1989

Disciplinary Actions (December)

Disciplinary Actions

National Association of Securities Dealers, Inc.

December 1989

Disciplinary Actions Reported for December

The NASD is taking disciplinary actions against the following firms and individuals for violations of the NASD Rules of Fair Practice and/or the rules of the Municipal Securities Rulemaking Board. Unless otherwise indicated, suspensions began with the opening of business on Monday, December 4, 1989. The information relating to matters contained in this notice is current as of the 20th of the month preceding the date of the notice. Information received subsequent to the 20th is not reflected in this publication.

FIRMS EXPELLED, INDIVIDUALS SANCTIONED

Ashford Securities Corporation (Dallas, Texas), Henry Allan Clasen (Registered Principal, San Antonio, Texas), Jon Edward Lawrence O'Regan (Registered Principal, San Antonio, Texas), and Michael Stuart Snyder (Registered Representative, San Antonio, Texas). The firm was expelled from membership in the NASD. Clasen was fined $50,000 and barred from association with any member of the NASD in any capacity. O'Regan was fined $25,000, suspended from association with any member of the NASD in any capacity for one year, suspended in a principal capacity for one additional year, and required to requalify by examination as a principal. Snyder was fined $10,000. The sanctions were imposed by the NASD's Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 6. The sanctions were based on findings that Clasen sold to investors shares of common stock when such securities were not registered with the Securities and Exchange Commission and were not eligible for any exemption from registration. Clasen executed a demand note payable to a customer as a guarantee against loss for the customer's investment in common stock. In connection with the sale of the aforementioned unregistered securities and demand note, Ashford Securities and O'Regan failed to properly supervise Clasen. Clasen recommended the purchase of securities to a customer without having reasonable grounds for believing that the recommendation was suitable. Also, he failed to follow customers' instructions by purchasing more than the requested amount of stock, without the customers' knowledge or consent. The firm, acting through O'Regan, recommended the purchase of common stock to a customer without having reasonable grounds for believing that the recommendation was suitable. The firm, acting through Snyder, charged customers unfair commissions and, acting through O'Regan, failed to properly supervise the activities of Snyder in connection with these unfair commissions. Ashford Securities effected transactions in securities while failing to maintain the required minimum net capital. The firm, acting through O'Regan, failed to have its annual audited report prepared by an independent auditor.

This action has been appealed to the Securities and Exchange Commission as to O'Regan, and the sanctions imposed are not effective pending consideration of the appeal.

FIRMS SUSPENDED, INDIVIDUALS SANCTIONED

First Capital Equities, Ltd. (Great Neck, New York), David H. Schwartz (Registered Principal, Bay Terrace, New York), and Gilbert T. Perlman (Registered Representative, Great Neck, New York) submitted a Letter of Acceptance, Waiver and Consent pursuant to which they were fined $15,000, jointly and severally. The firm was suspended from membership in the NASD for 30 days. Schwartz and Perlman were suspended from association with any member of the NASD in any capacity for 30 days. Without admitting or denying the allegations, they consented to the described sanctions and findings that, in connection with two contingent offerings of limited partnership units, Schwartz and Perlman failed to properly establish escrow agreements that specifically addressed the total number of units, the price per unit, and the total dollar amount of each offering. Also, the generic escrow agreement covering the two offerings used by the firm contradicted the all-or-none disclosure made in the offering memoranda. Schwartz had signature authority over the partnership's bank accounts and disbursed funds from the accounts before the all-or-none contingency was met through bona fide transactions. The firm, acting through Schwartz and Perlman, failed to disclose in the aforementioned offering memoranda the specific time when the all-or-none contingency had to be met, entered into an arrangement whereby the affiliated general partner of the limited partnerships effected loans to the partnerships relating to units that remained unsold as of the closing date, and failed to assure that bona fide purchasers of the securities paid for their transactions prior to the offering close date. The firm, acting through Schwartz and Perlman, conducted a securities business on several occasions while failing to maintain its required minimum net capital.

Majestic Securities, Inc. (Palos Verdes, California) and Mark Cameron Majestic (Registered Principal, Palos Verdes, California) submitted an Offer of Settlement pursuant to which they were fined $10,000, jointly and severally. Majestic Securities was suspended from membership for 30 days, and Mark Majestic was suspended from association with any member of the NASD in any capacity for 30 days and required to requalify by examination before acting as a general securities principal. Without admitting or denying the allegations, Majestic Securities and Mark Majestic consented to the described sanctions and findings that the firm, acting through Majestic, offered and sold shares of common stock listed on a foreign stock exchange to at least 27 public customers while the stock was subject to a cease-trade order and had been delisted from trading by the relevant foreign stock exchange. In connection with the offer and sale of these securities, the firm, acting through Majestic, failed to inform investors of certain material facts; failed to transmit certificates representing ownership of the shares to these public customers in a timely manner; failed to promptly transmit customer funds received in connection with its sales of these securities; and failed to preserve all check books, cancelled checks, and cash reconciliations relating to its conduct of a securities business during a period from October 1986 through December 1987.

FIRMS FINED, INDIVIDUALS SANCTIONED

Advest, Inc. (Columbus, Ohio) and Steven Thomas Darson (Registered Representative, Worthington, Ohio). Advest, Inc., was fined $15,000 and required to amend its supervisory procedures, and Darson was fined $27,500 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Darson solicited and sold to customers, in at least 17 transactions, investment company shares below the breakpoints for the purpose of generating higher commissions. He also failed to make adequate disclosure to customers regarding available savings on sales loads by purchasing shares above the breakpoints. The firm failed to enforce written supervisory procedures concerning the aforementioned transactions. Also, Darson withheld and misappropriated to his own use $12,228.66, representing customer funds, all without the knowledge or consent of the customers.

Bottom Line Securities, Inc. (Springfield, Massachusetts), Robert M. Marsano (Registered Representative, West Springfield, Massachusetts), and Gerald W. Nannen (Registered Representative, East Long Meadow, Massachusetts) submitted an Offer of Settlement pursuant to which Bottom Line Securities and Nannen were fined $25,000, jointly and severally. Nannen is required to requalify by examination as a financial and operations principal, and Marsano was fined $25,000 and required to requalify by examination as a financial and operations principal. Without admitting or denying the allegations, they consented to the described sanctions and findings that, in connection with the sale of limited partnership units, Marsano and Nannen closed the offering and disbursed funds from escrow when units remained unsold, contrary to the contingency established in the offering memorandum. Certain investor checks received in payment for subscriptions were not made payable to the escrow agent. Also, the firm, acting through Marsano and Nannen, engaged in a securities business while it failed to maintain the required minimum net capital.

Jesup & Lamont Securities Co., Inc. (New York, New York) and William Welsh (Registered Representative, New York, New York) submitted an Offer of Settlement pursuant to which the firm was fined $50,000 and ordered to comply with certain supervisory, compliance, and training procedures. Welsh was fined $12,000 and required to qualify by examination as a general securities principal. Without admitting or denying the allegations, the firm and Welsh consented to the described sanctions and findings that the firm, acting through Welsh, failed to comply with the rules of the Small Order Execution System (SOES) by: (1) executing 68 transactions through SOES that were originally part of larger orders and were divided to circumvent the maximum-size limitations of SOES; (2) executing one order for Welsh's account when Welsh had access to a SOES terminal and was therefore prohibited from using SOES for execution of orders for his own use; (3) executing 37 transactions through SOES for firm proprietary accounts; (4) and dividing certain of these 37 transactions into smaller parts for purposes of meeting the SOES size limits. Also, the firm failed to establish, maintain, and enforce written procedures that would have enabled it to properly supervise the activities of associated persons to assure compliance with SOES rules. As part of the offer, the firm agreed to certain undertakings designed to improve the firm's supervision in the SOES area, including the retention of a full-time compliance officer, and the designation of a registered general securities principal to supervise the firm's SOES participation.

Life Planning, Inc. (Garden City, New York), David E. Altschuler (Registered Principal, Carle Place, New York), and Howard Bash (Registered Representative, Brooklyn, New York) submitted a Letter of Acceptance, Waiver and Consent pursuant to which the firm and David Altschuler were fined $15,000, jointly and severally. Howard Bash was fined $5,000 and suspended from association with any member of the NASD in any capacity for five business days. Without admitting or denying the allegations, they consented to the described sanctions and findings that, with regard to the distribution of securities, the firm, acting through Bash, sold shares that traded at a premium in the immediate aftermarket to a customer who was registered with another NASD member in contravention of the Interpretation of the Board of Governors with respect to "Free-Riding and Withholding." The firm, acting through Altschuler, failed to report the above sale on the NASD's Free-Riding and Withholding Questionnaire. The firm, acting through Bash, sold shares of stock to a customer in states where the new issue had not been registered pursuant to state securities laws and knowingly allowed the customers to create new addresses because their residences were in a restricted state. The firm, acting through Altschuler, provided additional compensation to registered representatives who sold or distributed shares of particular investment companies in the form of an expense-paid educational seminar in Jamaica sponsored by the particular investment companies. Also, the firm, acting through Altschuler, failed to establish and maintain adequate written supervisory procedures.

M.D. Advisors, Inc. (Oakland, California) and Matthew Alexander DeStaffany (Registered Principal, Pleasant Hill, California) were fined $18,000, jointly and severally. The sanctions were based on findings that the firm, acting through DeStaffany, failed to file its annual audited financial statements for three years in a timely manner; in connection with these filings, failed to include an audited net capital computation, a reconciliation of an audited net capital computation with an unaudited net capital computation on FOCUS Part IIA; a report describing any material inadequacies; and failed to have its audit performed and its financial statements certified by an independent public accountant. Also, the firm, acting through DeStaffany, received investors' funds related to the sale of six limited partnerships and failed to deposit them into an escrow account, as required by its voluntary restrictive agreement with the NASD and SEC Rule 15c2-4.

Turcan Financial Group, Inc. (Rye, New York) and Jerry Turcan (Registered Principal, Rye, New York) submitted a Letter of Acceptance, Waiver and Consent pursuant to which they were fined $10,000, jointly and severally. Turcan was suspended from association with any member of the NASD as a registered representative for two months. Also, he was suspended as a general securities principal and financial and operations principal for two years and required to requalify by examination as such. Without admitting or denying the allegations, they consented to the described sanctions and findings that the firm, acting through Turcan, conducted a securities business on four separate occasions while it failed to maintain the required minimum net capital. Also, the firm, acting through Turcan, filed inaccurate FOCUS Part I and IIA reports.

FIRMS FINED

J.T. Moran & Co., Inc. (New York, New York) submitted a Letter of Acceptance, Waiver and Consent pursuant to which the firm was fined $15,000 and agreed to certain supervisory and training procedures. Without admitting or denying the allegations, the firm consented to the described sanctions and findings that during the periods July through September 1988, and November 1988 through May 1989, the firm failed to comply with the Small Order Execution System (SOES) rules. Moran executed 55 transactions through SOES in NASDAQ securities in which the firm was a registered market maker but not a registered SOES market maker, and entered two orders through SOES that were not agency orders given that the two orders were executed for the firm's error account. Also, the firm failed to properly maintain and enforce supervisory procedures to assure compliance with the SOES rules.

Spear, Leeds & Kellogg (New York, New York) submitted an Offer of Settlement pursuant to which the firm was fined $25,000. Without admitting or denying the allegations, the firm consented to the described sanctions and findings that it failed to comply with the Small Order Execution System (SOES) rules, which require that only agency orders received from public customers may be executed through the SOES system. Through SOES, the firm executed 140 transactions for the accounts of broker-dealers and one transaction for the firm's error account. The firm also failed to establish, maintain, and enforce written procedures to enable it to properly supervise to ensure compliance with the SOES rules.

INDIVIDUALS BARRED OR SUSPENDED

Nathaniel M. Berry (Registered Representative, Philadelphia, Pennsylvania) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Berry failed to respond to the NASD's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Richard M. Brucki (Financial and Operations Principal, Little Rock, Arkansas) submitted an Offer of Settlement pursuant to which he was fined $2,500 and suspended from association with any member of the NASD as a financial and operations principal for three weeks. Without admitting or denying the allegations, Brucki consented to the described sanctions and findings that, while acting on behalf of his member firm, he failed to make the required deposit to its special reserve bank account for the exclusive benefit of customers.

Gary A. Camarano (Registered Representative, Park Ridge, Illinois) submitted an Offer of Settlement pursuant to which he was fined $7,500 and suspended from association with any member of the NASD in any capacity for 30 days. Without admitting or denying the allegations, Camarano consented to the described sanctions and findings that he effected transactions in a customer's account and failed properly to identify the account as that of his spouse. In this account, Camarano also purchased 75 shares of a new issue that traded at a premium in the immediate aftermarket, in contravention of the Interpretation of the Board of Governors with respect to Free-Riding and Withholding.

Dominick DiStasi (Registered Representative, Iselin, New Jersey) was fined $4,000 and suspended from association with any member of the NASD in any capacity for five business days. The sanctions were based on findings that DiStasi executed the purchase and sale of securities in a public customer's account without the knowledge or consent of the customer.

Gerald M. Fitzgerald (Registered Principal, Denver, Colorado) was fined $5,000, jointly and severally with his member firm, and suspended from association with any member of the NASD in any capacity for 60 business days, pursuant to a decision of the District Business Conduct Committee for District 3, dated July 12, 1989. The sanctions were based on findings that a member firm, acting through Fitzgerald, caused 39 customer account records to reflect inaccurate addresses in order to circumvent state securities laws in connection with the distribution of securities.

Peter F. Gaffney (Registered Representative, Jersey City, New Jersey) submitted an Offer of Settlement pursuant to which he was fined $20,000 and suspended from association with any member of the NASD in any capacity for 105 calendar days. Without admitting or denying the allegations, Gaffney consented to the described sanctions and findings that he entered 61 fictitious trade reports into the NASDAQ System, at or near the close of the trading day, in six securities during a period from October 1, 1988, through November 16, 1988.

Joseph Gennaco (Registered Representative, Winthrop, Massachusetts) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $5,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Gennaco consented to the described sanctions and findings that he made improper use of $14,949.22 of customer funds by depositing the funds into an account that he controlled.

Frank Roy Grillo (Registered Representative, Flushing, New York) submitted an Offer of Settlement pursuant to which he was fined $10,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Grillo consented to the described sanctions and findings that, on several occasions, he misused customer funds. At the direction of customers, he purchased shares of stock for three customer accounts and received $7,000 in payment for the transactions. When the trades were subsequently cancelled, checks representing the free credit balances in the accounts were issued to the customers. Grillo then deposited these checks into his member firm's bank account. In 17 instances, customers purchased securities and paid for them with checks or money orders that Grillo deposited into the general operating account of his member firm instead of transmitting the funds to his member firm's clearing broker. The funds remained in his member firm's account for periods ranging from 2 to 20 days. In payment for securities purchased for a customer's account, Grillo deposited a $2,000 check from the customer into an account of a firm that had a financial relationship with his member firm.

Richard Wallace Humphries (Registered Principal, San Francisco, California) was fined $374,300 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Humphries received $5,000 from a public customer for the purchase of a certificate of deposit, deposited the funds into his member firm's account, and then misappropriated the funds to his own use and benefit. Humphries forged the signature of a customer on eight cash-surrender requests against life insurance policies owned by the customer. After submitting the requests to the issuer of the policies, he received checks totalling $100,490.47 that were deposited into his member firm's bank account and then converted the proceeds to his own use and benefit. In order to receive higher sales charges, Humphries sold shares of a mutual fund to a customer in an amount just below the point at which the sales charge would have been reduced, in contravention of the Interpretation of the Board of Governors with respect to Breakpoint Sales. In two instances, Humphries sold shares of mutual funds to a customer and failed to provide a letter of intent to the respective fund reflecting that the customer either intended to purchase more of the fund or had previously purchased shares in the fund. Also, in connection with the above activities, he received $56,675 in excess commissions and refused to return the funds. In addition, Humphries engaged in a securities business prior to the effectiveness of his member firm's membership in the NASD.

Peter Pettro Iadanza (Registered Representative, Jamaica, New York) was fined $22,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Iadanza submitted a change of address form for a customer that listed a false address without the customer's knowledge or consent; bought and sold securities in this same customer's account without the customer's knowledge or consent; and sent to the customer a false confirmation reflecting the cancellation of a sale and a false statement that inaccurately reflected the account's securities position and money balance.

Stanley James, Jr. (Registered Representative, DeSoto, Texas) was fined $10,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that James obtained checks from a customer totalling $2,728.68 for the purchase of securities and, without the customer's knowledge or consent, converted the funds to his own use and benefit.

Arthur A. Mai (Registered Representative, Minneapolis, Minnesota) submitted an Offer of Settlement pursuant to which he was fined $10,000, suspended from association with any member of the NASD in any capacity for one year, and required to requalify by examination. Without admitting or denying the allegations, Mai consented to the described sanctions and findings that he sold shares of common stock to investors without giving his member firm prior written notice of his intention to participate in private securities transactions.

Thomas Edward Malone (Registered Representative, San Antonio, Texas) was fined $50,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Malone received a $24,281.47 check payable to a public customer, representing the proceeds from the sale of securities. Without the customer's endorsement on the check, Malone deposited the check in his personal checking account and converted the funds to his own use and benefit. Malone also failed to respond to the NASD's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Calvin Mayfield (Associated Representative, Arlington, Texas) was fined $10,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Mayfield obtained checks totalling $650 representing proceeds of loans against insurance policies held by public customers and, without the knowledge or consent of the customers, converted the funds to his own use and benefit.

Fred P. Mazzeo (Registered Principal, Old Westbury, New York) submitted an Offer of Settlement pursuant to which he was fined $5,000 and suspended from association with any member of the NASD in any capacity for five business days. Without admitting or denying the allegations, Mazzeo consented to the described sanctions and findings that, acting on behalf of his member firm, he permitted a person to become associated with the I firm when that person was subject to a statutory disqualification and barred from association with any broker-dealer.

Keith B. McDaniel (Registered Representative, McKeesport, Pennsylvania) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that McDaniel failed to respond to the NASD's requests for information, made pursuant to Article IV, Section 5 of the Rules of Fair Practice, concerning his termination from a member firm.

Alan J. Meyers (Registered Representative, Riverside, Connecticut) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $7,500 and suspended from association with any member of the NASD in any capacity for five days. Without admitting or denying the allegations, Meyers consented to the described sanctions and findings that, on three separate occasions, he placed purchase orders for common stock for the accounts of public customers without their knowledge or consent.

Charles R. Miller, Jr. (Registered Representative, Sterling Heights, Michigan) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were imposed by the NASD's Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 8. The sanctions were based on findings that Miller demanded $40,000 as a condition of employment as Miller's sales assistant from a person seeking employment with Miller's member firm. Miller received the $40,000 from an account at his member firm maintained by the parents of the prospective employee.

Linda M. Nesheim (Registered Representative, Little Rock, Arkansas) and Stephen C. Love (Registered Representative, Waynesburg, Pennsylvania) submitted an Offer of Settlement pursuant to which Nesheim was fined $5,000 and suspended from association with any member of the NASD in any capacity for three weeks. Love was fined $10,000 and suspended from association with any member of the NASD in any capacity for two years. Without admitting or denying the allegations, they consented to the described sanctions and findings that Nesheim and Love failed to disclose to their member firm that they agreed to share in losses incurred in a customer's account, and failed to disclose that they had transmitted cash and a personal check to a customer to partially cover losses incurred from securities transactions. By concealing this arrangement and their financial contributions to the account, they caused the falsification of their member firm's books and records. Love opened an account for another customer but failed to disclose to his member firm that he agreed to contribute his own funds to the account. He also failed to disclose to his member firm that he transmitted cash to the account, and failed to record the arrangement he had with the customer on his member firm's books and records. Love failed to disclose to a public customer that certain purchase and sale transactions in U.S. government securities were at prices not reasonably related to the current market and that the transactions represented a practice known as adjusted trading. Love failed to reflect on the firm's books and records that the adjusted purchase price was conditioned upon a subsequent sale at a further adjusted price. Love imposed an excessive markup on the sale of $9,901,718 par value U.S. government securities to a public customer. Also, Love failed to respond to the NASD's written requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Carl Puma (Registered Representative, Staten Island, New York) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $10,000 and suspended from association with any member of the NASD in any capacity for one year. Without admitting or denying the allegations, Puma consented to the described sanctions and findings that he deposited eight customer checks, totalling $4,909.52, into his personal checking account and thereafter did not apply the funds for the purpose for which they were intended.

Joel R. Renert (Registered Representative, Cold Spring Harbor, New York) and Arthur W. Weisberg (Registered Representative, Mt. Kisco, New York). Renert was fined $15,000 and suspended from association with any member of the NASD in any capacity for five days. Weisberg was fined $10,000 and suspended from association with any member of the NASD in any capacity for five days. The sanctions were imposed by the NASD's Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 12. The sanctions were based on findings that Renert and Weisberg engaged in a practice through which they traded municipal bonds between their member firms, and in personal accounts maintained at their member firms, at prices that were unfair and detrimental to their member firms in relation to the prevailing market conditions.

Winston F. Shade (Registered Representative, New Bern, North Carolina) was fined $5,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Shade caused a $1,500 check to be issued against the securities account of a customer and sent the check to that customer in partial payment for money that he had borrowed from the customer.

Robert Gerhard Smith (Registered Representative, Carson City, Nevada) submitted an Offer of Settlement pursuant to which he was suspended from association with any member of the NASD in any capacity for two years. Without admitting or denying the allegations, Smith consented to the described sanctions and findings that he forged the signatures of public customers to letters authorizing the transfer of a total of $3,335.63 out of customers' accounts and converted the funds to his own use and benefit.

Gerard A. Spelman (Registered Representative, Pompano Beach, Florida) was fined $3,000, suspended from association with any member of the NASD in any capacity for 10 business days, and must requalify by examination upon his reentry to the securities industry. The sanctions were based on findings that Spelman executed or caused to be executed six municipal-securities sales transactions but failed to transmit order tickets for these transactions to the operations department of his member firm.

Timothy Stockton (Registered Representative, San Diego, California) submitted an Offer of Settlement pursuant to which he was fined $90,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Stockton consented to the described sanctions and findings that he received approximately $94,400 from two public customers for investment purposes, and converted $60,700 of the funds to his own use and benefit. Stockton also received $9,982 from another public customer for investment purposes, failed to invest or return such funds, and instead converted the funds to his own use and benefit.

Thomas J. Sullivan (Registered Representative, Greenwich, Connecticut) submitted an Offer of Settlement pursuant to which he was barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Sullivan consented to the described sanctions and findings that he failed to respond to the NASD's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Paul D. Venarchick (Registered Representative, Danville, Pennsylvania) was fined $25,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Venarchick received $2,500 from a public customer for the purchase of a life insurance policy and converted the sum to his own use and benefit. Venarchick forged endorsements on several checks totalling $8,424.13 drawn to public customers and converted the checks to his own use and benefit.

William Joseph Watts (Registered Representative, Revere, Massachusetts) submitted an Offer of Settlement pursuant to which he was fined $10,000. Without admitting or denying the allegations, Watts consented to the described sanctions and findings that he permitted certain securities transactions to be effected between his account and the trading account of his member firm at prices which were unfair and detrimental to his member firm in relation to the prevailing market conditions.

David Andrew Wheeler (Registered Representative, McQueeney, Texas) submitted a Letter of Acceptance, Waiver and Consent pursuant lo which he was fined $5,000 and suspended from association with any member of the NASD in any capacity for 30 days. Without admitting or denying the allegations, Wheeler consented to the described sanctions and findings that he executed transactions in the accounts of two customers without their knowledge or consent.

FIRMS EXPELLED FOR FAILURE TO PAY FINES AND COSTS IN CONNECTION WITH VIOLATIONS

CDA Securities, Inc., Spokane, Washington
Randolph Brown Securities Corporation, New York, New York
Traiger Energy Investments, Encino, California
V.H. Costello Securities, Inc., Spokane, Washington

INDIVIDUALS WHOSE REGISTRATIONS WERE REVOKED FOR FAILURE TO PAY FINES AND COSTS IN CONNECTION WITH VIOLATIONS

Richard C. Anderson, Greenville, South Carolina
Gregory A. Blaine, Golden, Colorado
Randolph Brown III, Atlanta, Georgia
Norman L. Chapa, Houston, Texas
Andre J. Charitat, New Orleans, Louisiana
John Coghlan, Spokane, Washington
Vicki Costello, Spokane, Washington
Andrew R. Cox, Fairfax, Virginia
Joseph C. Dawson, Pawtucket, Rhode Island
Linda L. Demeter, Vernon Hills, Illinois
Michael T. Fearnow, Houston, Texas
Richard C. Ferris, Phoenixville, Pennsylvania
Scott M. Fridlund, Fargo, North Dakota
Daniel M. Gath, Chicago, Illinois
Richard Grado, Staten Island, New York
Walter Heyman, Salt Lake City, Utah
Glenn E. Jackel, Southport, Connecticut
Bernard J. Murray, Mt. Clemens, Michigan
Nicholas A. Petrarca, Baldwin, New York
Arthur J. Porcari, Houston, Texas
Stephen J. Rozinski, Denver, Colorado
Russell I. Teel, Benton, Kansas
Joe D. Thompson, Waukesha, Wisconsin
Michael A. Traiger, Encino, California
Maurice L. Wernert, Gretna, Louisiana

Notice To Members

National Association of Securities Dealers, Inc.

December 1989

Mississippi Proposes Overhaul of Securities Administrative Rules

Mississippi has proposed a complete revision of its administrative rules governing securities. The target effective date of the changes is mid-January 1990.

To obtain a copy of the proposed rules or comment on them, contact Tammy Harthcock, Staff Attorney, Mississippi Securities Division, Office of the Secretary of State, 401 Mississippi Street, Jackson, Mississippi 39201, or call her at (601) 359-1350.

Idaho Increases Registration Fees Effective January 1

Effective January 1, 1990, the Idaho Securities Commission will increase registration fees. The new agent fees for initial registration and transfer will be $20. The broker-dealer registration fee will rise to $100.

Since year-end renewal calculations on the Central Registration Depository preclude new registration approvals, any Forms BD and/or Forms U-4 that are not processed on or before December 22, 1989, will reflect a registration date of January 1, 1990, or later. Because of a policy decision by Idaho, these registrations will therefore be assessed the new fees.

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

Site and Dates Changed for Series 7 Examinations

Atlanta Site Change

The December 16,1989, Series 7 examination in Atlanta will be held at Marriott Marquis Hotel, 265 Peachtree Center Avenue, Atlanta, Georgia.

December and January Date Changes

Because of unexpected circumstances, the December third Saturday Series 7 examination sessions in the District of Columbia and Rochester, New York, will be conducted December 9, 1989. The January third Saturday Series 7 examination session in Great Falls, Montana, will be conducted January 13, 1990. The January first Saturday examination session in Puerto Rico has been changed to January 13, 1990.

For information on examinations, locations, or dates, call NASD Information Services at (301) 590-6500.

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

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,

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 equipment — a 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

Disciplinary Actions (November)

Disciplinary Actions

National Association of Securities Dealers, Inc.

November 1989

Disciplinary Actions Reported for November

The NASD is taking disciplinary actions against the following firms and individuals for violations of the NASD Rules of Fair Practice and/or the rules of the Municipal Securities Rulemaking Board. Unless otherwise indicated, suspensions began with the opening of business on Monday, November 6, 1989. The information relating to matters contained in this notice is current as of the 20th of the month preceding the date of the notice. Information received subsequent to the 20th is not reflected in this publication.

FIRMS EXPELLED, INDIVIDUALS SANCTIONED

First Securities Group of California (Beverly Hills, California) and Louis Fernando Vargas (Registered Principal, Marina del Rey, California). The firm was fined $15,000, jointly and severally with Vargas, and expelled from membership in the NASD. Vargas was also barred from association with any member of the NASD in any capacity. The sanctions were based on findings that First Securities Group and Vargas failed to provide information to the NASD in connection with an investigation into sales of securities following requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

J.L. Henry & Co., Inc. (Miami, Florida) and Henry I. Otero (Registered Principal, Miami, Florida). The firm was fined $30,000, jointly and severally with Otero, and expelled from membership in the NASD. Otero is barred from association with any member of the NASD in any capacity. The sanctions were based on findings that the firm, acting through Otero, made improper use of a customer's funds by converting $45,000 to its own use and benefit. Also, the firm, acting through Otero, effected transactions in nonexempt securities while failing to maintain the required net capital. In addition, the firm and Otero effected mutual fund transactions by wire order and accepted customers' funds in payment in contravention of the terms of the firm's voluntary restrictive agreement.

FIRMS SUSPENDED, INDIVIDUALS SANCTIONED

Biscayne Securities Corp. (Lauderhill, Florida) and Alvin Rosenblum (Registered Principal, Plantation, Florida) were fined $20,000, jointly and severally. The firm was suspended from membership in the NASD for 10 business days, and Rosenblum was suspended from association with any member of the NASD in any capacity for 10 business days. The sanctions were based on findings that the firm, acting through Rosenblum, effected transactions with retail customers in over-the-counter corporate securities as principal at prices that were not fair.

Triton Securities (Danville, California) and Delwin George Chase (Registered Principal, Danville, California) submitted an Offer of Settlement pursuant to which the firm and Chase were fined $10,000, jointly and severally. The firm was suspended from membership in the NASD for 30 days, and Chase was suspended from association with any member of the NASD in any capacity for 30 days. Without admitting or denying the allegations, they consented to the described sanctions and findings that, in order to close an offering of units in a limited partnership, the firm, acting through Chase, participated in a series of transactions using affiliates of the partnership's general partner to purchase units when no funds were available to pay for them. The firm, acting through Chase, failed to establish an escrow account and made misrepresentations about the general partner's or an affiliate's commitment to purchase units to meet the minimum contingency in connection with a best-efforts offering. As a result of its guarantee of $19 million in loans, the firm, acting through Chase, violated the net capital rule and filed inaccurate FOCUS Part IIA reports with the NASD. And the firm, acting through Chase, permitted one individual to act as a principal and another as a representative without being properly registered with the NASD.

FIRMS FINED, INDIVIDUALS SANCTIONED

Crane & Company Securities, Inc. (Mt. Clemens, Michigan) and Glenn R. Crane (Registered Principal, Sterling Heights, Michigan) submitted a Letter of Acceptance, Waiver and Consent pursuant to which they were fined $10,000, jointly and severally. Also, Crane must requalify by examination as a direct-participation principal within 60 days of the acceptance of the Letter of Acceptance, Waiver and Consent. Without admitting or denying the allegations, the firm and Crane consented to the described sanctions and findings that Crane & Company, acting through Crane, pursuant to its participation in four contingent offerings of securities, failed to deposit investors' funds into an escrow account and, instead, deposited the funds in an account under the control of the issuer; and failed to return subscribers' funds when the offering contingency was not met. The firm, acting through Crane, effected transactions and attempted to induce purchases or sales of securities when it did not maintain the required minimum net capital. Also, the firm, acting through Crane, filed an inaccurate FOCUS Part IIA report; failed to record in its books and records the date of receipt and transmittal of customer checks; filed a late annual audit report; and failed to have its financial statements audited by a certified public accountant.

