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Senior Management
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EXECUTIVE SUMMARY
The Securities and Exchange Commission has approved amendments to Articles II and III of the NASD's Code of Procedure ("Code"). The amendments modify existing procedures and establish new procedures in connection with hearings before a District Business Conduct Committee, Market Surveillance Committee, or an Extended Hearing Committee ("Committee"), pursuant to Article II of the Code, and proceedings in connection with Board of Governors' reviews of disciplinary actions taken by a Committee, pursuant to Article III of the Code.
The amendments to Article II establish requirements for the submission of documentary evidence and the names of witnesses prior to a Committee hearing. The amendments to Article III convert Board reviews of Committee decisions into more appellate-type proceedings and codify practices as to matters reviewed on the basis of the written record.
The amendments will become effective August 1, 1990, and will apply only to proceedings in which a new complaint is issued on or subsequent to August 1, 1990. The amendments will not apply to disciplinary proceedings already in progress on August 1, 1990 (i.e., proceedings in which a complaint was issued prior to August 1, 1990). The full text of the amended Articles II and III of the Code follows this notice.
EXPLANATION
Under Article II of the Code, respondents are given a full opportunity to participate in and produce evidence in proceedings before a Committee, and Committees are given the opportunity to conduct a full review of each matter.
Under the amended Article II of the Code, respondents will be required, and the Committee staff or complainant (if other than a Committee), upon request, will be required to submit documentary evidence and the names of witnesses to each other no later than five business days prior to a hearing. This requirement will eliminate any question as to whether the parties were given sufficient notice of additional documentary evidence or witnesses in advance of the hearing.
Under Article III of the Code, respondents in disciplinary actions taken by a Committee may appeal those actions to the NASD's Board of Governors, or the Board may, on its own motion, call a matter for review. In either case, respondents may elect to attend or waive a hearing before a hearing panel of the Board. Under the amended Article III, Board hearings will be limited to 30-minute oral arguments by the parties, unless extended by the hearing panel because good cause was shown. The introduction of additional evidence will be prohibited except in exceptional circumstances and upon a demonstration of good cause for failure to introduce the evidence before a Committee. Parties to the review must apply to the Board for leave to adduce additional evidence no later than 10 business days before the date of the hearing. The Board may, however, direct that the record be supplemented with such additional evidence as it may deem relevant.
The amendments also address those situations in which the appealing party did not participate in the proceedings before a Committee. The amendments to Article III permit the Board to remand to a Committee matters in which the appealing party did not participate in the proceedings before a Committee but showed good cause for the failure to participate. If the appealing party fails to show good cause for not participating in the proceedings before a Committee, the matter will be considered by the Board on the basis of the written record developed by the Committee, including written briefs submitted to the Board.
Parties that failed to request a hearing before a Committee pursuant to Article II, Section 4 of the Code will be permitted to request a hearing. Such parties may request leave to adduce additional evidence, but they must demonstrate good cause for failure to introduce the evidence before a Committee. The amended Article III will also permit the Board to dismiss as abandoned any application for review in which the appealing party failed to advise the Board of the basis for seeking review, or failed to provide the Board with responses to requests for information in a timely manner.
Article III of the Code will continue to permit the National Business Conduct Committee to designate a matter as an extended proceeding.
Questions concerning this notice may be directed to Shirley H. Weiss, Attorney, Office of General Counsel, at (202) 728-8844.
TEXT OF RULE CHANGE
(Note: New material is underlined; deleted material is in brackets.)
NASD CODE OF PROCEDURE ARTICLE II
Sec. 1 - Sec. 6 No change.
Evidence and Procedure in Committee Hearings
Sec. 7. (a) The Committee staff, or the complainant, if other than a Committee, shall upon request make available to respondents and their counsel any documentary evidence and the names of any witnesses the staff intends to present at the hearing no later than five (5) business days prior to [within a reasonable time before] the hearing.
(b) Respondents shall submit to the Committee staff or the complainant any documentary evidence and the names of any witnesses respondents intend to present at the hearing no later than five (5) business days prior to [within a reasonable time before] the hearing.
(c) If a hearing is held, both the complainant and the respondent shall be entitled to be heard in person and by counsel. Formal rules of evidence shall not be applicable. Notwithstanding paragraphs (a)or (b), the parties may submit any additional [documentary] evidence at the hearing as the hearing panel, in its discretion, determines may be relevant and necessary for a complete record. A record of the hearing shall be kept in all cases.
Sec. 8 - Sec. 13 No change.
ARTICLE III
Review of Disciplinary Actions and [Hearings] Proceedings Before The Board of Governors
Sec. 1. No change.
[Hearings] Proceedings Before the Board
Sec. 2. (a) In the case of an appeal or call for review, the [complainant, if other than the Committee, or the respondent] party seeking review may request a hearing. If the party desires a hearing, it should be requested in his application for review. A party subject to a call for review may request a hearing within fifteen (15) calendar days of notification of the call for review, [may request a hearing before a hearing panel of the Board of Governors.] If a request is made, a hearing shall be granted, subject to the limitations of Section 2(f) below. In the absence of a request for a hearing, the Board of Governors may have any matter set down for a hearing.
