken by the DBCC and the MSC may appeal those actions to the NASD Board of Governors, or the Board may call a matter for review. In either case, current code provisions permit the respondents to elect to attend or waive a hearing before a hearing panel of the Board and to submit new evidence, provided that (i) the evidence has been made available to the NASD within a reasonable time before the hearing or on-the-record review or (ii) if a hearing is held, the hearing panel determines to permit the presentation of evidence submitted for the first time at the hearing. The Board review procedure is based on the presumption that the respondent participated in and produced evidence at the proceedings before the DBCC or MSC, and that each matter has, therefore, received a full review by a Committee below.

      The proposed amendments are in response to the NASD's recent observations that:

      (1) a significant amount of additional evidence, both testimonial and documentary, is presented at the Board level that should properly have been considered first by the DBCC or MSC;
      (2) a number of appeals have been received from persons who did not participate in the proceedings before the DBCC or MSC; and
      (3) an increasing number of appellants fail to respond to staff inquiries or otherwise pursue their appeals to the Board beyond filing of the initial notice of appeal.

      PROPOSED AMENDMENTS

      As a result of these observations, the National Business Conduct Committee (NBCC) and the Board of Governors have discussed possible amendments to Article HI of the Code of Procedure in an attempt to address these concerns while maintaining the integrity of the Board review process. These discussions have resulted in proposals that would amend Article III in several respects.

      First, the amendments would provide for the dismissal of appeals when the respondent fails, following the initial notice of appeal, to pursue the appeal by responding to staff requests for information required to proceed with the appeal. In response to each notice of appeal, the staff sends a letter acknowledging the appeal, requesting certain additional information, and specifying a time period for a response. Under the proposed amendments, if no response is received by the specified date, the appeal would be deemed abandoned and would be dismissed. The Board believes that this is appropriate because it is an unnecessary expenditure of NASD resources to devote time to appeals that the appealing party fails to pursue.

      In addition, it is the Board's intent to convert the Board-level proceedings to truly appellate-type proceedings in which the introduction of evidence is not permitted and oral argument is made on the law as applied to the facts developed below. The proposed amendments would provide a limitation on the length of a respondent's presentation to 15 minutes. Hearing panels would be empowered to extend this time period for good cause. The Board believes this period is sufficient for the majority of matters, and will allow panels to grant more time for matters that require more detailed arguments. A District staff representative or regional counsel also would be permitted to make oral argument on behalf of the District Committee.

      As to the introduction of additional evidence in Board proceedings, if the party seeking to introduce the evidence demonstrates good cause for failing to do so before the DBCC or MSC, the Board would have the authority to rule in favor of admissibility. As noted above, there are now almost no restrictions on the ability to introduce new evidence in Board proceedings. The Board of Governors believes that parties to NASD disciplinary proceedings should introduce all relevant evidence before the DBCC or MSC so that those committees have the benefit of a complete record. The Board also believes, however, that provision should be made for the introduction of new evidence under certain limited circumstances when, for example, evidence was unavailable or not reasonably discoverable at the time of the DBCC or MSC proceedings. The Board committee would be authorized to admit new evidence in such circumstances, but it would be unlikely to permit the introduction of additional evidence unless the respondent can sustain the burden of showing good cause for failing to introduce the evidence below. The materiality of the evidence also would be a factor in that decision. This standard would be similar to that used by certain other self-regulatory organizations and to the standard applied in SEC Rule 19d-3(e), which governs the admissibility of new evidence in Commission review of NASD disciplinary actions. This provision will be administered strictly with a presumption against admissibility at the Board level.

      The proposed amendments would also provide for a remand to the DBCC or MSC, without Board consideration, of appeals in which the appealing party did not participate in the DBCC or MSC proceedings and shows good cause for such failure to participate.1 This amendment is consistent with the Board's view that the integrity of the two-level disciplinary process must be preserved and that a full proceeding below should precede Board review. If, however, the appealing party did not participate in the DBCC or MSC proceedings and does not show good cause for such failure, then the matter generally will be considered by the Board on the basis of the written record developed by the DBCC or MSC. In any event, the introduction of evidence at the Board-level hearing would be severely restricted.