First Commonwealth Securities Corporation (New Orleans, Louisiana) and Kenneth J. Canepa (Registered Principal, New Orleans, Louisiana) submitted a Letter of Acceptance, Waiver and Consent pursuant to which they were fined $10,000, jointly and severally, and Canepa was suspended from association with any member of the NASD in a principal capacity for two weeks. Without admitting or denying the allegations, they consented to the described sanctions and findings that First Commonwealth, acting through Canepa, inaccurately represented to a municipal authority the amount of the firm's net capital. The firm, acting through Canepa, maintained inaccurate books and records, inaccurate monthly net capital computations, and inaccurate FOCUS Part I and II reports. Also, the firm, acting through Canepa, conducted a securities business while failing to maintain the required minimum net capital.

Weatherly Securities Corp., Inc. (New York, New York), Dell Eugene Keehn (Registered Principal, Mercer Island, Washington), William Northy Prater, Jr. (Registered Principal, Mercer Island, Washington) and Thomas Albert McFall (Registered Principal, Red Bank, New Jersey) submitted an Offer of Settlement pursuant to which they were fined $20,000, jointly and severally. Without admitting or denying the allegations, they consented to the described sanctions and findings that Weatherly, acting through respondents Keehn, Prater, and McFall, failed to return funds to customers after the required number of units were not sold in a limited partnership contingency offering. Thereafter, additional units were sold, and funds were received from, but not returned to, customers. In connection with that contingency offering, funds were disbursed before the contingency was met as a result of a loan of $420,000 to the partnership by the firm's parent. This loan raised the escrow balance to the minimum required.

W. N. Whelen & Co., Inc. (Georgetown, Delaware) and William N. Whelen, Jr. (Registered Principal, Georgetown, Delaware). The firm and Whelen were prohibited from transacting principal trades with customers for 90 days and were fined $15,000, jointly and severally. Whelen was also required to requalify by examination as a general securities principal within 90 days. The sanctions were imposed by the NASD's Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 11. The sanctions were based on findings that W.N. Whelen, acting through Whelen, effected sales of equity securities to public customers at prices that were unfair in relation to the market price of the securities; improperly netted fails-to-receive and fails-to-deliver on its stock-position record, and failed to reflect accurate yields to maturity on municipal securities confirmations. Also, the firm, acting through Whelen, failed to disclose on customer confirmations the commission equivalent charged to the customer in retail transactions, and in four instances failed to comply with Regulation T of the Federal Reserve Board by failing to cancel or liquidate customer securities positions.

FIRMS FINED

Shearson Lehman Hutton (New York, New York) submitted an Offer of Settlement pursuant to which it was fined $10,000. Without admitting or denying the allegations, the firm consented to the described sanctions and findings that it failed to respond in a timely manner to the NASD's requests for information, made pursuant to Article IV, Section 5 of the Rules of Fair Practice, concerning a customer complaint.

INDIVIDUALS BARRED OR SUSPENDED

Andrew Derel Adams (Registered Representative, Killeen, Texas) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Adams received a $7,000 check from a public customer for the purchase of mutual fund shares and, without the customer's knowledge or consent, deposited the check in his personal account and converted the funds to his own use and benefit. Adams also failed to respond to the NASD's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the circumstances surrounding his termination from a member firm.

John Francis Angier, Jr. (Registered Representative, Reddington Shores, Florida) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Angier solicited and received checks totaling $53,500 from public customers for the purchase of "commercial CDs," surreptitiously opened an account in the name of his member firm, and deposited the checks into the account and converted the funds to his own use and benefit.

Mark Anthony (Registered Principal, Arlington Heights, Illinois) and William Stirlen (Registered Financial and Operations Principal, Arlington Heights, Illinois). Anthony was fined $10,000, suspended from association with any member of the NASD in any capacity for 30 days, and required to requalify by examination before acting in a principal capacity. Stirlen was fined $7,500, suspended from association with any member of the NASD in any capacity for 30 days, and required to requalify by examination as a financial and operations principal. The sanctions were based on findings that a member firm, acting through Anthony and Stirlen, effected transactions in securities when it failed to maintain the required minimum net capital; filed inaccurate FOCUS Part I and IIA reports; and failed to prepare and/or preserve bank-account and clearing-account reconciliations for certain months. In addition, a member firm, acting through Anthony, effected three purchases and one sale of corporate securities with public customers at prices that were not fair and reasonable.

Fred W. Bonnell (Financial and Operations Principal, Boulder, Colorado) was fined $2,500, jointly and severally with his member firm, suspended from association with any member of the NASD as a financial and operations principal for six months, and required to requalify by examination prior to acting in that capacity. The sanctions were based on findings that a member firm, acting through Bonnell, failed to maintain deposits of cash or qualified securities in the amounts required by SEC Rule 15c3-3 in its special reserve bank account for the exclusive benefit of customers.

Michael J. Boorse (Registered Representative, Horsham, Pennsylvania) was barred from association with any member of the NASD in any capacity. The sanctions were imposed by the NASD's Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 11. The sanctions were based on findings that Boorse failed to honor a $9,300 arbitration award.

David Chiodo (Registered Principal, Dallas, Texas) was fined $5,000, jointly and severally with his member firm, barred from association with any member of the NASD in a principal capacity, and required to requalify by examination as a registered representative. The sanctions were based on findings that a member firm, acting through Chiodo, permitted a registered representative to sell options and corporate equity securities to customers without being properly registered. In connection with sales of a contingent offering of common stock, a member firm, acting through Chiodo, failed to maintain records to demonstrate prompt deposit of customer checks to the escrow account as well as proof that customer funds were returned when the contingency was not satisfied. The firm, acting through Chiodo, failed to maintain fidelity bond coverage; caused an advertisement to be published without filing it with the NASD beforehand; filed its annual audit four days late; and changed auditors without prior notice to the NASD. Also, in connection with a contingency offering, the firm, acting through Chiodo, deposited investors' funds into an account that was not a bona fide escrow or trust account. The firm, acting through Chiodo, effected transactions in securities while failing to maintain the required minimum net capital and executed transactions in municipal securities prior to payment of its initial fee to the Municipal Securities Rulemaking Board.

Edward L. Cole (Registered Representative, Jackson, Mississippi) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $10,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Cole consented to the described sanctions and findings that he failed to comply with instructions from a customer to invest $2,000 in a mutual fund. Instead, he converted the funds to his own use and benefit without the customer's knowledge or consent.

Camille Chafic Cotran (Registered Representative, London, England) was fined $25,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Cotran instructed a French broker-dealer to direct all mail concerning an inactive account to Cotran's attention, without the knowledge or consent of his member firm. Cotran maintained the inactive account as a personal account and entered numerous securities transactions in the account without the knowledge or consent of his member firm. He also failed to respond to the NASD's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the termination of his employment.

Rita Rae Cross (Registered Representative, Denver, Colorado) and Thomas Richard Meinders (Registered Principal, Colorado Springs, Colorado) submitted an Offer of Settlement pursuant to which Cross was fined $2,500 and suspended from association with any member of the NASD in any capacity for 30 days; Meinders was fined $2,000 and suspended from association with any member of the NASD in any capacity for five days and in a principal capacity for eight months. Without admitting or denying the allegations, Cross and Meinders consented to the described sanctions and findings that Cross recommended numerous purchase and sales transactions for the account of a customer without having reasonable grounds for believing that the recommendations were suitable for the customer. Meinders failed to properly supervise the activities of Cross so as to prevent the unsuitable trading.

John William Curry (Registered Representative, Plainview, Texas) was fined $5,000, ordered to disgorge $30,000, and suspended from association with any member of the NASD in any capacity for one year. The sanctions were based on findings that Curry participated in private securities transactions without providing prior written notice to his member firm.

Ronald A. Cutrer (Registered Representative, Baton Rouge, Louisiana) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $15,000 and suspended from association with any member of the NASD in any capacity for one month. Without admitting or denying the allegations, Cutrer consented to the described sanctions and findings that he sold unregistered securities in a series of private securities transactions to 57 public customers, without giving prior written notice to his member firm.

John William Davis (Registered Principal, Colonsville, Mississippi) was fined $200,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that a member firm, acting through Davis, engaged in the purchase and sale of securities with public customers from its own account at prices that were unfair and unreasonable.

Jeffrey Gerard Dompierre (Registered Representative, Valrico, Florida) was fined $5,000, suspended from association with any member of the NASD in any capacity for 10 business days, and must requalify by examination. The sanctions were based on findings that Dompierre effected unauthorized transactions and exercised discretionary power in customers' accounts without the knowledge or consent of the customers or his member firm. Also, he agreed in writing to share in losses sustained in customers' accounts without obtaining his member firm's prior written authorization.

Eugene Michael Felten (Registered Principal, La Canada, California), Marion Stewart Spitler (Registered Representative, La Canada, California), Stephanie Veselich Enright (Registered Representative, Rolling Hills, California), and Stuart Lane Russel (Registered Principal, Glendale, California). Felten was fined $25,000, ordered to disgorge $16,072.79, and suspended from association with any member of the NASD in any capacity for one year. Spitler was fined $15,000, ordered to disgorge $18,444.05, and suspended from association with any member of the NASD in any capacity for six months. Enright was fined $2,500 and ordered to disgorge $11,762, and Russel was fined $2,500 and ordered to disgorge $14,821.66. The sanctions were imposed by the NASD's Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 2. The sanctions were based on findings that, in connection with the offer and sale of securities to public customers, Felten and Spitler engaged in the securities business as broker-dealers without being registered as such in contravention of Section 15 of the Securities and Exchange Act of 1934. Felten, Spitler, Enright, and Russel, acting with other associated persons, engaged in private securities transactions outside the scope of their employment in contravention of the Board of Governors' Interpretation with respect to Private Securities Transactions in that they sold securities to the public without providing prior written notification to their member firm.

Victor Stanley Fishman (Registered Representative, Longwood, Florida) was fined $25,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Fishman solicited a total of $106,000 from nine public customers for investment in certain high yield securities. Instead of applying the funds as directed, he prepared fictitious confirmations and account statements and converted the funds to his own use and benefit.

William Harold Floyd (Registered Representative, Houston, Texas) was fined $100,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Floyd exercised effective control over the accounts of customers and recommended the purchase and sale of securities without having reasonable grounds for believing that the recommendations were suitable. Floyd also exercised discretion in executing transactions in the accounts of customers without obtaining proper authorization from the customers or his member firms.

Karl Grant Hale (Registered Representative, Midvale, Utah) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $15,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Hale consented to the described sanctions and findings that he effected transactions in and induced the purchase of securities by means of a manipulative, deceptive, or other fraudulent device or contrivance. Hale effected the sales of unregistered securities to approximately 96 investors.

Clinton P. Hayne (Registered Principal, New Orleans, Louisiana) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $7,500 and suspended from association with any member of the NASD in any capacity for one week. Without admitting or denying the allegations, Hayne consented to the described sanctions and findings that he exercised discretionary authority in a customer account without written authorization from the customer and acceptance by his member firm, and signed the name of a public customer to an options account agreement and margin agreement.

Michael Anthony Houston (Registered Representative, Bronx, New York) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that, without the knowledge or consent of the customers, Houston requested and received checks totaling $741, which represented credit balances in customers' accounts. The checks were to be hand-delivered to the customers but, instead, Houston converted the funds to his and a friend's own use and benefit.

Amin Jalaalwalikraam (Registered Representative, Glenham, New York) was fined $60,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Jalaalwalikraam directed that a dividend be paid on a customer's life insurance policy in the amount of $4,225 and, without the knowledge or consent of the customer, converted the proceeds to his own use and benefit. In addition, Jalaalwalikraam failed to respond to the NASD's request for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning his termination from a member firm.

Richard M. Kane (Registered Principal, Coconut Creek, Florida) submitted an Offer of Settlement pursuant to which he was fined $250,000 and barred from association with any member of the NASD in any capacity. Kane may requalify by examination as a representative after two years and as a principal after three years. Without admitting or denying the allegations, Kane consented to the described sanctions and findings that he effected 605 over-the-counter securities transactions as principal with retail customers at prices that were unfair and unreasonable.

Richard F. Knapp (Registered Representative, London, England) was fined $10,000 and suspended from association with any member of the NASD in any capacity for 30 business days. The sanctions were based on findings that Knapp purchased and later sold 4,000 warrants of corporate bonds from his member firm's trading account for his own account, without obtaining his member firm's authorization for the transactions.

Deborah Renee Martin (Associated Person, St. Louis, Missouri) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Martin, without the knowledge or consent of her member firm, withdrew funds from the firm's petty cash and converted them to her own use and benefit. In addition, Martin failed to respond to the NASD's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the termination of her employment.

John B. Merrick (Registered Representative, Aurora, Colorado) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $1,000 and suspended from association with any member of the NASD in any capacity for 10 business days. Without admitting or denying the allegations, Merrick consented to the described sanctions and findings that he caused annuity applications for two public customers to be falsified and submitted to his member firm in order to obtain commissions to which he was not entitled.

John P. Miller (Registered Representative, Baton Rouge, Louisiana) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $2,000 and suspended from association with any member of the NASD in any capacity for two weeks. Without admitting or denying the allegations, Miller consented to the described sanctions and findings that he participated in private securities transactions without providing written notice to his member firms.

Joseph Francis Muscolina, Jr. (Registered Principal, Palisades Park, New Jersey) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Muscolina failed to respond to the NASD's request for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Robert C. Najarian (Registered Representative, Brooklyn Park, Minnesota) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Najarian purchased and sold stock for a customer after Najarian made an oral promise to provide the customer with a written guarantee that she would not lose money on the transactions, and later he provided the customer with the written guarantee. Najarian made a second written guarantee to the same customer that her other investment of $45,000 would be secure and profitable. Also, Najarian failed to respond to the NASD's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning his termination from a member firm.

Edward Robert Norwick (Registered Representative, Nesconset, New York) was fined $30,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Norwick, on three occasions, caused shares of stock to be purchased for the accounts of customers without their knowledge or consent. He also failed to respond to the NASD's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the termination of his employment.

Randolph K. Pace (Registered Principal, New York, New York) submitted an Offer of Settlement pursuant to which he was fined $10,000 and suspended from association with any member of the NASD in any capacity for 90 days. Without admitting or denying the allegations, Pace consented to the described sanctions and findings that he refused to attend a hearing in a previous NASD proceeding in contravention of Article IV, Section 5 of the Rules of Fair Practice. This sanction was imposed by the NASD's Market Surveillance Committee.

Charles D. Phipps, Sr. (Registered Representative, Hermitage, Pennsylvania) was fined $10,000 and barred from association with any member of the NASD in any capacity. The sanctions were imposed by the NASD's Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 11. The sanctions were based on findings that Phipps received $1,500 from a public customer for the purchase of mutual fund shares, but Phipps failed to remit this money for its intended purpose.

Brian D. Pitcher (Registered Representative, New Providence, New Jersey) submitted an Offer of Settlement pursuant to which he was fined $30,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Pitcher consented to the described sanctions and findings that he caused checks totaling $273,000 to be issued to customers, and then converted the funds to his own use and benefit.

David Scott Rankin (Registered Representative, Lake St. Louis, Missouri) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Rankin failed to respond completely to the NASD's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the termination of his employment.

Wayne A. Russo (Registered Representative, Bridgeville, Pennsylvania) submitted an Offer of Settlement pursuant to which he was fined $4,000 and suspended from association with any member of the NASD in any capacity for 15 business days. Without admitting or denying the allegations, Russo consented to the described sanctions and findings that, in connection with the offer and sale of limited partnerships in 1983, Russo submitted financial information to his member firm concerning assets that overstated their financial position in order to make them appear to meet suitability or eligibility requirements.

Orville Leroy Sandberg (Registered Principal, Aurora, Colorado), Richard T. Marchese (Registered Principal, Las Vegas, Nevada), and Eric G. Monchecourt (Registered Principal, Las Vegas, Nevada) submitted an Offer of Settlement pursuant to which Sandberg was fined $3,500, suspended from association with any member of the NASD in any capacity for 10 days, and suspended from acting in a principal capacity for 60 days. Marchese and Monchecourt were each fined $5,000 and suspended from association with any member of the NASD in any capacity for one year. Without admitting or denying the allegations, Sandberg, Marchese, and Monchecourt consented to the described sanctions and findings that a member firm, acting through Sandberg, permitted Marchese to function as president and Monchecourt to function as vice president without either one being qualified as a principal. The firm, acting through Sandberg, permitted registered representatives to sell securities to customers in states where the representatives were not licensed to sell securities. Also, the firm, acting through Sandberg, distributed a brochure that contained misleading information concerning its performance as an underwriter.

Leigh A. Sanderoff (Registered Representative, Gaithersburg, Maryland) was fined $45,000, ordered to disgorge $12,252.60, and barred from association with any member of the NASD in any capacity. The sanctions were imposed by the NASD's Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 10. The sanctions were based on findings that Sanderoff converted proceeds from the sale of a customer's interest in a limited partnership totaling $12,252.60 to his own use and benefit. Sanderoff failed to notify his member firm in writing of his intention to participate in a private securities transaction. He also submitted a Form U-4 application for registration that falsely stated no self-regulatory organization had ever taken disciplinary action against him when, in fact, the NASD had sanctioned him in a prior disciplinary action.

Robert Gerhard Smith (Registered Representative, Carson City, Nevada) submitted an Offer of Settlement pursuant to which he was suspended from association with any member of the NASD in any capacity for two years. Without admitting or denying the allegations, Smith consented to the described sanctions and findings that he forged customers' signatures to letters authorizing the transfer of $3,335.63 from their accounts and misappropriated and converted the funds to his own use and benefit.

Sandra Ann Smith (Registered Representative, Ridgefield, New Jersey) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Smith converted the proceeds of three customers' checks totaling $529.83 to her own use and benefit.

James G. Spence (Registered Representative, Aloha, Oregon) was fined $5,000 and suspended from association with any member of the NASD in any capacity for six months. The sanctions were imposed by the NASD's Board of Governors on review of a decision rendered by the District Business Conduct Committee for District 2. The sanctions were based on findings that Spence purchased and sold shares of common stock in the account of a public customer without the prior knowledge or consent of the customer. He also forged the names of six customers on securities account transfer forms.

Mona Sun (Registered Representative, Jamaica Estates, New York) was fined $60,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that as part of a fraudulent scheme to convert customer funds, Sun altered a document so as to falsely confirm that her member firm guaranteed payment on $36 million of promissory notes issued by one of her clients. She then sold the promissory notes to a Swiss bank and directed that approximately $8 million of the proceeds be transferred to various individuals in accordance with the instructions of the purported President of the issuer of the notes.

William Swearingen (Registered Principal, Minneapolis, Minnesota) was fined $15,000 and suspended from association with any member of the NASD in any capacity for six months. The sanctions were based on findings that Swearingen failed to respond to the NASD's requests for information, made pursuant to Article IV, Section 5 of the Rules of Fair Practice, concerning the circumstances surrounding the termination of a registered representative from Swearingen's member firm.

John Bew Wong (Registered Representative, San Francisco, California) was fined $25,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Wong failed to respond to the NASD's requests for information, made pursuant to Article IV, Section 5 of the Rules of Fair Practice, in connection with his termination from a member firm.

Rabia M. Zayed (Registered Representative, San Francisco, California) was fined $50,000 and barred from association with any member of the NASD in any capacity. The sanctions were imposed by the NASD's Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 2. The sanctions were based on findings that Zayed deposited four customer checks totaling $4,000 in his own account and converted the funds to his own use and benefit. Also, Zayed exercised discretionary power in a customer's account without obtaining prior written authorization from the customer or his member firm. Zayed forged the signature of a customer to a margin agreement and an options agreement, and then provided these agreements to his member firm. Zayed failed to disclose information on a Form U-4 application for registration concerning a customer-initiated complaint.

INDIVIDUALS FINED

Devon Nilson Dahl (Registered Representative, Fountain Valley, California) was fined $82,389. This sanction was based on findings that Dahl participated in a series of private securities transactions involving sales of corporate securities to public customers without providing written notification to his member firm.

FIRMS SUSPENDED

The following firms were suspended from membership in the NASD for failure to comply with formal written requests to submit financial information to the NASD. The action was based on the provisions of Article IV, Section 5 of the NASD Rules of Fair Practice and Article VII, Section 2 of the NASD By-Laws. The date the suspension commenced is listed after each entry. If the firm has complied with the request for information, the listing also includes the date the suspension concluded.

Cooper-Daher Securities, Inc., San Francisco, California (October 11, 1989)
Dean, Johnson & Burke Securities, Inc., West Palm Beach, Florida (October 11, 1989)
Delta Investment Securities Corp., Colton, California (October 11, 1989)
W.D. Fard Securities, Inc., Atlanta, Georgia (October 11, 1989)
Foresight Capital Corporation, Fountain Hills, Arizona (October 11, 1989)
Fort Worth Financial, Inc., Irving, Texas (October 11, 1989)
Friedrich Bailey Flayhart & Associates Inc., Lewistown, Pennsylvania (October 11, 1989)
Glendale Securities, Inc., Chicago, Illinois (October 11, 1989)
Landsing Capital Corporation, Menlo Park, California (October 11, 1989)
Li von Securities, Inc., Mill Valley, California (October 11, 1989)
MLC Securities Corporation, Ridgefield, Connecticut (October 11, 1989)
Phillips Securities Corporation, Agoura Hills, California (October 11, 1989)
Phoenix Securities Group, Inc., New York, New York (October 11, 1989)
Shannon Brook Farms, Inc., Lexington, Kentucky (October 11, 1989)
H. Syversen & Co., Inc., New Milford, Connecticut (October 11, 1989)
Waltz Investments, Inc., New York, New York (October 11, 1989)

FIRMS EXPELLED FOR FAILURE TO PAY FINES AND COSTS IN CONNECTION WITH VIOLATIONS

Cunyus Securities, Inc., Dunwoody, Georgia
First Virginia Investment Corporation, Richmond, Virginia
Garfield Securities, Inc., Greenwich, Connecticut
Investment Brokers of America, Mill Valley, California
Kenman Securities Corporation, Salt Lake City, Utah
Ron Slover & Company, Amarillo, Texas
Western Capital & Securities, Inc., Salt Lake City, Utah

INDIVIDUALS WHOSE REGISTRATIONS WERE REVOKED FOR FAILURE TO PAY FINES AND COSTS IN CONNECTION WITH VIOLATIONS

Lyle T. Bachman, Tulsa, Oklahoma
Tim H. Bailey, Pacific Grove, California
Glen J. Barnes, Sacramento, California
Vic Brittain, Fort Worth, Texas
Robert M. Buchanan, Jr., Jackson, Mississippi
Walton F. Carlisle, Jacksonville, Florida
Kenneth E. Crowl, Tempe, Arizona
Danny J. Cunyus, Dallas, Texas
Jack Eng, Livingston, New Jersey
Robert C. Fairly, Jr., Madison, Mississippi
Donald E. Farley, Jacksonville, Florida
Salvador Garcia, Corpus Christi, Texas
Harry R. Gowdey, Dallas, Texas
Larry D. Harrison, Tulsa, Oklahoma
Ronald C. Holliday, Scottsdale, Arizona
Kenneth T. Holman, Centerville, Utah
Deverix A. Horn, Irving, Texas
Richard H. Johnson, Glen Cove, New York
Meridoth S. Jones, Jackson, Mississippi
Kenneth R. Kossakowski, West Seneca, New York
Bowman C. Lingle, Wauconda, Illinois
Frank H. McCullough, Scottsdale, Arizona
Bruce A. Meyer, Mercerville, New Jersey
Charles T. Porter, Birmingham, Alabama
Michael E. Rogers, Marina, California
Sherman M. Shabsin, Diamond Bar, California
James T. Shelvy, Jr., Louisville, Kentucky
Richard L. Singleton, Bakersfield, California
Ronald E. Slover, Amarillo, Texas
John S. Tighe, El Toro, California
Randall J. Whyte, Tucson, Arizona
William F. Wiggins, Monterey, California
Vincent A. Wood III, Richmond, Virginia

NASD LEVIES $700,000 FINE AND BARS INDIVIDUAL FOR FRAUD AND MISREPRESENTATION IN SALE OF SECURITIES AND FOR PRIVATE SECURITIES TRANSACTIONS

The NASD recently announced a disciplinary action against Edward Eugene Dockray of North Providence, Rhode Island. Dockray was censured, barred from association with any member of the NASD in any capacity, and fined $700,000. The sanctions were imposed pursuant to an Offer of Settlement in which Dockray neither admitted nor denied the allegations contained in the NASD's complaint and consented to the described findings and sanctions for violations of the NASD's Rules of Fair Practice.

Among other things, the complaint against Dockray alleged that, from May 1987 to April 1988, he engaged in fraudulent conduct involving the promotion, solicitation, and sale of the securities of Electronic Whiteboard Leasing Program. Units in the programs were sold to 140 investors in Rhode Island, Massachusetts, Connecticut, and other states at a total cost of $1,435,000.

The units were not registered pursuant to the Securities Act of 1933 and were offered and sold on the basis of misrepresentations and omissions of material facts relating to the use of proceeds from the investments and the company's business operations.

The complaint further alleged that Dockray engaged in private securities transactions in connection with the solicitation and sale of Electronic Whiteboard securities without providing prior written notification to his member firm. It also alleged that, as branch manager of the member firm, Dockray failed to enforce the firm's written supervisory procedures and permitted registered representatives to engage in private securities transactions.

All of the foregoing constituted violations of federal securities laws and/or the NASD's Rules of Fair Practice, including Article III, Section 18. This section prohibits any manipulative, deceptive, or other fraudulent device in the purchase or sale of any security.

NASD DISCIPLINES DATEK SECURITIES GROUP AND TRADER FOR FAILURE TO HONOR QUOTATIONS DISPLAYED ON THE NASDAQ SYSTEM

The NASD announced a disciplinary action initiated by its Market Surveillance Committee (committee) against Datek Securities Group, and one of its traders, Sheldon Maschler, for practices relating to a failure to execute transactions at prices that were displayed in the NASDAQ System by Datek or quoted by Datek in the non-NASDAQ market. This conduct is generally known as "backing away."

The committee accepted an Offer of Settlement whereby Datek consented to a censure, a fine of $25,000, and a suspension for 14 days from acting as a market maker in the securities referenced in the complaint. Maschler was censured and fined $25,000 and suspended from association with any member in any capacity for 30 days. In addition, Datek agreed to various undertakings including, among other things, the installation of a continuous telephone-line recording system that will record all incoming and outgoing calls from Datek's trading desk. A designated principal of Datek will also monitor the recording on a periodic, unannounced basis in order to review compliance with NASD rules relating to the firmness of quotations. These tape recordings will be maintained for a period of three months and will be made available to the NASD upon request.

In addition, the designated supervisor will periodically monitor the trading desk to ensure the firmness of quotations for both NASDAQ and non-NASDAQ securities. Datek also consented to revise the firm's compliance manual to delineate specific procedures to be followed by the trading desk in order to comply with the rules relating to the firmness of quotations. It will also hold training sessions for individuals employed on the trading desk concerning those procedures. Maschler further agreed that in the event that he became associated with another member within the next two years, the undertaking with respect to the tape recording system would remain in effect and that any other member must adopt and implement substantially similar procedures as those to which Datek had consented.

The committee complaint was authorized as a result of the NASD's Market Surveillance investigation into the trading practices of the respondents during the market break occurring in October 1987. The complaint was, thereafter, amended to reflect a continuing pattern and practice of backing away through the date of the filing of the amended complaint in June 1988.

Specifically, without admitting or denying the allegations in the complaint, Datek and Maschler have consented to findings of violations of the NASD's Rules of Fair Practice in that they failed to execute transactions in several different securities for at least a normal unit of trading at the price that Datek had displayed on the NASDAQ System in securities for which Datek was a registered market maker. Additionally, Datek and Maschler consented to findings that they failed to execute transactions at prices quoted to other member firms and failed to provide quotations to other member firms in certain over-the-counter securities for which Datek was listed as a market maker in the National Quotation Bureau "pink sheets" on a name-only basis.

In accepting the Offer of Settlement, the committee stated that "a market maker's failure to honor a quotation calls into question the validity of the prices the market maker has quoted on the system. The NASDAQ System display of bid and ask quotations is the mechanism by which market makers receive continuous information concerning the market value of NASDAQ securities. A member's refusal to execute transactions at its quoted prices calls into question whether the quotations on the system are bona fide and calls into question the integrity of the NASDAQ market."

With respect to a market maker appearing in the "pink sheets" on a name-only basis, the committee concluded that a continued pattern or practice of providing quotations that bear no relationship to the current market or are so qualified on further inquiry as to be non-bona fide, would, in the committee's view, also constitute backing away.

This represents the first of several actions addressed by the committee as a result of the October 1987 market break.

The committee, which consists of 12 executives of securities firms across the country, is charged with the responsibility of maintaining the integrity of the NASDAQ market and with disciplining NASD members and their associated persons who fail to comply with market-related securities laws and regulations.

NASD SANCTIONS BAILEY, MARTIN AND APPEL, INC., OF PHILADELPHIA AND FOUR INDIVIDUALS FOR ARTIFICIAL PRICING AND EXCESSIVE MARKUPS IN NORTHGATE INDUSTRIES PENNY STOCK

The NASD announced disciplinary actions taken against the firm of Bailey, Martin and Appel, Inc. (BMA), located in Philadelphia, Pennsylvania, and Donald A. Bailey, Francis A. Martin, Howard M. Appel, and Leonard D. Segal. The actions related to the artificial pricing of Northgate Industries, Inc., common stock, subsequently known as Starcom Entertainment International, Inc., a non-NASDAQ over-the-counter issue, excessive markups charged by BMA in principal sales of Northgate to its customers, and inadequate supervisory procedures.

The Respondents neither admitted nor denied the allegations of the Complaint. Pursuant to their Offers of Settlement, all of the respondents were censured and fined $50,000, jointly and severally. In addition, BMA was suspended from membership in the NASD for three months; Bailey was suspended from association with any member in any capacity for three months; Martin, who is not currently in the securities industry, agreed not to seek to become associated with any NASD member in any capacity for six months; Appel was suspended from association with any NASD member in any capacity for 30 days and thereafter suspended for an additional 30 days from association with any NASD member in a supervisory or principal capacity; and Segal was suspended from association with any NASD member as a trader for 45 days.

The NASD Market Surveillance Committee charged all Respondents with violations of Article III, Sections 1 and 18, of the Rules of Fair Practice. Section 18 is the NASD's anti-fraud provision, which prohibits the use of any manipulative, deceptive, or other fraudulent device in the purchase or sale of any security. The committee also charged all respondents (except Bailey) with violations of Article III, Section 4 of the Rules of Fair Practice, specifically relating to markups, and the firm was charged with violations of Article III, Section 27 of the Rules of Fair Practice, relating to supervision.

