Last Voting Date: August 29, 1994
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Senior Management
Legal & Compliance |
Executive Summary
The NASD invites members to vote on proposed amendments to the NASD By-Laws to prepare for a planned new numbering scheme for the NASD Manual; to correct certain minor errors found in the By-Laws; and to provide for Board approval of future spelling and numbering changes. The last voting date is August 29, 1994. The text of the amendment follows this Notice.
Background
The NASD is developing a proposal to reorganize the NASD Manual to make it easier for members and others to use. This will be a non-substantive reordering of the existing rules, interpretations, and other provisions of the Manual to present the rules more logically in the Manual. This project will require certain changes in numbering and terminology in the NASD By-Laws and rules. Changes that the NASD is currently aware of are described below. To facilitate the Manual revision, the NASD is seeking approval of an amendment to the By-Laws that would allow the Board to make future editorial changes to numbering or spelling in the By-Laws without a member vote.
As described previously in Notice to Members 93-15, the amendments are the second phase of a multi-part program, the purpose of which is to make all rule approval and amendment procedures under the NASD By-Laws uniform and to make the Manual easier to use. The program envisions that all rules in the Manual, including not only the current Rules of Fair Practice but also such specialized rules as the Government Securities Rules, The Nasdaq Stock Market Rules (Schedule D to the By-Laws), Code of Arbitration Procedure, etc., will be numbered consecutively throughout the Manual and considered together as "Rules." The entire body of requirements affecting members, including the Certificate of Incorporation, By-Laws, and Rules, will be referred to as the "rules of the Corporation." The proposed changes to the By-Laws reflect these changes in terminology. In addition, a common numbering and naming scheme for subdivisions within a Rule will be used.
Description of Proposals
The sections of Article I of the By-Laws have been rearranged so that the definitions are now in alphabetical order for easier use. As discussed above, the term "Rules" will be used in the Manual revision to refer to all rules that may now be referred to by various names, but for purposes of new Article I, Section s, the existing names for these types of rules have been retained to provide examples of the types of rules that are included. To make the provision more broadly applicable, however, the language "any other rules" has been added. This would include, for example, the text of Schedules that are proposed to be converted to rules in the Manual revision project.
Article III, Section 7 is amended to reflect that, as part of the Manual revision project, the term "Rules of Fair Practice" will be eliminated and replaced with the general term "Rules." In Section 10 of the same Article, the reference to Article I has been changed to reflect the new order of the definitions that are to be placed in alphabetical order and relettered, as described above.
In Article IV, Section 4, references to specific Rules of Fair Practice will be changed to the proposed new Rule numbers that will be used in the Manual revision project. These new numbers will not be printed in the Manual until the entire revision is completed. Also in Section 4, an existing, erroneous cross-reference to Section 2(b) has been corrected.
In Article V, Sections 3 and 4, references to Rules of Fair Practice and the Code of Procedure have been changed to the more general term "other rules" as part of the Manual revision project.
In Article VII, Section 1, references to the "Rules of Fair Practice" have been changed to "Rules" to conform to the new terminology used in the Manual revision. In light of this change, former subsection (a)(3), which gave the Board general authority to adopt rules and interpretations to implement the Securities Exchange Act of 1934, will duplicate subsections (a)(2) and (4), which do essentially the same thing. The reference to implementing the provisions of the Act is duplicative of Article XII, Section 1 (text below), which provides that the Board is authorized to adopt Rules "to carry out the purposes of the Corporation and of the Act." Therefore, it is proposed to delete subsection (a)(3) as part of the Manual revision project.
To make the numbering scheme of the By-Laws internally consistent, using the method employed throughout the rules in the proposed Manual revision wherein subdivisions follow the format of (a)(1)(A)(i), the subsection numbers in lower-case Roman numerals in Article VII, Sections 3 and 4 have been replaced with Arabic numbers. In Section 7(c), the reference to Article III, Section 8 should have been changed to Section 9 when those sections were renumbered. In Article VII, Section 8 the proposed changes are related to the renumbering of subsections in Section 4 to conform to the standard numbering scheme.
The proposed changes to Articles VIII and IX are to correct the same erroneous cross-reference described previously under Article VII, Section 7(c).
The proposed change to Article XII reflects the new terminology of "Rules" rather than "Rules of Fair Practice" that will be used in the Manual revision.