      In addition, the Board of Governors has determined to incorporate into the amendments language that clarifies the procedures for seeking a hearing in connection with an appeal or call for review and codifies certain existing practices with respect to matters considered on the basis of the written record. These amendments are reflected in Sections 2(a) and 2(c)-(f) of the proposed amendments.

      Finally, the Board has also determined to propose amendments to Article II, Sections 7(a) and (b) of the Code of Procedure to provide that the NASD staff (or complainant if other than a DBCC or the MSC) and the respondent shall make available to one another on a timely basis the names of proposed witnesses in addition to proposed documentary evidence. The Board also invites comments concerning the desirability of amending Article II, Section 7(c) to place restrictions, similar to those set forth in the proposed amendment to Article III, on the ability to introduce documentary and testimonial evidence at the DBCC or MSC hearing that has not been provided in advance as set forth in Sections (a) and (b).

      The Board of Governors believes that the proposed amendments will further the objective of encouraging a full and complete presentation to the DBCC or MSC without impinging upon the important function of Board review.

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

      Mr. Lynn Nellius, Secretary
      National Association of Securities Dealers, Inc.
      1735 K Street, NW
      Washington, DC 20006

      Questions concerning this notice can be directed to Dennis C. Hensley, Vice President and Deputy General Counsel, at (202) 728-8245 or T. Grant Callery, Associate General Counsel, at (202) 728-8285.

      Comments must be received no later than May 1, 1989. Comments received by this date will be considered by the NBCC and the Board of Governors. Changes to the Code of Procedure must be approved by the Board of Governors and filed with, and approved by, the SEC before becoming effective.

      PROPOSED AMENDMENTS TO CODE OF PROCEDURE

      (Note: New text is underlined; deleted text is in brackets.)

      ARTICLE II

      Sec. 1-Sec. 6 No change.

      Evidence and Procedure in Committee Hearings

      Sec. 7.(a) The Committee staff, or the complainant, if other than a Committee, shall upon request make available to respondents and their counsel any documentary evidence and the names of any witnesses the staff intends to present no later than five business days prior to [at the hearing within a reasonable time before] the hearing.

      (b) Respondents shall submit to the Committee staff or the complainant, any documentary evidence and the names of any witnesses respondents intend to present at the hearing no later than five business days prior to [within a reasonable time before] the hearing.
      (c) If a hearing is held, both the complainant and the respondent shall be entitled to be heard in per son and by counsel. Formal rules of evidence shall not be applicable. Notwithstanding paragraphs (a) or (b), the parties may submit any additional documentary evidence at the hearing as the hearing panel, in its discretion, determines may be relevant and necessary for a complete record. A record of the hearing shall be kept in all cases.

      Sec. 8-Sec. 13 No change.

      ARTICLE III

      Review of Disciplinary Actions and [Hearings] Proceedings Before the Board of Governors

      Sec. 1. No change.

      [Hearings] Proceedings Before the Board

      Sec.2. (a) In the case of an appeal or call for review, the [complainant, if other than the Committee, or the respondent] party seeking review may request a hearing. If the party desires a hearing, it should be requested in his application for review. A party subject to a call for review may request a hearing within 15 calendar days of notification of the call for review. [may request a hearing before a hearing panel of the Board of Governors.] If a request is made, subject to the limitations of Section 2(j) below, a hearing shall be granted. In the absence of a request for a hearing, the Board of Governors may have any matter set down for a hearing.