The complaint charged that Northgate was a public shell corporation with no assets. When Northgate merged with Starcom on April 16, 1986, Northgate had 342,000 shares of freely tradable stock owned by at least 300 shareholders. No market maker had executed a trade in the stock since at least June 1985. Starcom was a private entertainment company with no operating history or revenues.

The complaint charged that in late fall 1985, BMA entered into an investment banking relationship with Starcom and advised Starcom to merge with an existing public shell and thereafter fund the company through a public financing. On April 4, 1986, approximately two weeks prior to the merger, BMA bought 240,500 freely tradable shares of Northgate from former officers and directors of the shell for $48,150, or about 20 cents per share. After purchasing these shares, BMA owned 70 percent of the freely tradable stock (240,500 out of 342,000 shares).

The complaint charged that on April 18, 1986, BMA entered its opening quotes in the "pink sheets" of 1¾ bid, 2¼ offer. From that date until June 30, 1986, respondents increased the price of Northgate to $3 per share, an increase of 1,400 percent over BMA's 20 cents per-share acquisition cost by, among other things, entering quotes in the "pink sheets" unrelated to the forces of supply and demand; dominating and controlling the market for Northgate; bidding for, purchasing, and selling Northgate at successively higher prices despite substantial long inventory positions and limited wholesale and retail demand for the stock; and omitting to advise customers when soliciting them to purchase Northgate that BMA had recently acquired 70 percent of the public float of Northgate at 20 cents per share, was dominating and controlling the market for Northgate, and was artificially increasing its price.

In addition to the allegations relating to the artificial pricing of Northgate, the complaint also charged that BMA, acting through Martin and/or Appel and Segal, in at least 26 principal transactions, sold Northgate to its retail customers at excessive markups ranging from 18 to 67 percent above the prevailing market price for Northgate, resulting in customers being overcharged more than $22,500.

The investigation of this case was conducted by the NASD's Anti-Fraud Department and is part of a concerted effort by the NASD to eliminate sales practice abuses, fraud, and manipulation in the penny stock market. The disciplinary action was taken by the NASD's Market Surveillance Committee, which consists of 12 executives of securities firms across the country. The committee is responsible for maintaining the integrity of the NASDAQ and non-NASDAQ OTC markets.

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,

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

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.

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,

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,

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 Firms—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 Firms—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 Makers—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 Shares—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 Accounts—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-Dealers—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 Schedule—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 Comment—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 business—even if that means they will have to forego handling funds and securities—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 Securities—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 Securities—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 Deliver—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 Borrowed— 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 240—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

(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.

* * * * *

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) * * *

[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).

* * * * *

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 XXII—The National Formulary XVII," The United States Pharmacopeial Convention, Inc., Rockville, MD, p. 1692,1989.

(3) "Physicians' Desk Reference—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 341—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).

Disciplinary Actions (October)

Disciplinary Actions

National Association of Securities Dealers, Inc.

October 1989

Disciplinary Actions Reported for October

The NASD is taking disciplinary actions against the following firms and individuals for violations of the NASD Rules of Fair Practice and/or the rules of the Municipal Securities Rulemaking Board. Unless otherwise indicated, suspensions began with the opening of business on Monday, October 2, 1989. The information relating to matters contained in this notice is current as of the 20th of the month preceding the date of the notice. Information received subsequent to the 20th is not reflected in this publication.

FIRMS EXPELLED, INDIVIDUALS SANCTIONED

Waddell JenMar Securities, Inc. (Chapel Hill, North Carolina), Guilford T. Waddell, III (Registered Principal, Chapel Hill, North Carolina), and Susan T. Maddry (Associated Person, Durham, North Carolina). The firm was expelled from membership in the NASD, Waddell was fined $1,390,000 and barred from association with any member of the NASD in any capacity, and Maddry was fined $25,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Waddell, with the assistance of Maddry, misappropriated $1,140,909 from 11 different customers by transferring funds to bank accounts of an affiliate and used the funds for purposes other than for the benefit of the customers. The firm, acting through Waddell, served as an underwriter of a best-efforts, all-or-none offering and failed to return funds to investors when the minimum number of units required were not sold by the termination date. To close the offering, Waddell purchased 5 ¼ units and paid for them out of the proceeds of the offering. As a result, the sale of those units was not bona fide. In addition, Waddell failed to respond to the NASD's request for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

FIRM FINED, INDIVIDUALS SANCTIONED

Howard, Weil, Labouisse, Friedrichs Incorporated (New Orleans, Louisiana), John B. Levert, Jr. (Registered Principal, New Orleans, Louisiana), Alan C. Arnold (Registered Principal, New Orleans, Louisiana), Joseph C. Pascal (Registered Principal, Metairie, Louisiana), William H. Walker (Registered Principal, New Orleans, Louisiana), Patrick R. Mooney (Registered Principal, New Orleans, Louisiana), Keith E. Butler (Registered Representative, New Orleans, Louisiana), and Patrick R. Hastings (Registered Principal, New Orleans, Louisiana) submitted a Letter of Acceptance, Waiver and Consent pursuant to which they were fined $50,000, jointly and severally. The firm must also demonstrate to the District Business Conduct Committee for District 5 that it has adopted adequate procedures to ensure that all individuals associated with it are properly qualified and registered. Without admitting or denying the allegations, the firm and individuals consented to the described findings and sanctions that while associated with the firm, Arnold, Mooney, and Hastings acted as municipal securities principals and neglected to comply with the qualification requirements of the Municipal Securities Rulemaking Board (MSRB). Walker and Butler acted as general securities principals and neglected to comply with the qualification requirements of the NASD. The firm, acting through Levert, Jr., Pascal, and Arnold, failed to maintain and/or enforce written supervisory procedures to ensure that all associated individuals were properly registered and qualified. And the firm, acting through Levert, Jr., Pascal, and Arnold, failed to register 18 individuals in accordance with NASD, MSRB, and state requirements.

FIRMS FINED

Chelsea Securities, Inc. (Newport Beach, California) submitted a Letter of Acceptance, Waiver and Consent pursuant to which it was fined $10,500, jointly and severally, with associated persons. Without admitting or denying the allegations, Chelsea consented to the described findings and sanctions that the firm, acting through two associated persons, engaged in a general securities business when it failed to maintain sufficient net capital. Also, the firm failed to file an amended Form BD concerning the ownership of the firm on a timely basis.

Underhill Associates, Incorporated (Red Bank, New Jersey) was fined $15,000. The sanction was based on findings that Underhill effected principal transactions in municipal securities with public customers at prices that were unfair and unreasonable. Also, the firm effected sales to public customers of equity securities at prices that were unfair. In addition, the firm failed to disclose on four customer confirmations the amount of markdown for purchases of equity securities from the four customers.

Oberweis Securities, Inc. (Naperville, Illinois) submitted an Offer of Settlement pursuant to which the firm was fined $16,000. Without admitting or denying the allegations, Oberweis consented to the described findings and sanctions that the firm, acting through associated persons, failed to prepare accurate net capital computations, effected transactions in securities while failing to maintain the required minimum net capital, failed to accurately compute the amount required to be on deposit in its reserve account (resulting in reserve account deficiencies on two occasions), filed inaccurate FOCUS I and FOCUS II reports, and failed to preserve a reconciliation of its money line balances to the amounts used in its net capital and reserve account computations. The firm also improperly hypothecated customer securities and permitted the securities to be commingled with the firm's bank loan, failed to keep current books and records, neglected to submit written notification to the NASD when the market value of the collateral securing certain demand notes fell below the amount of the unpaid principal, and failed to transfer two securities held as collateral to the name of the firm or its nominee. Furthermore, Oberweis failed to note the yield to maturity on municipal bond confirmations and on corporate bond confirmations.

INDIVIDUALS BARRED OR SUSPENDED

Akiva Bar (Registered Representative, Valencia, California) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $10,000 and suspended from association with any member of the NASD in any capacity for five years. Without admitting or denying the allegations, Bar consented to the described findings and sanctions that he induced public customers to purchase securities by using high-pressure sales tactics and making false and misleading statements. Bar also executed a series of 32 purchase and sale transactions in the accounts of 19 customers without the knowledge or consent of such customers.

John M. Bethea (Registered Representative, Littleton, Colorado) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $1,000 and suspended from association with any member of the NASD in any capacity for three months. Without admitting or denying the allegations, Bethea consented to the described findings and sanctions that he falsified the books and records of his employer-member in order to circumvent the firm's trading limitations.

James Edwin Binning (Registered Representative, Valrico, Florida) submitted an Offer of Settlement pursuant to which he was fined $10,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Binning consented to the described findings and sanctions that he made unsuitable recommendations to public customers regarding purchases of nonrelated speculative revenue bonds and failed to pay a $50,000 arbitration award.

John J. Connolly (Registered Representative, Staten Island, New York) was fined $100,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that, in contravention of Regulation T, Connolly failed to pay on a timely basis for securities purchased in his personal account with his employer-member. He also established an account with his employer-member under a fictitious name in which he bought and sold securities without paying for them in contravention of Regulation T. In addition, Connolly signed and submitted a new account form to his employer-member to open an account for his wife that failed to disclose her relationship with him. Connolly also effected the purchase of shares of common stock for the accounts of two public customers without having the customers' authorization and without having discretionary power over the accounts.

Richard D. Costanza (Registered Representative, Pittsburgh, Pennsylvania) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Costanza received $1,446.75 from public customers for payment of insurance premiums, which he failed to remit to his employer-member. Costanza also received $148.97 from public customers for payment of insurance premiums. He caused these funds to be applied to pay premiums of other customers.

Beverly Jean Duncan (Registered Representative, Louisville, Kentucky) was fined $10,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Duncan caused to be issued and cashed 17 checks against her account at her employer-member before recording the checks and before sufficient funds were on deposit to cover the checks. Also, Duncan failed to respond to the NASD's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the circumstances surrounding the termination of her employment from a member firm.

Byron K. Griffith (Registered Representative, Memphis, Tennessee) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that, on three separate occasions, Griffith received checks from customers totalling $130,900 for investment purposes. He failed to follow the customers' instructions and converted the funds to his own use and benefit. In order to maximize concessions, Griffith executed a sale of shares in one mutual fund and used the proceeds to purchase shares of a similar mutual fund. He also failed to respond to the NASD's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Edward T. Hackney (Registered Representative, Phoenix, Arizona) was fined $30,000, ordered to disgorge $54,450, and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Hackney made improper use of customer funds in that he received approximately $54,450 from seven customers and deposited the funds into a bank account in which he had beneficial ownership. Hackney also failed to respond to the NASD's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Paul H. Hall (Registered Representative, Orem, Utah) was fined $25,000 and suspended from association with any member of the NASD in any capacity for six months. The sanctions were based on findings that Hall effected a series of unauthorized securities transactions in the accounts of four customers. In order to generate commissions, he effected excessive trading in the accounts of three customers without consideration of their investment objectives and financial situations. In addition, Hall caused false and misleading information to be reflected on his employer-member's books and records by exaggerating customer financial information and investment experience and falsifying investment objectives and anticipated levels of trading on customer option information forms. Hall caused advertising circulars promoting an investment seminar to be distributed to the public without obtaining prior written approval from his employer-member.

Saundra K. Johnston (Registered Representative, Montgomery, Alabama) submitted an Offer of Settlement pursuant to which she was fined $10,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Johnston consented to the described findings and sanctions that she received from a customer cashier's checks totalling $3,886.25, representing the proceeds on the sale of zero coupon bonds, failed to follow the customer's instructions to reinvest the funds, and, without the knowledge or consent of the customer, converted the funds to her own use and benefit. In an attempt to conceal the conversion of funds, she visited the customer and asked the customer not to inform anyone of the misappropriation. In addition, Johnston floated funds (kited checks) totalling $29,000 between her two personal checking • accounts, and she falsely represented to a new employer-member that she had resigned from her former employer when in fact she had been discharged.

Ira Robert Landis (Registered Principal, New York, New York) was fined $5,000, suspended from association with any member of the NASD in a principal capacity for one month, and must requalify by examination following his suspension. The sanctions were based on findings that Landis failed to establish supervisory procedures to detect and prevent the parking of securities by a registered representative.

Joel Norman Light (Registered Representative, Derby, Kansas) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $25,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Light consented to the described findings and sanctions that he received $28,260.12 from five customers and converted the funds to his own use and benefit without the knowledge or consent of the customers.

John F. Lukas (Registered Representative, Miami, Florida) was fined $2,000 and suspended from association with any member of the NASD in any capacity for six months. The sanctions were based on findings that Lukas failed to participate in an NASD hearing pursuant to Article IV, Section 5 of the Rules of Fair Practice.

James E. McCracken (Registered Representative, Vineland, New Jersey) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that McCracken received from a public customer $2,381.32 for the purchase of a variable annuity policy. McCracken converted the sum to his own use and benefit. He also failed to respond to the NASD's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Daniel Martin Michael McKeown (Registered Representative, Marietta, Georgia) submitted an Offer of Settlement pursuant to which he was fined $1,000 and suspended from association with any member of the NASD in any capacity for five business days. Without admitting or denying the allegations, McKeown consented to the described findings and sanctions that he effected one unauthorized transaction in the securities accounts of each of three public customers.

Fernando Augusto Moreno (Registered Representative, San Francisco, California) submitted an Offer of Settlement pursuant to which he was fined $20,000 and suspended from association with any member of the NASD in any capacity for three years. Without admitting or denying the allegations, Moreno consented to the described findings and sanctions that he effected the purchase and sale of options on margin in customer accounts without reasonable grounds for believing that the recommendations were suitable for the customers. In addition, he made false representations on information forms to his employer-member regarding the customers' income, net worth, and investment experience.

Vincent P. Olszewski (Registered Representative, Highland Park, New Jersey) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Olszewski forged the endorsement on a $769 check drawn to a public customer and converted the sum to his own use and benefit. Olszewski also failed to respond to the NASD's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Mark J. Parker (Registered Representative, Cinnaminson, New Jersey) was fined $17,000 and suspended from association with any member of the NASD in any capacity for 30 days. The sanctions were based on findings that Parker recommended and effected uncovered options transactions for the account of public customers without having reasonable grounds for believing that such transactions were suitable.

Kenneth G. Rogers (Registered Representative, Silver City, New Mexico) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $25,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Rogers consented to the described findings and sanctions that, on four occasions, he accepted and improperly endorsed customers' checks totalling $60,000 made payable to an affiliate of a member firm and converted the funds to his own use and benefit without the knowledge or consent of the customers or his employer-member. Rogers also placed purchase orders with another member firm without giving prior written notice to his employer-member and without informing the other member firm to provide information concerning the account to his employer-member.

Zeke C. Soliz (Registered Representative, Keansburg, New Jersey) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $15,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Soliz consented to the described findings and sanctions that he received and endorsed checks payable to public customers totalling $2,527.63 and deposited the funds in his bank account for his own use and benefit without the customers' knowledge or consent.

Raymond J. Strawbridge (Registered Representative, Gadsden, Alabama) submitted an Offer of Settlement pursuant to which he was fined $15,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Strawbridge consented to the described findings and sanctions that he received funds from a customer to prepay insurance premiums and failed to forward $5,295.79 of those funds to the insurance company. When he discovered his error, Strawbridge failed to disclose this information to the customer. Subsequently, when the customer questioned a discrepancy, Strawbridge attempted to conceal his actions by asking the customer to inform his employer-member that the problem had been corrected. In return, Strawbridge promised to assume future premium obligations for the customer.

Thomas A. Timberlake (Registered Principal, Tampa, Florida) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was suspended from association with any member of the NASD in any capacity for five days. Without admitting or denying the allegations, Timberlake consented to the described findings and sanctions that he recommended and effected, in the account of two customers, certain options transactions that were not suitable for the customers given the excessive number of transactions and the customers' financial needs and investment objectives.

FIRMS SUSPENDED

The following firms were suspended from membership in the NASD for failure to comply with formal written requests to submit financial information to the NASD. The actions were based on the provisions of Article IV, Section 5 of the NASD Rules of Fair Practice and Article VII, Section 2 of the NASD By-Laws. The date the suspension commenced is listed after each entry. If the firm has complied with the request for information, the listing also includes the date the suspension concluded.

Baycrest Financial, Huntington Beach, California (September 11, 1989)
Biscayne Securities, Lauderhill, Florida (September 11, 1989)
L.A. Boykin & Associates, Little Rock, Arkansas (September 11, 1989)
Broadway Securities, Inc., Marina Del Rey, California (September 11, 1989)
Financial Exchange, Ltd., Grenada, Mississippi (August 18, 1989)
Harbor Equities, Inc., Lanoka Harbor, New Jersey (August 18, 1989)
Investamerica Securities, Inc., Denver, Colorado (September 11, 1989)
Kaufman Investments Corp., Chicago, Illinois (September 11, 1989)
Knight & Mellerup, Inc., Tarzana, California (August 18, 1989)
Meier Mitchell & Co., San Francisco, California (September 11, 1989)
Newfield Securities, Inc., Houston, Texas (September 11, 1989)
Seville Securities, Ltd., New City, New York (September 11, 1989)
State Equities, Inc., San Francisco, California (September 11, 1989)
Summa Capital Securities, Inc., Denver, Colorado (September 11, 1989)
U.S. Advisors, Inc., Novato, California (September 11, 1989)
Wall Street Pacific Financial Resources, Inc., San Jose, California (September 11, 1989)

INDIVIDUALS WHOSE REGISTRATIONS WERE REVOKED FOR FAILURE TO PAY FINES AND COSTS IN CONNECTION WITH VIOLATIONS

Mark G. Ross, New York, New York
Marc J. Rothenberg, New York, New York

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,

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

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,

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.

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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.

Disciplinary Actions (September)

Disciplinary Actions

National Association of Securities Dealers, Inc.

September 1989

Disciplinary Actions Reported for September

The National Association of Securities Dealers, Inc. (NASD), is taking disciplinary actions against the following firms and individuals for violations of the NASD Rules of Fair Practice and/or the rules of the Municipal Securities Rulemaking Board. Unless otherwise indicated, suspensions began with the opening of business on Tuesday, September 5, 1989.

FIRM EXPELLED, INDIVIDUALS SANCTIONED

Delta Financial Investment, (Little Rock, AR), William D. Lainhart (Registered Principal, Sherwood, AR), Gandy L. Baugh (Registered Financial and Operations Principal, Little Rock, AR), Jack S. Lewis, Jr. (Registered Principal, North Little Rock, AR), Robert E. Thomas (Registered Principal, Little Rock, AR), Herbert E. Young (Registered Representative, North Little Rock, AR), and David B. Higginbotham (Registered Principal, Little Rock, AR) submitted an Offer of Settlement pursuant to which the firm was fined $50,000 and expelled from membership, Lainhart was fined $7,500 and suspended for four months in any capacity, Baugh was fined $5,000 and suspended for three months in any capacity, Lewis was suspended for one month in any principal capacity and must requalify by examination prior to acting as principal, Thomas was fined $3,500 and suspended for two weeks in any principal capacity and must requalify by examination prior to acting as a principal, Young was fined $15,000 and suspended for three months in any capacity, and Higginbotham was fined $3,500 and suspended for two weeks in any capacity. Without admitting or denying the allegations, they consented to the described sanctions and findings that on numerous occasions the firm, Lainhart, and Baugh failed to compute accurately the amount required to be on deposit in the special reserve bank account, failed to make required deposits into the account within the appropriate time frames, and failed to file telegraphic notice of failure to make the required deposits. On several occasions, the firm, acting through Lainhart and Baugh, filed inaccurate FOCUS I and FOCUS II reports, failed to maintain accurate books and records, neglected to make accurate computations of net capital, and engaged in a securities business when it failed to maintain the required minimum net capital. Also, the firm, acting through Lainhart and Baugh, conducted safekeeping activities in contravention of its voluntary restriction agreement. The firm, acting through Young, engaged in a series of repurchase/reverse repurchase transactions of U.S. Treasury bonds to assist an institutional customer in concealing trading losses. These transactions were not recorded on the firm's books and records because they would have required adjustments in the firm's net worth that would have placed the firm under capital. Furthermore, Lewis, Thomas, and Higginbotham assisted Young in these fraudulent activities and in the generation of materially misleading books and records.

FIRMS FINED, INDIVIDUALS SANCTIONED

First Interregional Equity Corp., (Springfield, NJ), Herbert N. Goettlich (Registered Principal, Maplewood, NJ), and Anthony L. Gianninoto (Registered Principal, Malverne, NY) submitted a Letter of Acceptance, Waiver and Consent pursuant to which they were fined $20,000, jointly and severally. Both Goettlich and Gianninoto were suspended from association with any member of the NASD for 10 business days. Gianninoto's suspension will begin on September 5, 1989, and Goettlich's suspension will begin on September 19, 1989. Without admitting or denying the allegations, they consented to the described sanctions and findings that the firm, acting through Goettlich or Gianninoto failed to reconcile its omnibus account and failed to prepare an accurate reserve computation, which resulted in a deficiency in the firm's reserve bank account. The firm failed to do weekly reserve computations when its aggregate customer funds exceeded $1,000,000. Furthermore, the firm failed to maintain its required minimum net capital on two occasions and failed to file telegraphic notices of a deficiency in its reserve account and a net-capital deficiency. Additionally, the firm, acting through Goettlich or Gianninoto, permitted two persons to receive commissions who were not properly registered. Finally, the firm failed to remit a municipal underwriting fee within the required time period.

Government Securities Dealers, Inc., (New York, NY), Joseph Tully Blumstein (Registered Principal, New York, NY), Steven Robert Sheldon (Registered Principal, Englewood, NJ), and Carl Anthony Torelli (Registered Financial and Operations Principal, Medford, NY) submitted an Offer of Settlement pursuant to which they were fined $20,000, jointly and severally. Blumstein and Sheldon are suspended from association with any member of the NASD as a general securities principal for 60 days. Without admitting or denying the allegations, they consented to the described sanctions and findings that the firm, acting through Sheldon and Blumstein, permitted a statutorily disqualified individual to be associated with the firm and permitted two individuals denied registration to be associated with the firm. The firm, acting through Sheldon, permitted four individuals to be associated with the firm without being registered with the NASD. The firm, acting through Blumstein, failed to amend its Form BD to disclose completely its formal disciplinary history. Also, the firm, acting through Torelli, failed to keep current records on activity in the securities accounts of the firm's partners. Finally, the firm, acting through Blumstein and Torelli, refused to send the required telegraphic notice of its failure to maintain accurate books and records.

Hampton Securities, Inc., (West Palm Beach, FL) and Delores Easthom (Registered Principal, West Palm Beach, FL) were fined $15,000, jointly and severally, and the firm was required to disgorge $209,000 and suspended from the solicitation of retail business for five days. Easthom was suspended for 30 days from association with any member in any capacity. The sanctions were imposed by the NASD Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 7. The sanctions were based on findings that the firm, acting through Easthom, effected as principal for its own account 313 sales of corporate securities to public customers at unfair prices that contained excessive markups.

FIRMS AND INDIVIDUALS FINED

Wakefield Financial Corporation, (New York, NY) and Alexander Geils Minella (Registered Principal, White Plains, NY) submitted an Offer of Settlement pursuant to which the firm and Minella were fined $15,000, jointly and severally. Without admitting or denying the allegations, they consented to the described sanctions and findings that the firm, acting through Minella, effected 49 purchases of corporate securities from public customers at markdowns that were excessive.

FIRM FINED

David Lerner Associates, Inc., (Syosset, NY) submitted an Offer of Settlement pursuant to which the firm was fined $10,000 and required for one year to file all media advertisements with the NASD Advertising Department within five business days prior to publication. Without admitting or denying the allegations, the firm consented to the described sanctions and findings that some of its advertising of municipal bonds, Ginnie Mae securities, mutual funds, and collateralized mortgage obligations were misleading or otherwise inappropriate. Also, the firm's recruitment advertisements cited earnings figures that were not reasonable.

INDIVIDUALS BARRED OR SUSPENDED

Ernest A. Bartlett, in, (Registered Representative, Little Rock, AR) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Bartlett, exercising discretionary power over three customer accounts, purchased and sold securities without prior written consent from the customers. Furthermore, Bartlett used high-pressure sales tactics and made exaggerated and misleading statements to customers to solicit their business. Also, Bartlett failed to respond to the NASD's four requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Gwendolyn Blunt (Associated Person, Roosevelt, NY) was fined $50,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Blunt caused certain fictitious deposits to be credited to her personal securities account and then withdrew $6,197.77 of the funds so credited.

Jeffrey Phillip Bohl (Registered Principal, Los Angeles, CA) was fined $100,000 and barred from association with any member of the NASD in any capacity. The sanctions were imposed by the NASD Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 2. The sanctions were based on the findings that, following his termination by a member, Bohl failed to observe industry practice regarding the transfer of customer securities accounts from one broker-dealer to another. Bohl caused 11 customers to liquidate their accounts and had the proceeds transferred to new accounts at another broker-dealer where he executed purchases that reinstated the customers' pre-liquidation positions. Bohl also opened securities accounts for two customers and effected transactions for those customers without disclosing to them that he was not properly associated with a broker-dealer. Bohl failed to follow a customer's instructions and, instead of purchasing convertible bonds with approximately $38,000 received from the customer, he deposited the funds into a bank account, engaged in numerous unauthorized trades that were paid for with part of the funds, and retained the balance of approximately $26,000 in the account. In a separate instance, Bohl received $45,000 from a customer for the purchase of securities. He placed these funds in a bank account and used $22,000 to pay for numerous transactions in the customer's account with a member firm. He refunded $1,635 to the customer but retained the balance of funds in the account.

Keith W. Borgmann (Registered Representative, Union, MO) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $15,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Borgmann consented to the described sanctions and findings that he received a check for approximately $7,000 from a public customer with instructions to use such funds to pay premiums on a life insurance policy. Borgmann failed to follow the customer's instructions and instead deposited the funds in a bank account in which he had a beneficial interest and utilized the funds for his own use and benefit.

Jesse Ramirez Cano (Registered Representative, San Antonio, TX) was fined $17,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Ramirez received cash payments of monthly insurance premiums from at least 11 customers totaling at least $6,129.99 and, without the knowledge or consent of the customers, converted the funds to his own use and benefit. Ramirez also failed to respond to the NASD's two requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Ronald G. Caponi (Registered Representative, Mt. Clemens, MI) was fined $5,000 and barred from association with any member of the NASD in any capacity. The sanctions were imposed by the NASD Board of Governors upon review of a decision rendered by the District Business Conduct Committee for District 8. The sanctions were based on findings that Caponi caused a life insurance policy that was purchased by a customer to be surrendered. Further, he obtained a check in the amount of $1,651.35 for the policy, signed the customer's name to the check, and retained the funds for his personal use and benefit without the customer's knowledge or consent.

Kris John Daugherty (Registered Representative, Oklahoma City, OK) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Daugherty forged the endorsement on checks totaling $15,585.69 that were made payable to public customers and converted the proceeds to his own personal use and benefit. Also, he failed to respond to the NASD's two requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Stephen W. Devanney (Registered Principal, Aurora, CO) and Dennis J. Kirkman (Registered Financial and Operations Principal, Denver, CO). Devanney was fined $1,000, suspended from association in a principal capacity with any member of the NASD for one year, and required to requalify by examination before acting in a principal capacity. Kirkman was fined $5,000, suspended from association in a principal capacity with any member for one year, and required to re-qualify by examination before acting as a Financial and Operations Principal. These sanctions were imposed by the NASD Board of Governors upon review of a decision rendered by the District Business Conduct Committee for District 3. The sanctions were based on findings that a member firm, acting through Devanney and Kirkman conducted a securities business while failing to maintain its required minimum net capital; failed to keep and preserve books and records in conforming with applicable rules by overstating the cash account balance in its general ledger; overstated the balance of its clearing corporation drafts; failed to reconcile its clearing account; and failed to maintain accurate securities position records. The firm, acting through Devanney and Kirkman, also failed to promptly deposit customers' funds in an escrow account in 47 instances in connection with four contingent offerings.

Frank L. Dowdey (Registered Representative, Birmingham, AL) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Dowdey misappropriated customers' funds and failed to act on customers' instructions when he received a total of $3,100 from two customers and converted the funds to his own use and benefit. In addition, Dowdey failed to respond to the NASD's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Lawrence J. Dumestre, Jr. (Registered Principal, Baton Rouge, LA) and Lawrence C. Dumestre (Registered Representative, Baton Rouge, LA) submitted a Letter of Acceptance, Waiver and Consent pursuant to which they were jointly and severally fined $5,000 and suspended from association with any member of the NASD in any capacity for one week. Without admitting or denying the allegations, they consented to the described sanctions and findings that they participated in the sale of a limited partnership to at least four customers and failed to provide prior written notice to their employer-member in contravention of the Board of Governors' Interpretation on private securities transactions. In addition, both Lawrence J. Dumestre, Jr., and Lawrence C. Dumestre sent to customers letters concerning a limited partnership that contained material misstatements or omissions.

Richard L. Fisher (Registered Representative, Adamstown, PA) was fined $5,000 and suspended from association with any member of the NASD in any capacity for 30 days. The sanctions were imposed by the NASD Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 11. The sanctions were based on findings that Fisher arranged the purchase of securities by two customers while failing to give his employer-member prior written notice, which is in contravention of the Board of Governors' Interpretation on private securities transactions.

John R. Geel (Registered Representative, St. Anne, IL) was fined $7,500 and suspended from association with any member of the NASD in any capacity for six months. The sanctions were imposed by the NASD Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 8. The sanctions were based on findings that Geel, with the participation of a nonregistered insurance salesman, offered and sold variable annuities to two public customers and entered into an agreement with the salesman to pay him a portion of the commissions earned on the sales in contravention of NASD rules prohibiting the payment of commissions to unregistered persons on the sale of securities.

Donald L. Gilberg (Registered Representative, Pittsburgh, PA) submitted an Offer of Settlement pursuant to which he was fined $1,000 and suspended from association with any member of the NASD in any capacity for five business days. Without admitting or denying the allegations, Gilberg consented to the described sanctions and findings that he refunded $660 to a customer for sales charges incurred when the customer purchased $10,000 of a bond trust. Gilberg falsely represented to the NASD that the refund was not connected to the customer's investment.

William G. Glenn (Registered Representative, Mesa, AZ) and Timothy A. Blackburn (Registered Representative, Tempe, AZ) were each fined $5,000 and suspended from association with any member of the NASD in any capacity for a period of six months and required to requalify by examination. The sanctions were imposed by the NASD Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 3. The sanctions were based on findings that Glenn and Blackburn failed to respond to the NASD's repeated requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Timothy G. Grazioso (Registered Representative, Englewood, NJ) was fined $50,000 and suspended from association with any member firm in any capacity for one year. These sanctions were imposed by the NASD Board of Governors following an appeal of a decision by the Market Surveillance Committee. These sanctions were in connection with conduct involving "marking the close" of the market in several NASDAQ National Market securities with fictitious trade reports. The NASD found that, during the period from January through November 1987, Grazioso, a trader who was then employed with a member firm, entered 101 fictitious trade reports, at or near the close of the market, in violation of Article III, Sections 1, 5, and 18 (the NASD's anti-fraud rule) of the NASD's Rules of Fair Practice and the reporting requirements in Section 4 of Part VI, Schedule D to the By-Laws. The Board further found that such fictitious trade reports generally represented either an increase or decrease in price from the previous reported trade, depending on whether the inventory traded by Grazioso was long or short the security at that particular time.

