SEC Approval of Amendments to the Resolution of the Board of Governors — Notice to Membership and Press of Suspensions, Expulsions, Revocations, and Monetary Sanctions Under Article V, Section 1 of the Rules of Fair Practice Regarding the

EXECUTIVE SUMMARY

On July 15, 1991, the SEC approved an NASD rule change to provide three clarifications to the Resolution of the Board of Governors — Notice to Membership and Press of Suspensions, Expulsions, Revocations, and Monetary Sanctions under Article V, Section 1 of the Rules of Fair Practice (the "Resolution"). The Resolution has been amended to provide that (1) sanctions imposed in District Business Conduct Committee (DBCC) decisions do not become effective and will not be publicized until 45 days after the DBCC's decision; (2) expulsions and bars imposed pursuant to an "offer of settlement, or an acceptance, waiver and consent" are effective and may be published immediately on approval by the National Business Conduct Committee (NBCC); and (3) all final decisions of the NASD that call for bars or expulsions will become effective immediately. The amended text follows this notice.

BACKGROUND

On July 15, 1991, the SEC approved three NASD rule changes to the Resolution dealing with the effectiveness of and publication for the NASD membership and the press of disciplinary sanctions that have been imposed. The three changes conform the Resolution to current practices of the NASD with respect to the effectiveness of and publicity on disciplinary actions.

SUMMARY OF AMENDMENTS

The Resolution currently provides that a DBCC decision may become effective, and thus its sanctions publicized, after a 30-day period following the date of the decision. This suggests that a DBCC decision may become effective and its sanctions made known to the public during the last 15 days of the 45-day period in which the NBCC may call a decision for review and the respondent may appeal the decision to the NBCC. As amended, the Resolution now clarifies that the sanctions imposed in the DBCC decisions that are not appealed to or called for review by the NBCC do not become effective until 45 days after the DBCC's decision. Furthermore, notices of decisions imposing monetary sanctions of $10,000 or more, or penalties of expulsion, revocation, suspension, and/or the barring of a person from being associated with all members shall not be publicized until 45 days after the DBCC's decision.

It is current practice for respondents in NASD disciplinary actions to waive all rights to appeal when they agree to an offer of settlement ("Offer") or Letter of Acceptance, Waiver and Consent (AWC). Once the Offer or AWC is approved by the NBCC, there is no need for a delay in the effectiveness or publication of expulsions or bars since there can be no SEC review. As amended, the Resolution now provides that expulsion and bars imposed pursuant to an Offer or AWC are effective and may be published immediately on approval by the NBCC.

The Resolution currently provides that all decisions of the Board, if not appealed to the SEC, are effective on the later of 30 days after the date of the decisions or on a date specified by the Association. The current practice is to make any bars or expulsions effective immediately on issuance of the decision. As amended, the Resolution is revised to provide that a final NASD decision issued by either the NBCC or the Board that calls for a bar or expulsion is effective immediately regardless of whether it is appealed to the SEC. All other final decisions of the NBCC or Board, if not appealed to the SEC, continue to be effective on the later of 30 days after the date of the decision or on a date specified by the Association.

Questions concerning this notice may be directed to P. William Hotchkiss, Director, Surveillance, at (202) 728-8235.

RULES OF FAIR PRACTICE

ARTICLE V

(Note: New language is underlined; deleted language is in brackets.)

Sec. 1 Sanctions for Violation of the Rules

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Resolution of the Board of Governors

Notice to Membership and Press of Suspensions, Expulsions, Revocations, and Monetary Sanctions

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If a decision of a District Business Conduct Committee is not appealed to or called for review by the [Board of Governors] NBCC, the order of the District Business Conduct Committee shall become effective on a date set by the Association but not before the expiration of 45 [30] days after the date of decision. Notices of decisions imposing monetary sanctions of $10,000 or more or penalties of expulsion, revocation, suspension and/or the barring of a person from being associated with all members shall promptly be transmitted to the membership and to the press, concurrently; provided, however, no such notice shall be sent prior to the expiration of 45 [30] days from the date of the said decision.

Notwithstanding the preceding paragraph, expulsions and bars imposed pursuant to the provisions of Article II, Sections 10 and 11 of the Code of Procedure shall become effective upon approval or acceptance by the National Business Conduct Committee, and publicity regarding any sanctions imposed pursuant to Article II, Sections 10 and 11 of the Code may be issued immediately upon such approval or acceptance.

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If a final decision of the [Board of Governors] Association is not appealed to the Securities and Exchange Commission, the [decision] sanctions specified in the decision (other than bars and expulsions) shall become effective on a date established by the Association but not before the expiration of 30 days after the date of the decision. Bars and expulsions, however, shall become effective upon issuance of the decision, unless the decision specifies otherwise. Notices of decisions imposing monetary sanctions of $10,000 or more or penalties of expulsion, revocation, suspension and/or the barring of a person from being associated with all members shall promptly be transmitted to the membership and to the press, concurrently; provided, however, no such notice shall be sent prior to the expiration of 30 days from the date of the said decision.