Finally, the amendment to Article XVII would provide latitude for the Board to approve minor changes to spellings or numbering in the By-Laws to correct errors or to conform to the renumbering of Rules referred to in the By-Laws, without the necessity of a membership vote. Such changes would continue to be called to the attention of members through the regular CCH Report Letters updating the looseleaf Manuals. This will not only reduce delays in making rule changes effective, but will also result in administrative cost savings. A member vote will continue to be required for substantive changes to the NASD By-Laws.
Request For Vote
The NASD Board of Governors believes that the proposed amendment to the By-Laws will facilitate the updating and simplifying of the Manual and will aid the Board in making minor corrections to the By-Laws in a timely manner, subject to approval by the Securities and Exchange Commission, without the costs and delays inherent in sending proposed numbering and spelling changes to nearly 6,000 members for a mail vote. Please mark the attached ballot according to your convictions and mail it in the enclosed, stamped envelope to The Corporation Trust Company. Ballots must be postmarked no later than August 29, 1994.
Questions concerning this Notice should be directed to T. Grant Callery, Vice President and General Counsel, at (202) 728-8285.
Proposed Amendments to Articles I, III, IV, V, VII, VIII, IX, XII, and XVII of the NASD By-Laws
(Note: New text is underlined; deleted text is in brackets.)
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ARTICLE I
Definitions
When used in these By-Laws, and any rules of the Corporation, unless the context otherwise requires, the term:
(a) "Act" means the Securities Exchange Act of 1934 as amended;
(b) "bank" means (1) a banking institution organized under the laws of the United States, (2) a member bank of the Federal Reserve System, (3) any other banking institution, whether incorporated or not, doing business under the laws of any State or of the United States, a substantial portion of the business of which consists of receiving deposits or exercising fiduciary powers similar to those permitted to national banks, and which is supervised and examined by a State or Federal authority having supervision over banks, and which is not operated for the purpose of evading the provisions of the Act, and (4) a receiver, conservator, or other liquidating agent of any institution or firm included in clauses (1), (2) or (3) of this subsection;
[(r)] (c) "Board" means the Board of Governors of the Corporation[.];
[(c)] (d) "branch office" means an office defined as a branch office in [Article III, Section 27 of the Rules of Fair Practice] Rule;1
[(d)] (e) "broker" means any individual, corporation, partnership, association, joint stock company, business trust, unincorporated organization or other legal entity engaged in the business of effecting transactions in securities for the account of others, but does not include a bank;
[(e)] (f) "Commission" means the Securities and Exchange Commission;
[(f)] (g) "Corporation" means the National Association of Securities Dealers, Inc.;
[(g)] (h) "dealer" means any individual, corporation, partnership, association, joint stock company, business trust, unincorporated organization or other legal entity engaged in the business of buying and selling securities for his own account, through a broker or otherwise, but does not include a bank, or any person insofar as he buys or sells securities for his own account, either individually or in some fiduciary capacity, but not as part of a regular business;
[(p)] (i) "government securities broker" shall have the same meaning as in Section 3(a)(43) of the Act except that it shall not include financial institutions as defined in Section 3(a)(46) of the Act[.];
[(q)] (j) "government securities dealer" shall have the same meaning as in Section 3(a)(44) of the Act except that it shall not include financial institutions as defined in Section 3(a)(46) of the Act [.];[
[(s)] (k) "Governor" means a member of the Board[.]i
[(h)] (l) "investment banking or securities business" means the business, carried on by a broker, dealer, or municipal securities dealer (other than a bank or department or division of a bank), or government securities broker or dealer of underwriting or distributing issues of securities, or of purchasing securities and offering the same for sale as a dealer, or of purchasing and selling securities upon the order and for the account of others;
[(i)] (m) "member" means any broker or dealer admitted to membership in the Corporation;
[(j)] (n) "municipal securities" means securities which are direct obligations of, or obligations guaranteed as to principal or interest by, a State or any political subdivision thereof, or any agency or instrumentality of a State or any political subdivision thereof, or any municipal corporate instrumentality of one or more States, or any security which is an industrial development bond as defined by Section 3(a)(29) of the Act;
[(k)] (o) "municipal securities broker" means a broker, except a bank or department or division of a bank, engaged in the business of effecting transactions in municipal securities for the account of others;
[(l)] (p) "municipal securities dealer" means any person, except a bank or department or division of a bank, engaged in the business of buying and selling municipal securities for his own account, through a broker or otherwise, but does not include any person insofar as he buys or sells securities for his own account either individually or in some fiduciary capacity but not as a part of a regular business;
[(m) (q) "person associated with a member" or "associated person of a member" means every sole proprietor, partner, officer, director, or branch manager of any member, or any natural person occupying a similar status or performing similar functions, or any natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by such member, whether or not any such person is registered or exempt from registration with the Corporation pursuant to these By-Laws;
[(n)] (r) "registered broker, dealer, municipal securities broker or dealer, or government securities broker or dealer" means any broker, dealer, municipal securities broker or dealer, or government securities broker or dealer which is registered with the Commission under the Act;
[(o)] (s) "rules of the Corporation" means all rules of the Corporation including the Certificate of Incorporation, By-Laws, Rules of Fair Practice, Government Securities Rules, Code of Procedure, Uniform Practice Code, any other rules, and any interpretations thereunder.
