NASD Requests Comment On Proposed Amendments To The Code Of Procedure And Other Provisions
Comment Period Expires September 13, 1999
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Executive Summary
The National Association of Securities Dealers, Inc. (NASD® or Association) Code of Procedure (the Code) has been in place since August 7, 1997. In light of the Association's additional experience litigating matters under the Code, the Association is proposing a series of clarifying and substantive changes to the Code and other provisions as described more fully below. These changes include:
- setting forth more clearly the Department of Market Regulation's role in disciplinary proceedings;
- clarifying the authority of hearing officers and making some limited changes to that authority;
- clarifying the scope of the Association's document production requirements;
- providing for hearing panel review of staff determinations to impose limitations on member firms' business activities because of financial and/or operational difficulties;
- providing for changes to the process for appeals of disciplinary actions, statutory disqualification proceedings, and certain other accelerated proceedings;
- providing for a streamlined process to impose bars or expulsions for the failure to provide information to the Association; and
- providing for a process by which the Association can more expeditiously cancel memberships of firms that fail to meet the Association's eligibility and qualification standards.
Attachment A includes the text of the proposed changes.
Request For Comment
NASD Regulation encourages all interested parties to comment on the proposal. Comments must be received by September 13, 1999. Comments should be mailed to:
Joan Conley
Office of the Corporate Secretary
NASD Regulation, Inc.
1735 K Street, NW
Washington, DC 20006-1500
or e-mail to:
[email protected]
Important Note: The only comments that will be considered are those submitted via e-mail or in writing.
Before becoming effective, any rule change developed as a result of comments received must be adopted by the NASD Regulation, Inc. (NASD Regulation®) Board of Directors, may be reviewed by the NASD Board of Governors, and must be approved by the Securities and Exchange Commission (SEC).
Questions/Further Information
As noted, written comments should be submitted to Joan Conley. Questions concerning this Notice to Members—Request For Comment may be directed to Eric Moss, Assistant General Counsel, NASD Regulation, at (202) 728-8982.
Discussion
The Code, implemented on August 7, 1997, provides detailed requirements governing NASD Regulation's process for:
Since August 7, 1997, the Association staff has had significant experience under the Code and has noted certain areas that need to be clarified or changed.
Custodian Of The Record
Firms often list persons not associated with the firms as custodians of records on the SEC Form BDW, and then the Association has difficulty obtaining records when firms no longer conduct business. The Association is proposing to add a provision to its Conduct Rules that would require members to designate, as the custodians of the record on the Form BDW, persons who are associated with the firms at the time the Forms BDW are filed.
Eligibility Of Panel Members
In certain circumstances, the National Adjudicatory Council (NAC) or the Review Subcommittee of the NAC (Review Subcommittee) may appoint panels to conduct hearings. Under Rule 1015, only one panel member can be from the NAC, unless a panel member is also a former NASD Regulation Director or NASD Governor. The Association is proposing to eliminate this restriction.
Market Regulation's Role In Disciplinary Process
Both the Department of Market Regulation and the Department of Enforcement represent NASD Regulation in formal disciplinary matters under the Code. However, the disciplinary rules only refer to the Department of Enforcement as the representative of the Association in these matters. The Department of Market Regulation represents NASD Regulation under a delegation of authority from the Department of Enforcement. The Association is proposing amending the Code to clarify the Department of Market Regulation's role in the disciplinary process.
Investigations
The Rule 8220 Series permits the Department of Enforcement to initiate proceedings to suspend or cancel membership from the Association or suspend the association of a person with a member based upon the failure to provide information. These proceedings may be initiated for the failure to provide information pursuant to an Association request or the failure to make required filings with the Association, such as FOCUS reports, or to keep membership applications or supporting documents current. The Association is proposing to amend the Rule 8220 Series to:
Finally, the Association is proposing to amend the service provision under the Rule 8220 Series to make it consistent with the service provision under the Rule 9530 Series, a similar rule series. The staff is proposing that both the Rule 8220 Series and the Rule 9530 Series service provisions permit personal service, service by facsimile, and service by overnight courier. The Association is further proposing to clarify that attempted delivery of a document by an overnight courier may count as service under these provisions.