James Robert Helie (Registered Representative, Cambridge, MA) was fined $10,000 and barred from association with any member of the NASD in any capacity. The sanctions were imposed by the NASD Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 13. The sanctions were based on findings that Helie failed to respond to the NASD's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the circumstances surrounding the termination of his employment.

Gerald A. HIadky (Registered Representative, Tonka Bay, MN) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that, as a result of a complaint of unauthorized transactions, HIadky entered into a settlement agreement with a customer that prohibited the customer from reporting to or seeking the assistance of any regulatory agency. HIadky also failed to respond to the NASD's three requests that he notify the customer, in writing, that the customer could cooperate in the NASD's investigation, made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Richard J. Hlavka (Registered Representative, Lake Oswego, OR) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $2,500, ordered to disgorge $7,300, and suspended from association with any member of the NASD in any capacity for 15 business days. Without admitting or denying the allegations, Hlavka consented to the described sanctions and findings that he effected 22 transactions in the accounts of eight public customers without their knowledge or consent.

Bradley Merle Hoffman (Registered Representative, Manhattan Beach, CA) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Hoffman failed to respond to the NASD's four requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the circumstances surrounding the termination of his employment.

Roy L. Lawson (Registered Principal, Tulsa, OK) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $5,000 and suspended from association with any member of the NASD in any capacity for one business day. Without admitting or denying the allegations, Lawson consented to the described sanctions and findings that he recommended certain securities to a public customer and caused the securities to be purchased without reasonable grounds to believe that such recommendations were suitable for the customer.

David E. Lengfelder (Registered Representative, Rock Falls, IL) was fined $30,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Lengfelder received approximately $7,350 from a public customer, failed to purchase securities as instructed by the customer, and retained the funds for his own use and benefit. He also failed to respond to the NASD's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Garold Ernest Maxfield (Registered Representative, Meridan, ID) was fined $50,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that, without the knowledge or consent of five of his customers, Maxfield caused loans to be taken on their life insurance policies, obtained the checks from these loans totaling $35,500, and converted these funds to his own use and benefit. Also, Maxwell failed to respond to the NASD's two requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Marilyn Ann McCurdy (Registered Representative, Los Angeles, CA) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that McCurdy mistakenly caused $172,186.93 from a customer's pension plan to be invested in the wrong investment fund. When the customer's investment decreased by approximately $31,434.56 as a result of market conditions, McCurdy then altered her employer-member's records in an attempt to correct her mistake.

Richard D. McGervey (Registered Representative, Fort Washington, MD) was fined $34,505 and suspended from association with any member of the NASD in any capacity for two years. The sanctions were imposed by the NASD Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 10. The sanctions were based on findings that McGervey sold shares of stock in two corporations he formed without giving prior written notice to his employer in contravention of the Board of Governors' Interpretation on private securities transactions.

Terrence Lavergne Monroe (Registered Principal, Kaneohe, HI) was fined $25,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Monroe failed to respond to the NASD's two requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the circumstances surrounding the termination of his employment.

Louis Wellington Moreland, Jr. (Registered Principal, Walnut Creek, CA) was fined $25,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Moreland failed to respond to three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the circumstances surrounding the termination of his employment.

John K. Mulvaney (Registered Representative, Moravia, NY) was fined $10,000 and barred from association with any member of the NASD in any capacity. The sanctions were imposed by the NASD Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 13. The sanctions were based on findings that, while acting in the capacity of an insurance agent, Mulvaney misappropriated $2,055.38 from at least 10 insurance customers and converted the funds to his own use and benefit. Also, Mulvaney failed to respond to the NASD's four requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Cesario Munoz (Registered Principal, Fort Collins, CO) was fined $5,000, jointly and severally with his employer-member, and suspended from association in a principal capacity with any member of the NASD for one year. The sanctions were based on findings that Munoz failed to respond to the NASD's numerous requests for information regarding a routine examination made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

George O. Otten (Registered Representative, East Hampton, CT) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $10,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Otten consented to the described sanctions and findings that without the knowledge or consent of at least 17 insurance policyholders, he forged their signatures on various forms, resulting in the issuance of checks totaling $7,374.85. Otten then forged the policyholders' signatures on the checks and applied the proceeds toward the payment of premiums on fictitious policies, resulting in his receipt of approximately $5,338 in commissions.

Charles Alan Parbury (Registered Representative, Danville, CA) was fined $171,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Parbury misappropriated customer funds totaling $73,351.77 and converted such funds to his own use and benefit. Parbury also failed to respond to the NASD's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Ricky E. Parker (Registered Representative, Birmingham, AL) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Parker caused a public customer to redeem shares of a mutual fund for reinvestment in a fictitious mutual fund and then misappropriated and converted to his own use and benefit the $21,603.85 that he received from the customer. For more than a year, Parker generated fictitious account statements that falsely showed the customer's funds invested in that fund. In addition, Parker partially redeemed an annuity policy without the customer's knowledge or consent, forged the customer's signature to the policy surrender checks, and converted the $5,785.24 to his own use and benefit. Also, Parker failed to respond to the NASD's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Jack Donald Prosen (Registered Principal, Woodland Hills, CA) was fined $186,214 and barred from association with any member of the NASD in any capacity. The sanctions were imposed by the NASD Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 2. The sanctions were based on findings that, while associated with two different member firms, Prosen engaged in 55 private securities transactions without prior written notice to his employers in contravention of the Board of Governors' Interpretation on private securities transactions.

This decision has been appealed to the Securities and Exchange Commission, and the fine imposed is not effective pending consideration of the appeal.

Ireneo Acidera Ranches (Registered Representative, Honolulu, HI) was fined $61,591.54 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Ranches received cash and checks totaling approximately $23,000 from customers, converted these funds to his own use and benefit and, in converting these funds, forged the customers' names to four of the checks. Ranches also failed to respond to the NASD's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Peter Chappell Rosen (Registered Representative, New York, NY) submitted an Offer of Settlement pursuant to which he was fined $20,000 and suspended from association with any member of the NASD in any capacity for 100 business days. Without admitting or denying the allegations, Rosen consented to the described sanctions and findings that he effected 21 unauthorized transactions in the accounts of five public customers.

Pamela M. Rybacki (Registered Representative, Orland Park, IL) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Rybacki effected two unauthorized transactions in the account of a public customer. She also failed to respond to the NASD's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Dale Dwight Schwartzenhauer (Registered Representative, Sandy, OR) and James Eugene Greenfield (Registered Principal, Portland, OR). Schwartzenhauer was fined $50,000, suspended from association with any member of the NASD for 30 days, and required to requalify by examination following the suspension. Greenfield was fined $10,000 and barred from associating in a principal capacity with any member. These sanctions were imposed by the NASD Board of Governors upon review of a decision rendered by the District Business Conduct Committee for District 1. The sanctions were based on findings that, in his efforts to raise capital for a corporation, Schwartzenhauer engaged in private securities transactions without prior written approval of his employer-member. Also, Schwartzenhauer purchased restricted or control stock from customers, issuers, or officers of issuers and then sold a substantial portion of these shares to public customers. With respect to these transactions, Schwartzenhauer also failed to obtain prior written approval from his employer. In 41 instances, Schwartzenhauer charged excessive markups on sales of corporate securities to public customers. Greenfield failed to adequately supervise Schwartzenhauer and the trading activity in his account.

Schwartzenhauer has appealed this decision to the Securities and Exchange Commission, and the sanctions against him are not effective pending consideration of the appeal.

Freddy Bryan Smith (Registered Principal, Dayton, OH) was fined $15,000, suspended from association with any member of the NASD in any capacity for two years and one day, and required to requalify by examination following the suspension. The sanctions were based on findings that a member firm, acting through Smith in connection with a best-efforts offering, provided to prospective customers an offering memorandum that failed to specify a closing date and failed to disclose that all investor funds would be returned if all the contingencies were not met. Also, Smith failed to disclose that the general partners were permitted to purchase units, as well as the maximum number of units that the partners could purchase. The firm, acting through Smith, failed to promptly deposit investors' funds into a bona fide escrow account. The firm, acting through Smith, failed to file the offering memorandum with the NASD prior to the effective date of the offering and misrepresented to investors the number of units remaining to be sold before meeting the contingency. The firm, acting through Smith, sold units to one customer who failed to meet the minimum suitability standards established within the offering memorandum.

Sandra Lynn Striha (Registered Representative, Daly City, CA) was fined $40,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that, on various occasions, Striha forged the signatures of insurance policyholders to checks totaling $850.64 and converted the proceeds to her own use and benefit. Striha also failed to respond to the NASD's request for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Anthony J. Uzwiak (Registered Representative, Madison, NJ) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $15,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Uzwiak consented to the described sanctions and findings that he endorsed a check in the amount of $3,704.18 made payable to a customer and deposited the funds into his personal bank account for his own use and benefit, without the customer's knowledge or consent.

Jay M. Vermonty (Registered Principal, Flushing, NY), William Joseph Mueger (Registered Principal, East Meadow, NY), Theodore Len (Registered Principal and Financial and Operations Principal, Manhasset Hills, NY), and Joseph Francis Messineo (Registered Representative, Bethesda, MD) submitted an Offer of Settlement pursuant to which Vermonty was fined $40,000, suspended for four months in all capacities, suspended for three years in a principal capacity, and must requalify by examination prior to acting as a principal; Mueger was fined $35,000, suspended for three months in any capacity, suspended for three years in a principal capacity, and must requalify by examination prior to acting as a principal; Len was fined $20,000, suspended for two years in a Financial and Operations Principal capacity and must requalify by examination prior to acting as a Financial and Operations Principal; and Messineo was fined $10,000, suspended for three months in any capacity, and must requalify by examination prior to acting in any capacity requiring registration. Without admitting or denying the allegations, they consented to the described sanctions and findings that a former member firm, acting through Vermonty, Mueger, Len, and an unregistered person, effected 36 month-end fictitious transactions in corporate securities that resulted in securities being "parked" for the purpose of reducing the firm's proprietary position to reflect apparent compliance with the net-capital rule. Another former member firm, acting through Messineo, aided the aformentioned firm in the parking scheme by entering into six fictitious transactions with the firm, which resulted in another incident of parking securities. Also, the first firm, acting through Vermonty, Mueger, and Len, conducted a securities business while failing to maintain its required minimum net capital. This same firm, acting through Len, filed inaccurate FOCUS I and FOCUS IIA reports and conducted a securities business while failing to maintain its required minimum net capital. This same firm, acting through Vermonty, Mueger, and an unregistered person, effected 100 sales of common stock to customers at prices that were not fair and that included fraudulent markups. This same firm, acting through Vermonty and Mueger, permitted a person to act as the firm's Financial and Operations Principal when that person was not registered with the firm in any capacity; and it permitted three persons to function as representatives when they were not properly registered. Finally, this same firm, acting through Vermonty and Mueger, sold securities to public customers when no registration statement was in effect for the securities.

James P. Visconto (Registered Representative, Philadelphia, PA) submitted an Offer of Settlement pursuant to which he was fined $15,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Visconto consented to the described sanctions and findings that he forged endorsements on three checks totaling $3,007.82 that were made payable to two public customers and converted the funds to his own use and benefit. In addition, Visconto failed to respond to the NASD's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Steven I. Weinstein (Registered Representative, Shreveport, LA) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Weinstein executed unauthorized purchases of common stock in the account of two public customers and unauthorized purchases of municipal securities in the accounts of six public customers. Furthermore, he recommended and purchased 1,928 units of a bond trust for a public customer without reasonable grounds for believing that this recommendation was suitable. Finally, Weinstein failed to respond to the NASD's multiple requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Sondra H. White (Registered Representative, Las Vegas, NV) was fined $500 and suspended from association with any member of the NASD in any capacity for three months and must requalify by examination following her suspension. The sanctions were imposed by the NASD Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 7. The sanctions were based on findings that, while taking the Series 7 qualifications examination, White orally communicated with another candidate, obtained information from the other candidate's answer sheet, and assisted the other candidate in obtaining information from her answer sheet.

Paul Arthur Wilbur (Registered Representative, Carnation, WA) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were imposed by the NASD Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 1. The sanctions were based on findings that Wilbur failed to respond to the NASD's two requests for information regarding a customer complaint, made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Bruce A. Williams (Registered Representative, Grand Praire, TX) was fined $10,000 and barred from association with any member of the NASD in any capacity. The sanctions were imposed by the NASD Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 6. The sanctions were based on findings that Williams failed to honor an arbitration award in the amount of $15,191.18.

This decision has been appealed to the Securities and Exchange Commission, and the fine imposed is not effective pending consideration of the appeal.

Bruce Wilson (Registered Representative, Bourbonnais, IL) was fined $20,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Wilson received $1,250 in cash from a public customer and failed to promptly purchase shares of a mutual fund pursuant to the customer's instructions. Furthermore, Wilson failed to disclose on the Form U-4 for registration with another member the fact that he had been discharged for cause from his previous employer-member. Also, Wilson failed to respond to the NASD's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

FIRMS SUSPENDED

The following firms were suspended from membership in the NASD for failure to comply with formal written requests to submit financial information to the NASD. The actions were based on the provisions of Article IV, Section 5 of the NASD Rules of Fair Practice and Article VII, Section 2 of the NASD By-Laws. The date the suspension commenced is listed after each entry. If the firm has complied with the request for information, the listing also includes the date the suspension concluded.

Ameritrust Equities, Inc., Snowmass, CO (July 19, 1989)
Cartwright & Goodwin, Inc., New York, NY (July 19, 1989)
V.H. Costello Securities, Inc., Spokane, WA (July 19, 1989)
Dunhill, Lord & Company, Fort Lauderdale, FL (July 19, 1989)
Eastern Financial Corp., Dallas, TX (July 19, 1989)
Garfield Securities, Inc., Greenwich, CT (July 19, 1989)
Garrett Walker Securities, Traverse City, MI (July 19, 1989)
L'Argent Capital Int'l, San Francisco, CA (July 19, 1989)
Meritquest Group, Inc., Glendale, CA (July 19, 1989)
Pan Oceanic Investments, Inc., Honolulu, HI (July 19, 1989 to August 4, 1989)
Tani, Tokunaga & Co., Inc., Honolulu, HI (July 19, 1989 to August 11, 1989)

FIRM EXPELLED FOR FAILURE TO PAY FINES AND COSTS IN CONNECTION WITH VIOLATION

Hamilton, Williams & Company, Inc., Portland, OR

INDIVIDUAL WHOSE REGISTRATION WAS REVOKED FOR FAILURE TO PAY FINES AND COSTS IN CONNECTION WITH VIOLATIONS

James L. Williams, Lake Oswego, OR

NASD CENSURES, BARS, AND FINES KIRK KNAPP

The NASD announced a disciplinary action against Kirk A. Knapp in which he was censured, barred from association with any NASD member in any capacity, and fined $100,000. The NASD's investigation of Knapp was conducted by its Anti-Fraud Department. These findings and sanctions were affirmed on appeal by the NASD Board of Governors June 19, 1989.

The Board found that, from February 1986 to June 1986, a member firm, aided and abetted by Knapp, failed to convey material adverse information about a public offering of securities to its customers while continuing to solicit customers and recommending the purchase of the securities. The Board also found, among other things, that Knapp and the firm continued to use a November 1985 research report, in soliciting customers to purchase the securities, when the report no longer accurately reflected the financial status of the company. As a result, the NASD Board found that the recommendations made by Knapp and the firm to its public customers were without any reasonable basis, in violation of Knapp's obligations to customers. This misconduct constituted violations of Article III, Section 18 of the NASD's Rules of Fair Practice, which prohibits the use of any manipulative, deceptive, or other fraudulent device in the purchase or sale of any security.

Finally, the Board found that Knapp violated a previous bar imposed by the NASD against his operating as a principal of the firm. The Board found that Knapp ignored this directive by continuing to exercise managerial control over the firm by participating in management decisions concerning the hiring and dismissal of registered persons, conducting weekly sales meetings, otherwise generally directing the conduct of business by persons associated with the firm, and portraying himself prominently as the president of the firm in advertisements.

Pursuant to provisions of the Securities Exchange Act of 1934, Knapp has appealed the NASD's action to the Securities and Exchange Commission.

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,

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

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

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."

Disciplinary Actions (August)

Disciplinary Actions

National Association of Securities Dealers, Inc.

August 1989

Disciplinary Actions Reported for August

The National Association of Securities Dealers, Inc. (NASD), is taking disciplinary actions against the following firms and individuals for violations of the NASD Rules of Fair Practice and/or the rules of the Municipal Securities Rulemaking Board. Unless otherwise indicated, suspensions began with the opening of business on Monday, August 7, 1989.

FIRMS EXPELLED, INDIVIDUALS SANCTIONED

MCG Portfolio Management Corp. (Woodbury, New York), Thomas C. Mullen (Registered Financial and Operations Principal, Woodbury, New York) and Bruce D. Naab (Registered Principal, Dallas, Texas) submitted an Offer of Settlement pursuant to which the firm was expelled from membership in the Association. Mullen was suspended from association with any member in any capacity for ninety (90) days, barred from association with any member in the capacity of a Principal, and fined $10,000, jointly and severally with the member. Naab was suspended from association with any member of the Association in any capacity for seven (7) months, barred from association with any member in the capacity of a Principal, and fined $10,000, jointly and severally with the member. Without admitting or denying the allegations, the firm, Mullen, and Naab consented to the described sanctions and findings that the firm, acting through Mullen and Naab, allowed a person subject to a statutory disqualification to act as an associated person of the firm. Mullen permitted another person to function as a Financial and Operations Principal without benefit of registration with the Association. Also, the firm, acting through Mullen, effected transactions in securities while the firm failed to maintain sufficient net capital, failed to compute accurately the amounts required to be deposited into the Special Reserve Bank Account for the Exclusive Benefit of Customers, failed to deposit the amounts required to be on deposit in the Reserve Bank Account, and made a withdrawal from its Reserve Bank Account but failed to make a record of the computation on which such withdrawal was made. In addition, the firm, acting through Mullen, failed to update certain books and records and, during a period from approximately September 1987 through at least August 1988, failed at least once in each calendar quarter to examine, count, verify, and compare all securities.

Quinn-L Financial Corporation (Shreveport, Louisiana) n/k/a Anlo Financial, Inc., and S. Mark Lovell (Registered Principal, Shreveport, Louisiana) — The firm was expelled from membership in the NASD and Lovell is barred from association with any member of the NASD in any capacity. The sanctions were based on findings that, in connection with the offering of units in a limited partnership, the firm and Lovell made false representations in a rescission offer to investors and failed to return funds totaling at least $301,195 to rescinding investors. The firm, acting through Lovell, engaged in a securities business when its net capital was below the required minimum and inaccurately computed its net capital. The firm and Lovell failed to disclose the use of $300,000 as collateral for a loan to an affiliate and inaccurately included this amount as an allowable asset in its net capital computation. They also inaccurately increased the firm's net capital at month's end by depositing $50,000 at or near the end of each month to the firm's operating account and then transferring funds back to an affiliate at the beginning of the following month.

FIRMS FINED, INDIVIDUALS SANCTIONED

Allison, Rosenblum & Hannahs, Inc. (Little Rock, Arkansas), Christopher L. Salazar (Registered Principal, Little Rock, Arkansas), William D. McCord (Registered Representative, Little Rock, Arkansas) and Thomas W. Fuquay (Registered Representative, Little Rock, Arkansas) submitted an Offer of Settlement pursuant to which the firm was fined $10,000, Salazar is suspended from association with any member of the NASD in any capacity for thirty (30) calendar days, McCord was fined $20,000 and suspended from association with any member of the NASD in any capacity for thirty (30) calendar days, and Fuquay is suspended from association with any member of the NASD in any capacity for fourteen (14) days. Without admitting or denying the allegations, they consented to the described sanctions and findings that Salazar, McCord, and Fuquay sold corporate securities to institutional customers on a principal basis at prices that included excessive markups. Also, McCord engaged in purchase and sale transactions involving mortgage-backed securities and failed to disclose that the prices for these securities were not reasonably related to the then current market. Such transactions represented a form of "adjusted trading" wherein one institution could avoid or postpone recognizing a loss on a sale while another institution would purchase the security at a price in excess of the current market. In addition, McCord caused the falsification of the institutions' records, caused third parties to be misled regarding the performance of certain investments, and made recommendations to buy and sell securities to two institutional customers without having reasonable grounds to believe that the transactions were suitable. The firm was also cited for failure to supervise its associated persons in connection with the activities described above.

Capital First Securities, Inc. (Las Colinas, Texas) and Michael P. Rennert (Registered Principal, Coppell, Texas) submitted an Offer of Settlement pursuant to which the firm and Rennert were fined $20,000, jointly and severally. The firm was suspended from membership in the Association for two (2) business days, and Rennert was suspended from association with any member of the NASD in a principal capacity for six (6) months and must re-qualify by examination as a Financial and Operations Principal. Without admitting or denying the allegations, they consented to the described sanctions and findings that the firm, acting through Rennert, engaged in a securities business while failing to maintain sufficient net capital. Also, the firm failed to comply with the provisions of its voluntary restriction letter, which required the firm to maintain certain limits on the amount of its securities inventory.

Main Street Securities, Inc. (Salt Lake City, Utah), Walter Heyman (Registered Principal, Salt Lake City, Utah), Mark Christiansen (Registered Principal, Salt Lake City, Utah) and Annette Langheinrich (Registered Financial and Operations Principal, Salt Lake City, Utah) submitted an Offer of Settlement pursuant to which the firm was fined $25,000 and ordered to disgorge $99,400. Heyman was fined $10,000 and suspended as a General Securities Principal for one (1) year and in all capacities for thirty (30) business days. Christiansen was fined $10,000 and suspended as a General Securities Principal for one (1) year and in all capacities for thirty (30) business days. Langheinrich was fined $1,000 and suspended from association with any member of the NASD as a Financial and Operations Principal for thirty (30) calendar days. Without admitting or denying the allegations, the Respondents consented to the described sanctions and findings that the firm, acting through Christiansen, caused non-bona fide quotations to be published regarding a common stock. The firm, acting through Heyman and Christiansen, effected 101 principal transactions in the same security with public customers at prices that included excessive markups. The firm, acting through Heyman and Christiansen, reflected entries on its books and records that were designed to "park" securities in customer accounts, thus allowing the firm to maintain a minimum level of net capital and to avoid District Surveillance Committee directives. Finally, the firm, acting through Heyman, Christiansen, and Langheinrich, conducted a securities business while failing to maintain the minimum required net capital.

FIRMS AND INDIVIDUALS FINED

Matanky Securities Corporation (Chicago, Illinois) and Barry B. Kreisler (Registered Principal, Chicago, Illinois) were fined $10,000, jointly and severally. These sanctions were imposed by the NASD's Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 8. The sanctions were based on findings that the firm, acting through Kreisler, represented that limited partnership interests were offered on an "all-or-none" basis and that investors' funds would be refunded if the contingency were not satisfied. All of the interests were not sold, yet the investors' funds were not refunded. Furthermore, the investors' funds were not properly transmitted to a separate escrow account and, in fact, the funds were expended from the partnership bank account before the contingency was satisfied.

Also, the firm violated its voluntary restrictive agreement with the Association in that it held funds received in connection with the limited partnership in violation of Association and SEC rules. The firm effected securities transactions with the public while failing to maintain sufficient net capital.

This action has been appealed to the Securities and Exchange Commission, and the sanctions imposed are not effective pending consideration of the appeal.

RMJ Securities (New York, New York), Richard G. Jackson (Registered Principal, Rockville Centre, New York), and John M. Byrne (Registered Financial and Operations Principal, Brooklyn, New York) submitted a Letter of Acceptance, Waiver and Consent pursuant to which the firm and Jackson were fined $25,000, jointly and severally, and Byrne was fined $10,000 individually. Without admitting or denying the allegations, they consented to the described sanctions and findings that the firm, acting through Byrne and Jackson, conducted a business in collateralized mortgage obligations, which was outside the scope of its registration as an interdealer broker in government securities registered pursuant to Section 15C of the Securities Exchange Act of 1934.

FIRMS FINED

PaineWebber, Inc. (Atlanta, Georgia) submitted a Letter of Acceptance, Waiver and Consent pursuant to which it was fined $15,000. Without admitting or denying the allegations, the firm consented to the described sanctions and findings that it failed to have supervisory procedures in effect to detect and supervise excessive trading activity. The firm also failed to properly supervise an associated person of the firm in order to prevent excessive trading in the account of a public customer.

Swergold, Chefitz Inc. (New York, New York) submitted a Letter of Acceptance, Waiver and Consent pursuant to which the firm was fined $25,000. Without admitting or denying the allegations, Swergold, Chefitz consented to the described sanctions and to findings that, acting through certain of its associated persons, it failed to report or incorrectly reported certain NASDAQ National Market transactions, failed to report certain NASDAQ National Market transactions within the required 90 seconds after execution, and failed to designate certain NASDAQ National Market transactions as bunched trades. In addition, the firm failed to have certain persons qualified and registered as General Securities Principals and failed to establish, maintain, and enforce written procedures that would have enabled it to properly supervise the activities of associated persons with respect to the correct reporting of NASDAQ National Market transactions.

As part of its Letter of Acceptance, Waiver and Consent, Swergold, Chefitz will initiate a series of corrective steps to prevent the recurrence of trade-reporting problems and for one year will file with the NASD's Market Surveillance Committee quarterly reports to demonstrate its compliance with trade reporting requirements.

This sanction was imposed by the NASD's Market Surveillance Committee.

INDIVIDUALS BARRED OR SUSPENDED

Mark B. Anderson (Registered Representative, Salt Lake City, Utah) submitted an Offer of Settlement pursuant to which he was fined $15,000 and barred from association with any member of the Association in any capacity. Without admitting or denying the allegations, Anderson consented to the described sanctions and findings that he deposited checks totaling $86,570.58 payable to an affiliate of his employer-member into his own account without the affiliate's knowledge or authorization.

Walter T. Black (Registered Principal, Denver, Colorado) was fined $10,000 and suspended from association with any member of the NASD in any capacity for three (3) months. The sanctions were imposed by the NASD's Board of Governors following an appeal of a decision rendered by the Market Surveillance Committee.

The sanctions were based on findings that Black entered 44 fictitious trade reports in five NASDAQ National Market securities at or near the close of the market in violation of Article III, Sections 1, 5, and 18 (the NASD's Anti-Fraud Rule) of the Rules of Fair Practice and the reporting requirements set forth in Schedule D of the Association's By-Laws. Thirty-six (36) of the fictitious trades represented the last sale of the day and were reported to the media for dissemination to the public.

Respondent Black has appealed this decision to the Securities and Exchange Commission, and the sanctions imposed are not effective pending consideration of the appeal.

John A. Bonham (Registered Representative, Montgomery, Alabama) was fined $15,000 and suspended from association with any member of the NASD in any capacity for one (1) year. The sanctions were based on findings that Bonham engaged in a prearranged sale and repurchase agreement with another party to create a fictitious tax loss for the fiscal year ending July 31, 1985, for a company of which he was the President and sole shareholder.

Keith E. Boyer (Registered Representative, Newport News, Virginia) was fined $25,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that he misappropriated $24,121.44 in checks and cash from nine customers and converted the funds to his own use and benefit. Also, he failed to respond to the Association's two requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Aaron D. Brown (Registered Representative, Albuquerque, New Mexico) was fined $15,000 and suspended from association with any member of the NASD in any capacity for thirty (30) days. The sanctions were based on findings that Brown executed eleven (11) transactions in the accounts of ten (10) separate customers without the customers' prior authorization or consent.

Phillip J. Butler (Registered Representative, Frankfort, Indiana) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $100,000 and barred from association with any member of the Association in any capacity. Without admitting or denying the allegations, Butler consented to the described sanctions and findings that he received approximately $45,900 from at least twelve (12) public customers with instructions to purchase shares in various mutual funds. Butler failed to follow the customers' instructions and used their funds for his personal benefit. In addition, he received $2,200 from another public customer with instructions to deposit the funds in the customer's account and instead used the funds for his personal benefit. Butler also opened a checking account and deposited to the account funds received from public customers that were to be used to purchase shares of mutual funds. He issued checks from the account that purported to represent dividend payments to these customers. However, the funds had not been invested and the customers had not earned dividends. Furthermore, Butler prepared and mailed false account statements to customers. Finally, Butler opened another checking account and caused the name of a principal of his employer-member to be added as a signatory on the account. He drafted checks on this account purported to be signed by this principal, but they were signed, in fact, by Butler. He also deposited funds from three public customers in this account, instead of in an account at the employer-member where the funds were to be deposited.

Walton F. Carlisle (Registered Principal, Tulsa, Oklahoma) and Lyle T. Bachman (Registered Financial and Operations Principal, Tulsa, Oklahoma) submitted an Offer of Settlement pursuant to which Carlisle and Bachman were each fined $10,000 and suspended from association with any member of the NASD in any capacity for thirty (30) calendar days. Without admitting or denying the allegations, Bachman consented to the described sanctions and findings that he hypothecated customers' fully paid and excess-margin securities, failed to segregate and identify such securities, and failed to recall the securities held as collateral. Bachman violated various provisions of SEC Rule 15c3-3 by failing to obtain possession of securities sold by customers within the required time frame, failed to buy in aged stock dividends and short security differences, and made a withdrawal from the firm's Special Reserve Bank Account without making the necessary computation. Also, on at least four separate occasions, Bachman failed to maintain physical possession or control of customers' securities.

Without admitting or denying the allegations, Bachman and Carlisle consented to sanctions and findings that they conducted a securities business while failing to maintain the required minimum net capital and failed to accurately compute the amounts required to be on deposit in the Reserve Bank Account. In addition, they hypothecated customers' fully paid and excess-margin securities, commingled customer and firm securities as collateral for a loan, and failed to reduce customer fully paid and excess-margin securities to the possession and control of the firm.

William Ray Clark (Registered Representative, Dallas, Texas) submitted an Offer of Settlement pursuant to which he was fined $10,000 and suspended from association with any member of the NASD in any capacity for one (1) year. Without admitting or denying the allegations, Clark consented to the described sanctions and findings that he used high-pressure sales tactics, made false and misleading statements, and failed to disclose material facts to investors whom he induced to purchase a certain common stock. In connection with the sale of such security, no registration statement was on file with the Securities and Exchange Commission, and no exemption from registration existed.

Odell R. Coleman, Jr. (Registered Representative, Philadelphia, Pennsylvania) submitted an Offer of Settlement pursuant to which he was fined $5,000 and barred from association with any member of the Association in any capacity. Without admitting or denying the allegations, Coleman consented to the described sanctions and findings that he received $902.46 in cash from a public customer for the purchase of a health insurance policy and failed to remit such funds for that purpose.