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ARTICLE III
Membership
Transfer and Termination of Membership
Sec. 7.
(a) Except as provided hereinafter, no member of the Corporation may transfer its membership or any right arising therefrom and the membership of a corporation, partnership or any other business organization which is a member of the Corporation shall terminate upon its liquidation, dissolution or winding up, and the membership of a sole proprietor which is a member shall terminate at death, provided that all obligations of membership under the By-Laws and Rules [of Fair Practice] of the Corporation have been fulfilled.
(b) Unchanged.
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District Committees' Right to Classify Branches
Sec. 10. A District Committee may classify any branch of a member not meeting the definition of Article [I(c)] I(d) of the By-Laws as a "branch office" if such Committee is satisfied that the definition of Article [I(c)] I(d) of the By-Laws is substantially met and that the business of said branch in the district is of sufficient importance to justify such a classification.
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ARTICLE IV
Registered Representatives and Associated Persons
Retention of Jurisdiction
Sec. 4. A person whose association with a member has been terminated and is no longer associated with any member of the Corporation or a person whose registration has been revoked shall continue to be subject to the filing of a complaint under the Code of Procedure based upon conduct which commenced prior to the termination or revocation or upon such person's failure, while subject to the Corporation's jurisdiction as provided herein, to provide information requested by the Corporation pursuant to [Article IV, Section 5 of the NASD Rules of Fair Practice] Rule____ , but any such complaint shall be filed within:
(a) two (2) years after the effective date of termination of registration pursuant to Section 3 above, provided, however that any amendment to a notice of termination filed pursuant to Section [2(b)] 3(b) that is filed within two years of the original notice which discloses that such person may have engaged in conduct actionable under any applicable statute, rule or regulation shall operate to recommence the running of the two-year period under this paragraph;
(b) two (2) years after the effective date of revocation of registration pursuant to [Article V, Section 2 of the Association's rules of Fair Practice] Rule___, or;
(c) in the case of an unregistered person, within two (2) years after the date upon which such person ceased to be associated with the member.
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ARTICLE V
Affiliates
Agreement of Affiliate
Sec. 3. No applicant may become an affiliate of the Corporation unless it agrees:
(a) Unchanged.
(b) Unchanged.
(c) That, after affiliation, it will at all times keep its charter, by-laws, [rules of fair practice and code of procedure] and other rules so integrated with the corresponding Charter, By-Laws, [Rules of Fair Practice and Code of Procedure] and other rules of the Corporation as not to conflict in any way therewith; and
(d) Unchanged.
Conditions of Affiliation
Sec. 4. No applicant may become an affiliate of the Corporation unless it appears to the Board of Governors:
(a) Unchanged.
(b) That the charter, by-laws, [rules of fair practice and code of procedure] and other rules of the applicant are so integrated with the corresponding Charter, By-Laws, [Rules of Fair Practice and Code of Procedure] and other rules of the Corporation as not to conflict in any way therewith.
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ARTICLE VII
Board of Governors
Powers and Authority of Board of Governors
Sec. 1.
(a) Unchanged.
(1) Unchanged.
(2) adopt such Rules [of Fair Practice] and changes or additions thereto as it deems necessary or appropriate, provided, however, that the Board may at its option submit to the membership any such adoption, change or addition to the Rules [of Fair Practice];
[(3) (a) adopt such rules as the Board of Governors deems appropriate to implement the provisions of the Act as amended and the rules and regulations promulgated thereunder, and (b) make such regulations, issue such orders, resolutions, interpretations, including interpretations of the rules adopted pursuant to this Section, and directions, and make such decisions as it deems necessary or appropriate.]
[(4)] (3) Unchanged.
[(5)] (4) Unchanged.