Service Of Papers—Address Changes
Rule 9134(b)(1) states that service of papers on a natural person in a disciplinary hearing must be at the person's residential address as reflected in the Central Registration Depository (CRDSM). If the Association staff has actual knowledge that the person's CRD address is out of date, then in addition to serving at the residential address as reflected in the CRD, service should also be made at the person's last known residential address and the CRD address of the firm with which the person is associated or affiliated, if he/she is currently in the industry. The Association is proposing to modify the rule to permit adjudicators to waive the requirement of sending papers to CRD addresses when they are no longer valid, and there is a more current address available. This change would only relate to documents served on respondents after complaints have been served.
Further, the Association is proposing to amend Rule 9135(a) to clarify that complaints shall be deemed timely filed so long as they are either mailed or delivered to the Office of Hearing Officers within the two-year jurisdictional period, as outlined in the By-Laws.
Severance Of Cases
Rule 9214 authorizes the Chief Hearing Officer to order the consolidation of disciplinary hearings, but does not specifically refer to the authority of the Chief Hearing Officer to sever disciplinary proceedings. The Association is proposing to amend Rule 9214 to clarify that the Chief Hearing Officer has authority to sever disciplinary proceedings involving multiple respondents into one or more proceedings.
Producing Documents
The Association is proposing amendments to Rule 9253 to clarify the scope of the Association's document production requirements. Rule 9251(a) requires the Association staff to make available to respondents documents prepared or obtained by the staff in connection with the investigations that led to the institution of a disciplinary proceeding. Exceptions to the production requirements are listed in Rule 9251(b), and include examination and inspection reports and internal employee communications. Notwithstanding these exceptions, documents containing the staff's investigative techniques might become discoverable under Rule 9253 if staff members are called as witnesses during hearings. Rule 9253 requires Association staff to produce written statements made or adopted by staff members, if they relate to the subject matter of those persons' testimony. It also requires the staff to produce contemporaneously recorded recitals of oral statements made by witnesses, if those written statements are substantially verbatim.
The proposed modifications of Rule 9253 clarify that the only portions of routine examination or inspection reports, internal employee communications, and any other internal documents that are required to be produced, under this rule, are the portions outlining the substance of (and any conclusions regarding) oral statements made by persons who are not employees of the Association when evidence of those statements are offered by Association staff during disciplinary hearings.
Amending Complaints
The Association is proposing to modify its rules regarding amending complaints to more closely follow the Federal Rules of Civil Procedure (FRCP). The FRCP does not limit the types of amendments that may be made to complaints. NASD Rule 9212, however, only permits amendments to "new matters of fact or law." The Association is proposing to amend the rule to eliminate this restriction. Thus, for instance, under proposed rule change, the Association staff could amend complaints to include additional respondents. Further, the FRCP permits amendments to make complaints conform to the evidence presented. The Association is proposing to modify Rule 9212 to permit such amendments. Also, the FRCP states that amendments to complaints will be freely granted when justice so requires. The Association is proposing to amend Rule 9212 to state that amendments to complaints will be freely granted when justice so requires. Association staff will need to obtain hearing officer approval to amend complaints after answers have been filed.
Effective Dates Of Sanctions
CRD currently sets the time of the imposition of sanctions imposed under the Code by notifying respondents in writing when fines are due and of the effective date of suspensions. The Association is proposing to amend several provisions of the Code to clarify that the effective dates of sanctions are the dates set by the Association staff unless stated otherwise in orders, decisions, or settlement agreements.
Written Orders
Rule 9241(e) states that hearing officers shall enter written rulings or orders reciting any agreements reached and any procedural determinations made by hearing officers at pre-hearing conferences. The Association is proposing to modify this rule to clarify that, when court reporters are present and transcripts of pre-hearing conferences are prepared, hearing officers may deem such transcripts to be sufficient records of the orders in lieu of written orders.
Summary Dispositions
Rule 9264(a) authorizes either the Association or respondents to file motions to summarily dispose of "any or all the causes of action in the complaint." This rule, however, does not permit parties to move to eliminate issues that do not involve entire "causes of actions." The Association is proposing to modify Rule 9264(a) to track the language in the FRCP, which permits courts to dismiss factual issues.