Donald P. Damaso (Registered Representative, McLean, Virginia) was fined $12,125 and suspended from association with any member of the NASD in any capacity for forty-five (45) days. The sanctions were imposed by the NASD's Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 10. The sanctions were based on findings that Damaso sold two different securities to public customers without providing prior written notification of these sales to his employer-member in contravention of the Board of Governors' Interpretation with respect to Private Securities Transactions.

This decision has been appealed to the Securities and Exchange Commission, and the sanctions imposed are not effective pending consideration of the appeal.

Larry Raymond Diehl (Registered Representative, Florissant, Missouri) was fined $15,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Diehl failed to respond to the Association's two requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the circumstances surrounding the termination of his employment.

David E. Flannigan (Registered Principal, St. Louis, Missouri) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $5,000 and suspended from association with any member of the NASD in any capacity for (30) thirty days. Without admitting or denying the allegations, Flannigan consented to the described sanctions and findings that he knowingly altered his bank statement to reflect a fictitious amount on deposit and a fictitious withdrawal of that amount. He provided this altered statement to the Association as part of an investigation surrounding his termination of employment with a member.

Elton C. Garvin (Registered Representative, Syracuse, New York) submitted an Offer of Settlement pursuant to which he was fined $10,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Garvin consented to the described sanctions and findings that he misappropriated at least $137,536 from the accounts of at least thirteen (13) public customers. He also failed to respond to the Association's four requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Haywood P. Gibbs, Jr. (Registered Representative, Midlothian, Virginia) was fined $25,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Gibbs had three checks totaling $96,237.41 drawn on the accounts of a public customer, forged the endorsements, and deposited the checks in an account he controlled.

Sanford Goldman (Registered Representative, Virginia Beach, Virginia) was fined $15,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Goldman misappropriated $946.01 from an insurance customer. He also failed to respond to the Association's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Edward E. Gould (Registered Representative, Singer Island, Florida) was fined $5,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Gould engaged in a private securities transaction outside the scope of his employment without providing prior written notification to his employer. Gould also failed to respond to the Association's four requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Tim Reck Haile (Registered Representative, Roswell, Georgia) submitted an Offer of Settlement pursuant to which he was fined $10,000 and suspended from association with any member of the NASD for five (5) days. Without admitting or denying the allegations, Haile consented to the described sanctions and findings that he recommended to a customer one hundred and ninety-six (196) securities transactions without having grounds to believe that such recommendations were suitable.

David Carrol Harrington (Registered Representative, St. Petersburg, Florida) was fined $5,000 and suspended from association with any member of the NASD for ten (10) business days. The sanctions were based on findings that Harrington effected seven unauthorized transactions for the securities accounts of two customers of his employer-member.

Hector Rivera Hernandez, Jr. (Registered Representative, San Antonio, Texas) was fined $15,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that, without the customer's knowledge, Hernandez submitted an application for a loan against a customer's insurance policy and then converted the $5,000 proceeds to his own personal use and benefit. He also obtained a check in the amount of $2,320 from another public customer and converted those funds to his own benefit, again without the customer's knowledge or consent. Hernandez also failed to respond to the Association's two requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Emzie Huletty, Jr. (Registered Representative, Flint, Michigan) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $6,000 and suspended from association with any member of the NASD in any capacity for two (2) years. Without admitting or denying the allegations, Huletty consented to the described sanctions and findings that he converted $750 in customer funds to his own use and benefit. Further-more, on two occasions, he participated in securities transactions that were not effected through his employer-member and failed to give written notification to his employer of his intention to engage in such activity. Also, he opened an account with another member firm without disclosing his association with his employer-member.

Jack D. Jezek (Registered Representative, Tulsa, Oklahoma) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $10,000 and suspended from association with any member of the NASD in any capacity for six (6) calendar months. Without admitting or denying the allegations, Jezek consented to the described sanctions and findings that, at the request of a customer, he made a false entry on the customer's monthly statement to indicate that the customer was long 2,000 shares of a security when in fact, the security was not held in the account.

Bob F. Larmer (Registered Principal, Wichita, Kansas) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $15,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Larmer consented to the described sanctions and findings that he refused to respond to the Association's request for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the circumstances surrounding the termination of his employment.

Donald G. Manuel (Registered Representative, Greenville, Mississippi) submitted an Offer of Settlement pursuant to which he was fined $30,000 and barred from association with any member of the Association in any capacity. Without admitting or denying the allegations, Manuel consented to the described sanctions and findings that he converted funds totaling $229,000 from two public customers to his own use and benefit, effected three transactions in the account of a public customer without the customer's knowledge or consent, and failed to respond to the Association's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Michael P. Meservy (Registered Representative, Sandy, Utah) was fined $5,000, ordered to disgorge $2,154, and suspended from association with any member of the NASD in any capacity for thirty (30) days. The sanctions were based on findings that Meservy effected thirty-eight (38) securities transactions in the accounts of four customers without their knowledge or consent. Also, Meservy offered to reimburse the customer for losses that arose as a result of unauthorized trades effected by him, in exchange for the customer not revealing discrepancies in his account to Meservy's manager.

Stacy Ames Mindheim (Registered Representative, Dallas, Texas) was fined $10,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that she obtained twenty-two (22) checks totaling $5,429.43 from her employer-member made payable to various payees, substituted her own name as payee, and converted the proceeds to her own use and benefit.

Michael W. Mullin (Registered Representative, Parker, Colorado) submitted Letters of Acceptance, Waiver and Consent pursuant to which he was fined $25,000 and barred from association with any member of the Association in any capacity. Without admitting or denying the allegations, Mullin consented to the described sanctions and findings that he executed a purchase of $20 million in "stripped" United States Treasury Bonds from another broker-dealer and failed to write an order ticket reflecting such purchase in an attempt to conceal the transaction from his employer-member. In addition, Mullin failed to prepare order tickets reflecting purchases of $2 million in mortgage-backed securities and prepared a misleading sell order ticket reflecting the erroneous sale of securities.

Terry P. Myers (Registered Representative, Salt Lake City, Utah) submitted an Offer of Settlement pursuant to which he was fined $2,500, ordered to disgorge $4,787.50, and suspended from association with any member of the NASD in any capacity for five (5) business days. Without admitting or denying the allegations, Myers consented to the described sanctions and findings that, in connection with a public offering of securities that traded at an immediate premium in the secondary market, Myers failed to make a bona fide public distribution of securities by selling to accounts belonging to his relatives in contravention of the Board of Governors' Interpretation with respect to Free-Riding and Withholding.

Guido J. Negri, Jr. (Registered Representative, St. Louis, Missouri) was fined $15,000 and barred from association with any member of the NASD in any capacity. These sanctions were based on findings that Negri failed to respond to the Association's two requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the circumstances surrounding the termination of his employment.

Nancy J. O'Connell (Registered Principal, West Dennis, Massachusetts) submitted a Letter of Acceptance, Waiver and Consent pursuant to which she was fined $25,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, O'Connell consented to the described sanctions and findings that, in connection with her duties as Head Trader, she directed that certain transactions executed for her personal account be processed through her employer-member's accounts, which resulted in a personal benefit to her of at least $13,622.50.

Gregory Lee Paige (Registered Representative, Orange, California) submitted an Offer of Settlement pursuant to which he was fined $1,000 and suspended from association with any member of the NASD for five (5) business days. Without admitting or denying the allegations, Paige consented to the described sanctions and findings that he had not honored an arbitration award rendered against him.

Keith Stewart Sheldon (Registered Representative, Brasstown, North Carolina) was fined $1,000 and barred from association with any member of the Association. The sanctions were based on findings that Sheldon failed to pay for approximately $6,500 worth of securities in his personal account in that a check tendered for payment for the options transactions was returned for insufficient funds.

Jan Allen Spiro (Registered Representative, Dunwoody, Georgia) was fined $10,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Spiro shared in the losses of customers by depositing more than $9,000 of his own funds into the accounts of certain public customers. In addition, without the knowledge or approval of his employer-member, Spiro prepared and sent false confirmations to customers on two different occasions showing the purchase of securities when no such purchase had been effected.

Dewey C. Turrentine (Registered Representative, Greensboro, North Carolina) was fined $15,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that he converted to his own use and benefit $3,942.94 in customer funds that was to be used to purchase investment-company shares.

Joel David Warady (Registered Representative, Dallas, Texas) was fined $75,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that he obtained a total of $60,000 from two customers for investment in insurance policies and, without the knowledge or consent of the customers, converted the funds to his own use and benefit. Warady also failed to respond to the Association's request for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice in connection with his termination from his employer-member.

Michael F. Wiggins (Registered Representative, Silver Spring, Maryland) was fined $15,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Wiggins failed to respond to the Association's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

John Frank Wilson (Registered Representative, Jacksonville, Florida) was fined $10,000 and barred from association with any member of the NASD. The sanctions were based on findings that Wilson effected two unauthorized transactions in the securities accounts of two public customers. Wilson also failed to respond to the Association's request for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Robert Brice Worley (Registered Representative, Overland Park, Kansas) was fined $15,000 and barred from association with any member of the NASD in any capacity. The sanctions were based on findings that Worley failed to respond to the Association's two requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the circumstances surrounding the termination of his employment.

Wesley Karban Wyatt (Registered Representative, Stillwater, Oklahoma) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $10,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, he consented to the described sanctions and findings that, in order to avoid state premium taxes, he knowingly filed at least 23 applications for life insurance that falsely reflected the state in which the applications were processed.

INDIVIDUAL FINED

Thomas J. Dornbrook (Registered Representative, Pittsburgh, Pennsylvania) was fined $10,000 and required to requalify by examination as a representative before again acting in that capacity. The sanctions were based on findings that he violated provisions of Regulation T by effecting short sales of index options in cash accounts. He also failed to meet margin requirements in his own margin account and failed to require customers to post the required margin in their accounts. Furthermore, Dornbrook affixed a signature purporting to be that of a customer to an option agreement and supplied the agreement to his employer-member without informing the firm that the signature was not that of the customer.

CORRECTION

Bentsen Investment Company, Houston, Texas, is current in all its NASD financial filings. In the July 1989 Notice of Disciplinary Actions, Bentsen Investment Company was erroneously listed among the firms suspended for failure to file financial information with the NASD.

For Your Information

National Association of Securities Dealers, Inc.

August 1989

Test Date and Site Changes for August and September Examinations

Series 7 Test Site

Atlanta

The August 19, 1989, and September 16, 1989, Series 7 exam in Atlanta will be held at: Sheraton Century Hotel, 2000 Century Boulevard, Atlanta, GA.

Permanent Site Change

Effective August 1, 1989, the Series 7 test site in Miami will be permanently located at: Miami Dade College, Science Building, 11011 Southwest 104th St., Miami, FL.

Candidates should report to the first floor atrium.

September First Saturday Date Change

The first Saturday exam session date for September has been changed to September 9, 1989, for all test centers because of the Labor Day holiday, which falls after the first weekend of the month.

Requests for appointments for the September 9, 1989, session must be received no later than August 30, 1989 (the eighth business day prior to the session).

Colorado Securities Commission Increases Initial Broker-Dealer Fee

Effective My 1, 1989, the Colorado Securities Commission increased the initial broker-dealer fee to $175. If you have any questions regarding this change, please contact NASD Information Services at (301) 590-6500.

NASD Releases Additional Interpretative Summaries Under SEC Rule 19c-4

The NASD is again making available summaries of interpretative letters issued under Securities and Exchange Commission Rule 19c-4. This rule prohibits the major securities markets from listing companies that issue securities or take other corporate actions that disenfranchise existing shareholders. The summaries reflect the conclusions reached by the NASD in analyzing the effect of specific issuer proposals and therefore don't necessarily set precedents for future transactions, each of which must be evaluated in light of its own facts 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. In addition, the summaries are expected to appear in the Commerce Clearing House Federal Securities Law Reporter and the Bureau of National Affairs Securities Regulation & Law Report. The NASD previously made available summaries of letters issued through January 13, 1989. The newly published summaries are for letters issued through May 16, 1989.

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. And it should indicate whether the requester has made inquiries to any other market and, if so, identify such contacts.

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

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

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

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,

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,

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,

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,

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.

Disciplinary Actions (July)

Disciplinary Actions

National Association of Securities Dealers, Inc.

July 1989

Disciplinary Actions Reported for July

The National Association of Securities Dealers, Inc. (NASD), is taking disciplinary actions against the following firms and individuals for violations of the NASD Rules of Fair Practice and/or the rules of the Municipal Securities Rulemaking Board. Unless otherwise indicated, suspensions began with the opening of business on Monday, July 3, 1989.

FIRMS FINED

D.H. Blair & Co., Inc. (New York, New York) submitted a Letter of Acceptance, Waiver, and Consent pursuant to which the firm was fined $25,000. Without admitting or denying the allegations, D. H. Blair consented to the described sanctions and findings that the firm effected sixteen (16) principal purchases of common stock from customers at prices that were not fair and reasonable and executed 121 principal transactions with customers, incorrectly confirmed such transactions as dual agent, and charged a commission.

FIRMS EXPELLED, INDIVIDUALS FINED AND BARRED

First Securities Group of California (Beverly Hills, California) and Louis F. Vargas (Registered Principal, Beverly Hills, California)— The firm was expelled from membership in the Association, and Vargas was fined $47,500 and barred from association with any member of the Association in any capacity. The sanctions were imposed by the Board of Governors after hearing an appeal of a decision of the District Business Conduct Committee for District 2S. The sanctions were based on findings that the firm acting through Vargas induced the purchase of limited partnership interests by public customers by means of false and misleading representations; failed to make, keep current, and preserve accurately certain books and records related to two limited partnerships; and engaged in a general securities business while failing to maintain sufficient net capital.

FIRMS FINED, INDIVIDUALS FINED AND BARRED

Mount Vernon Equity Sales (Alexandria, Virginia) and Stephen R. Hanmer (Registered Principal, Alexandria, Virginia) were fined $15,000, jointly and severally, and Hanmer is barred from association with any member of the Association in any principal capacity and fined an additional $5,000 individually. The sanctions were based on findings that the member, acting through Hanmer, participated in the distribution of a best-efforts, contingency offering and failed to return investor funds when the required minimum number of units were not sold by the termination date; continued to solicit investors and sold an additional two units without disclosing the prior failure to sell the minimum portion of the offering in a timely manner; used a memorandum to solicit investors that reflected that the offering was a best-efforts, all-or-none offering and did not disclose the prior failure to sell the minimum portion of the offering; failed to deposit funds received into an escrow account, instead depositing them directly to the firm's operating account; extended the offering twice and, prior to the extensions, did not make a written reconfirmation offer to the subscribers; failed to return investor funds despite the fact that the all-or-none contingency was not met; effected transactions in securities while failing to maintain minimum required net capital; failed to make monthly net capital computations for certain months and failed to correctly compute its net capital for the month of September 1986; filed inaccurate FOCUS Reports for certain periods; failed to file timely telegraphic notice of the net capital deficiencies and to thereafter file monthly FOCUS IIA reports as required; failed to provide written approval of the private securities transactions of a person associated with the member and failed to record such activities on its books and records; permitted individuals to maintain registration with the association as Registered Representatives of the member even though such individuals were not engaged directly, or indirectly, in the investment banking or securities business of the member; and failed to endorse in writing certain customer transactions.

FIRMS FINED, INDIVIDUALS FINED AND SUSPENDED

Mikal & Co., Inc. (New York, New York), Michael Terrance Hines (Registered Representative, Great Neck, New York), and Alfred F. Gerriets, II, (Registered Representative, Manhasset, New York) were fined $25,000 jointly and severally, and Hines and Gerriets were suspended from association with any member of the NASD in all capacities for ten (10) days. The sanctions were imposed by the NASD's Board of Governors following the appeal of a decision rendered by the District Business Conduct Committee for District 12. The sanctions were based on findings that the respondents failed to execute customer market orders to sell shares of common stock on five separate occasions, executed a sale of 4,500 shares of common stock from the firm's trading account while in possession of unexecuted customer market sell orders in the same security, and failed to maintain order tickets for the unexecuted orders.

Shearson Lehman Hutton (New York, New York) was fined $30,000 and William S. Doolittle (Registered Representative, Key Largo, Florida) was fined $5,000 and suspended from association with any member of the NASD in any capacity for one (1) year. These sanctions were imposed by the NASD's Board of Governors following an appeal by Doolittle and a call for review with respect to Shearson of a decision rendered by the District Business Conduct Committee for District 2S. The sanctions were based on findings that Shearson, acting through Doolittle, violated Regulation T on two occasions by arranging for the extension of credit to a customer on terms and conditions not specified under Regulation T. Specifically, it was found that Shearson, through Doolittle, assisted a customer in obtaining loans secured by real estate, the proceeds of which were deposited in the customer's securities account for the purpose of carrying securities. The firm also was cited for failure to supervise Doolittle's activities to ensure compliance with NASD rules and Regulation T.

Swink and Company, Inc. (Little Rock, Arkansas), James D. Swink (Registered Principal, Little Rock, Arkansas), and Louis Pagillo (Registered Financial and Operations Principal, Little Rock, Arkansas) submitted a Letter of Acceptance, Waiver and Consent pursuant to which Swink and Company and James Swink are fined $50,000, jointly and severally, and Pagillo is fined $5,000 and suspended from association with any member of the NASD in any principal capacity for ten (10) business days. Without admitting or denying the allegations, they consented to the described sanctions and findings that the firm, acting through Swink and Pagillo, failed to make an accurate net capital computation; engaged in a securities business while failing to maintain minimum required net capital; inaccurately reported its net capital on FOCUS Reports Part I and II; and failed to send telegraphic notice to the NASD of its capital deficiencies as required. Pagillo's suspension will commence on August 7, 1989.

FIRMS AND INDIVIDUALS FINED

Thomas P. Reynolds Securities, Ltd. (New York, New York) and Milton Nechter (Registered Principal, New York, New York) were fined $15,000, jointly and severally. These sanctions were imposed by the NASD's Board of Governors following the appeal from the decision rendered by the District Business Conduct Committee for District 12. The sanctions were based on findings that the firm failed to carry a blanket fidelity bond, filed an Annual Audited Report that was not reviewed by an independent accountant, and prepared an inaccurate general ledger, an inaccurate trial balance, and an inadequate net capital computation for the period ending on or about January 31, 1988.

This action has been appealed to the Securities and Exchange Commission, and the fine imposed is not effective pending consideration of the appeal.

INDIVIDUALS FINED AND BARRED

Wali Abdul-Haqq (Registered Representative, North Brunswick, New Jersey) was fined $25,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Abdul-Haqq received from public customers $4,244 for the purchase of a whole life insurance policy and converted $3,639 of that sum to his own use and benefit. He also failed to respond to the Association's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Rina Alberga (Registered Representative, Niles, Illinois) was fined $10,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Alberga drafted checks totaling approximately $11,860 on her employer-member's account, made use of these funds for her own benefit, and charged approximately $642 to the firm's credit card. She also failed to respond to the Association's four requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Joseph M. Binczak (Registered Representative, Pottstown, Pennsylvania) was fined $11,000 and barred from association with any member of the Association in any capacity. The sanctions were imposed by the NASD's Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 2N. The sanctions were based on findings that Binczak received a total of $6,000 from a public customer for the purchase of insurance and converted those funds to his own use and benefit.

Kevin L. Connolly (Registered Representative, Scottsdale, Arizona) was fined $2,500 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Connolly participated in the sale of an options contract to a customer outside the normal course of his employment with a member without providing prior written notice to his employer and made improper use of a customer's funds by depositing a check received from a customer for the purchase of securities into his personal bank account.

Joel M. Dalenberg (Registered Representative, Port Huron, Michigan) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $10,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Dalenberg consented to the described sanctions and findings that he obtained a check in the amount of $1,224.53 made payable to a public customer that represented a payout of dividends from this customer's insurance policy and without the knowledge or consent of the customer, signed the customer's name to the check and deposited the funds in a bank account in which he had a beneficial interest.

Judith L. Daniels (Registered Representative, Mobile, Alabama) was fined $15,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Daniels purchased mutual fund shares for a public customer without the customer's knowledge or consent, inaccurately completed the order ticket for the trade, and recorded a false address for the customer. She also failed and neglected to disclose to her employer-member that, in connection with two accounts, she had made $50 and $100 contributions of her own funds to the accounts, and she recorded inaccurate Social Security numbers on both accounts and an inaccurate address on one account. Daniels deposited bank drafts and personal checks into two accounts under her control that were returned for "insufficient funds," and she failed to respond to the Association's two written requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Stephen Einig (Registered Representative, Massapequa Park, New York) was fined $75,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Einig recommended transactions in a customer's account without having reasonable grounds for believing that the transactions, because of their short-term nature, were suitable given the customer's financial situation and investment objectives. Einig also executed three unauthorized transactions in a customer's joint account.

Kenneth L. Fey (Registered Representative, Emmaus, Pennsylvania) was fined $40,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Fey forged the endorsement on checks totaling $22,411 drawn to public customers and converted the proceeds to his own use and benefit.

Daniel L. Fulop (Registered Representative, Scottsdale, Arizona) was fined $50,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Fulop received funds intended for investment totaling $30,000 from two customers and failed to follow the customers' instructions, instead retaining the funds for his own personal use and benefit. He also failed to respond to the Association's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Bryon J. Jensen (Registered Representative, St. Cloud, Minnesota) was fined $35,000 and barred from association with any member of the Association in any capacity. The sanction was imposed by the NASD's Board of Governors upon review of a decision rendered by the District Business Conduct Committee for District 8. The sanctions were based on findings that Jensen failed to deposit funds totaling $16,000 received from customers to their accounts but retained the funds for his own personal use and benefit. He also shared in profits in a customer's account without written approval from his employer-member and failed to respond to the Association's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Bruce E. Kitzis (Registered Representative, Greeley, Colorado) was fined $15,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Kitzis failed to respond to the Association's official requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the circumstances surrounding the termination of his employment.

Benjamin S. Liu (Registered Representative, Chicago, Illinois) was fined $10,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Liu caused checks totaling $5,184 to be drawn on the account of two customers without the customers' knowledge or consent, signed his wife's name to the checks, and caused the funds to be deposited in his wife's bank account. He also effected two unauthorized transactions in the accounts of a public customer.

Frederick J. Lutot (Registered Representative, Newton, New Jersey) was fined $120,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Lutot received from policy holders annuity premiums which he converted to his own use and benefit.

Juan A. Martinez (Registered Representative, Coronado, California) was fined $20,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Martinez exercised discretion in the account of a public customer in effecting 18 transactions on margin without receiving either prior written authorization or written acceptance of the account as discretionary from his employer-member and failed to respond to the Association's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Michael E. McGrew (Registered Representative, Baton Rouge, Louisiana) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $10,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, McGrew consented to the described sanctions and findings that he signed the name of a policy holder to a dividend withdrawal form and then signed the customer's name to the $2,000 dividend check and converted these monies to his own use, all without the customer's knowledge or consent.

John M. Reynolds (Registered Representative, Gaithersburg, Maryland) was fined $60,771 and barred from association with any member of the Association in any capacity. These sanctions were imposed by the NASD's Board of Governors following an appeal of a decision of the District Business Conduct Committee for District 10. The sanctions were based on findings that Reynolds caused a customer to engage in purchase and sale transactions with a frequency and volume of trading (more than $1 million in purchases) that was inconsistent with the financial situation and need and, further, recommended and purchased securities that were primarily nondividend-paying growth stocks whereas the customer's objectives and needs were for regular income and preservation of capital.

This action has been appealed to the Securities and Exchange Commission, and the fine imposed is not effective pending consideration of the appeal. However, the bar imposed on the Respondent is effective.

Andrea R. Ricks (Registered Representative, Philadelphia, Pennsylvania) was fined $11,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that she received $2,903.50 from a public customer for the purchase of securities and converted $1,000 of that sum to her own use and benefit. In addition, Ricks failed to respond to the Association's requests for information.

William S. Rufenacht (Registered Representative, San Diego, California) was fined $75,000 and barred from association with any member of the Association in any capacity and ordered to disgorge $7,575.84. The sanctions were based on findings that Rufenacht caused the issuance of 12 checks totaling $10,464.89 drawn against the cash value or dividends of insurance policies owned by six public customers on 11 of the checks, and deposited these checks into a bank account under his control and benefit. Rufenacht also failed to respond to the Association's two requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Daniel K. Tarn (Registered Representative, Ontario, California) was fined $135,000, barred from association with any member of the Association in any capacity, and ordered to disgorge $71,698.89. The sanctions were based on findings that Tam received a check from a public customer for the purchase of a multi-funded single premium deferred annuity and failed to purchase the annuity, but instead he cashed the check and converted the proceeds to his own use and benefit. Tam also failed to respond to the Association's request for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Kenneth Wong (Registered Representative, Holland, Pennsylvania) submitted an Offer of Settlement pursuant to which he was fined $6,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Wong consented to the described sanctions and findings that he forged the endorsement on 15 compensation checks totaling $9,031.23 drawn to another insurance agent and then second-endorsed these checks and converted the proceeds to his own use and benefit.

FIRMS FINED, INDIVIDUALS FINED AND SUSPENDED

Trevor S. Bailey (Registered Principal, New Orleans, Louisiana) was fined $25,000, suspended from association with any member of the Association in any capacity for six (6) months, and barred from association with any member of the NASD in a principal capacity. The sanctions were based on findings that Bailey failed to make and keep current an accurate record of the receipt of investor funds and engaged in a securities business when his firm's net capital was below the required minimum. Bailey also permitted a registered representative of another member firm to open an account with the firm and failed to notify the individual's employer of the firm's intent to open and maintain the account. In addition, he caused his firm to purchase units in two offerings as nominees in an effort to close the offerings before the termination date, and such units were then resold to public customers. The offerings were, therefore, closed on the basis of non-bona fide sales. The firm, acting through Bailey, also failed to establish escrow accounts for two offerings in a timely manner. In connection with one offering involving the acquisition and operation of a shopping center, the firm, acting through Bailey, failed to disclose in an offering Memorandum that the partnership property would be used to collateralize loans to those investors electing to finance their purchases through a certain savings and loan association. In one limited partnership, they permitted two customers to purchase less than the minimum amount contained in the offering Memorandum. Bailey also failed to maintain fingerprint records for certain employees, and failed to give written notice to the Association of the termination of an individual within 30 days after his termination from the firm.

Andre J. Charitat (Registered Representative, New Orleans, Louisiana) submitted a Letter of Acceptance, Waiver, and Consent pursuant to which Charitat was fined $3,500 and suspended from association with any member of the NASD in any capacity for one (1) business week. Without admitting or denying the allegations, Charitat consented to the described sanctions and findings that he recommended to a customer the purchase of interests in two direct participation programs without having reasonable grounds to believe that the transactions were suitable based on the information obtained from the customer.

Charles Christo (Registered Representative, Brooklyn, New York) was fined $1,000 and suspended from association with any member of the NASD in any capacity for two (2) years. These sanctions were imposed by the NASD's Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 12. The sanctions were based on findings that Cristo failed to respond to the Association's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Joseph E. Fadell (Registered Representative, Louisville, Kentucky) is fined $12,500 and suspended from association with any member of the NASD in any capacity for five business days. Furthermore, Fadell must requalify by examination as a general securities registered representative prior to acting in that capacity. The sanctions were based on findings that Fadell made unsuitable recommendations to public customers concerning the purchase and sale of general securities and options.

Edward E. Gould (Registered Representative, Singer Island, Florida) was fined $2,500 and suspended from association with any member of the NASD in any capacity for four (4) months. The sanctions were based on findings that Gould failed to provide his employer-member with prior written notice of his participation in a private securities transaction.

Stuart Kobrovsky (Registered Principal, Allentown, Pennsylvania) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $5,000 and suspended from association with any member of the NASD in the capacity of a Financial Principal for one year. In addition, upon conclusion of his suspension, Kobrovsky is required to requalify as a Financial Principal and shall be limited to acting in that capacity only for firms operating pursuant to SEC Rule 15c3-l(a)(2). Without admitting or denying the allegations, Kobrousky consented to the described sanctions and findings that he permitted his firm to effect securities transactions while failing to maintain the required minimum net capital.

Glenn E. Jackel (Registered Representative, Bridgeport, Connecticut) submitted an Offer of Settlement pursuant to which Jackel was fined $5,000 and suspended from association with any member of the NASD in any capacity for ten (10) business days. Without admitting or denying the allegations, Jackel consented to the described sanctions and findings that he issued a personal bank check to his employer-member to satisfy an unsecured debit balance in his securities account at his employer-member that was returned on two occasions for insufficient funds.

Bradley Kanode (Registered Representative, Montezuma, New Mexico) was fined $15,000 and suspended from association with any member of the NASD in any capacity for six months. These sanctions were affirmed by the SEC following a review of disciplinary action taken by the NASD. The sanctions were based on findings that Kanode effected several unauthorized transactions in accounts of three customers.

Ross Raymond, II (Registered Representative, Kary, Texas) was fined $10,000 and suspended from association with any member of the NASD in any capacity for two (2) years. These sanctions were imposed by the NASD's Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 6. The sanctions were based on findings that Raymond submitted falsified production records and a W-2 form from a prior employer and, as of a result of these falsified records, received a bonus as an inducement to join another member firm.

R. William Riemenschneider, III (Registered Representative, Ardsley, Pennsylvania) was fined $5,000 and suspended from association with any member of the NASD in any capacity for sixty (60) days. These sanctions were imposed by the NASD's Board of Governors following an appeal of a decision rendered by the District Business Conduct Committee for District 11. The sanctions were based on findings that, without authorization or permission, Riemenschneider forged the signatures of two policy holders on insurance policy loan request forms, which he submitted to his employer with directions that the checks be sent to his own post office box.

Stephen J. Rozinski (Registered Representative, Denver, Colorado) was fined $5,000, suspended from association with any member of the NASD in any capacity for thirty (30) days, and required to requalify by examination as a general securities registered representative. These sanctions were imposed by the NASD's Board of Governors following an appeal of a decision by the District Business Conduct Committee for District 3. These sanctions were based on findings that Rozinski effected five purchases of securities in his own account and sold these securities without paying for them. On another occasion, Rozinski failed to pay for the purchase of securities in his personal account, causing his employer to sell out the securities at a loss. He also effected the unauthorized purchase and subsequent sale of securities in the account of a public customer, and entered into an agreement with said customer to personally reimburse him for the loss due to the unauthorized transactions, but failed to honor this agreement. Rozinski also failed to respond to the Association's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Kenneth G. Schave (Registered Representative, Aurora, Colorado) was fined $2,000 and suspended from association with any member of the NASD in any capacity for thirty (30) calendar days. The sanctions were based on findings that Schave provided false and misleading information to his employer-member by causing two customer account records to reflect his home address for customers who resided in states in which Schave was not registered or otherwise able to sell securities.