      (b) If a hearing is held, a [A] notice stating the date, time and place of the hearing shall be mailed to the complainant and respondent at least 10 calendar days before the hearing. The notice period may be waived in writing by the respondent or a shorter notice given where extraordinary circumstances require.
      (c) If a hearing is not held, the matter shall be considered on the basis of the written record.
      [(c)] (d) Unless otherwise consented to by the parties, all hearings shall be held before a hearing panel, and all on-the-record reviews shall be conducted by a review panel, appointed by the National Business Conduct Committee consisting of two or more persons, all of whom are associated with members of the Corporation, at least one of whom shall also be a current member of the Board of Governors.
      [(e) If a hearing is held, the hearing panel shall consider the record before the Committee and any new material submitted by the complainant and the respondents. If respondent waived a hearing and the Board does not order a hearing on its own motion, the panel shall consider the matter on the record, which may include new evidence as long as all parties have previously been tendered the new evidence.]
      (g) A hearing on review by the Board shall consist of oral arguments limited to a period of 15 minutes each for argument and responses by appellant or respondent where cases were called for review and responses by a representative of the District Committee unless extended by the hearing panel in its discretion for good cause shown. The Board's review shall include consideration of written briefs, as applicable, and shall be limited to consideration of the record before the Committee, including the complaint, respondent's(') answer(s), the transcript of the Committee hearing, any exhibits reviewed by the Committee, and the Committee decision.
      (h) Notwithstanding paragraph (g) above, a party to the Board's review may apply to the Board for leave to adduce additional evidence. If the party provides notice of the intention to introduce such evidence no later than 10 business days prior to the date of the hearing, identifies and describes the evidence, and satisfies the burden of demonstrating that there was good cause for failing to adduce it before the Committee and that the evidence is material to the proceeding, the Board may, in its discretion, permit the evidence to be introduced into the record on review or may remand the case to the Committee for further proceedings in whatever manner and on whatever conditions the Board considers appropriate. On its own motion, the Board may direct that the record on review be supplemented with such additional evidence as it may deem relevant.
      (i) Any application for review as to which the party seeking review fails to advise the Board of the basis for seeking review, or otherwise fails to provide information or submit a written brief in response to a request, may be dismissed as abandoned.
      (j) Any application for review of a matter in which the party seeking review did not participate in the proceedings before the Committee and shows good cause for failure to participate, shall be dismissed and the matter shall be remanded to the Committee for further proceedings. If the party seeking review did not participate in the proceeding before the Committee and does not show good cause for the failure to participate, the matter shall be considered on the basis of the written record. For purposes of this paragraph, failure to participate shall mean failure to file an answer or otherwise respond to a complaint or failure to appear at a hearing which has been scheduled and shall not include failure to request a hearing pursuant to Article II, Section 4 of this Code. In the latter case, the appeal shall be limited to the evidence before the District Committee.
      [(f)](k) The hearing or on-the-record review panel shall present its recommended findings and sanctions to the National Business Conduct Committee. The National Business Conduct Committee shall make its recommended findings and sanctions to the Board of Governors which shall make the final determination.

      Evidence and Procedure in Board Hearings

      Sec. 3. (a) [Upon request] Where leave to adduce additional evidence is granted, the Corporation staff or the complainant, if other than a Committee, and the respondent shall make available to the Board hearing or review panel and to the parties all [such] documentary evidence which was not part of the record before the Committee within a reasonable time,] no later than 10 business days before the hearing.

      [(b) Respondents shall also make available to the Corporation staff or the complainant, any documentary evidence, which was not part of the record before the Committee, within a reasonable time before the hearing.]
      [(c)] (b) If a hearing is held both the complainant and respondent shall be entitled to be heard in person and by counsel. Formal rules of evidence shall not be applicable. [Notwithstanding paragraphs (a) or (b), the parties may submit any additional documentary evidence at the hearing as the hearing panel, in its discretion, determines may be relevant and necessary for a complete record.] A record of the hearing shall be kept in all cases.

      Sec. 4 - Sec. 7 No change.


      1Failure to participate means the failure to file an answer or otherwise respond to the complaint or the failure to appear at the hearing when a hearing has been scheduled. It does not include a waiver of the right to a hearing pursuant to Article II of the Code of Procedure.


    • For Your Information (March)

      For Your Information

      National Association of Securities Dealers, Inc.

      March 1989

      Series 7 Test Changes For March; Permanent Site Change in Anchorage

      Memphis Test Site for March

      The March 18, 1989, Series 7 exam in Memphis will be held at:

      Sheraton Hotel
      300 N. 2nd Street
      Memphis, TN

      Atlanta Test Site for March

      The March 18, 1989, Series 7 exam in Atlanta will be held at:

      Georgia International Convention & Trade Center
      1902 Sullivan Road
      College Park, GA

      The Georgia International Convention & Trade Center is located one mile north of the Hartsfield Airport on Sullivan Road, which is off Riverdale Road and is next to the Holiday Inn Crowne Plaza.

      Permanent Site Change

      Candidates are reminded that the location for all First Saturday and Third Saturday exams in Anchorage is:

      Alaska Pacific University
      Great Hall
      Room 215
      Anchorage, AK

      Series 63 Exam Implemented in Nebraska Effective March 15, 1989

      The state of Nebraska will begin requiring the Series 63 USASLE exam as a prerequisite for agent registration for agent registration in the state.