Further, the Association is proposing to modify Rule 9264 to authorize hearing officers to deny, grant, or defer motions to dismiss without referring the matter to the full panel. The authority to grant such motions would be limited to jurisdictional issues, such as whether the complaint was filed within the two-year jurisdictional period.
Default Decisions
Rule 9269 provides that motions to set aside default decisions should be made to the Review Subcommittee or the NAC. The hearing officers who issue the default decisions, however, are particularly familiar with the issues presented. The staff is proposing to modify the rule to state that motions to set aside default decisions should be made to the hearing officers that originally decided the defaults. Appeals from such denials could be made to the NAC or the Review Subcommittee.
Remand Cases
Rule 9349 authorizes the NAC to remand disciplinary cases back to hearing panels. The Association is proposing to amend Rule 9344 and Rule 9349 to clarify that the Review Subcommittee may also remand disciplinary cases back to hearing panels.
Office Of General Counsel
Under Rule 9311 and Rule 9312, the General Counsel is required to obtain Review Subcommittee or NAC authorization to order parties to brief particular matters. The General Counsel rarely seeks additional briefing on particular points, but where the General Counsel believes that additional briefing is necessary, the Review Subcommittee or the NAC would most likely order it. Thus, requiring the General Counsel to seek authorization for additional briefing is an unnecessary use of resources. The Association is proposing that this provision be modified to eliminate this requirement. The Association proposes including in the rules a process by which parties may challenge, before the Review Subcommittee or the NAC, requests for additional briefing made by the General Counsel.
Briefing Schedules
Rule 9347(b) establishes briefing schedules for papers filed in NAC proceedings. The Association is proposing amending this rule to clarify that the time periods listed in the rule are only applicable to the principal briefing schedule and not applicable to the briefing of subsequent collateral issues.
Schedule For Board Submissions
The Association is proposing to amend Rule 9351 to eliminate the requirement that an NASD Governor needs to initiate the review of a disciplinary decision by the Board meeting that is at least 15 days after the date that the Board receives the proposed decision. The Association is proposing to amend the rule to state that if an NASD Governor decides to initiate a review of a disciplinary case, he/she should do so as soon as practicable, but no later than the second Board meeting following the transmission of material to the Board. Finally, the Association is proposing to amend the rule to state that the NASD Board should issue its decision as soon as practicable, but no later than the second Board meeting following the transmission of materials to the Board.
Procedures For Regulation Of Activities Of A Member Experiencing Financial Or Operational Difficulties
Under the Rule 9410 Series, the Department of Member Regulation issues notices and holds initial hearings to determine whether members must limit their business activities as a result of financial and/or operational difficulties. Members can appeal Member Regulation's decisions to the NAC, and the NAC or the Review Subcommittee will appoint a Subcommittee to participate in the review. The Association is proposing to amend the rule series to provide that firms may appeal limitations in notices issued by the Department of Member Regulation to hearing panels that will consist of a hearing officer and two other panelists. Under the proposal, the Department of Member Regulation would not hold hearings, and the NAC would not participate in matters handled under this rule series.
Currently, an NASD Governor may initiate the review of a decision issued by the NAC, under the Rule 9410 Series, not later than the next meeting of the NASD Board that is at least 15 days after the date on which the NASD Board receives the proposed written decision of the NAC. The Association is proposing to replace this procedure with a mechanism by which the Executive Committee of the NASD Board may initiate the review of the hearing panel decision for a period of 15 days. Currently, the Department of Member Regulation's decision is stayed unless otherwise ordered by the NAC decision. The Association is proposing to modify this provision to provide that the Department of Member Regulation's recommendation is stayed unless ordered otherwise by the Executive Committee.
Other Proceedings
Rule 9514(d)(2) states that proceedings involving the following need to be held within 21 days after respondents request hearings:
Hearing panels may, during the initial 21-day period, extend the time an additional 21 days. The Association believes that these periods are too short, and is proposing to extend the initial period to 40 days, and the extension period to 30 days. Since suspensions are not in effect during the prehearing period, extending the period will not prejudice respondents.