Frank S. Smith (General Principal, Lake Oswego, Oregon) and George W. Lanning (Registered Representative, Solano Beach, California) — Smith was fined $5,000, suspended from association with any member of the NASD as a general securities principal for thirty (30) days, and required to requalify as a general securities principal by examination within 90 days. Lanning was fined $10,000 and suspended from association with any member of the NASD in any capacity for six (6) months. The sanctions were imposed by the NASD's Board of Governors upon review of a decision rendered by the District Business Conduct Committee for District 1. The sanctions were based on findings that Smith permitted and approved the payment of Lanning's commissions to an unregistered person to conceal income earned by Lanning from the IRS. Smith also committed various books and records violations in contravention of SEC Rules 17a-3 and 17a-4; failed to implement a program to supervise options trading as evidenced by the fact that 13 new option account forms and seven discretionary options accounts lacked approval by a Registered Options Principal; and failed to file an Annual Audit Report on a timely basis.

Farrel A. Weil (Registered Representative, New Orleans, Louisiana) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $3,000 and suspended from association with any member of the NASD in any capacity for one (1) business day. Without admitting or denying the allegations, Weil consented to the described sanctions and findings that he exercised discretionary power and made purchases and sales of securities in the account of a public customer without prior written authorization, and, in another account, without the customer's prior knowledge and explicit consent, signed the name of the customer to a margin agreement that authorized purchases on margin for this account.

INDIVIDUALS FINED

Mitchell R. Addis (Registered Representative, Tucson, Arizona) submitted a Letter of Acceptance, Waiver, and Consent pursuant to which he was fined $10,000. Without admitting or denying the allegations, Addis consented to the described sanctions and findings that he effected unauthorized transactions in three customer accounts.

Joseph C. Dawson (Registered Representative, Rumford, Rhode Island) was fined $10,000 and ordered to requalify by examination prior to serving with any member firm in any capacity. These sanctions were imposed by the NASD's Board of Governors following an appeal of a decision of the District Business Conduct Committee for District 6. The sanctions were based on findings that Dawson deposited a check in the amount of $75,000 from a public customer into his personal business checking account and did not return the funds to the customer until approximately three months later. In addition, Dawson received a check in the amount of $3,000 from a customer and deposited the check into his personal business account and retained the funds for nearly one year.

Donald G. Fitzpatrick (Registered Principal, Valencia, California) was fined $15,000 and ordered to disgorge $2,480. The sanctions were based on findings that Fitzpatrick sold limited partnership interests to at least four public customers and failed to provide written notification of such transactions to his employer-member.

Alvey J. Jeanfreau, III (Registered Representative, Oswego, Oregon) was fined $10,000 based on findings he recommended to customers the purchase of securities without having reasonable grounds for believing that such recommendations were suitable for them in view of the size, frequency, and number of transactions and the customers' financial situation and needs.

Brian Prendergast (Registered Representative, Greenwood Village, Colorado) was fined $10,600. This was imposed by the NASD's Board of Governors following an appeal of a decision of the District Business Conduct Committee for District 3. The sanctions were based on findings that Prendergast participated in private securities transactions outside the regular course of his employment without prior notice to his employer-member. He also established securities accounts for two customers and effected transactions in these accounts on instructions from a third party but did not verify that the third party had authority to act for these customers.

Michael L. Seat (Registered Representa tive, Thornton, Colorado) was fined $15,000 and ordered to disgorge $17,160. The sanctions were based on findings that Seat participated in seven (7) transactions involving the sale of securities outside the normal course or scope of his employment with a member without providing prior written notice to his employer.

INDIVIDUALS SUSPENDED

Melisa R. Alsbrook (Registered Financial and Operations Principal, Memphis, Tennessee) submitted an Offer of Settlement pursuant to which she was suspended from association with any member of the NASD in the capacity of a Financial and Operations Principal for a period of three weeks. Furthermore, Alsbrook must requalify as a Financial and Operations Principal by taking and passing the appropriate examination before again serving in that capacity. Without admitting or denying the allegations, Alsbrook consented to the described sanctions and findings that she failed, and neglected, to make, keep current, and preserve accurate ledger accounts and securities position records; failed to conduct an accurate securities position verification; on two separate occasions failed to prepare an accurate trial balance, record of aggregate indebtedness, and net capital computation; and, on several occasions, neglected to compute accurately and deposit the amount prescribed by SEC Rule 15c3-3 into the "Special Reserve Bank Account for the Exclusive Benefit of Customers." In addition, Alsbrook failed to give telegraphic notice to the SEC and the NASD of the failure to make required deposits in the Special Account. Finally, Alsbrook failed to take prompt steps to obtain physical possession or control of certain fully paid customer securities and improperly delivered other fully paid customer securities to another firm.

FIRMS SUSPENDED

The following firms were suspended from membership in the NASD for failure to comply with formal written requests to submit financial information to the NASD. The action was based on the provisions of Article IV, Section 5 of the NASD Rules of Fair Practice and Article VII, Section 2 of the NASD By-Laws. The date the suspension commenced is listed after each entry. If the firm has complied with the request for information, the listing also includes the date that the suspension concluded.

Amerimutual Corporation, Boca Raton, FL (May 31, 1989)
Atlantean Securities Corporation, Agoura Hills, CA (May 31, 1989)
Bentsen Investment Company, Houston, TX (May 31, 1989)
Capital Protectors, Inc., Brooklyn, NY (May 31, 1989)
DPI Securities Corporation, Laguna Hills, CA(May31, 1989)
Julius Donner, Manhasset, NY (May 31, 1989)
Faherty, Aliaga & Company, Inc., New York, NY (May 31, 1989)
First United Equity Ventures, Inc., Santa Fe,NM(May31, 1989)
Individual's Securities, Ltd., Melville, NY (May 31, 1989)
Investment Advisory Brokerage Services, Inc., Perryville, MO (May 31, 1989)
Litchfield Financial Corporation, Shady, NY (May 31, 1989)
C.G. Loop Securities, Inc., New York, NY (May 31, 1989)
Monmouth Investments, Inc., Englishtown, NJ(May31, 1989)
Mutual Funds Investment Services, Syracuse, NY (May 31, 1989)
Oberweis Securities, Inc., Naperville, IL (May 31, 1989)
Packard Group, Inc., New York, NY (May 31, 1989)
Power Securities Corporation, Las Vegas, NV(May31, 1989)
Preferred Capital Securities, Inc., Mt. Prospect, IL (May 31, 1989)
Profile Investments Corporation, Ft. Lauderdale, FL (May 31, 1989)
Puget Sound Securities, Inc., Tampa, FL (May 31, 1989)
F.D. Roberts Securities, Inc., Paramus, NJ (May 31, 1989)

FIRMS EXPELLED FOR FAILURE TO PAY FINES AND COSTS IN CONNECTION WITH VIOLATIONS

Columbine Securities, Inc., Denver, CO
Creative Asset Management, Inc., Brookfield, WI
First Alliance Financial Services, Inc., San Diego, CA
Heritage Financial Corporation, Brooklandville, MD
Hickey, Kober, Inc., New York, NY
T. J. Sullivan & Company, Inc., New York, NY
West Wind Trading Company, Allentown, PA

INDIVIDUALS WHOSE REGISTRATIONS WERE REVOKED FOR FAILURE TO PAY FINES AND COSTS IN CONNECTION WITH VIOLATIONS

Larry K. Bolden, Dothan, AL
Craig A. Broadhead, Murray, UT
Ronald O. Campbell, Jersey City, NJ
Wilton L. Davidson, El Toro, CA
Kip D. Eardley, Salt Lake City, UT
Steven W. Fabry, San Diego, CA
Roger A. Faulk, Dothan, AL
Jefferson B. Gatewood, Newbury Park, CA
James D. Guy, Mobile, AL
Leonard D. Hall, Salt Lake City, UT
Steven V. Harrison, Salt Lake City, UT
W. Kyle Klinger, Sandy, UT
Ronald J. Koeppler, Oconomowoc, WI
Roberta G. Krashin, Denver, CO
Cornell Long, Fort Washington, MD
David C. Merrell, Sandy, UT
MacKenzie Parker, Bellevue, WA
Charles E. Paul, Jr., Delray Beach, FL
William E. Potter, Bradenton, FL
David L. Robinson, Farmingham Hills, MI
Clifford E. Romain, Bronx, NY
Francis C. Schulte, Houston, TX
Thomas Sullivan, Jr., Greenwich, CT
Daniel J. Tackett, La Mesa, CA
Richard S. Van Eerden, Milwaukee, WI
Vada P. Ward, Wheatridge, CO
Earle W. Washington, Bryans Road, MD
John H. Watson, Waldorf, MD
Edward A. Wood, Morrison, CO

NASD EXPELS BUCHANAN & CO., INC, FOR "DECEPTIVE, DISHONEST" PRACTICES IN HIGH-YIELD REVENUE BONDS

The NASD has expelled Buchanan & Co., Inc., of Jackson, Mississippi, from membership and taken disciplinary actions against two senior officers, five branch managers, and six salesmen of the firm.

In their Offers of Settlement, without admitting or denying the allegations of the NASD Complaints, the firm and the individuals consented to findings that they engaged in deceptive, dishonest, or unfair practices in connection with the underwriting and/or retail placement of high-yield, non-rated nursing home and retirement center revenue bonds, and thereby violated rules of the Municipal Securities Rulemaking Board (MSRB).

In announcing its action, the NASD acknowledged the substantial assistance of Peyton D. Prospere, Commissioner of Securities of the State of Mississippi, and the staff of the state's Securities Division. "The development of this case has been a fine example of the continuing cooperation between state authorities and the NASD in detecting and penalizing violations of the rules governing the securities markets," said John E. Pinto, NASD Executive Vice President for Compliance.

Under the Securities Acts Amendments of 1975, the NASD is the self-regulatory organization authorized to enforce MSRB rules relating to registered broker-dealers and their associated persons.

The NASD District 5 Business Conduct Committee found that Robert M. Buchanan, Jr., the Chairman and sole stockholder of the firm, and Robert C. Fairly, Jr., the President, were responsible for the dissemination of material misrepresentations and for omissions of facts in connection with the sale to the public of 10 municipal bond issues, with a total face amount of $74,470,000, that were underwritten by Buchanan & Co. Among the matters misrepresented or undisclosed were the lack of occupancy and financial difficulties besetting a number of other retirement centers/nursing homes whose securities were underwritten by the firm, the failure to obtain the necessary regulatory approval for certain of the projects, the failure independently to verify the financial ability of the general partners to comply with promised financial commitments, and the unreliability of the financial feasibility studies. Buchanan and Fairly also failed to disclose an adverse evaluation of one of the proposed retirement centers by a national accounting firm, and proceeded with another project even though two of its developers had been indicted for fraud, and one of them had already been convicted of a similar charge. All 10 of the municipal bond issues ultimately went into default

The NASD also found that the firm, acting through Buchanan and Fairly, orchestrated a high-pressure, misleading retail sales campaign for these bonds, as well as for other high-yield, non-rated bonds. These bonds were sold at complimentary breakfast, luncheon, and dinner seminars held in retirement areas such as Tucson, Arizona, and Tampa, Florida, to investors, most of whom lived on fixed incomes. Buchanan and Fairly caused their salesmen to misrepresent the nature and risks of these nonrated bonds and the firm's past record in these issues.

Buchanan was censured, fined $200,000, and suspended for two years in all capacities. Furthermore, he was prohibited, with certain exceptions, from maintaining any proprietary interest in any member of the Association, and was barred from holding any securities licenses other than those governing investment company products, variable contracts, and direct participation programs. Fairly was censured, fined $20,000, suspended in all capacities for one year, and suspended in all principal capacities for five years. Both Buchanan and Fairly must requalify by passing the appropriate examinations, before serving in any limited capacity.

Jonathan D. Ulrich, a salesman in the Tucson, Arizona, branch office and subsequently the branch manager of the Jackson, Mississippi, office, was censured, fined $10,000, and barred in all capacities. Russell W. Clark, a salesman in the Tucson, Arizona, branch office was censured, fined $7,500, and barred in all capacities. Ulrich and Clark may, within one year, apply to remove the bars, if they can demonstrate that certain arbitration awards rendered against them have been paid. Murl D. Calton, the branch manager of the Tucson, Arizona, office, was censured and suspended for one month in all principal capacities. Jeffrey D. Rhodes, the Houston, Texas, branch office manager, was censured, fined $1,000, and suspended for two weeks in all principal capacities. Kenneth C. Weber, a salesman in the Tucson, Arizona, branch office and at one time the Houston, Texas, branch office manager, was censured, fined $1,000, suspended for one week in all capacities, and ordered to requalify by passing the appropriate examination. Mary S. Nelson, the manager of the Boca Raton, Florida, branch office and subsequently a saleswoman in the Tampa, Florida, branch office, was censured, fined $1,000, and suspended for one business day in all capacities.

Kenneth E. Crowl, a salesman and the assistant manager of the Phoenix, Arizona, branch office, was censured, fined $1,000, and suspended for one month in all capacities. Randall J. Whyte, a salesman in the Tucson, Arizona, branch office, was censured, fined $2,500, and suspended for one week in all capacities. Lorin W. Surpless, a salesman in the Tucson, Arizona, branch office, was censured, fined $1,000, and suspended for one week in all capacities. Gerard P. Musto, a salesman in the Tampa, Florida, branch office, was censured, fined $1,000, and suspended for one business day in all capacities. William B. Nelson, a salesman in the Boca Raton, Florida, branch office, was censured, fined $1,000, and suspended for one business day in all capacities.

The bars became effective June 7, 1989. The suspensions commenced with the opening of business on June 23, 1989.

NASD BARS AND SUSPENDS FORMER PRINCIPAL OFFICERS AND EMPLOYEES OF F.D. ROBERTS SECURITIES, INC., FOR MANIPULATION AND OTHER MISCONDUCT INVOLVING PENNY STOCKS AND IMPOSES FINES OF $500,000

The NASD has announced disciplinary actions against Sheldon D. Kanoff, former President of F. D. Roberts Securities; Alan Lieb, former Vice President; Frederick Galiardo, former Chairman of the Board; Robert Humphrey, former national sales manager, and Brett A. Bernstein, a former registered representative. The disciplinary action is based on an investigation into the price manipulation and fraudulent markups in sales to customers of a penny stock, Frankel Capital Management, Inc.

F.D. Roberts Securities, Inc., was a Paramus, New Jersey-based broker-dealer that specialized in low-priced speculative securities, primarily penny stocks. On February 16, 1989, F. D. Roberts Securities, Inc., ceased conducting a securities business and subsequently filed for bankruptcy.

Pursuant to their Offer of Settlement, without admitting or denying the allegations of the Complaint filed against them, these officers and employees of Roberts consented to certain findings and agreed to the following sanctions:

Alan Lieb - former Vice President, Director, and shareholder of F. D. Roberts Securities, Inc.; a bar from association with any NASD member in any capacity with the proviso that he may make application to become associated with an NASD member after a period of five years, a $150,000 fine, and censure.

Sheldon D. Kanoff - former President, Director, and shareholder of F. D. Roberts Securities, Inc.; a bar from association with any NASD member in any capacity with the proviso that he may make application to become associated with an NASD member after a period of five years, a $125,000 fine, and censure.

Frederick Galiardo - former Chairman of the Board and shareholder of F. D. Roberts Securities, Inc.; a bar from association with any NASD member in any capacity with the proviso that he may make application to become associated with an NASD member after a period of five years, a $100,000 fine, and censure.

Robert Humphrey - former national sales manager of F. D. Roberts Securities, Inc.; censure, a suspension for three years from association in all capacities with any NASD member, a $50,000 fine, and a requirement to submit proof of restitution in an amount not less than $125,000 before becoming associated with an NASD member.

Brett A. Bernstein - former registered representative of F. D. Roberts Securities, Inc.; censure, a suspension for three years from association in all capacities with any NASD member, and a $75,000 fine.

Lieb, Humphrey, and Bernstein consented to findings that they violated Article III, Sections 1 and 18 of the NASD's Rules of Fair Practice. Section 18 is the NASD's Anti-Fraud rule, which prohibits the use of any manipulative, deceptive, or other fraudulent device in the purchase or sale of any security. Lieb was also found to have violated the NASD's markup policy.

Kanoff and Galiardo consented to findings that they failed to properly supervise, and Kanoff consented to recordkeeping violations.

F. D. Roberts Securities, Inc., was the sole underwriter for the initial public offering of Frankel Capital Management, Inc., in January 1987, at a price of three cents a unit. Following the public offering, the securities of Frankel were traded in the non-NASDAQ over-the-counter market.

The Association's investigation determined that Lieb and others, aided and abetted by Bernstein, Humphrey, and others, effected transactions in Frankel and induced the purchase and sale of such securities by means of manipulative, deceptive, and other fraudulent devices and contrivances. As part of such fraudulent conduct, the NASD found that these individuals through Roberts had dominated and controlled the trading in Frankel and initiated trading in Frankel by selling units to customers at 15 cents per unit, which represented an arbitrary increase of 400 percent over the public offering price. Lieb and others were also found to have engaged in a course of conduct that operated as a fraud upon purchasers of Frankel in that they charged fraudulently excessive markups in principal sales to customers. In the 1,507 transactions in Frankel included in the NASD's disciplinary action, customers who bought stock from Roberts' inventory were charged fraudulent markups ranging from 25 percent to 107 percent over the prevailing market price, resulting in excess profits to Roberts of at least $500,000.

The action also contained findings that Humphrey, Bernstein, and others failed to make a bona fide public distribution of the Frankel offering by selling to restricted accounts, in contravention of NASD rules. In addition, Kanoff failed to properly maintain required books and records relating to the Frankel underwriting and certain of these restricted accounts.

During the period of the NASD's investigation, Kanoff and Galiardo, were found to have failed to properly supervise the activities of Lieb, Humphrey, Bernstein, and others, which activities contributed to the price manipulation of Frankel, the fraudulent markups, and other misconduct.

The NASD's investigation, which was conducted by its District 12 office in New York, is part of a concerted effort by the Association to eliminate sales practice abuses, fraud, and manipulation in the penny-stock market. In addition to conducting its own investigations, the NASD routinely cooperates with other self-regulatory organizations, the SEC, and governmental law enforcement agencies. In this regard, the NASD cooperated with the Office of the U.S. Attorney for the District of New Jersey in its investigation, which resulted in criminal action relating to Roberts. Additionally, the NASD worked in cooperation with the Bureau of Securities of the State of New Jersey.

The NASD intends to continue cooperating with, and providing assistance to, federal and state securities authorities as part of its efforts to vigorously enforce the securities laws, particularly with regard to fraud and other serious sales practice abuses in penny stocks.

NASD EXPELS FLORIDA FIRM AND BARS PRINCIPAL FOR FRAUDULENT MARKUPS IN PENNY STOCKS

The NASD has announced a disciplinary action against Brownstone-Smith Securities Corp., based in Coral Springs, Florida, and Michael Lewis Donnelly, its President and CEO, for charging fraudulent markups in principal sales to customers of the penny stocks of Ortech Industries, Inc., New Age Industries, Inc., and Leading Edge Industries, Inc., and for other serious misconduct.

Pursuant to their Offer of Settlement, which neither admitted nor denied the allegations of the Complaint filed against them, Brownstone-Smith Securities Corp. was expelled from membership in the Association and Donnelly was barred from association with any NASD member, with the right to re-apply after three years, and both were censured and fined $15,000, jointly and severally.

The firm and Donnelly consented to findings that they violated the Association's markup policy and anti-fraud rule by selling the three securities to customers at markups ranging from 50 percent to 140 percent above the firm's contemporaneous cost.

The firm and Donnelly further consented to Association findings that in connection with an underwriting of the common stock of Thoroughbred Investments, Inc., on a contingency basis, the firm failed to return customers' monies as required by SEC Rule 15c2-4 when the contingency was not met. They also consented to the findings that the firm contravened the SEC disclosure rule relating to contingent offerings (Rule 10b-9) and the anti-manipulation rule (Rule 10b-6).

In an action filed by the SEC, the firm and Donnelly were permanently enjoined by the United States District Court for the Southern District of Florida, from violating the anti-fraud provisions of the federal securities laws and ordered to disgorge $100,000 of the fraudulent markups charged customers. The firm and Donnelly consented to the court's action. Additionally, they agreed that the SEC may revoke the firm's registration as a broker-dealer and bar Donnelly from the securities industry, with the right to apply for re-entry after three years.

The NASD investigation that led to this action is part of a concerted effort by the Association to eliminate sales practice abuses in penny stocks on a nationwide basis. It was conducted by the NASD District 7 office, which is located in Atlanta and is responsible for the monitoring of member firms in Florida, Georgia, South Carolina, eastern and middle Tennessee, Puerto Rico, and the Virgin Islands. The investigation and disciplinary action were coordinated with the actions by the SEC's Miami branch office, as part of an aggressive enforcement program by securities industry regulators to stop fraud in the penny-stock market.

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,

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

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

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,

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,

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,

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,

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.]

Disciplinary Actions (June)

Disciplinary Actions

National Association of Securities Dealers, Inc.

June 1989

Disciplinary Actions Reported for June

The National Association of Securities Dealers, Inc. (NASD), is taking disciplinary actions against the following firms and individuals for violations of the NASD Rules of Fair Practice and/or the rules of the Municipal Securities Rulemaking Board. Unless otherwise indicated, suspensions began with the opening of business on Monday, June 5, 1989.

FIRMS SUSPENDED

The following firms were suspended from membership in the NASD for failure to comply with formal written requests to submit financial information to the NASD. The action was based on the provisions of Article IV, Section 5 of the NASD Rules of Fair Practice and Article VII, Section 2 of the NASD By-Laws. The date the suspension commenced is listed after each entry. If the firm has complied with the request for information, the listing also includes the date that the suspension concluded.

Alamo Securities, Inc., Los Angeles, CA (April 10, 1989)
Allied Equity Group, Bodega Bay, CA (April 10, 1989)
Americana Investment and Securities, Las Vegas, CA (April 10, 1989)
A.T.A.P. Financial Services, Inc., Orlando, FL (April 10, 1989 to April 20, 1989)
Avatara Securities, Inc., South Pasadena, CA (April 10, 1989)
Calyn Financial, Inc., Colorado Springs, CO (April 10, 1989 to April 28, 1989)
Capistrano Securities, Inc., San Diego, CA (April 28, 1989)
Cedar Securities, Inc., Kansas City, MO (April 10, 1989)
Foxhall Group Securities, Inc., Southfield, MI (April 10, 1989)
Franchise Securities Corp., New York, NY (April 10, 1989)
Freedland Securities, Inc., Beverly Hills, CA (April 10, 1989)
Goodson Securities, Inc., New York, NY (April 10, 1989)
Guaranty Investments and Securities, Inc., Pompano Beach, FL (April 10, 1989)
Hilton Capital Markets, Inc., New York, NY (April 10, 1989 to April 19, 1989)
Intervest Corporation, Jackson, MS (April 10, 1989)
Investment Concepts, Inc., Minneapolis, MN (April 10, 1989)
Junkin & Associates, Inc., Lake Forest, IL (March 14, 1989 to April 28, 1989)
L. Anderson and Company, Denver, CO (April 10, 1989)
Luciano Securities, Inc., Orchard Park, NY (April 10, 1989)
Mid-South Securities, Inc., Chattanooga, TN (April 28, 1989)
Regional Investment Financial Corp., Coconut Grove, FL (April 10, 1989)
SFC Equities, Inc., Arlington Heights, IL (April 10, 1989)
Silver Pine Capital, Inc., Addison, NY (April 10, 1989)
St. Regis Securities Corp., Culver City, CA (April 10, 1989)
State Street Securities, Inc., Lake Worth, FL (April 10, 1989)
Tercel Securities, Inc., Amarillo, TX (April 10, 1989)
Thomas Brothers Securities Corp., Laguna Hills, CA (April 10, 1989)
Tri Funds Securities Corp., Denver, CO (April 10, 1989)
United Securities of America, Inc., Houston, TX (April 10, 1989)
Unitrust Securities Corp., Coral Gables, FL (April 10, 1989)
Vikea, Inc., North Brunswick, NJ (April 10, 1989)
Walt Securities, Inc., Laguna Hills, CA (April 10, 1989)
William M. Stanley, Inc., Lake Worth, FL (April 10, 1989)

FIRM EXPELLED

Seco Securities, Inc. (Denver, Colorado) On April 7, 1989, Seco Securities, Inc., was expelled from membership with findings of violations of the Rules of Fair Practice. The action was based on provisions of Article V, Section 2 of the Rules of Fair Practice.

FIRM FINED

Needham & Co., Inc. (New York, New York) submitted a Letter of Acceptance, Waiver and Consent pursuant to which the firm was fined $25,000. Without admitting or denying the allegations, Needham consented to the described sanctions and findings that it failed to report certain NASDAQ/NMS transactions; reported certain NASDAQ/NMS transactions with inaccurate price and/or volume; failed to report certain NASDAQ/NMS transactions within the required 90 seconds after execution; failed to designate certain NASDAQ/NMS transactions as bunched trades; and failed reasonably to establish, maintain, and enforce written procedures that would have enabled it to properly supervise the activities of associated persons to assure compliance with applicable securities laws, rules, and regulations.

As part of its Letter of Acceptance, Waiver & Consent, Needham will initiate a series of corrective steps to prevent the recurrence of trade reporting problems. The corrective measures are outlined in a number of undertakings contained in the Letter of Acceptance, Waiver & Consent. Among other things, the undertakings require Needham to: (1) adopt, implement, and enforce specific written procedures regarding the conduct of associated persons in its OTC trading department on the reporting of NASDAQ/NMS securities; (2) conduct reviews of its trade-reporting practices on a quarterly basis, which will include comparisons of order tickets with the NASD's records that capture trade reports transmitted by members; and (3) file with the NASD's Market Surveillance Committee quarterly reports indicating its compliance (or non-compliance) with trade-reporting requirements under Schedule D of the NASD's By-Laws.

This sanction was imposed by the NASD's Market Surveillance Committee.

FIRMS AND INDIVIDUALS FINED AND SUSPENDED

Homans, McGraw, Trull, Valeo & Co., Inc. (Boston, Massachusetts), Peter P. Homans (Registered Principal, Newton, Massachusetts), Joseph A. McGraw (Registered Principal, Wes-ton, Massachusetts), Richard B. Trull (Registered Principal, Boxford, Massachusetts), and Thomas Valeo (Registered Principal, New-bury Port, Massachusetts) submitted a Letter of Acceptance, Waiver and Consent pursuant to which the firm, Homans, McGraw, Trull, and Valeo were fined $10,000 and ordered to disgorge $28,000, jointly and severally. Without admitting or denying the allegations, the Respondents consented to the described sanctions and findings that the firm participated as a selling group member in a public offering that traded at an immediate premium in the secondary market and, acting through Homans, McGraw, Trull, and Valeo, failed to make a bona fide public distribution of such offering in that units were sold to a restricted account, in contravention of the Free-Riding and Withholding Interpretation. This restricted account was a limited partnership in which Homans, McGraw, Trull, and Valeo individually were general partners and had a beneficial interest in the account.

Cartwright Securities, Inc. (New York, New York), and James E. Cartwright (Registered Principal, West Hempstead, New York) submitted an Offer of Settlement pursuant to which the firm and Cartwright were fined $25,000, jointly and severally, James E. Cartwright was suspended from association with any member of the NASD in any capacity for twenty (20) business days, and the firm is required to employ, at least on a part-time basis, a financial and operations principal. Without admitting or denying the allegations, the firm and Cartwright consented to the described sanctions and findings that the firm, acting through James E. Cartwright, effected transactions in the purchase or sale of securities while failing to maintain minimum required net capital. The firm and Cartwright also inaccurately prepared its general ledger.

National Diagnostic Securities, Inc., Thousand Oaks, California, and Richard J. Shapiro (Registered Principal, Moorpark, California) submitted an Offer of Settlement pursuant to which they are fined $15,000, jointly and severally. Without admitting or denying the allegations, the firm and Shapiro consented to the described sanctions and findings that the firm, acting under the direction and control of Shapiro, sold limited partnership interests in nine partnerships and failed to promptly transmit funds received from investors to a separate escrow account. The firm and Shapiro also failed to refund consideration paid by purchasers in four partnerships when the minimum number of units required to be sold in these four partnerships were not sold by certain specified dates.

L'Argent Equities, Ltd., Minneapolis, Minnesota and George William Frederick (Registered Principal, St. Louis Park, Minnesota) submitted an Offer of Settlement pursuant to which L'Argent Equity, Ltd. is fined $15,000 and George William Frederick is fined $10,000. Without admitting or denying the allegations, the firm and Fredericks consented to the described sanctions and findings that, in contravention of the NASD Board of Governors' Interpretation with respect to Free-Riding and Withholding, the firm failed to make bona fide public offerings of certain securities that traded at immediate premiums in the aftermarket in that sales were made to certain senior bank officers not in accordance with their normal investment practices, to registered representatives of other member firms, and to another member firm. In one instance, the firm and Frederick failed to make a bona fide public offering in that shares were sold to a registered representative of another member and the aggregate of such shares was substantial and disproportionate in amount when compared with sales to members of the public. In addition, the firm and Frederick failed to enforce written supervisory procedures to assure that bona fide distributions of offerings were made in compliance with the Interpretation, and they failed to provide written notice to the employer-members of the registered representatives who purchased these hot issues before the execution of the transactions.

Andrew Alen Securities, Inc. Montville, New Jersey and Andrew A. Renert (Registered Principal, Montville, New Jersey) submitted an Offer of Settlement pursuant to which they were fined $20,000, jointly and severally. Without admitting or denying the allegations, the firm and Renert consented to the described sanctions and findings that they effected securities transactions with public customers at prices that were not fair in relation to the market value of such securities.

Kenman Securities Corporation, Salt Lake City, Utah and Kenneth T. Holman (Registered Principal, Centerville, Utah) were fined $15,000, jointly and severally, Kenman Securities Corp. is suspended from underwriting or managing new partnership offerings for two (2) years, and Kenneth Holman is suspended from association with any member of the NASD in any principal capacity for two (2) years. The sanctions were based on findings that the firm and Holman offered and sold limited partnership interests to public investors while failing to disclose in the offering memorandum or to otherwise inform purchasers of material information pertaining to the investment. The firm and Holman also provided an untruthful response to an Association request for information concerning this failure to disclose.

Porcari, Fearnow and Associates, Inc., Houston, Texas, Arthur J. Porcari (General Securities Principal, Houston, Texas) and Michael T. Fearnow (General Securities Principal, Houston, Texas), MS-459. On April 28, 1989, the Market Surveillance Committee accepted an Offer of Settlement pursuant to which Porcari, Fearnow and Associates, Inc., Arthur J. Porcari, and Michael T. Fearnow were censured, fined $10,000, jointly and severally, and Porcari and Fearnow were suspended from association with any NASD member in any capacity for three (3) months.