      The requirement will apply for all agents who have never been registered in the state of Nebraska or have not been registered within the past two years.

      Questions should be directed to NASD Information Services at (301) 590-6500.

      Update to State Participation in CRD Form BD and BDW Processing

      Notice to Members 89-6 provided information effective February 1, 1989, regarding state participation in CRD Phase II, the Form BD and Form BDW processing phase of the CRD system. Form BD is the primary broker-dealer application used by the NASD and the states.

      Once registered, firms are under a continuing obligation to keep current the information reported on Form BD. Since that time, several states have changed aspects of their participation.

      In summary, the changes are:

      Arkansas: Change from participating to non-participating.
      Delaware: Fee changed from $150 to $10.
      Kentucky: Fee no longer collected through CRD.
      Texas: Fee now collected through CRD.
      Wisconsin: Fee changed from $300 to $400.

      Questions regarding this notice should be directed to NASD Information Services at (301) 590-6500.

      This notice includes a revised chart indicating the states that will participate in Phase II as of February 1, 1989. All states listed as participants will accept the Form BD amendments and Forms BDW filed with CRD in place of an original filing made directly with their offices.

      The chart also reflects current state broker-dealer initial registration filing fees and indicates whether the state will collect these fees through CRD.

      CRD Phase II Participants

      As of February 1, 1989

      CRD collection of state initial registration fees will be accomplished by submission of Pages 1 and 2 of Form BD along with the designated fees. Please contact the appropriate state(s) to determine any additional filing requirements. ( Y=yes; N=no). (Note: All changes are in bold.)

      State

      Participating Form BD Amendment and Form BDW

      CRD Collection of Initial Reg. Fee

      Initial B/D Reg. Fee

      AL

      Y

      Y

      200

      AK

      Y

      N

      AZ

      N

      N

      AR

      N

      N

      CA

      Y

      N

      CO

      Y

      Y

      75

      CT

      Y

      Y

      250

      DE

      Y

      Y

      10

      DC

      Y

      Y

      250

      FL

      N

      N

      GA

      Y

      Y

      250

      HI

      Y

      Y

      100

      ID

      Y

      Y

      75

      IL

      Y

      Y

      200

      IN

      Y

      Y

      250

      IA

      Y

      Y

      200

      KS

      Y

      Y

      100

      KY

      Y

      N

      LA

      Y

      Y

      250

      ME

      Y

      Y

      100

      MD

      Y

      Y

      125

      MA

      Y

      Y

      300

      MI

      N

      N

      MN

      Y

      Y

      200

      MS

      Y

      Y

      125

      MO

      Y

      Y

      200

      MT

      Y

      Y

      200

      NE

      N

      N

      NV

      Y

      N

      NH

      N

      N

      NJ

      N

      N

      NM

      Y

      Y

      300

      NY

      Y

      N

      NC

      Y

      Y

      200

      ND

      Y

      Y

      100

      OH

      Y

      Y

      150

      OK

      Y

      Y

      300

      OR

      Y

      Y

      100

      PA

      Y

      Y

      125

      PR

      N

      N

      RI

      Y

      Y

      200

      SC

      Y

      Y

      100

      SD

      Y

      Y

      150

      TN

      Y

      Y

      200

      TX

      Y

      Y

      180

      UT

      Y

      Y

      75

      VT

      Y

      Y

      200

      VA

      Y

      N

      WA

      Y

      Y

      150

      WV

      Y

      Y

      150

      WI

      Y

      Y

      400

      WY

      Y

      Y

      100

    • 89-32 Temporary Receiver Appointed for Investors Center, Inc.

      SUGGESTED ROUTING*

      Municipal
      Operations
      Systems

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

      On February 28, 1989, the United States District Court for the Eastern District of New York appointed a Temporary Receiver for:

      Investors Center, Inc.
      110 Ricefield Lane
      Hauppauge, NY 11788

      Members may use the "immediate close-out" procedures provided for in Section 59(i) of the NASD's Uniform Practice Code to close out open OTC contracts with this firm. Also Municipal Securities Rulemaking Board Rule G-12(h)(iv) provides that members may use identical procedures to close out transactions in municipal securities.

