Notice To Members 94-35

SEC Approves NBCC-Review Subcommittee

Published Date:

SUGGESTED ROUTING

Senior Management
Legal & Compliance

Executive Summary

On March 29, 1994, the Securities and Exchange Commission (SEC) approved amendments to Article II, Sections 10 and 11 of the Code of Procedure that allow the National Business Conduct Committee (NBCC) to designate a Subcommittee composed of members of the NBCC to review Letters of Acceptance, Waiver, and Consent (AWCs); Minor Rule Violations Letters; and Offers of Settlement. The text of the amendment follows the discussion below.

Background And Description Of The Amendment

On March 29, 1994, the Securities and Exchange Commission approved amendments to Article II, Sections 10 and 11 of the Code of Procedure that allows the National Business Conduct Committee to designate a subcommittee composed of members of the NBCC to review AWCs, Minor Rule Violations Letters, and Offers of Settlement in most instances.

The NBCC is composed of participating members of the first-year class of the NASD Board of Governors (Board) plus an elected Chair and Vice Chair from the Board's second-year class. The members of the NBCC receive a weekly package (weekly mailing) for review on proposed AWCs, Minor Rule Violations Letters, and Offers of Settlement. In addition, the NBCC also reviews, on a weekly basis, all disciplinary decisions of the District Business Conduct Committee and the Market Surveillance Committee. All matters are first reviewed by the Chair and Vice Chair of the NBCC and then reviewed by the other members of the NBCC along with the recommendations of the Chair and Vice Chair.

The NASD has determined that the weekly mailings to the NBCC constitute a substantial portion of time commitment required of NBCC members and that the review by NBCC members of all the forgoing matters is unnecessary and unduly burdensome. Therefore, the NASD is amending the Code of Procedure to allow acceptances and rejections of AWCs, Minor Rule Violations Letters, and Offers of Settlement to be made by a subcommittee designated by the NBCC instead of full NBCC review in all instances other than matters that are outside the NASD Sanction Guidelines or where the designated subcommittee, in its discretion, otherwise believes full NBCC review is appropriate.1 The NASD intends that, initially, the subcommittee designated by the NBCC will consist of the NBCC Chair and Vice Chair, but may modify the composition of the subcommittee in the future.

Additionally, the NASD has amended Section 11(e) of Article II by deleting the phrase "by majority vote" because it considers the phrase confusing and believes that a majority vote is always required by an NASD review body acting pursuant to the Code of Procedure.

Questions regarding the Notice may be directed to Norman Sue, Jr., Associate General Counsel, at (202)728-8117.

1 The NASD Sanction Guidelines were published in May 1993 and sent to all NASD members. See, also NASD Regulatory & Compliance Alert, Volume 7, No. 2 (June 1993).

Text of amendments to Article II, Sections 10 and 11 of the NASD Code of Procedure

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

Article II

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Sec. 10

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Acceptance, Waiver and Consent of the Respondent

(a) If the Committee has reason to believe a violation has occurred and the member or associated person does not dispute the violation, the Committee may suggest that the member or associated person submit a letter containing an acceptance of a finding of violations, a waiver of all rights of appeal to the National Business Conduct Committee (and any review thereof by the Board of Governors), the Securities and Exchange Commission and the courts or to otherwise challenge or contest the validity of the Order issued if the letter is accepted, and a consent to the imposition of sanctions. The letter shall describe the act or practice engaged in or omitted; the rule, regulation or statutory provision violated; and the sanction to be imposed therefore. If the Committee then concludes that the Letter of Acceptance, Waiver and Consent is appropriate and should be accepted, it shall be submitted to the National Business Conduct Committee. If the letter is accepted by the National Business Conduct Committee or a Subcommittee designated by the National Business Conduct Committee, it shall become final and shall constitute the complaint, answer and decision in the matter. If the letter is rejected by the Committee, [or] the National Business Conduct Committee, or a Subcommittee designated by the National Business Conduct Committee, any acceptances, waivers and consents contained therein shall not be considered in any further complaint action which may be taken against the member or associated person.

Minor Rule Violations Procedure

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b(3) The Letter shall be submitted to the Committee and, if accepted, the Letter shall then be submitted to the National Business Conduct Committee. If the National Business Conduct Committee or a Subcommittee designated by the National Business Conduct Committee accepts the Letter, the Corporation will report the violation to the Securities and Exchange Commission as required by the Commission pursuant to a plan approved under Rule 19d-1(c)(2) adopted under the Securities Exchange Act of 1934, as amended. If the Committee, [or] the National Business Conduct Committee, or a Subcommittee designated by the National Business Conduct Committee rejects the Letter, the Committee or National Business Conduct Committee may take any other appropriate disciplinary action with respect to the violation or violations.

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Settlement Procedure

Sec. 11

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(e) Before any such Order of Acceptance of Offer of Settlement shall become effective it must be submitted to and approved by the National Business Conduct Committee or a Subcommittee designated by the National Business Conduct Committee, which is hereby delegated authority to accept or reject an Offer of Settlement. If the National Business Conduct Committee [by a majority vote] or a Subcommittee designated by the National Business Conduct Committee approves the Committee's Order, it shall communicate its conclusion to the Committee which shall thereafter issue such Order.