Notice To Members 86-39

Request for Comments on Proposed Amendment to the Code of Procedure to Grant Discretion to the NASD to Hold Hearings in Eligibility Proceedings

Published Date:

TO: All NASD Members and Other Interested Persons

LAST DATE FOR COMMENT: JUNE 23 1986

The National Association of Securities Dealers, Inc. (NASD), is publishing for comments by members and other interested persons a proposed amendment to the Code of Procedure that would grant the NASD the discretion to determine whether a hearing should be held in an eligibility proceeding under Article VII, Section 2 of the Code.

The text of the proposed amendment is attached. A discussion of the background of the amendment and the proposed provisions follows.

BACKGROUND

Any person who is subject to a statutory disqualification, as that term is defined in Article II, Section 4 of the NASD By-Laws, must apply and be approved by the NASD before becoming associated with a member firm. If a person is currently registered with a member firm and subsequently becomes subject to a statutory disqualification, the person must apply and be approved by the NASD to remain associated with the member firm.

The procedure that the NASD uses to determine whether to grant this approval is found in Article VII of the Code of Procedure. Under this section, the NASD may permit the approval of an application without a hearing. When approval is not granted, a hearing is usually held.

A problem has arisen because the NASD receives a number of applications each year from persons who, because their statutory disqualification is recent or because adequate supervision by their employers is lacking, do not provide the minimal evidence that the NASD deems necessary for consideration for approval. The proposed amendment would allow the NASD to avoid hearings that would be of limited use in making a decision on the application.

ANALYSIS OF PROPOSED AMENDMENT

The proposed amendment to the Code of Procedure would give the NASD the discretion to determine whether a hearing is to be held in an eligibility proceeding under Article VII of the Code.

The eligibility proceeding would be unchanged in all other material respects. The firm submitting the application would continue to be entitled to make any written submissions for consideration and the application would continue to be considered by the National Business Conduct Committee (NBCC) and the Board of Governors. The NASD will continue to file its decision to approve or deny any application pursuant to SEC Rule 19h-l or 19d-l. A person whose application is denied will continue to be able to appeal the NASD's decision to the SEC.

* * * *

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

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

Comments must be received no later than June 23, 1986. Comments received by the indicated date will be considered by the NBCC and the NASD Board of Governors. If the proposed amendment is approved by the Board it must then be filed with and approved by the Securities and Exchange Commission before becoming effective.

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

Sincerely,

Frank J. Wilson
Executive Vice President
Legal and Compliance

Attachment

PROPOSED AMENDMENT TO NASD CODE OF PROCEDURE*

Article VII, Section 2:

(b) The member or broker or dealer or person may make application to the Corporation requesting relief and shall demonstrate why the application should be granted. [Should the Corporation decline to grant such request, then if requested in writing by any party, or if] If directed by the Corporation, a hearing shall be held before a hearing panel designated by the Board of Governors, and a record shall be kept. At the hearing the parties shall be entitled to be heard in person and be represented by counsel and to submit any relevant matter. If no hearing is held, the application shall be considered by a hearing panel designated by the Board of Governors on the basis of the written record. The parties shall be entitled to submit any relevant material in writing. The hearing panel shall make a recommendation as to the application which shall be forwarded to the Board of Governors together with the record.

* New language is underlined. Deleted language is in brackets.