      Questions should be directed to the Temporary Receiver:

      Irving R. Picard, Esq.
      Olshan Grundman & Frome
      505 Park Avenue, 16th Floor
      New York, NY 10022
      (212) 753-7200

    • 89-31 NASDAQ National Market System Additions, Changes, and Deletions as of February 10, 1989

      SUGGESTED ROUTING*

      Internal Audit
      Operations
      Systems
      Trading

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

      As of February 10, 1989, the following 26 issues joined the NASDAQ National Market System, bringing the total number of issues in NASDAQ/NMS to 2,880:

      Symbol

      Company

      Entry Date

      SOES Execution Level

      NUCOZ

      Nucorp, Inc. (Matched Wts)

      1/13/89

      200

      ESTO

      Eastco Industrial Safety Corp.

      1/17/89

      1000

      FERT

      Nu-West Industries, Inc.

      1/17/89

      1000

      FERTP

      Nu-West Industries, Inc. (Pfd)

      1/17/89

      200

      OICO

      O.I. Corporation

      1/17/89

      500

      PCSN

      Precision Standard, Inc.

      1/17/89

      1000

      SHBZ

      ShowBiz Pizza Time, Inc.

      1/17/89

      500

      STHFP

      Stanley Interiors Corporation (Pfd)

      1/18/89

      1000

      FSII

      FSI International, Inc.

      1/19/89

      1000

      VANF

      VanFed Bancorp

      1/26/89

      500

      EECN

      Ecogen, Inc.

      1/30/89

      500

      NETG

      Network General Corporation

      2/3/89

      500

      BTUI

      BTU International, Inc

      2/7/89

      1000

      CCLPZ

      Callon Consolidated Partners, L.P.

      2/7/89

      500

      CSYS

      Central Banking System, Inc.

      2/7/89

      1000

      CCRS

      Corporate Capital Resources, Inc.

      2/7/89

      1000

      HTXA

      Hitox Corporation of America

      2/7/89

      1000

      NRTI

      Nooney Realty Trust, Inc.

      2/7/89

      200

      PRCO

      Pricor Incorporated

      2/7/89

      500

      PRBK

      Provident Bancorp, Inc.

      2/7/89

      200

      REDX

      Red Eagle Resources Corporation

      2/7/89

      500

      SMET

      SiMETCO, Inc.

      2/7/89

      500

      STRC

      Stratford American Corporation

      2/7/89

      200

      TEJS

      Tejas Gas Corporation

      2/7/89

      1000

      WOTK

      World-Wide Technology, Inc.

      2/7/89

      500

      UFBK

      United Federal Bancorp, Inc.

      2/8/89

      1000

      NASDAQ/NMS Pending Additions

      The following issues have filed for inclusion in NASDAQ/NMS upon effectiveness of their registration statements with the SEC or other appropriate regulatory authority. Their inclusion may commence prior to the next regularly scheduled phase-in date.

      Symbol

      Company

      Location

      SOES Execution Level

      FAHSP

      Farm and Home Financial Corporation (Pfd)

      Nevada, MO

      500

      TMAS

      TriMas Corporation

      Ann Arbor, MI

      1000

      NASDAQ/NMS Symbol and/or Name Changes

      The following changes to the list of NASDAQ/NMS securities have occurred since January 12, 1989.

      New/Old Symbol

      New/Old Security

      Date of Change

      LEXP/BLAS

      Lexington Precision Corporation/Blasius Industries, Inc.

      1/17/89

      INTP/ICTM

      Integrated Circuits Incorporated/Integrated Circuits Inc.

      1/25/89

      ITGR/PNBA

      Integra Financial Corporation/Pennbancorp

      1/26/86

      NICL/NICLF

      Nickel Resources Development Corporation/Ni-Cal Development Ltd.

      1/26/89

      ANSL/ANSL

      Action Savings Bank, SLA/Anchor Savings and Loan Association

      1/31/89

      BSBX/BSBX

      Bell Savings Holdings, Inc./Bell Savings Bank

      2/1/89

      MFSB/MFSB

      Pinnacle Bancorp, Inc./MidFed Savings Bank

      2/1/89

      REXI/REXI

      Resource America, Inc./Resource Exploration, Inc.