Without admitting or denying the allegations, the Respondents consented to the described sanctions and findings that they violated Article III, Section 1 of the Rules of Fair Practice. In early December 1985, they decided to purchase securities of Petra Resources, Inc., ("PETR") and entered into an arrangement with another member to acquire such securities on their behalf. Subsequently, they came into possession of information which, in the Committee's view, was of a material and nonpublic nature concerning the possible merger of PETR with another company. Nevertheless, they did not cancel the pre-existing arrangement with the member but continued to purchase shares from the member. The firm also consented to findings that it violated Article III, Sections 1 and 27 of the Rules of Fair Practice in that it failed to adopt written procedures that would have required the firm to cancel existing arrangements with another member for the purchase of a security when the firm comes into possession of material, nonpublic, information concerning that security.

In a separate action, the District Business Conduct Committee for District 6 accepted an Offer of Settlement submitted by Porcari, Fearnow and Associates, Inc., Arthur J. Porcari, and Michael T. Fearnow, pursuant to which they were fined $10,000, jointly and severally, and Arthur J. Porcari and Michael T. Feamow were suspended from association with any NASD member in any capacity for three (3) months.

Without admitting or denying the allegations, the Respondents consented to the sanctions imposed and findings that the firm, acting through Arthur J. Porcari and Michael T. Fearnow, effected at least 25 corporate securities transactions as principal with retail customers at prices that were not fair and reasonable. In addition, the firm, acting through Arthur J. Porcari, failed to accurately record the time of entry on order tickets relating to 756 transactions executed by the firm, and failed to execute certain customer orders to sell shares. Also, the firm, acting through Arthur J. Porcari and Michael T. Fearnow, effected transactions in securities while failing to maintain minimum required net capital.

The suspensions of Arthur J. Porcari and Michael T. Fearnow imposed in both actions will run concurrently.

INDIVIDUALS FINED AND SUSPENDED

Charles A. Cash (Registered Representative, Little Rock, Arkansas) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he is fined $25,000 and suspended from association with any member of the NASD in any capacity for one (1) month. Without admitting or denying the allegations, Cash consented to the described sanctions and findings that he engaged in a practice known as "adjusted trading" whereby he entered into purchase and sale transactions in government securities with two institutional customers at prices that were not reasonably related to the then current market price of the securities. These institutional customers were offered prices in excess of the current market price for their government securities in order to permit the avoidance or postponement of recognized losses in their accounts. Losses were recouped by Cash by selling other government securities to the customers at prices in excess of the current market prices. Cash also caused the falsification of the customers' books and records because the "realized" losses on sales were concealed and the offsetting securities purchased were at inflated prices. Cash also failed to reflect on his employer's books and records that the adjusted purchase price in the first leg of the adjusted trade was conditioned upon a subsequent sale at an inflated price.

In addition, Cash engaged in a course of activity to defraud the two customers by charging excessive markups in three separate transactions.

Mario Arthur Romano (Registered Representative, Staten Island, New York) submitted an Offer of Settlement pursuant to which he is fined $7,000 and suspended from association with any member of the NASD in any capacity for ten (10) business days. Without admitting or denying the allegations, Romano consented to the described sanctions and findings that he executed seven unauthorized transactions in the accounts of seven customers.

James David Azer (Registered Representative, Bellville, Ohio) and William Warren Hobbs (Registered Representative, Lexington, Ohio) submitted an Offer of Settlement pursuant to which they are each fined $5,000 and suspended from association with any member of the NASD in any capacity for fourteen (14) days. Without admitting or denying the allegations, Azer and Hobbs consented to the described sanctions and findings that they sold and/or participated in the sale of limited partnership units to investors and, in connection with such activity, failed to provide prior written notification to their employer of such sales as required by the Board of Governors' Interpretation with respect to Private Securities Transactions, then in effect.

Barbara Lynn Gotsopoulos (Registered Principal, Hollywood, Florida) submitted an Offer of Settlement pursuant to which she is fined $1,000 and suspended from association with any member of the NASD in any capacity for two (2) years. Without admitting or denying the allegations, Gotsopoulos consented to the described sanctions and findings that, without her employer-members knowledge or consent, she redeemed a $10,000 certificate of deposit that formed the members' capital base, deposited the proceeds into the member's operating account, and thereafter drew a check in the amount of $10,000 payable to her husband.

John M. Griffith (Registered Representative, Baton Rouge, Louisiana) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he is fined $5,000 and suspended from association with any member of the NASD in any capacity for one (1) business day. Without admitting or denying the allegations, Griffith consented to the described sanctions and findings that he presented 30 customer subscription agreements for a limited partnership offering to his employer-member that he knew were not signed by the customers and, in fact, contained signatures affixed by him.

Charles T. Porter (Registered Representative, Birmingham, Alabama) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he is fined $20,000 and suspended from association with any member of the NASD in any capacity for one (1) week. Without admitting or denying the allegations, Porter consented to the described sanctions and findings that, while directly or indirectly exercising control over the pension plan account of two customers, he recommended to these customers the purchase and sale of securities in 127 transactions without having reasonable grounds for believing that such recommendations were suitable in view of the frequency of the transactions and the customers' investment objectives. Porter also exercised discretion in an account pursuant to oral authority without obtaining prior written discretionary authorization from the customers and without written acceptance of the account as discretionary by his employer-member.

Timothy R. Delehant (Registered Principal, Council Bluffs, Iowa) submitted an Offer of Settlement pursuant to which he is fined $2,500 and suspended from association with any member of the NASD in any capacity for five (5) business days. Without admitting or denying the allegations, Delehant consented to the described sanctions and findings that he permitted his firm to effect transactions in nonexempt securities for 11 months while failing to maintain minimum required net capital and to fail to send telegraphic notice to the NASD of such deficiences as required. In addition, Delahant caused the firm to prepare inaccurate trial balances and net capital computations, and to maintain an inaccurate general ledger, and file inaccurate Focus Part I and IIA Reports with the Association.

Frank H. McCullough (Registered Representative, Scottsdale, Arizona) was fined $30,000 and suspended from association with any member of the NASD in any capacity for two (2) years. The sanctions were based on the findings that McCullough failed, prior to effecting options transactions in a customer's account, to properly and fully represent the risks associated with options trading to the customer. McCullough also exercised discretionary power in this customer's account without obtaining prior written authorization from the customer or written acceptance of the account as discretionary by his employer-member.

Virgil Antwanne Slay (Registered Representative, Dallas, Texas) was fined $1,000 and suspended from association with any member of the NASD in any capacity for one (1) year. The sanctions were based on findings that Slay purchased 100,000 shares for the account of a customer without the customer's knowledge or consent. Slay also failed to respond to the Association's two requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the circumstances surrounding his termination of employment by a member firm.

Lawrence W. Daly (Registered Representative, Lafayette, California) was fined $12,000 and suspended from association with any member of the NASD in any capacity for thirty (30) days. The sanctions were based on findings that Daly participated in 16 private securities transactions without providing prior written notification of such transactions to his employer-member.

James Thomas Shelvy, Jr. (Registered Representative, Louisville, Kentucky) was fined $2,500 and suspended from association with any member of the NASD in any capacity for five (5) business days. The sanctions were imposed by the NASD's Board of Governors following the appeal of a Decision rendered by the District Business Conduct Committee for District No. 4. The sanctions were based on findings that Shelvy made unauthorized purchases of securities in three customer accounts.

Andrew R. Cox (Registered Representative, Fairfax, Virginia) was fined $2,500 and suspended from association with any member of the NASD in any capacity for six (6) months. The sanctions were based on findings that Cox failed to respond to the Association's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning a delay in processing two customer orders.

Donald D. Spear (Registered Representative, Dallas, Texas) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he is fined $2,500, ordered to disgorge $14,000, and suspended from association with any member of the NASD in any capacity for five (5) days. Without admitting or denying the allegations, Spear consented to the described sanctions and findings that he engaged in private securities transactions without prior written notification of such transactions to his employer-member.

The David-Maxwell Company, Inc., Fort Lauderdale, Florida, and Howard M. Caplan (Registered Principal, North Miami Beach, Florida) submitted an Offer of Settlement pursuant to which the firm was ordered to disgorge $11,000 and Howard M. Caplan was fined $5,000 and suspended from association with any member of the NASD in any capacity for five (5) business days. Without admitting or denying the allegations, the firm and Caplan consented to the described sanctions and findings that they effected certain over-the-counter transactions in corporate securities as principal with retail customers at prices that were not fair. In a series of 129 transactions, retail sales were made to customers at prices ranging from $1.80 to $2.25 per share on contemporaneous purchases from another broker-dealer at prices ranging from $1.50 to $1.92 per share.

INDIVIDUALS FINED AND BARRED

Brian J. Simmons (Registered Representative, Baton Rouge, Louisiana) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he is fined $15,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Simmons consented to the described sanctions and findings that he obtained possession of a check made payable to a public customer in the amount of $5,953.69, forged or caused to be forged the customer's signature on such check, and attempted to open a bank account in the customer's name in order to obtain the proceeds for his own use and benefit.

Jeffrey M. Giroux (Registered Representative, Tupelo, Mississippi) was fined $15,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Giroux received $25,595 from seven public customers intended for the purchase of securities, failed to purchase these securities, and instead converted the funds to his own use and benefit. Giroux also failed to respond to the Association's two requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Gary Lee Sexton (Registered Representative, North Royalton, Ohio) was fined $10,000, ordered to disgorge $1,764.47 and barred from association with any member of the Association in any capacity. The sanctions were based on the findings that Sexton, without the knowledge or authorization of two insurance customers, obtained a loan on an insurance policy held by one customer in the amount of $946.25, surrendered the paid-up additional insurance on a policy held by the second customer, endorsed the resulting checks, and deposited the proceeds into a bank account over which he had control. Sexton also failed to respond to the Association's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the circumstances surrounding the termination of his employment by a member firm.

Jerry Francis Parker (Registered Representative, Lexington, Kentucky) was fined $10,000, ordered to disgorge $1,004.02, and barred from association with any member of the Association in any capacity. The sanctions were based on the findings that Parker received a check in the amount of $1,004.02 from a customer and failed to deposit the check into the customer's personal checking account as instructed. He instead deposited it into his own personal account and converted the proceeds to his own use. Parker also failed to respond to the Association's five requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the circumstances surrounding his termination of employment by a member firm.

Cheryl Lorrene Johnson (Registered Representative, New Castle, Pennsylvania) was fined $15,000, ordered to disgorge $14,156.37, and barred from association with any member of the Association in any capacity. The sanctions were based on the findings that Johnson received checks or cash totalling $14,156.37 from eight customers with instructions to purchase certain government, options, or income funds, failed to apply the funds as instructed, and instead converted and misappropriated the funds to her own use. Johnson also failed to respond to the Association's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the circumstances surrounding the termination of her employment by a member firm.

Pietro Gattini (Registered Principal, Poughkeepsie, New York) and James W. Kerr (Registered Principal, East Orange, New Jersey.) Pietro Gattini was fined $100,000, James W. Kerr was fined $50,000, and Gattini and Kerr were barred from association with any member of the Association in any capacity. The sanctions were based on the findings that Kerr permitted his firm to fail to make and keep current its cash receipts ledger, failed to reconcile its fails to receive and fails to deliver ledgers, and failed to prepare net capital computations and trial balances. Kerr also failed to prepare and maintain a current description of procedures used to comply with the possession and control procedures of the SEC Customer Protection Rule and failed to promptly obtain and maintain possession and control of customers' fully paid and excess margin securities. Gattini and Kerr also failed to give telegraphic notice to the SEC and NASD of various books and records deficiencies. Further, Kerr and Gattini violated a voluntary restriction agreement with the Association whereby they agreed to maintain excess net capital of $50,000, agreed to limit the firm's total long or short positions to twice its net capital and to limit inventory in any one security to $30,000, but failed to do so for certain periods. In addition, they permitted the firm to engage in a securities business while failing to maintain minimum required net capital, failed to make the required deposit in the Reserve Account, failed to comply with the credit restrictions of Regulation T, failed to transfer customer accounts in accordance with customers' instructions, and wrote 71 checks on insufficient funds.

In connection with these activities, Pietro Gattini failed to properly supervise the activities of James Kerr to prevent the occurrence of the violations.

Richard Anthony Ralston (Registered Representative, Nashville, Tennessee) was fined $7,500 and barred from association with any member of the Association in any capacity. The sanctions were based on the findings that Ralston diverted monies in an aggregate amount of $19,400 from various accounts of his employer-member and two accounts of customers to his personal bank account for his own use and benefit.

Mark Evan Scherer (Registered Representative, Westfield, New Jersey) was fined $15,000 and barred from association with any member of the Association in any capacity. The sanctions were based on the findings that Scherer failed to respond to the Association's two requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Charles Sherwood (Registered Representative, Patchogue, New York) was fined $30,000 and barred from association with any member of the Association in any capacity. The sanctions were based on the findings that Sherwood converted to his own use customer funds totalling $4,686.60 that were intended as payment of insurance premiums. Sherwood also failed to respond to the Association's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the circumstances surrounding the termination of his employment.

First Securities of America, Wilmington, Delaware, and Dennis L. Astorri (Registered Principal, East Windsor, New Jersey) were fined $15,000, jointly and severally, and Dennis L. Astorri was barred from association with any member of the Association in any capacity. The sanctions were based on the findings that, over a period of ten months, the firm and Astorri effected securities transactions while failing to maintain minimum required net capital and also failed to give prompt telegraphic notice to the Association of such deficiencies.

John W. Head (Registered Representative, Oakridge, New Jersey) was fined $50,000 and barred from association with any member of the Association in any capacity. The sanctions were based on the findings that Head effected a series of unauthorized transactions, some of which were for the purpose of "parking" stock purchased by another individual. Head also submitted an affidavit to the association that falsely stated he had never dealt with, did not act as registered representative for, and never transacted business with any of the customers or other individuals. In addition, Head failed to appear and testify as required concerning apparent conflicts between statements made in affidavits submitted by him to the NASD and his testimony under oath before the staff of the Securities and Exchange Commission.

Louis G. Vallies (Registered Representative, Elmer, New Jersey) submitted an Offer of Settlement pursuant to which he is fined $10,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Vallies consented to the described sanctions and findings that he transferred $239 from the insurance policies of a public customer and converted the funds to his own use and benefit. Vallies also removed the $3,646.68 dividend balance from this customer's account by endorsing his name on a policy dividend check and purchasing an annuity contract on the customer's life, thereby earning a commission in the amount of $92.93.

Lucille P. Williams (Registered Representative, Country Club Hills, Illinois) submitted a Letter of Acceptance, Waiver and Consent pursuant to which she is fined $100,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Williams consented to the described sanctions and findings that she sold securities to at least two public customers in the form of investments in a company of which she was a majority stockholder and failed to provide prior written notice of these sales to her employer-member. Williams also misappropriated for her own use and benefit the funds of at least three customers in that she accepted customer checks issued or endorsed to herself for investment in securities and deposited such funds in her bank account or her company bank account, for her own use and benefit.

Robert L. Echols (Registered Representative, Boise, Idaho) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he is fined $35,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Echols consented to the described sanctions and findings that he sold stock in a company to an unknown number of investors and failed to provide prior written notification of these sales to his employer-members in contravention of the Board of Governors' Interpretation with respect to Private Securities Transactions, then in effect. Echols also failed to disclose to either employer, on his Form U-4, his association with this company as vice president and, later, president.

Philip E. Eads (Registered Representative, Franklin, Indiana) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he is fined $20,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Eads consented to the described sanctions and findings that he accepted from six customers mutual fund and insurance premium checks and cash totalling approximately $10,000 issued to himself or his company and deposited the funds in his own bank account for his own use and benefit.

Everett W. Hammond (Registered Representative, Wheaton, Illinois) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he is fined $15,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Hammond consented to the described sanctions and findings that he accepted a customer's IRA rollover funds check totalling $12,911.34 and deposited these funds in his own bank account for his own use and benefit.

William T. Seney (Registered Representative, Fremont, California) was fined $50,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Seney drew three checks totalling $7,526 made payable to himself on the joint account of two customers, forged one customer's signature to the checks, and converted the proceeds to his own use and benefit. Seney also refused to respond to the Association's request for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning such conversion of funds.

Brian S. Doyle (Registered Representative, Richmond, California) was fined $15,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Doyle failed to respond to the Association's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice.

Olivia Cornelia Fields (Registered Representative, San Francisco, California) was fined $15,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Fields falsified two W-2 forms relating to her employment with another member and provided them to her employer-member. Fields also failed to respond to the Association's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice regarding such activity.

John R. Spangler (Associated Person, Concord, California) was fined $50,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Spangler misappropriated eight checks from his employer, made the checks payable to himself in amounts totalling $12,646.76, falsified signatures on the checks, and converted the proceeds to his own use and benefit.

Fred M. Soares (Registered Representative, Los Banos, California) was fined $50,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Soares forged a customer's signature on seven checks totalling $17,700 drawn against the customer's account and converted $12,700 of this amount to his own use and benefit.

Kathleen L. Ryan (Registered Representative, Paradise, California) was fined $50,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Ryan sold securities from the account of two customers without their knowledge or consent and, in connection with one of such sales, forged the customer's signature to a liquidation letter. In addition, Ryan forged the signature of one of the customers to a check receipt and delivered it to her employer. Furthermore, Ryan cashed in an insurance policy of a customer and used the proceeds to purchase shares in the customer's account without the customer's knowledge or consent. In connection with this activity, Ryan provided the insurance company with a Request for Withdrawal that contained the forged signature of the customer.

Kenneth C. Floyd (Registered Representative, Gainesville, Texas) was fined $15,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Floyd failed to respond to the Association's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice in connection with an investigation of a customer complaint.

Keith M. Anderson (Associated Person, San Francisco, California) was fined $50,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Anderson misappropriated approximately 50 checks from his employer-member, made a check payable to himself in the amount of $522, forged the signatures on the check, and converted the proceeds to his own use and benefit.

George T. Fong (Registered Representative, Matawan, New Jersey) was fined $30,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Fong received premium checks totalling $16,289.98 on four occasions from policyholders of his insurance employer or its affiliates that he converted to his own use and benefit.

Stanley M. Stuchinski (Registered Representative, Altoona, Pennsylvania) was fined $10,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Stuchinski received a check for $7,173.34 from a public customer for the transfer of her IRA, failed to promptly remit such funds for that purpose, and instead retained the funds for almost four months in his own bank account. Stuchinski also failed to respond to the Association's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning this activity.

FIRMS EXPELLED FOR FAILURE TO PAY FINES AND COSTS IN CONNECTION WITH VIOLATIONS

Robert S.C. Peterson, Inc., Excelsior, MN
Sperry Young Financial Services, Escondido, CA

INDIVIDUALS WHOSE REGISTRATIONS WERE REVOKED FOR FAILURE TO PAY FINES AND COSTS IN CONNECTION WITH VIOLATIONS

Michael S. Carney, Carlsbad, CA
William E. Daniel, San Diego, CA
Roger R. Ricard, Oxnard, CA
Anthony J. Saladino, Santa Ana, CA
Wayne M. Schultz, Mission Viejo, CA
Mark W. Sharpe, Morrison, CO
Steven R. Sneed, Denver, CO
Jack R. Stewart, La Jolla, CA
Donald J. Stoecklein, Escondido, CA

NASD DISCIPLINES PRUDENTIAL-BACHE SECURITIES INC. AND TWO FORMER EMPLOYEES FOR OFF-MARKET "SWAP" TRANSACTIONS IN GOVERNMENT SECURITIES

The NASD has taken disciplinary actions against Prudential-Bache Securities Inc. and two former employees, Richard Grado and Nicholas A. Petrarca, for violating the NASD's Rules of Fair Practice.

On May 15, 1989, the District Business Conduct Committee for NASD District 5 accepted a Letter of Acceptance, Waiver and Consent submitted by Prudential-Bache Securities Inc. Pursuant to the consent proceeding, the firm was censured and fined $200,000. Without admitting or denying the allegations, Prudential-Bache Securities Inc. consented to the sanctions imposed and findings made that the firm entered into a series of "swap" transactions with a nonrelated broker-dealer between August 25, 1987, and February 29, 1988, whereby three government zero-coupon agency securities were purchased and sold at prices not reasonably related to the then current market price of these securities. Prudential-Bache would purchase a government zero-coupon agency security from the broker-dealer at a price that was higher than the prevailing market price, and recover its loss by selling another government zero-coupon agency security to the same broker-dealer at a price also higher than the prevailing market price. This practice, known as "adjusted trading," has been the subject of previous disciplinary actions taken against members by the NASD.

In two related disciplinary actions, the District Business Conduct Committee accepted Letters of Acceptance, Waiver and Consent submitted by former Prudential-Bache Securities Inc. employees Richard Grado and Nicholas A. Petrarca. Pursuant to these consent proceedings, Grado, a government zero-coupon agency securities trader, was suspended for thirty (30) calendar days in all capacities and fined $5,000. Nicholas A. Petrarca, a government securities institutional salesman, was suspended for thirty (30) calendar days in all capacities and fined $15,000. Grado and Petrarca were also required to qualify or requalify as General Securities Representatives, and to be subjected to special supervisory measures.

Without admitting or denying the allegations, Grado and Petrarca consented to the sanctions imposed and findings made that they participated in a series of off-market "swap" transactions by executing sixty-nine (69) transactions in government zero-coupon agency securities at prices that were artificially established and not reasonably related to the then current market prices. This fraudulent practice caused the falsification of Prudential-Bache's books and records, in that Grado and Petrarca failed to reflect that the firm's purchase prices were artificially established and were conditioned upon subsequent sales by the firm at further inflated prices. Grado and Petrarca also caused false and misleading confirmations to be mailed to the other broker-dealer.

The suspensions for Grado and Petrarca commenced with the opening of business May 24, 1989.

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,

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

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,

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.

Disciplinary Actions (May)

Disciplinary Actions

National Association of Securities Dealers, Inc.

May 1989

Disciplinary Actions Reported for May

The National Association of Securities Dealers, Inc. (NASD), is taking disciplinary actions against the following firms and individuals for violations of the NASD Rules of Fair Practice and/or the rules of the Municipal Securities Rulemaking Board. Unless otherwise indicated, suspensions began with the opening of business on Monday, May 1, 1989.

FIRMS SUSPENDED

The following firms were suspended from membership in the NASD for failure to comply with formal written requests to submit financial information to the NASD. The action was based on the provisions of Article IV, Section 5 of the NASD Rules of Fair Practice and Article VII, Section 2 of the NASD By-Laws. The date the suspension commenced is listed after each entry. If the firm has complied with the request for information, the listing also includes the date that the suspension concluded.

Advantage Discount Brokerage, Inc., Research Triangle, NC (March 14, 1989)
Agency Financial Services, Inc., Spring Valley, NY (March 14, 1989)
M.D. Billy & Co., Inc., Fort Myers, FL (March 14, 1989)
Chickasaw Equities, Inc., Memphis, TN (March 14, 1989)
Conserve Capital Corp., North Little Rock, AR (March 14, 1989)
Convest Securities Corp., Newport Beach, CA (March 14, 1989)
Diversified Income Investments, Inc., Stuart, FL (March 14, 1989-March 28, 1989)
Eppler & Company, Inc., Teaneck, NJ (March 14, 1989)
Equities International Securities, Inc., New York, NY (March 14, 1989)
First Asian Securities Corp., New York, NY (March 14, 1989)
First Nationwide Securities, San Diego, CA (March 14, 1989)
J.G. Securities Corp., Newburgh, NY (March 14, 1989)
Hinkle-Keeran Group, Albuquerque, NM (March 14, 1989)
Independent Investment Brokers of America, San Diego, CA (March 14, 1989)
Junkin & Associates, Inc., Lake Forest, IL (March 14, 1989)
Mill City Capita] Corp., Wayzata, MN (March 14, 1989)
Morgan Chase & Co., Inc., Sarasota, FL (March 14, 1989)
Mutual Funds Investment, Reno, NV (March 14, 1989)
Option Finance Corp., Chicago, IL (March 14, 1989)
PPTY Equity Corp., Los Angeles, CA (March 14, 1989)
Snider-Lund Securities, Inc., Arlington, TX (March 14, 1989)
SSG, Ltd., Atlanta, GA (March 14, 1989)
Terre South Investments, Inc., Houma, LA (March 14, 1989)
Vita Capital, Inc., Englewood, CO (March 14, 1989)
Wild Dunes Securities, Inc., Isle of Palms, SC (March 14, 1989)
Wingard Securities, Inc., Winter Garden, FL (March 14, 1989)

FIRMS FINED AND SUSPENDED

General Securities Corp. (North Kansas City, MO) was fined $7,500, jointly and severally with an individual respondent, and was suspended from acting as a managing underwriter in any underwriting for 120 days. The sanctions were imposed by the NASD's Board of Governors following the appeal of a decision rendered by the District Business Conduct Committee for District 4. The sanctions were based on findings that the firm sold 241,000 shares of certain common stock to 24 public investors while these securities were not registered with the Securities and Exchange Commission. In connection with the sale of such stock, the firm received $236,000 from investors, deposited these funds into the firm's operating account, and held the funds for up to 56 days. As a result of this action, the exemption from the SEC Rule 15c3-3 was not available to the firm, and the firm failed to comply fully with the applicable provisions of the Rule. In addition, the firm accepted the $236,000 in sales proceeds without promptly transmitting them. The firm also failed to record on its general ledger and trial balances cash held in the firm's bank account, failed to record a liability, failed on one occasion to compute accurately its aggregate indebtedness, and failed to disclose to investors that the firm was to receive a concession equal to 7 1/2 percent of the funds raised. The suspension from acting as a managing underwriter in any underwriting will commence May 15, 1989.

L&B Investment Corporation (New Orleans, Louisiana) submitted an Offer of Settlement pursuant to which the firm is fined $20,000 and suspended from membership in the Association for two weeks. Without admitting or denying the allegations, the firm consented to the described sanctions and findings that, in connection with five direct participation program offerings, it failed to make, keep current, and preserve an accurate record of the receipt of investor funds. In connection with one offering, the Offering Memorandum represented that an investor must purchase a minimum of 28 units, unless fewer than 28 units remained available, but the firm permitted one customer to execute a subscription agreement for 14 units and another to execute an agreement for 16 units, although on both occasions more than 28 units were still unsold.

The firm also permitted a registered representative of another member firm to purchase units in four of the offerings and failed to notify this individual's employer in writing prior to the execution of the transactions that the firm intended to open and maintain the account. In addition, the firm purchased or caused the purchase of units in two of the offerings as nominees in an effort to close the offerings before the termination dates, and these units were promptly resold to public customers. The offerings were, therefore, closed on the basis of non-bona fide sales. The firm also failed to establish escrow accounts as required for two offerings in a timely manner. In connection with one offering involving the acquisition and operation of a shopping center, the firm failed to disclose in the Offering Memorandum that the partnership property would be used to collateralize loans to those investors electing to finance their purchases through a certain savings and loan association.

The firm also conducted a securities business at times when it failed to maintain minimum required net capital, failed to maintain fingerprint records for certain employees, and failed to give written notice to the Association of the termination of an individual within 30 days after his termination from the firm.

S.D. Securities, Inc. (New York, NY) submitted a Letter of Acceptance, Waiver and Consent pursuant to which the firm is fined $15,000 and ordered to disgorge $25,000. Without admitting or denying the allegations, the firm consented to the described sanctions and findings that it purchased from another member firm 5,000 shares of an issue at $23 a share. The issue thereafter rose to an immediate after-market price of $28 per share. The purchase was therefore in contravention of the Board of Governors' Interpretation with respect to Free-Riding and Withholding.

FIRMS AND INDIVIDUALS FINED AND SUSPENDED

B.F. Anderson Investment Securities, Inc. (Baton Rouge, LA), Budd F. Anderson, Jr. (Registered Principal, Baton Rouge, LA), Roger M. Cotton (Registered Principal, Baton Rouge, LA), Michael N. Wirstrom (Registered Principal, Baton Rouge, LA), and Mary S. Henderson (Registered Representative, Baton Rouge, LA) submitted an Offer of Settlement pursuant to which B.F. Anderson Investment Securities, Inc., Anderson, Cotton, Wirstrom, and Henderson are fined $7,000; jointly and severally; the firm is suspended from executing any options transactions for 30 days, provided that it may effect unsolicited liquidating orders for customers during such suspension; and is barred from accepting any discretionary option agreements. Budd F. Anderson is suspended from association with any NASD member as a General Securities Principal for 30 days, Roger M. Cotton is suspended from association with any NASD member as a General Securities Principal for two weeks, Michael N. Wirstrom is suspended from association with any NASD member as a Registered Options Principal for 30 days, and Mary S. Henderson is suspended from association with any NASD member in any capacity for 30 days. Without admitting or denying the allegations, the firm, Anderson, Cotton, Wirstrom, and Henderson consented to the described sanctions and findings that the firm and Budd F. Anderson, Jr., failed to register Anderson as an Options Principal, as prescribed by Schedule C of the Association's By-Laws, although he acted in such capacity by reviewing and approving in writing certain options transactions in a public customer's account. In connection with these transactions, the firm, Anderson, and Wirstrom failed to establish, maintain, and enforce written supervisory procedures that would enable it to exercise reasonable and proper supervision over the registered representative executing such transactions in the customer's account. Also, in connection with the transactions executed by this representative, the firm and Anderson failed to ascertain by investigation the good character, business repute, qualifications, and experience of this individual prior to making such a certification on his application for registration with the Association. A Uniform Termination Notice was also submitted on behalf of this individual that falsely indicated he was terminated for "voluntary" reasons and was "discharged for procedural differences" and that also failed to disclose a customer complaint filed against him.

In addition, Mary S. Henderson exercised discretionary power in a customer account without first obtaining written acceptance of the account as discretionary by a Registered Options Principal and failed to identify each discretionary order as discretionary on the order ticket at the time of entry. Henderson also recommended and engaged in common stock and option purchase and sale transactions and did not have reasonable grounds for believing that these recommendations and the resulting transactions were suitable for the customer. In connection with these transactions, the firm and Wirstrom failed to accept the customer's discretionary account in writing and failed to have a reasonable basis for believing that the customer was able to understand and bear the risks of the strategies or transactions proposed, and to maintain a record of the basis for such determination. Further, Wirstrom failed to approve and initial each discretionary order on the day it was entered, or confirm approval by another Registered Principal within a reasonable time. The firm, Anderson, Cotton, and Wirstrom also failed to establish, maintain, and enforce written procedures that would enable it to exercise reasonable and proper supervision over Henderson's activities.

The firm, Cotton, and Wirstrom further permitted options transactions to be executed in a number of options accounts without the review and endorsement, in writing, of a Registered Options Principal. Some of these transactions were discretionary, and they failed to have a Registered Options Principal approve and initial each discretionary order on the day entered or within a reasonable time after approval by a Registered Principal. The firm, Anderson, and Wirstrom also allowed discretionary power to be exercised in the accounts of two public customers although neither of these accounts were accepted as discretionary. Finally, the firm, Anderson, Cotton, and Wirstrom allowed options transactions to be executed in the account of a customer and failed to initially furnish the customer with an options disclosure document and to exercise due diligence to ascertain that the customer indeed desired to engage in options transactions.