[(6)] (5) Unchanged.
[(7)] (6) Unchanged.
[(8)] (7) Unchanged.
[(9)] (8) Unchanged.
[(10)] (9) Unchanged,
(b) Unchanged.
Authority to Take Action Under Emergency or Extraordinary Market Conditions
Sec. 3.
(a) The Board of Governors, or between meetings of the Board, a Committee consisting of the Chairman of the Board (or in his absence, a Vice Chairman of the Board), the President of the Corporation, and a member of the Executive Committee, in the event of an emergency or extraordinary market conditions, shall have the authority to take any action regarding [(i)] (1) the trading in or operation of the over-the-counter securities market, the operation of any automated system owned or operated by the Corporation or any subsidiary thereof, and the participation in any such system of any or all persons or the trading therein of any or all securities and [(ii)] (2) the operation of any or all member firms' offices or systems, if, in the opinion of the Board or the Committee hereby constituted, such action is necessary or appropriate for the protection of investors or the public interest or for the orderly operation of the marketplace or the system.
(b) Unchanged.
(c) Unchanged.
Composition of Board
Sec. 4.
(a) The management and administration of the affairs of the Corporation shall be vested in a Board of Governors composed of from twenty-five to twenty-nine Governors as determined from time to time by the Board. The Board shall consist of: [(i)] (1) at least thirteen but not more than fifteen Governors to be elected by the members of the various districts in accordance with the provisions of subsection (b) hereof; [(ii)] (2) at least eleven but not more than thirteen Governors to be elected by the Board in accordance with the provisions of subsection (c) hereof; and [(iii)] (3) the President of the Corporation to be selected by the Board in accordance with the provisions of Article X, Section 2 of the By-Laws. The Board, in exercising its power to determine its size and composition under this subsection (a), shall be required to select its members in a manner such that when all vacancies, if any, are filled, the number of Governors elected by the members of the various districts in accordance with subsection (b) hereof shall exceed the number of Governors (including the President) not so elected.
(b) Unchanged.
(c) The Board shall elect [(i)] (1) at least three Governors representative of investors, none of whom are associated with a member or any broker or dealer; [(ii)] (2) at least three Governors representative of issuers, at least one of whom is not associated with a member or any broker or dealer; [(iii)] (3) at least three Governors chosen from members; [(iv)] (4) at least one Governor representative of the principal underwriters of investment company shares or affiliated members; and [(v)] (5) at least one Governor representative of insurance companies or insurance company affiliated members.
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Election of Board Members
Sec. 7. The Governors elected under subsection (b) of Section 4 of this Article shall be chosen as follows:
Procedure for Nominations by Nominating Committees
(a) Unchanged.
Nomination of Additional Candidates
(b) Unchanged.
Contested Elections
(c) If any additional candidate or candidates are nominated, as provided in subsection (b) of this Section, the District Committee shall forthwith cause the names of the regular candidate and of all other duly nominated candidates for each office to be placed upon a ballot, which shall be sent to all members of the Corporation eligible to vote in the district. Each member of the Corporation having its principal place of business in the district shall be entitled to one vote, and each member having one or more registered branch offices in the district shall be entitled to vote as provided in Section [8] 9 of Article III. The District Committee shall fix a date before which ballots must be returned to be counted. All ballots shall be opened and counted by such officer or employee of the Corporation as the Chairman of the District Committee may designate and in the presence of a representative of each of the candidates if such representation is requested in writing by any candidate named on the ballot. The candidate for each office to be filled receiving the largest number of votes cast shall be declared elected to membership on the Board of Governors, and certification thereof shall be made forthwith to the Board of Governors. In the event of a tie, there shall be a run-off election. In all elections held under this subsection voting shall be made by secret ballot, the procedure for which shall be prescribed by the Board of Governors.
Transitional Procedures
(d) Unchanged.
Filling of Vacancies on Board
Sec. 8. All vacancies in the Board other than those caused by the expiration of a Governor's term of office, shall be filled as follows:
(a) Unchanged.
(b) Unchanged.
(c) If the unexpired term is that of a Governor elected by the Board such vacancy shall be filled in accordance with the provisions of subsections [(c)(i)] (c)(1) through [(c)(v)] (c)(5) of Section 4 of this Article as the case may be.
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ARTICLE VIII
District Committees
* * *
Election of District Committee Members
Sec. 4. Members of the District Committees shall be elected as follows:
Procedure for Nominations by Nominating Committees
(a) Unchanged.