      2/1/89

      FRPP/FRKT

      FRP Properties, Inc./Florida Rock and Tank Lines, Inc.

      2/3/89

      NASDAQ/NMS Deletions

      Symbol

      Security

      Date

      USHI

      U.S. Health, Inc.

      1/16/89

      MAJV

      Major Video Corp.

      1/18/89

      STHF

      Stanley Interiors Corporation

      1/18/89

      CTUC

      Continuum Company, Inc. (The)

      1/19/89

      HNCO

      Henley Manufacturing Corp.

      1/20/89

      CMCL

      ChemClear, Inc.

      1/26/89

      REYNA

      Reynolds and Reynolds Company (The)(Cl A)

      1/26/89

      UNBC

      Union National Corporation

      1/26/89

      COMWE

      Commonwealth Savings & Loan Association of Florida

      1/27/89

      NHCI

      National Healthcare, Inc.

      1/27/89

      OMIC

      OMI Corp.

      1/27/89

      OMICP

      OMI Corp. (Pfd)

      1/27/89

      STHFP

      Stanley Interiors Corporation (Pfd)

      1/30/89

      CPRCQ

      Computer Components Corporation

      1/31/89

      CPRWQ

      Computer Components Corporation (Wts)

      1/31/89

      ENUC

      Electro-Nucleonics, Inc.

      1/31/89

      NOVXZ

      Nova Pharmaceutical Corporation (Cl B)(Wts)

      1/31/89

      NOVOQ

      Novo Corporation

      1/31/89

      LUBEE

      Autospa Corporation

      2/2/89

      LCOR

      Langly Corporation

      2/3/89

      ALWC

      A. L. Williams Corporation (The)

      2/6/89

      DION

      Dionics, Inc.

      2/6/89

      SNEL

      Snelling & Snelling, Inc.

      2/6/89

      UPCM

      Union Planters Corporation

      2/7/89

      MCTAC

      Metro Mobile CTS, Inc. (Cl A)

      2/8/89

      MCTBC

      Metro Mobile CTS, Inc. (Cl B)

      2/8/89

      WILF

      Wilson Foods Corporation

      2/8/89

      FFCS

      First Colorado Financial Corporation

      2/10/89

      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, NASD Market Surveillance, at (202) 728-8192.

    • 89-30 Good Friday Trade Date-Settlement Date Schedule

      SUGGESTED ROUTING*

      Internal Audit
      Legal & Compliance
      Municipal
      Operations
      Syndicate
      Systems
      Trading

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

      Securities markets and the NASDAQ System will be closed on Good Friday, March 24, 1989. "Regular way" transactions made on the business days immediately preceding that day will be subject to the schedule listed below.

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

      Trade Date

      Settlement Date

      Regulation T Date*

      March 16

      23

      28

      17

      27

      29

      20

      28

      30

      21

      29

      31

      22

      30

      April 3

      23

      31

      4

      24

      Markets Closed

      27

      April 3

      5

      These settlement dates should be used by brokers, dealers, and municipal securities dealers for purposes of clearing and settling transactions pursuant to the NASD 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)858-4341.


      *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 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."


    • 89-29 SOES Tier Levels to Change for 575 Issues on March 17, 1989

      SUGGESTED ROUTING*

      Senior Management
      Internal Audit
      Operations
      Trading

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

      On June 30, 1988, the maximum SOES order size for all NASDAQ National Market System (NASDAQ/NMS) securities was established as follows:

      • A 1,000-share maximum order size was applied to those NASDAQ/NMS securities that had an average daily nonblock volume of 3,000 shares or more a day, a bid price that was less than or equal to $100, and three or more market makers.
      • A 500-share maximum order size was applied to those NASDAQ/NMS securities that had an average daily nonblock volume of 1,000 shares or more a day, a bid price that was less than or equal to $150, and two or more market makers.
      • A 200-share maximum order size was applied to those NASDAQ/NMS securities that had an average daily nonblock volume of less than 1,000 shares or more a day, a bid price that was less than or equal to $250, and less than two market makers.

      These order-size tiers were set by the NASD after extensive research and polling of all NASDAQ/NMS market makers. The purpose of establishing these tiers was to provide public investors with the most efficient means of handling their small orders while ensuring that market makers were not required to assume unrealistic risks under the new mandatory SOES participation rules.

