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

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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:

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.