Request for Comments on Proposed Amendment to Article V, Section 1 of the NASD Rules of Fair Practice
TO: All NASD Members and Interested Persons
LAST DATE FOR COMMENT: MAY 1, 1987.
EXECUTIVE SUMMARY
The NASD requests comments on a proposed amendment to Article V, Section 1 of the NASD Rules of Fair Practice. The amendment would remove the current limitation of $15,000 that a member or a person associated with a member could be fined for each violation of the Rules of Fair Practice.
The NASD Board of Governors believes this amendment is necessary in order to enhance the NASD's flexibility in imposing sanctions for serious misconduct.
The text of the proposed amendment is attached.
BACKGROUND
Article V, Section 1 of the NASD Rules of Fair Practice imposes a limitation on fines that may be assessed in NASD disciplinary proceedings. Currently, a fine of no more than $15,000 per violation may be assessed against a member or a person associated with a member. The present ceiling on fines was the result of a 1984 amendment to the Rules of Fair Practice which raised the amount per violation from $5,000 to $15,000.
The NASD Board of Governors believes that the current limitation on may, in certain cases, inhibit the NASD's ability to adequately redress violations of the Rules of Fair Practice. There have been a few cases in which the number of alleged violations was small but the underlying misconduct was egregious and/or involved substantial sums. In those instances, the NASD's ability to respond appropriately to the gravity of the misconduct was limited because of the current limitation on the amount of fines under Article V, Section 1. This restriction undermines the usefulness of fines as a deterrent to future misconduct.
To enhance the NASD's flexibility in imposing sanctions in instances of serious misconduct, the Board of Governors has determined it appropriate to publish this proposed amendment for comment.
PROPOSED AMENDMENT
The proposed amendment to Article V, Section 1 of the NASD Rules of Fair Practice would eliminate the $15,000 ceiling placed on the amount of the fine that the NASD's District Business Conduct Committees (DBCCs) or Board of Governors may assess for each violation of the Rules of Fair Practice. The amendment would allow a DBCC or the Board to establish the amount of each fine based upon the nature of the violation and other relevant considerations.
* * * * *
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, N.W.
Washington, D.C. 20006-1506
Comments must be received no later than May 1, 1987. Comments received by this date will be considered by the NASD's National Business Conduct Committee and the NASD Board of Governors. If the proposed amendment is approved by the Board, it will be submitted to the membership for a vote. If approved by the membership, the amendment must be filed with and approved by the Securities and Exchange Commission before becoming effective.
Questions concerning this notice may be directed to Norman Sue, Jr., Senior Attorney, NASD Office of General Counsel, at (202) 728-8117.
Sincerely,
Frank J. Wilson
Executive Vice President and General Counsel
Attachment
PROPOSED AMENDMENT TO ARTICLE V OF THE NASD RULES OF FAIR PRACTICE*
Penalties
Penalties for Violation of the Rules
Sec. 1. Any District Business Conduct Committee, or the Board of Governors, in the administration and enforcement of these Rules, and after compliance with the Code of Procedure, may (1) censure any member or person associated with a member and/or (2) impose a fine [not in excess of Fifteen Thousand Dollars ($15,000.00)] upon any member or person associated with a member and/or (3) suspend the membership of any member or suspend the registration of a person associated with a member, if any, for a definite period, and/or (4) expel any member or revoke the registration of any person associated with a member, if any, and/or (5) suspend or bar a member or person associated with a member from association with all members, or (6) impose any other fitting penalty deemed appropriate under the circumstances, for each or any violation of any of these Rules by a member or person associated with a member or for any neglect or refusal to comply with any orders, directions or decisions issued by any District Business Conduct Committee or by the Board of Governors in the enforcement of these Rules, including any interpretative ruling made by the Board of Governors, as any such Committee or Board, in its discretion, may deem to be just; provided, however, that no such penalty imposed by any District Business Conduct Committee shall take effect until the period for appeal therefrom or review has expired, as provided in Section 14 of the Code of Procedure; and provided, further, that all parties to any proceeding resulting in a penalty shall be deemed to have assented to or to have acquiesced in the imposition of such penalty unless any party aggrieved thereby shall have made application to the Board of Governors for review pursuant to the Code of Procedure, within fifteen (15) days after the date of such notice.
*Deleted text is bracketed.