Eligibility Proceedings
The Association is proposing several changes to the rules that govern the process by which persons may become or remain associated with a member notwithstanding the existence of a statutory disqualification or for a current member or person associated with a member to obtain relief from the eligibility or qualification requirements. First, the eligibility rules do not state whether extensions of time or waivers of time limitations for filing of papers or holding of hearings may be granted. The Association is proposing to create a rule that permits such actions by consent of all the parties. Further, the eligibility rules do not state whether the disqualification hearing panel or the NAC may order that the record be supplemented. The Association is proposing to create such a rule.
The eligibility rules state that NASD Regulation's statutory disqualification recommendations become effective upon service on applicants. However, only the SEC can grant final approval of statutory disqualification applications. The Association is proposing to amend these rules to reflect this point.
If a member files an application for relief under the eligibility rules, the NAC or the Review Subcommittee appoints a hearing panel composed of two or more members who are current or former members of the NAC or former Directors or Governors. The Association is proposing that the rules be amended to state that members of the Statutory Disqualification Committee may also serve on hearing panels.
The eligibility rules state that if the Association staff initiated the proceedings, the Association will give to the applicant all documents that were relied on by the Association in issuing its notice. However, most applications are started by member firms, not the Association. The Association is proposing to amend the rules to reflect this fact.
The Association is also proposing to amend the rules to provide that once an application is filed, CRD will gather all of the information necessary to process the application, including:
The proposed rule would further provide that CRD will prepare an index of these documents, and simultaneously provide this index and copies of the documents to the disqualified member or sponsoring member, the Office of the General Counsel of NASD Regulation, and the Department of Member Regulation. The rule also would require the Department of Member Regulation to submit its recommendation and supporting documents to the hearing panel and the disqualified member or sponsoring member within 10 business days of the hearing, unless the parties otherwise agree. Similarly, the disqualified member or sponsoring member would be required to submit its documents to the hearing panel and the Department of Member Regulation within 10 business days of the hearing, unless otherwise agreed.
The amendments to the Rule 9520 Series concern the review procedures undertaken by Association staff in the case of certain disqualifying events. In particular, the Association is proposing to amend the rules to permit members to submit a written request for relief (rather than an MC-400 application) in cases where the disqualified member or person is subject to an injunction that was entered 10 or more years prior to the proposed admission or association. Under Exchange Act Rule 19h-1, the NASD is not required to provide any notice to the SEC of the proposed admission or association in these types of cases. The Association also proposes that members be able to file a written request for relief in cases where a member requests to change the supervisor of a disqualified person or where, for instance, the New York Stock Exchange (NYSE) has determined to approve the proposed association of a disqualified person and the NASD concurs with the determination. Member Regulation would also be granted discretion to approve the written request for relief in these cases, if it deemed such action to be consistent with the public interest and the protection of investors.
The Association also proposes to amend the Rule 9520 Series to permit Member Regulation to approve an MC-400 application for relief in those cases where the disqualifying event is excepted from the "full" notice requirements of Rule 19h-1, but where a "short form" notification to the SEC under Rule 19h-1 is still required. In these cases, the member would be required to file an MC-400, but Member Regulation would have the discretion to approve the application when consistent with the public interest and the protection of investors.
In addition, the Association is proposing new Rule 9523 to permit Member Regulation to recommend the membership or continued membership of a disqualified member or sponsoring member or the association or continuing association of a disqualified person pursuant to a supervisory plan. The procedures set forth in proposed Rule 9523 are modeled on current Rule 9216 concerning Acceptance, Waiver, and Consent procedures, and are intended to avoid the requirement of a formal hearing and decision by the Statutory Disqualification Committee (and its hearing panels) in cases that generally involve only the issue of what type of supervisory plan is appropriate for the disqualified member or person. Under proposed Rule 9523, the member would be required to file an MC-400 application with the NASD. Member Regulation, however, would have the discretion to recommend the approval of the application in the event an appropriate supervisory plan is established. The member would be required to execute a letter consenting to the imposition of the supervisory plan. The letter and the supervisory plan would then be submitted to the Office of General Counsel and/or the Chairman of the Statutory Disqualification Committee for review and possible approval. While both the Office of General Counsel and the Committee Chairman would have authority to approve the application or refer it to the NAC, only the Committee Chairman would be permitted to reject the application.