      At the time of their establishment, the NASD Trading Committee and Board of Governors decided that the tier levels applicable to each security would be reviewed periodically to determine if the trading characteristics of the issue had changed so as to warrant a SOES tier-level move. Such a review was conducted as of December 30, 1988, using the aforementioned formula and fourth-quarter trading data. The results of this review were analyzed by the Mandatory SOES Subcommittee and the NASD Trading Committee, which recommended that changes in SOES tier levels should be implemented per the formula calculation with the exception that an issue would not be permitted to move more than one level.

      To further explain, if an issue previously was categorized in the 200-share tier, it would not be permitted to move to the 1,000-share tier even if the formula calculated that such a move was warranted. The issue could move only one level to the 500-share tier as a result of any single review. Likewise, a security previously assigned to the 1,000-share tier could move only to 500 shares, regardless of the formula calculation. Only 29 issues were affected by this change. In adopting this policy, the Committee was attempting to minimize market-maker exposure on issues for which the tier level increased and to maintain adequate public investor access on issues for which the tier level decreased.

      The Committee also recognized that the formula used to assign the tier levels cannot always accurately reflect the trading characteristics for each issue. As such, market makers are reminded that the Mandatory SOES Subcommittee will review on a case-by-case basis suggested tier-level changes if a significant number of market makers in that issue believe such a change is warranted. For more information regarding this process, please contact NASDAQ Operations - Companies at (202) 728-8039.

      Following is a listing of the NASDAQ/NMS issues that will require a SOES tier-level change on March 17, 1989.