(b) If a hearing is held, a [A] notice stating the date, time and place of the hearing shall be mailed to the complainant [, if other than the Committee] and respondent at least ten (10) calendar days before the hearing. The notice period may be waived in writing by the respondent or a shorter notice given where extraordinary circumstances require.
(c) If a hearing is not held, the matter shall be considered on the basis of the record before the Committee, and written briefs, if submitted. For purposes of this section, the record before the Committee shall include the complaint, respondent's answer, the transcript of the Committee hearing, any exhibits reviewed by the Committee, and the Committee decision.
[(c)]
(d) Unless otherwise consented to by the parties, all hearings shall be held before a hearing panel , and all on-the-record reviews shall be conducted by a review panel, appointed by the National Business Conduct Committee consisting of two or more persons, all of whom are associated with members of the Corporation, at least one of whom shall also be a current member of the Board of Governors.
[(e) If a hearing is held, the hearing panel shall consider the record before the Committee and any new material submitted by the complainant and the respondent. If respondent has waived a hearing and the Board does not order a hearing on its own motion, the panel shall consider the matter on the record, which may include new evidence as long as all parties have previously been tendered the new evidence.]
(e) A hearing on review by the Board shall consist of oral arguments limited to a total period of thirty (30) minutes each for argument and response by respondent and for argument and response by a complainant, unless extended by the hearing panel in its discretion for good cause shown. The Board's review shall be limited to consideration of oral arguments, written briefs, and the record before the Committee. A record of the hearing shall be kept in all cases.
(f) Any application for review of a matter in which the party seeking review did not participate in the proceedings before the Committee but shows good cause for the failure to participate, shall normally be dismissed by the Board and remanded to the Committee for further proceedings. If the party seeking review did not participate in the proceedings before the Committee and does not show good cause for the failure to participate, the matter shall be considered by the Board on the basis of the record before the Committee, including written briefs submitted to the Board. For purposes of this paragraph, failure to participate shall mean failure to file an answer or otherwise respond to a complaint or failure to appear at a hearing which has been scheduled and shall not include failure to request a hearing pursuant to Article II, Section 4 of this Code. A party seeking review who failed to request a hearing before a Committee pursuant to Article II, Section 4 of this Code, shall be permitted to have a hearing on review as provided in this section.
(g) Any application for review as to which the party seeking review fails to advise the Board of the basis for seeking review, or otherwise fails to provide information or submit a written brief in response to a request, may be dismissed as abandoned and the decision of the Committee shall become final Association action.
(h) Upon consideration of the length of expected testimony, the volume and complexity of documentary evidence before the Committee [and]
, or other factors it may deem material,
and subject to the provisions of Section 2(a) through (g) above, the National Business Conduct Committee may determine that a matter shall be set for an Extended [Hearing]
Proceeding. Notice of an Extended [Hearing]
Proceeding shall be given as provided in Section [2(a)]
2(b).
(i) All Extended [Hearings] Proceedings shall be held before an Extended [Hearing] Proceeding Committee appointed by the National Business Conduct Committee consisting of two or more persons, all of whom previously shall have served as members of the Board of Governors; provided, however, that the Chairman of the National Business Conduct Committee shall have the discretion to appoint to an Extended [Hearing] Proceeding Committee one or more current members of the Board of Governors and to compensate any or all members of the Extended [Hearing] Proceeding Committee at the rate then in effect for arbitrators appointed under the Code of Arbitration Procedure.
[(f)]
(j). The hearing or on-the-record review panel shall present its recommended findings and sanctions to the National Business Conduct Committee. The National Business Conduct Committee shall make its recommended findings and sanctions to the Board of Governors which shall make the final determination.
Evidence [and Procedure] in Board [Hearings] Proceedings
Sec. 3. [(a) Upon request, the Corporation staff or the complainant, if other than a Committee, shall make available to respondents and their counsel any documentary evidence which was not part of the record before the Committee, within a reasonable time before the hearing.]
(a) A party to the Board's review may apply to the Board for leave to adduce additional evidence. If the party provides notice of the intention to introduce such evidence no later than ten (10) business days prior to the date of the hearing, identifies and describes the evidence, and satisfies the burden of demonstrating that there was good cause for failing to adduce it before the Committee and that the evidence is material to the proceeding, the Board may, in its discretion, permit the evidence to be introduced into the record on review or may remand the case to the Committee for further proceedings in whatever manner and subject to whatever conditions the Board considers appropriate. On its own motion, the Board may direct that the record on review be supplemented with such additional evidence as it may deem relevant.
[(b) Respondents shall also make available to the Corporation staff or the complainant, any documentary evidence, which was not part of the record before the Committee, within a reasonable time before the hearing.]
(b) Where leave to adduce additional evidence is granted, the Corporation staff or the complainant, if other than a Committee, and the respondent shall make available to the Board hearing or review panel and to the parties all documentary evidence which was not part of the record before the Committee no later than five (5) business days before the hearing.
(c) [If a hearing is held, both the complainant and respondent shall be entitled to be heard in person and by counsel.] Formal rules of evidence shall not be applicable. [Notwithstanding paragraphs (a) or (b), the parties may submit any additional documentary evidence at the hearing as the hearing panel, in its discretion, determines may be relevant and necessary for a complete record. A record of the hearing shall be kept in all cases.]
Sec. 4 - Sec. 7 No change.