Failure To Respond
As noted above (under the heading Investigations), proceedings initiated under the Rule 8220 Series are designed to address serious on-going violations concerning associated persons and members that are failing to provide the Association with information. For this reason, these proceedings are brought on an accelerated basis.
The Association is proposing to create a new rule series (Rule 9540 Series), which would be used against those who fail to provide the Association with information, required filings, or keep membership applications or supporting documents current. Under the proposed Rule 9540 Series, the Association would send notices informing respondents that failure to provide the Association with previously requested information or required filings or the failure to keep its membership application or supporting documents current will result in suspensions, unless the information is provided to the Association within 20 days. Respondents would have five days to request hearings to challenge proposed suspensions.
These hearings would be conducted before three-member hearing panels, and the hearing panels would have the authority to order any fitting sanctions, including expulsions and bars. Respondents who fail to request hearings to challenge the suspension during the six-month period following the receipt of notices initiating proceedings under this rule series will be automatically barred or expelled.
Further, the Association is proposing to include in the Rule 9540 Series a process by which the Department of Member Regulation could quickly cancel the memberships of firms that fail to meet the Association's eligibility and qualification standards. Under the proposal, the Association would send letters to members informing them that their memberships will be canceled within 20 days of receipt of the letters, unless the firm becomes eligible for continuance in membership within this time period. The members will be provided opportunities to request hearings within five days of service of the notices to challenge the proposed cancellations. The hearings would be held before Hearing Officers.
ATTACHMENT A
Text Of Amendments
(Note: New text is underlined; deletions are bracketed.)
1000. MEMBERSHIP, REGISTRATION AND QUALIFICATION REQUIREMENTS
1010. Membership Proceedings
1015. Review by National Adjudicatory Council
The National Adjudicatory Council or the Review Subcommittee defined in Rule 9120 shall appoint a Subcommittee to participate in the review. The Subcommittee shall be composed of [at least two members. One member shall be a current member of the National Adjudicatory Council. The remaining member or members shall be current or past Directors or past Governors.] two or more persons who shall be current or past members of the National Adjudicatory Council or former Directors or Governors.
3100. BOOKS AND RECORDS, AND FINANCIAL CONDITION
3121. Custodian of the Record
A member who files a Securities and Exchange Commission Form BDW shall designate on the Form BDW, as the custodian of the record, a person associated with the member at the time that the Form BDW is filed.
8000. INVESTIGATIONS AND SANCTIONS
8200. INVESTIGATIONS
8220. Suspension [or Cancellation] for Obstructing Investigations [Failure to Provide Requested Information]
8221. Notice
If a member fails to provide any information, report, material, data, or testimony requested pursuant to the NASD By-Laws or the Rules of the Association[, or fails to keep its membership application or supporting documents current], the Department of Enforcement or the Department of Market Regulation may provide written notice to such member specifying the nature of the failure and stating that the failure to take such action within 20 days after service of the notice constitutes grounds for suspension [or cancellation] of membership.
If a person associated with a member fails to provide any information, report, material, data, or testimony requested pursuant to the NASD By-Laws or the Rules of the Association, the Department of Enforcement or the Department of Market Regulation may provide written notice to such person specifying the nature of the failure and stating that the failure to take such action within 20 days after service of the notice constitutes grounds for suspending the association of the person with the member.
The Department of Enforcement or the Department of Market Regulation shall serve the member or person associated with a member with such notice via personal service or overnight [commercial] courier or by facsimile at location described in Rule 9134(b). Service by overnight courier shall be accomplished by sending the papers through an overnight courier service that generates a written confirmation of receipt or of attempts at delivery.
8222. Hearing
Within five days after the date of service of a notice issued under Rule 8221, a member or person associated with a member served with a notice under Rule 8221(c) may file with the NASD Regulation Office of General Counsel a written request for an expedited hearing before a subcommittee of the National Adjudicatory Council. The request shall state with specificity why the member or associated person believes that there are insufficient grounds for suspension or [cancellation or] any other reason for setting aside the notice issued under Rule 8221.