Bay City Securities, Inc. (a/k/a Citadel Capital Group, Incorporated, Mobile, AL) and James D. Guy (Registered Principal, Mobile, AL) submitted an Offer of Settlement pursuant to which the firm is fined $30,000 and suspended from membership in the Association for one year, and James D. Guy is fined $10,000, suspended from association with any member of the NASD as a principal for one year, and required to requalify as a principal before again acting in that capacity. Without admitting or denying the allegations, the firm consented to the described sanctions and findings that the firm underwrote the initial public offering of 800,000 shares of common stock in an all-or-none contingency offering, closed the offering on the basis of two non-bona fide sales, and failed to refund subscribers' monies. The firm and Guy also sent or caused to be sent confirmations of securities transactions that inaccurately reflected the prices of the securities purchased or sold by the customers and that did not disclose the firm was a market maker in the subject securities. In addition, the respondents failed to establish, maintain, and enforce written supervisory procedures providing for the designation of a duly qualified municipal securities principal as responsible for supervising the activities of the firm's associated persons with respect to its municipal securities business, and providing for the prompt review and written approval of each transaction by the designated municipal securities principal.

Further, the firm and Guy engaged in securities transactions with public customers on a principal basis at prices not reasonably related to the current market price of the securities. The firm and Guy also inaccurately computed the firm's net capital and aggregate indebtedness and filed inaccurate FOCUS Part I Reports with the Association.

Juno Securities, Inc. (La Jolla, CA) and Howard C. Peterson (Registered Principal, La Jolla, CA) were fined $11,000, jointly and severally. The sanctions were imposed by the NASD's Board of Governors following its review of a decision rendered by the District Business Conduct Committee for District 2S. The sanctions were based on findings that the firm and Peterson failed to keep current and accurate books and records in that they failed to reflect sales of 234 units of a limited partnership. Also in connection with these sales, funds received from investors were not promptly transmitted to a separate escrow account. In addition, contrary to representations made in the original prospectus, investor funds were withdrawn prior to the contingency being satisfied.

L'Argent Equities, Ltd. (Minneapolis, MN) and George William Fredericks (Registered Principal, Minneapolis, MN) submitted an Offer of Settlement pursuant to which L'Argent Equities, Ltd., was fined $15,000 and George William Fredericks was fined $10,000. Without admitting or denying the allegations, the firm and Fredericks consented to the described sanctions and findings that the firm, in connection with public offerings of three securities that traded at an immediate premium in the aftermarket, failed to make bona fide distributions of such units. The units were sold to senior bank officers not in accordance with their normal investment practices with L'Argent Equities, to two registered representatives of other member firms, and to another member firm, in contravention of the Board of Governors' Interpretation with respect to Free-Riding and Withholding. In addition, the firm and Fredericks, in connection with the sale of units to a registered representative of another member, failed to make a bona fide public offering in that the aggregate of said shares was substantial and disproportionate in amount compared with sales to members of the public. The firm and Frederick also failed to provide written notice to the employer members of registered representatives who purchased these hot issues before the execution of the transactions, or of the intentions to open or maintain these accounts.

Structured Shelters Securities, Inc. (Dayton, OH) and Thomas Allen Graham (Registered Representative, Strongsville, OH). Structured Shelters Securities, Inc., was fined $5,000 and suspended from participation in any best-efforts contingency offering for one year and is thereafter required to notify the Association in writing of its intention to participate prior to participating in its first best-efforts contingent offering following the suspension, and Thomas Allen Graham is fined $20,000 and suspended from association with any NASD member in any capacity for 30 days. The sanctions were imposed by the NASD's Board of Governors following the appeal of a decision rendered by the District Business Conduct Committee for District 9. The sanctions were based on findings that the firm offered and sold units to public investors on a best-efforts, part-or-none basis which contemplated that payment was not to be made until a minimum subscription total of $370,000 was obtained in bona fide, fully paid transactions. The offering also failed to satisfy certain requirements of SEC Rule 15c2-4 in that the firm failed to establish an escrow account, promptly transmit all investor funds received to a bank, segregate investor funds from all other monies received as loans to the limited partnership prior to the satisfaction of the contingency, and maintain investor funds, without depletion, until the contingency was satisfied. The firm and Graham had improperly withdrawn investor funds from the checking account established and used for the offering prior to the satisfaction of the contingency. An offering memorandum was also utilized that contained untrue statements of material fact. In addition, Graham offered and sold units in a corporate offering and units in a limited partnership offering without giving prior written notification of these solicitations or sales to Structured Shelters Securities, Inc., and without disclosure of his position as president of such corporation and his position as general partner of the limited partnership.

Swink & Company, Inc. (Little Rock, AR), Jim D. Swink (Registered Principal, Little Rock, AR), Richard H. Hardwick (Registered Principal, N. Little Rock, AR), Gary F. Granger (Registered Principal, Little Rock, AR), and Emile R. Ouellette (Registered Representative, Orlando, FL) submitted an Offer of Settlement pursuant to which they are fined $15,000, jointly and severally, and Emile R. Ouellette is suspended from association with any NASD member for one business day. Without admitting or denying the allegations, the Respondents consented to the described sanctions and findings that Ouellette failed and neglected to comply with the terms and conditions established by the Board of Governors when they granted his application for continued association in a branch office of a member of the Association. This application was necessary because Ouellette was statutorily disqualified. After Swink & Company, Inc., acquired this other member's branch office, Ouellette failed to inform the Association that he would no longer be subject to on-site supervision, and he also failed to notify and obtain the approval of the Association before becoming the branch manager of this office.

In connection with these activities, the firm, Hardwick, and Granger had submitted a Membership Continuance Application to the NASD seeking approval of continuance in membership in the Association with Ouellette as an associated person. The application inaccurately represented that on-site supervision would be provided and that Ouellette would not have any supervisory duties. The firm, Hardwick, and Granger also failed to amend the firm's application to reflect these facts. In addition, the firm, Swink, and Hardwick failed to establish and enforce supervisory procedures that would enable the firm to exercise reasonable and proper supervision of Emile R. Ouellette.

INDIVIDUALS BARRED

Walter G. Asmus (Registered Representative, Denver, CO) was fined $25,000 and barred from association with any member of the Association in any capacity. The sanctions were based on the findings that Asmus effected 11 securities transactions involving certain units in a group investors' program and shares of a stock without prior written notification to his employer describing the proposed transactions. In connection with the sale of units and shares for two of the customers, Asmus withheld $3,500 from each customer based on his rescission of the sale of such shares, and he failed to return the stock certificates representing such shares following the rescission. Further, such shares were sold to these customers without adequate information being provided regarding the risks associated with these purchases. In addition, Asmus established a securities account at his employer-member for the benefit of certain investors without disclosing to his firm that such account was a nominee account and without disclosing the names of the beneficial owners of the account. Asmus also received $49,225 from purchasers of units and forwarded only $48,312.50 of such funds to the securities account established for the benefit of these investors' participation in the program. Asmus subsequently withdrew $4,000 from this account and deposited these funds to a bank account under his control. In addition, Asmus failed to respond to the Association's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice regarding these activities.

Richard Norris Baggott (Registered Principal, Carmel, CA), William Francis Wiggins (Registered Representative, Monterey, CA), Michael Edward Rogers (Registered Representative, Marina, CA), Tim Hamilton Bailey (Registered Representative, Pacific Grove, CA), and Gary Allan Isakson (Registered Representative, Monterey, CA). Richard Norris Baggott was fined $50,000, ordered to disgorge $15,673, and barred from association with any NASD member in any capacity; William Francis Wiggins was fined $10,000, ordered to disgorge $8,407, and suspended from association with any NASD member in any capacity for two years; Michael Edward Rogers was fined $10,000, ordered to disgorge $8,197, and suspended from association with any NASD member in any capacity for two years; Tim Hamilton Bailey was fined $10,000, ordered to disgorge $8,149, and suspended from association with any NASD member in any capacity for two years; and Gary Allan Isakson was fined $15,000, and ordered to disgorge $10,182. The sanctions were imposed by the NASD's Board of Governors following the appeal of a decision rendered by the District Business Conduct Committee for District 2N. The sanctions were based on findings that Baggott, Wiggins, Rogers, Bailey, and Isakson participated in the sale to investors of promissory notes, which were determined to be securities, without prior written notification to their employer in contravention of the Board of Governors' Interpretation with respect to Private Securities Transactions and Section 40 of the Rules of Fair Practice. In addition, Isakson failed to respond to the Association's three requests for information concerning his sale of such promissory notes.

Curtis Behr (Registered Representative, Marshalltown, IA) submitted an Offer of Settlement pursuant to which he was fined $15,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Behr consented to the described sanctions and findings that he withdrew approximately $79,598 from the accounts of four customers and employed approximately $34,795 of this amount for his personal use and benefit.

Wesley M. Bybel (Registered Representative, Dix Hills, NY) was fined $15,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Bybel failed to respond to the Association's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the circumstances surrounding his termination of employment by a member firm.

Jack Camhe (Registered Representative, Fort Lee, New Jersey) was fined $100,000 and barred from association with any NASD member in any capacity. The sanctions were based on the findings that Camhe, on five separate occasions, caused checks totalling $64,939.22 to be drawn on a customer's account, obtained the customer's signature on these checks, and, without the customer's knowledge or consent, double-endorsed and negotiated these checks. Camhe also caused to be liquidated and credited to this customer's account mutual fund shares totalling $47,797.88 from the accounts of other customers.

Adam Chen-Ok (Registered Representative, Cupertino, California) was fined $15,000 and barred from association with any member of the association in any capacity. The sanctions were imposed by the NASD's Board of Governors following the appeal of a decision rendered by the DBCC for District 2N. The sanctions were based on findings that Chen-Ok deposited a check from his employer-member made payable to a customer in the amount of $5,240.63 to his own bank account, misappropriating the funds and converting them to his own use.

Michael J. Craven (Registered Representative, Littleton, CO) submitted an Offer of Settlement pursuant to which he was fined $5,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Carven consented to the described sanctions and findings that he effected two unauthorized transactions in a customer's account. Craven then caused checks totalling $10,000 to be disbursed from this account, obtained possession of them, caused them to be cashed, and retained the funds for his own use.

John S. Egan (Registered Representative, Bronx, NY) was fined $75,000 and barred from association with any NASD member in any capacity. The sanctions were based on findings that Egan embezzled $93,362.91 from his employer-member by writing and cashing 10 checks payable to himself on the firm's account. Egan also failed to respond to the Association's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning this activity.

Kevin A. Fabiano (Registered Representative, St James, NY) was fined $10,000 and barred from association with any NASD member in any capacity. The sanctions were based on the findings that Fabiano placed an order to purchase 10,000 shares for his personal account at a total cost of $5,512.50 and failed to pay for such shares by settlement date. Thereafter, Fabiano deposited checks in the amount of $5,512.50 on two occasions with his employer's clearing corporation. Each time, they were returned unpaid due to uncollected funds. Fabiano also failed to respond to the Association's two requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning these activities.

Thomas R. Fulton (Registered Representative, Jacksonville, FL) was fined $15,000 and barred from association with any NASD member in any capacity. The sanctions were based on findings that Fulton converted to his own use customer funds totalling $27,101. Fulton also failed to respond to an Association request for information concerning a customer complaint lodged against him.

Richard L. George (Registered Representative, Bronx, NY) was fined $50,000 and barred from association with any NASD member in any capacity. The sanctions were based on the findings that George accepted endorsed firm checks, personal checks, and money orders in amounts totalling $11,576.48 and cash in the amount of $2,306.28 from insurance policyholders as payment for premiums, and converted these funds to his own use. In addition, George caused checks totalling $13,600, representing loans on insurance policies, to be issued to customers without their authorization. He negotiated the checks, converting the proceeds to his own use. George also failed to respond to the Association's two requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice that George schedule an interview to discuss these activities.

Michael W. Harris (Registered Representative, Everett, WA) was fined $20,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Harris solicited a customer to purchase 10,000 shares of common stock for which the customer provided a check in the amount of $5,000 made payable to Harris. He failed to provide prior written notification of this transaction to his employer-member, and further, retained the funds for his own use and benefit. Harris also failed to respond to the Association's two requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning these activities.

Paul K. Hickey (Registered Principal, New York, NY) was barred from association with any member of the Association in any capacity. The sanctions were based on findings that, after consenting to pay an arbitration award within 90 days after the issuance of a decision accepting his submission of an Offer of Settlement, Hickey failed to comply with the NASD decision and has to date failed to honor the award.

Mirko Jahn (Registered Representative, Hamburg, West Germany) was fined $15,000 and barred from association with any member of the Association in any capacity. The sanctions were based on the findings that Jahn failed to respond to the Association's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning six customer complaints lodged against him.

Terry E. Lyon (Registered Representative, Tumwater, WA) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he was fined $10,000 and barred from association with any member of the NASD in any capacity. Without admitting or denying the allegations, Lyon consented to the described sanctions and findings that he misappropriated and converted to his own use the $1,196 total proceeds of the surrender value of four insurance policies.

John M. Malkusz (Registered Representative, Astoria, NY) was fined $40,000 and barred from association with any NASD member in any capacity. The sanctions were based on findings that Malkusz received a check from a customer made payable to him in the amount of $5,600 and represented to the customer that the proceeds of the check were to be used as repayment for money Malkusz had used to purchase shares for the customer in an initial public offering underwritten by his employer-member. Malkusz negotiated this check and converted the proceeds to his own use, and no shares in such offering were ever purchased for the customer. Malkusz also materially overstated the value of the account to the customer. Further, when the customer informed Malkusz that he needed $14,000 for a real estate closing, and therefore told him to partially liquidate his account, Malkusz informed the customer that it would take too long to process the sales and offered instead to lend the customer $18,000. Malkusz then wrote a personal check to the customer for this amount that was returned for insufficient funds. Malkusz also failed to respond to the Association's three requests made pursuant to Article IV, Section 5 of the Rules of Fair Practice that he review, sign, and return a staff memorandum summarizing the discussion at a staff interview and to respond to a customer complaint.

Juan R. Melecio (Registered Representative, Bronx, NY) was fined $50,000 and barred from association with any member of the Association in any capacity. The sanctions were based on the findings that Melecio took possession of customer checks and cash totalling $9,992.29 and converted the funds to his own use and benefit. Melecio also failed to respond to the Association's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the circumstances surrounding his termination of employment by a member firm.

James D. Parks (Registered Representative, Smyrna, GA) was fined $5,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Parks failed to respond to the Association's two requests for a written statement regarding certain customer complaints lodged against him.

Peter M. Parrott (Registered Representative, Los Angeles, CA) was fined $338,740 and barred from association with any member of the Association in any capacity. The sanctions were based on the findings that Parrott effected liquidations in the amount of $219,740 from a joint customer account without the knowledge or consent of the customers. Parrott converted the funds to his own use and benefit. In addition, Parrott transferred $89,000 from a customer account, converted $21,852.20 of that amount to his own use, and conducted unauthorized options trading with the remaining funds, sustaining losses in the approximate amount of $67,147.80. Parrott also failed to respond to the Association's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the circumstances surrounding his conversion of customer funds.

Patrick J. Powers (Registered Representative, Santa Rosa, CA) was fined $15,000 and barred from association with any member of the Association in any capacity. The sanctions were based on the findings that Powers received a check from a customer in the amount of $38,663.63 for the purchase of $25,000 of interests in a limited partnership and $13,663.63 of shares in a growth mutual fund, and deposited the $13,663.63 intended for the mutual fund purchase in his personal checking account, utilizing this amount for his own use and benefit.

Donald B. Riches (Registered Representative, Oak Park, MI) was fined $50,000 and barred from association with any member of the Association in any capacity. The sanctions were based on the findings that Riches received approximately $10,270 from four public customers, with instructions to use the funds to purchase securities, and retained the funds for his own use and benefit. Riches also failed to respond to the Association's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning his handling of these funds.

Stathis S. Sarris (Registered Representative, White Plains, NY) was fined $40,000 and barred from association with any NASD member in any capacity. The sanctions were based on findings that Sarris took possession of and altered checks totalling $43,000 drawn on a joint customer account and converted the proceeds to his own use and benefit. In addition, Sarris forged a letter authorizing the transfer of $2,600 from the account of a customer to the account of his sister. Sarris also failed to respond to the Association's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the conversion of customer funds.

Robert Alan Schein (Registered Representative, Freeport, NY) was fined $30,000 and barred from association with any NASD member in any capacity. The sanctions were based on the findings that Schein, without the knowledge or consent of a policyholder, effected the surrender of the policyholder's life insurance policy and converted the proceeds in the amount of $22,939.35 to his own use and benefit. Schein also failed to respond to the Association's requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the circumstances surrounding the termination of his employment by a member firm.

William J. Smallzman (Registered Representative, Miami Lakes, FL) was fined $10,000 and barred from association with any NASD member in any capacity. The sanctions were based on the findings that Smallzman issued two checks to his employer-member in payment for securities purchased in his personal account that he knew or should have known were unfunded. His employer sustained a loss of $2,157.50 after selling out the account. Smallzman also failed to respond to an Association request for an oral statement regarding the issuance of these unfunded checks.

Michale A. Stapleton, (Registered Representative, Oklahoma City, OK) was fined $100,000 and barred from association with any NASD member in any capacity. The sanctions were based on the findings that Stapleton withdrew and endorsed checks from customers' securities accounts totalling $14,000 and deposited the funds into her own personal bank account. In addition, Stapleton transferred funds in the amount of $42,768 and $170,000 in bonds from certain customer accounts into the accounts of other customers without the knowledge or consent of the customers involved. Stapleton also purchased and sold put options in a customer's account without the customer's knowledge or consent, resulting in a loss to the customer of $37,872. Additionally, Stapleton failed to respond to the Association's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the circumstances surrounding her termination of employment by a member firm.

Derrick D. Stephens (Registered Representative, Inglewood, CA) was fined $30,000 and barred from association with any member of the Association in any capacity. The sanctions were based on findings that Stephens opened accounts in the names of three businesses allegedly located in California, executed or caused to be executed numerous transactions in these accounts, and failed to disclose to his employer-member that these three customers would be unwilling and unable to pay for any losses incurred in these accounts. Stephens also failed to disclose that one of these businesses was an Arizona corporation that had forfeited its right to transact business in California and that the other two businesses were fictitious and were not registered with the state of California.

In addition, Stephens opened an account allegedly in the name of a California bank, executed certain transactions in the account, and failed to disclose to his employer-member that this bank had not obtained a license from the Superintendent of Banks of California. Further, he failed to disclose that the address and telephone number of the alleged bank was actually the residence and telephone number of an individual and that the alleged bank was a fictitious business entity that was unable and unwilling to pay for any losses in the account.

Stephens additionally failed to make certain required disclosures on Uniform Applications for Securities Industry Registrations Forms (Form U-4) submitted to two member firms and failed to respond to the Association's seven requests for information concerning his termination of employment by a member firm.

Steven I. Wertman (Registered Representative, Staten Island, NY) was fined $10,000 and barred from association with any member of the Association in any capacity. The sanctions were based on the findings that Wertman failed to respond to the Association's three requests for information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning a customer complaint and his termination from a member firm.

INDIVIDUALS SUSPENDED

Mark A. Clark (Registered Representative, Little Rock, AR) was fined $5,000 and suspended from association with any member of the NASD in any capacity for six months. The sanctions were based on findings that Clark participated in the offer and sale of limited partnership units on a best-efforts, all-or-none contingency offering and withdrew funds from the partnership banking account prior to the satisfaction of the contingency. Further, in connection with certain contingency offerings, false statements of material fact or omissions of material fact were made. Clark also participated in the sale of certain units to the general partner and an affiliate of his employer-member in order to satisfy the contingency. In addition, Clark offered and sold limited partnership units and failed to make, keep current, and preserve a record of the receipt of investor checks, and the time of entry and time of execution was not recorded on certain order tickets. Clark also inaccurately recorded as paid-in capital two assignments of securities, submitted a FOCUS Part I Report that treated a temporary transfer of securities as a permanent capital contribution, permitted his firm to conduct a securities business while failing to maintain minimum required net capital, and failed to give telegraphic notice to the Association and the Securities and Exchange Commission of the net capital deficiency.

Charles W. Eye (Registered Representative, Huntsville, AL) was fined $18,500 and suspended from association with any member of the NASD in any capacity for 30 days. The sanctions were imposed by the NASD's Board of Governors following the appeal of a Decision rendered by the District Business Conduct Committee for District 5. The sanctions were based on findings that Eye recommended that a public customer purchase and sell certain securities in 20 transactions, including the use of margin in certain of the transactions, when he knew or should have known that the recommendations were not suitable in light of the customer's previous trading experience, investment objectives, and financial resources. In addition, Eye executed, or caused to be executed, six securities purchase and sale transactions in the account without the customer's prior authorization, knowledge, or consent.

Salvador Garcia (Registered Representative, Corpus Christi, TX) was fined $15,000 and suspended from association with any member of the NASD in any capacity for 30 days. The sanctions were based on findings that Garcia caused the unauthorized purchase of 300 shares in a customer's account and the unauthorized purchase of 52,450 shares in the joint account of two other customers.

Harry R. Gowdey (Registered Principal, Dallas, TX) was fined $2,000, ordered to disgorge $17,975, and suspended from association with any member of the NASD in a principal capacity for three years. The sanctions were imposed by the NASD's Board of Governors following its review of a decision rendered by the DBCC for District 6. The sanctions were based on findings that Gowdey engaged in private securities transactions without prior written notification to his employer. In addition, Gowdey engaged in the offer and sale of the stock while no registration statement was on file with the Securities and Exchange Commission and while no exemption from registration existed. Gowdey also failed to disclose to prospective investors that he would receive a commission or fee in connection with the private securities transactions.

Larry Raymond Michel (Registered Representative, Houston, TX) was fined $1,000 and suspended from association with any member of the NASD in any capacity for 30 days. The sanctions were imposed by the NASD's Board of Governors following its review of a decision rendered by the DBCC for District 6. The sanctions were based on findings that Michel purchased a $20,000 variable annuity for a customer and signed the customer's name to the annuity application without the customer's knowledge or consent. Michel also failed to timely or fully respond to the Association's three requests for information and two requests for additional information made pursuant to Article IV, Section 5 of the Rules of Fair Practice concerning the circumstances surrounding his termination of employment by a member firm.

Robert Hartnagle (Registered Principal, Roswell, GA) was fined $3,200, suspended from association with any member of the NASD in any capacity for five business days, and required to requalify by examination as a financial and operations principal before again acting in such capacity. The sanctions were based on findings that Hartnagle permitted his firm to effect transactions in nonexempt securities while failing to maintain required net capital. In addition, Hartnagle failed to post audit adjustments to the firm's books and records, which caused them to be inaccurate, filed inaccurate FOCUS Parts I and II Reports for certain months, and filed the annual audit report 45 days late.

Kenneth Richard Kossakowski (Registered Representative, West Seneca, NY) was fined $10,000 and suspended from association with any member of the NASD in any capacity for 30 days. The sanctions were based on findings that Kossakowski offered and sold limited partnership interests and failed to give prior written notification of these transactions to his employer-member in contravention of the Board of Governors' Interpretation with respect to Private Securities Transactions, then in effect.

Gregory P. Maggipinto (Registered Representative, Foster City, CA) was fined $2,500 and suspended from association with any member of the NASD in any capacity for 30 days. The sanctions were based on findings that Maggipinto forged the signatures of two customers, as well as the signature of his manager, to a margin agreement and forwarded it to his employer's clearing broker.

William Daniel McBrearty (Registered Representative, Phoenix, AZ), John Stephen Tighe (Registered Representative, El Toro, CA), and Sherman Maxwell Shabsin (Registered Representative, Diamond Bar, CA). William Daniel McBrearty was fined $10,000, ordered to disgorge $2,194, and suspended from association with any NASD member in any capacity for 45 days; John Stephen Tighe was fined $15,000, ordered to disgorge $12,527, suspended from association with any NASD member in any capacity for one year, and required to requalify by examination in any capacity in which he intends to become associated; and Sherman Maxwell Shabsin was fined $10,000, ordered to disgorge $8,194, and suspended from association with any NASD member in any capacity for 30 days. The sanctions were imposed by the NASD's Board of Governors following the appeal of a decision rendered by the District Business Conduct Committee for District 2S. The sanctions were based on findings that McBrearty, Tighe, and Shabsin engaged in private securities transactions, sales of which were conducted under the auspices of a partnership that was not registered as a broker-dealer, without prior written notification to their employer in contravention of the Board of Governors' Interpretation with respect to Private Securities Transactions, then in effect.

Robert E. Sefcik (Registered Representative, Millburn, NJ) was fined $5,000 and suspended from association with any member of the NASD in any capacity for 20 business days. The sanctions were based on findings that Sefcik completed an option agreement to which he forged the signatures of two customers without their knowledge or authorization and thereafter executed four index option transactions in the account, also without their knowledge or authorization.

Vincent A. Wood, III (Registered Principal, Richmond, VA) submitted a Letter of Acceptance, Waiver and Consent pursuant to which he is fined $2,000, jointly and severally with his employer-member, and suspended from association with any NASD member in any capacity for five business days. Without admitting or denying the allegations, Wood consented to the described sanctions and findings that he permitted his firm to engage in a securities business at a time when it failed to maintain minimum required net capital. Wood also failed to maintain accurate net capital computations and filed inaccurate FOCUS Reports for certain periods. The inaccuracies were due primarily to the failure to deduct organizational expenses and aged concessions receivable as nonallowable assets. Further, Wood failed at certain times to post the firm's general ledger, failed to prepare trial balances and net capital computations, and failed to file telegraphic notice of the net capital deficiencies.

FIRMS EXPELLED FOR FAILURE TO PAY FINES AND COSTS IN CONNECTION WITH VIOLATIONS

Steven Andrew & Co., Inc., New York, NY
Charles G. Peelor & Co., Inc., Pittsburgh, PA
Tara Securities, Inc., Sunrise, FL

INDIVIDUALS WHOSE REGISTRATIONS WERE REVOKED FOR FAILURE TO PAY FINES AND COSTS IN CONNECTION WITH VIOLATIONS

Randall D. Abel, Mishawaka, IN
Nick Antone, West Covina, CA
Ruth E. Berry, Fort Lauderdale, FL
Robert F. Cox, Salem, MA
Antoine M. Devine, Bedford, TX
John J. Durkin, Jr., Wood-Ridge, NJ
Michael J. Fuchs, Ringwood, NY
Lawrence J. Gollin, Pembroke Pines, FL
Frank Grillo, Hushing, NY
Paul F. Joyce, Boca Raton, FL
Thomas J. Kilgore, HI, Lakewood, CO
Gary A. Shusas, Shrewsbury, MA

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,

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

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

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,

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,

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,

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

Disciplinary Actions (April)

Disciplinary Actions

National Association of Securities Dealers, Inc.

April 1989

Disciplinary Actions Reported for April

The National Association of Securities Dealers, Inc. (NASD), is taking disciplinary actions against firms and individuals for violations of the NASD Rules of Fair Practice and/or the rules of the Municipal Securities Rulemaking Board. Unless otherwise indicated, suspensions begin with the opening of business on Monday, April 3, 1989.

FIRMS SUSPENDED

The following firms were suspended from membership in the NASD for failure to comply with formal written requests to submit financial information to the NASD. The action was based on the provisions of Article IV, Section 5 of the NASD Rules of Fair Practice and Article VII, Section 2 of the NASD By-Laws. The date the suspension commenced is listed after each entry. If the firm has complied with the request for information, the listing also includes the date that the suspension concluded.

Heritage-Park Securities, Ltd., Sacramento, CA (February 10, 1989)
Nasher, Inc., New York, NY (February 10, 1989)
PBS Securities International, Inc., Chicago, IL (January 11, 1989, to February 6, 1989)
TCF Securities Group, Inc., Northridge, CA (February 10, 1989)

FIRM EXPELLED AND INDIVIDUAL SUSPENDED

Thomas Bryan & Associates, Inc. (Birmingham, AL) and Thomas A. Bryan (Registered Principal, Birmingham, AL) submitted an Offer of Settlement pursuant to which the firm is fined $20,000 and expelled from membership in the Association, and Thomas A. Bryan is fined $30,000, suspended from association with any member of the NASD as a principal for one year, and is required to requalify by examination as a principal before again acting in any principal capacity. Without admitting or denying the allegations, the firm and Bryan consented to the described sanctions and findings that the firm imposed excessive markups on 35 municipal securities transactions and failed to disclose the markups in corporate transactions on confirmations sent to customers.

In addition, the firm and Bryan engaged in a fraudulent activity in connection with two transactions with financial institutions and assisted these institutions in falsifying their books and records. The first transaction represented a practice known as "adjusted trading" by which a bank was offered a price in excess of the current market price for FNMAs in order to allow the bank to avoid or postpone recognizing a loss on the sale. The firm recouped its loss by selling other FNMAs at a price in excess of the current market price for such security.

The second transaction involved the sale to a savings and loan association of U.S. Treasury notes for $2,900,000 for which a markup of approximately 20.32 percent was imposed. The books and records for the financial institution were falsified in that certain research and consulting expenses incurred by the savings and loan in the sale of certain loans were included in the markup. This allowed the savings and loan to avoid recording this expense and to overstate its assets by recording the new security on its books at a price above the true market value at the time of the purchase.

In addition, the firm and Bryan failed to maintain and keep current certain books and records, and inaccurately computed the amount required to be on deposit in the firm's Special Reserve Bank Account for the Exclusive Benefit of Customers. The Respondent also sold certain corporate and municipal securities to customers on a principal basis at unfair prices. Additionally, the firm and Bryan engaged in a securities business while failing to maintain minimum required net capital.

FIRM AND INDIVIDUALS SUSPENDED

All-Tech Investment Group, Inc., (Pompton Plains, NJ), Mark D. Shefts (Registered Pr

1989

Disciplinary Actions (December)

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

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

89-79 NASD 1990 Holiday Schedule

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

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,

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

Disciplinary Actions (November)

For Your Information (November)

89-75 NASDAQ National Market Additions, Changes, and Deletions as of october 12,

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

89-73 Revisions to Certain NASD Qualification Examinations

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

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,

89-70 Automated Submission of Trading Data

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

Disciplinary Actions (October)

For Your Information (October)

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

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

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

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

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

Disciplinary Actions (September)

For Your Information

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

89-62 Columbus Day Trade Date-Settlement Date Schedule

Disciplinary Actions (August)

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

89-60 Labor Day Trade Date-Settlement Date Schedule

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

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

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,

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

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,

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

Disciplinary Actions (July)

For Your Information (July)

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

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,

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,

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

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

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

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

Disciplinary Actions (June)

For Your Information (June)

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

89-45 Independence Day Trade Date-Settlement Date Schedule

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

Disciplinary Actions (May)

For Your Information (May)

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

89-42 Memorial Day Trade Date-Settlement Date Schedule

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

89-40 Proposed Amendment to Code of Procedure Re: Summary Remedial Proceedings; Last Date for Comments: June 1,

89-39 Proposed New Rule Re: Handling Customer Limit Orders Last Voting Date: June 1,

89-38 quarterly check list of nasd notices to members

Disciplinary Actions (April)