      NASDAQ/NMS SOES CHANGES

      All Issues in Alphabetical Order by Name

      Symbol

      Company Name

      Old Tier Level

      New Tier Level

      SRCE

      1ST SOURCE CORP

      200

      500

      ABQC

      ABQCORP

      200

      500

      ABSI

      ABS INDUSTRIES

      200

      500

      ACMT

      ACMAT CORP

      500

      200

      ALTI

      ALTAIINC

      200

      500

      ACPT

      ACCEPTANCE INS HLDGS

      500

      1000

      AXXN

      ACTION AUTO RENTAL

      500

      1000

      AAST

      ACTION AUTO STORES

      1000

      500

      ACTP

      ADVANCE COMP TECH

      500

      1000

      AROS

      ADVANCE ROSS CORP

      1000

      500

      ASMIF

      ADVANCED SEMICONDUCT

      500

      1000

      ADCOW

      ADVANTAGE COS INC WTS

      500

      200

      AEGNY

      AEGON N.V. AIM

      500

      1000

      AIMT

      TELEPHONES INC AIRCOA

      500

      1000

      AIRC

      HOSPITALTY S V ALFA

      1000

      500

      ALFA

      CORP

      500

      1000

      ALCI

      ALLCITY INSURANCE CO

      200

      500

      ALFL

      ALLIANCE FINANCIAL

      200

      500

      ALRN

      ALTRON INC

      200

      500

      AFGI

      AMBASSADOR FINANCIAL

      500

      1000

      AMFI

      AMCORE FINANCIAL INC

      1000

      500

      ACGI

      AMER CAPACITY GP AMER

      1000

      500

      AMJX

      FED SV BK DUVAL AMER

      200

      500

      AMMG

      MAGNETICS CORP AMER

      500

      1000

      ANSY

      NURSERY PRODUCT AMER

      500

      1000

      AMPH

      PHYSICIANS SVC AMER

      500

      1000

      ARIG

      RELIANCE GP INC AMER

      500

      1000

      RICE

      RICE INC

      500

      1000

      AMFLP

      AMERSLFLPFDA AMER

      200

      500

      AMGD

      VANGUARD CP AMERICA

      500

      200

      ATAXZ

      FRST TX 2 LP AMERICA

      500

      1000

      AFTXZ

      FRST TX LP AMERICA FST P

      500

      1000

      AFPFZ

      P E AMOSKEAG CO

      500

      1000

      AMOS

      ANALYSIS TECHNOLOGY

      500

      200

      AATI

      ANCHOR SAVS LN ASSOC

      1000

      500

      ANSL

      ANDOVER TOGS INC

      1000

      500

      ATOG

      APPLIED SOLAR ARABIAN

      500

      1000

      SOLR

      SHIELD DEV ARIZONA

      200

      500

      ARSD

      INSTRUMENT ARROW

      500

      1000

      AZIC

      BANK CP ASIAMERICA SBI

      500

      1000

      AROW

      ASSOC BANC CP ASTEC

      200

      500

      AEZNS

      INDS INC ASTRONICS CP

      200

      500

      ASBC

      ATEK METALS CENTER

      1000

      500

      ASTE

      ATLANFED BNCP INC

      500

      1000

      ATRO

      ASTRONICS CP

      200

      500

      ATKM

      ATEK METALS CENTER

      500

      1000

      AFED

      ATLANFED BNCP INC

      200

      500

      ATBC

      ATLANTIC BANCORP

      200

      500

      APER

      ATLANTIC PERM SV FSB

      500

      1000

      ATWD

      ATWOOD OCEANICS INC

      200

      500

      ATTC

      AUTO TROL TECH

      1000

      500

      ASII

      AUTOMATED SYSTEMS

      500

      1000

      BHAGA

      AB HA GROUP INC A

      500

      1000

      BNHB

      B N H BANCSHARES INC

      500

      1000

      BTFC

      BT FINANCIAL CORP

      200

      500

      BBGS

      BABBAGES INC

      500

      1000

      BPMI

      BADGER PAPER MILLS

      200

      500

      BPOP

      BANCO POPULAR DE P R

      500

      1000

      BMCC

      BANDO MCGLOCKLIN CAP

      500

      1000

      BDEL

      BANK OF DELAWARE CORP

      500

      1000

      GRAN

      BANK OF GRANITE

      500

      200

      ASAL

      BANK ATLANTIC FED

      1000

      500

      BIOW

      BANKS OF IOWA INC

      1000

      500

      BLAU

      BARRY BLAU PARTNERS

      500

      200

      BASEA

      BASE TEN SYSTEMS A

      500

      1000

      BAYL

      BAYLY CP

      1000

      500

      BLLW

      BELL WAND CO INC

      1000

      500

      BMEEF

      BELMORAL MINES LTD

      500

      1000

      BGAS

      BERKSHIRE GAS CO

      200

      500

      BFSI

      BFS BANKORP INC

      1000

      500

      BIRT

      BIRTCHER CORP THE

      200

      500

      BMRG

      BMR FINANCIAL GP INC

      1000

      500

      BOON

      BOONTON ELECTRONICS

      1000

      500

      BOSA

      BOSTON ACOUSTICS INC

      1000

      500

      BOST

      BOSTON DIGITAL CORP

      1000

      500

      BLVD

      BOULEVARD BANCORP

      1000

      500

      BRAE

      BRAE CP

      500

      1000

      BRJS

      BRAJDAS CORP

      200

      500

      BSBC

      BRANFORD SAVINGS BK

      500

      200

      BRID

      BRIDGFORD FOODS CORP

      500

      200

      BRLN

      BROOKLYN SAV BK THE

      500

      1000

      BTCI

      BROWN TRANSPORT CO

      1000

      500

      BMTC

      BRYN MAWR BK CORP

      500

      200

      BANQ

      BURRITTINTRFIN BNCP

      500

      1000

      BUTL

      BUTLER NATL CORP

      1000

      500

      CBTB

      CB ANDTBKSHS

      500

      1000

      CCBF

      C C B FIN CORP

      500

      1000

      CCNC

      C C N B CORP

      500

      1000

      CKSB

      C K FED SAV BK

      500

      200

      CNMD

      CONMEDCORP

      500

      1000

      CPSL

      CSC INDS INC

      500

      1000

      CWTR

      CALWATERSVCCO

      500

      1000

      CFHC

      CALIFORNIA FIN HLDG

      500

      1000

      CCBT

      CAPECODBKTRCO

      200

      500

      CAFS

      CARDINAL FED SAV BK

      200

      500

      CPLSZ

      CARE PLUS WTS 90 A

      200

      500

      CCTVY

      CARLTON COMMUN ADR

      500

      1000

      CASC

      CASCADE CORP

      500

      1000

      KOSM

      CASCADE INTL INC

      500

      1000

      CMLE

      CASUAL MALE CORP THE

      500

      1000

      CAYB

      CAYUGA SAVINGS BANK

      500

      200

      CHOL

      CENTRAL HOLDING CO

      1000