If a hearing is requested, the National Adjudicatory Council or the Review Subcommittee described in Rule 9120 shall appoint a subcommittee to conduct the hearing and decide whether the member or person associated with a member should be suspended [or canceled]. The subcommittee shall be composed of a current member of the National Adjudicatory Council and one or more current or former members of the National Adjudicatory Council[,] or former Governor or Director. [NASD Regulation Board, or NASD Board.]
The hearing shall be held within 30 days after the date of service of the notice issued under Rule 8221. Not later than seven days before the hearing, the subcommittee shall serve the member or person associated with a member with written notice of the date and time of the hearing via overnight [commercial] courier or facsimile and notify the Department of Enforcement or the Department of Market Regulation of the date and time of the hearing.
Not later than seven days before the hearing, the Department of Enforcement or the Department of Market Regulation shall serve the member or person associated with a member via overnight [commercial] courier with all documents that were considered in connection with the decision to issue a notice under Rule 8221, unless a document meets the criteria of Rule 9251(b)(1)(A), (B), or (C). A document that meets such criteria shall not constitute part of the record, but shall be retained by the Association until the date upon which the Association serves a final decision or, if applicable, upon the conclusion of any review by the Commission or the federal courts. The Department of Enforcement or the Department of Market Regulation shall provide a copy of the documents transmitted to the member or person associated with a member to the subcommittee.
The member or person associated with a member and the Department of Enforcement or the Department of Market Regulation may be represented by counsel at a hearing conducted under this Rule.
Formal rules of evidence shall not apply to a hearing under this Rule. Not later than four days before the hearing, the member or person associated with a member and the Department of Enforcement or the Department of Market Regulation shall exchange copies of proposed hearing exhibits and witness lists and provide copies of the same to the subcommittee.
At any time during its consideration, the subcommittee may direct the member or person associated with a member or the Department of Enforcement or the Department of Market Regulation to submit additional information. Any additional information submitted shall be provided promptly to all parties at least one business day before the subcommittee renders its decision.
8223. Decision
If no Governor calls the proceeding for review within the time prescribed in paragraph (b)(1), the subcommittee's proposed written decision shall become final, and the subcommittee shall serve the final written decision on the member or associated person via overnight [commercial] courier or facsimile.
If a Governor calls the suspension or cancellation proceeding for review within the time prescribed in subparagraph (1), a review panel shall meet and conduct a review not later than 14 days after the call for review. The review panel shall be composed of the NASD Board Executive Committee, except that the Governor who calls the proceeding for review shall serve on the review panel in lieu of a member of the Executive Committee who has the same classification (Industry, Non-Industry, or Public) as such Governor. The review panel may affirm, modify, or reverse the decision of the subcommittee. Not later than seven days after the review panel meeting, the review panel shall serve a final written decision on the member or person associated with a member via overnight [commercial] courier or facsimile. The decision shall state the disposition of the suspension or cancellation proceeding, and if a suspension is imposed, state the grounds for the suspension and the conditions for terminating the suspension.
8225. Termination of Suspension
A suspended member or person associated with a member may file a written request for termination of the suspension on the ground of full compliance with the notice issued under Rule 8221 or, if applicable, the conditions of a decision under Rule 8223, with the head of the department or office of the Association that filed the notices under Rule 8221 [Department of Enforcement].
The head of the department of the Association that filed the notice under Rule 8221 [Department of Enforcement] shall respond to the request in writing within five days after receipt of the request.
If the head of the department or office [Department of Enforcement] grants the request, he or she shall serve the member or person associated with a member with written notice of the termination of the suspension via overnight [commercial] courier or facsimile.
If the head of the department or office denies the request, the suspended member or person associated with a member may file a written request for relief with the NASD Regulation Office of General Counsel. If the member or person associated with a member files the written request for relief within 30 days after service of the decision under Rule 8223, the review panel constituted under Rule 8223 shall respond to the request for relief in writing within ten days after receipt of the request. If the member or person associated with a member files the written request for relief more than 30 days after service of the decision under Rule 8223, the National Adjudicatory Council shall respond to the request for relief in writing within ten days after receipt of the request. The review panel's or National Adjudicatory Council's response shall be served on the member or person associated with a member via overnight [commercial] courier or facsimile.