Nomination of Additional Candidates
(b) Unchanged.
Contested Elections
(c) If any additional candidate or candidates are nominated, as provided in paragraph (b) of this Section, the District Committee shall forthwith cause the names of the regular candidate for any contested office and of all other candidates for such office to be placed upon a ballot, which shall be sent to all members of the Corporation eligible to vote in the district. Each member of the Corporation having its principal place of business in the district shall be entitled to one vote, and each member having one or more registered branch offices in the district shall be entitled to vote as provided in Section [8] (9) of Article III The District Committee shall fix the date before which ballots must be returned to be counted. All ballots shall be opened by such officer or employee of the Corporation as the Chairman of the District Committee may designate, and in the presence of a representative of each of the candidates if such representation is requested in writing by any candidate named in the ballot. The candidate for each office to be filled receiving the largest number of votes cast shall be declared elected to membership on the District Committee, and certification thereof shall be made forthwith to the Board of Governors. In the event of a tie, there shall be a runoff election. In all elections held under this Section, voting shall be by secret mail ballot, the procedure for which shall be prescribed by the Board of Governors.
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ARTICLE IX
Nominating Committees
* * *
Election of Nominating Committees
Sec. 3. Members of the Nominating Committee shall be elected as follows:
Procedures for Nominations by Nominating Committees
(a) Unchanged.
Nomination of Additional Candidates
(b) Unchanged.
Contested Elections
(c) If additional candidates are nominated, as provided in paragraph (b) of this Section, the District Committee shall forthwith cause the names of the regular candidate and all other candidates for any contested office to be placed upon a ballot, which shall be sent to all members of the Corporation eligible to vote in the District. Each member of the Corporation having its principal place of business in the District shall be entitled to one vote, and each member having one or more registered branch offices in the District shall be entitled to vote as provided in Section [8] (9) of Article III. The District Committee shall fix the date before which ballots must be returned to be counted. All ballots shall be opened by such officer or employee of the Corporation as the Chairman of the District Committee may designate, and in the presence of a representative of each of the candidates, if such representation is requested in writing by any candidate named in the ballot. The candidate for each office to be filled receiving the largest number of votes cast shall be declared elected to membership on the Nominating Committee and certification thereof shall be made forthwith to the Board of Governors. In the event of a tie, there shall be a run-off election. In all elections held under this Section, voting shall be by secret mail ballot, the procedure for which shall be prescribed by the Board of Governors.
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ARTICLE XII
Rules [of Fair Practice]
Sec. 1. To promote and enforce just and equitable principles of trade and business, to maintain high standards of commercial honor and integrity among members of the Corporation, to prevent fraudulent and manipulative acts and practices, to provide safeguards against unreasonable profits or unreasonable rates of commissions or other charges, to protect investors and the public interest, to collaborate with governmental and other agencies in the promotion of fair practices and the elimination of fraud, and in general to carry out the purposes of the Corporation and of the Act, the Board of Governors is hereby authorized to adopt such Rules [of Fair Practice] for the members and persons associated with members, and such amendments thereto as it may, from time to time, deem necessary or appropriate. If any such Rules [of Fair Practice] or amendments thereto are approved by the Commission as provided in the Act, they shall become effective Rules [of Fair Practice] of the Corporation as of such date as the Board of Governors may prescribe. The Board of Governors is hereby authorized, subject to the provisions of the By-Laws and the Act, to administer, enforce, suspend, or cancel any Rules [of Fair Practice] adopted hereunder.
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ARTICLE XVII
Procedure for Adopting Amendments to By-Laws
Sec. 1. Any member of the Board of Governors by resolution, any District Committee by resolution, or any twenty-five members of the Corporation by petition signed by such members, may propose amendments to these By-Laws. Every proposed amendment shall be presented in writing to the Board of Governors and a record shall be kept thereof. The Board of Governors may adopt any proposed amendment to these By-Laws by affirmative vote of a majority of the members of the Board of Governors then in office. The Board of Governors, upon adoption of any such amendment to these By-Laws, except as to spelling or numbering corrections or as otherwise provided in these By-Laws shall forthwith cause a copy to be sent to and voted upon by each member of the Corporation. If such amendment to these By-Laws is approved by a majority of the members voting within thirty (30) days after the date of submission to the membership, and is approved by the Commission as provided in the Act, it shall become effective as of such date as the Board of Governors may prescribe.
1 Rule numbers will be inserted upon completion of the Manual revision project.