8300. SANCTIONS
8310. Sanctions for Violation of the Rules
IM-8310-2. Release of Disciplinary Information
9000. CODE OF PROCEDURE
9100. APPLICATION AND PURPOSE
9120. Definitions
The term "Department of Enforcement" means the Department of Enforcement of NASD Regulation [or its delegatee, the Department of Market Regulation].
The term "Interested Association Staff" means, in the context of:
With respect to a particular proceeding, the term "Party" means:
9130. Service; Filing of Papers
9131. Service of Complaint and Document Initiating a Proceeding
A complaint shall be served on each Party by the Department of Enforcement or the Department of Market Regulation. A document initiating a proceeding shall be served on each Party by the Party or person initiating such proceeding or his or her counsel or representative.
9134. Methods of, Procedures for Service
Service by [commercial] courier may be accomplished by sending the papers through an [commercial] courier service that generates a written confirmation of receipt or of attempts at delivery.
Papers served on a natural person may be served at the natural person's residential address, as reflected in the Central Registration Depository, if applicable. When a Party or other person responsible for serving such person has actual knowledge that the natural person's Central Registration Depository address is out of date, duplicate copies shall be served on the natural person at the natural person's last known residential address and the business address in the Central Registration Depository of the entity with which the natural person is employed or affiliated. Papers may also be served at the business address of the entity with which the natural person is employed or affiliated, as reflected in the Central Registration Depository, or at a business address, such as a branch office, at which the natural person is employed, or at which the natural person is physically present during a normal business day. The Hearing Officer may waive the requirement of serving documents (other than complaints) at the addresses listed in the Central Registration Depository if there is evidence that these addresses are no longer valid, and there is a more current address available. If a natural person is represented by counsel or a representative, papers served on the natural person, excluding a complaint or a document initiating a proceeding, shall be served on the counsel or representative.
Personal service and service by [commercial] courier or express delivery are complete upon delivery. Service by mail is complete upon mailing.
9135. Filing of Papers with Adjudicator: Procedure
Papers that are required to be filed with an Adjudicator within a time limit specified by the Adjudicator or within a time limit set forth in the Rules shall be deemed timely if received within the time limit, unless otherwise ordered by an Adjudicator, except complaints, which shall be deemed timely filed upon mailing or delivery to the Office of Hearing Officers. Other papers that are required to be filed shall be deemed timely if, on the same day such papers are served, they are also hand-delivered, mailed via U.S. Postal service first class mail, or sent by courier to the Association.
All papers required to be filed pursuant to the Rule 9200 Series and any notice of appeal or review required to be filed pursuant to the Rule 9300 Series shall be filed with the Office of Hearing Officers. All other papers required to be filed pursuant to the Rule 9000 Series shall be filed where specified in the Rule, or if not specified in the Rule, with the Adjudicator, unless the Adjudicator orders otherwise.
Papers filed with an Adjudicator or the Office of Hearing Officers shall be accompanied by a certificate of service stating the name of the person or persons served, the date on which service is made, the method of service and, if service is not made in person, the address to which service is made. Such certificate shall be executed by the person who made the service. If the method of service on a Party is different from the method of service on any other Party, the certificate shall state why such different method was used.
9140. Proceedings
9146. Motions
No change.
9210. Complaint and Answer
9211. Authorization of Complaint
9212. Complaint Issuance - Requirements, Service, Amendment, Withdrawal, and Docketing
The Department of Enforcement or the Department of Market Regulation may file and serve an amended complaint [that includes new matters of fact or law] once as a matter of course at any time before the Respondent answers the complaint. Otherwise, upon motion by the Department of Enforcement or the Department of Market Regulation, the Hearing Officer may permit the Department of Enforcement or the Department of Market Regulation to amend the complaint, including amendments so as to make the complaint conform to the evidence presented [to include new matters of fact or law], after considering whether the Department of Enforcement or the Department of Market Regulation has shown good cause for the amendment and whether any Respondent will suffer any unfair prejudice if the amendment is allowed. Amendments to complaints will be freely granted when justice so requires.
With prior leave of the Hearing Officer, the Department of Enforcement or the Department of Market Regulation may withdraw a complaint. If the Department of Enforcement or the Department of Market Regulation withdraws the complaint before the earlier of (1) the Hearing Panel's or, if applicable, the Extended Hearing Panel's, issuance of a ruling on a motion for summary disposition, or (2) the start of the hearing on the merits, the withdrawal of the complaint by the Department of Enforcement or the Department of Market Regulation shall be without prejudice and the Department of Enforcement or the Department of Market Regulation shall be permitted to refile a case based on allegations concerning the same facts and circumstances that are set forth in the withdrawn complaint. If the Department of Enforcement or the Department of Market Regulation requests to withdraw such complaint after the occurrence of either of the two events set forth in (1) and (2) in this paragraph, the Hearing Panel or, if applicable, the Extended Hearing Panel, after considering the facts and circumstances of the request, shall determine whether the withdrawal shall be granted with prejudice.
9213. Assignment of Hearing Officer and Appointment of Panelists to Hearing Panel or Extended Hearing Panel
As soon as practicable after the Department of Enforcement or the Department of Market Regulation has filed a complaint with the Office of Hearing Officers, the Chief Hearing Officer shall assign a Hearing Officer to preside over the disciplinary proceeding and shall serve the Parties with notice of the Hearing Officer's assignment pursuant to Rule 9132.
9214. Consolidation or Severance of Disciplinary Proceedings
No change.
No change.
No change.
The Chief Hearing Officer may order the severance of a disciplinary proceeding into two or more disciplinary proceedings, upon his or her own motion. In determining whether to order the severance of such disciplinary proceedings, the Chief Hearing Officer shall consider:
A Party may file a motion to sever a disciplinary proceeding if one or more of the factors favoring severance set forth in paragraph (d) appear to be present. If a Party moves to sever a disciplinary proceeding, the Party shall file such motion with the Office of Hearing Officers, and, pursuant to Rule 9133, shall serve the same upon each of the parties to the action proposed to be severed. The Parties shall have 14 days after service to file a response, stating any arguments in favor of or opposition to severance, and shall serve the response upon the Parties in the case proposed to be severed. The Chief Hearing Officer shall issue an order approving or denying the request for severance.
If the Chief Hearing Officer issues an order to sever a disciplinary proceeding for which a Hearing Panel or, if applicable, Extended Hearing Panel, has been appointed, the Chief Hearing Officer's order shall specify whether the same Hearing Panel or, if applicable, Extended Hearing Panel, shall preside over the severed disciplinary proceedings, or shall appoint a new Hearing Panel(s) or, if applicable, Extended Hearing Panel(s), to preside over any or all of the severed proceedings, based on the criteria set forth in Rules 9231 and 9232.
9215. Answer to Complaint
If a Respondent does not file an answer or make any other filing or request related to the complaint with the Office of Hearing Officers within the time required, the Department of Enforcement or the Department of Market Regulation shall send a second notice to such Respondent requiring an answer within 14 days after service of the second notice. The second notice shall state that failure of the Respondent to reply within the period specified shall allow the Hearing Officer, in the exercise of his or her discretion, pursuant to Rule 9269 to: (1) treat as admitted by the Respondent the allegations in the complaint; and (2) issue a default decision against the Respondent. If the Respondent fails to file an answer with the Office of Hearing Officers within the time required, the Hearing Officer may issue a default decision against the Respondent pursuant to Rule 9269.
9216. Acceptance, Waiver, and Consent; Plan Pursuant to SEC Rule 19d-1(c)(2)
9240. Pre-hearing Conference and Submission
9241. Pre-hearing Conference
At or following the conclusion of any conference held pursuant to this Rule, the Hearing Officer shall enter a written ruling or order that recites any agreements reached and any procedural determinations made by the Hearing Officer. However, if a court reporter prepares a transcript of the conference, the Hearing Officer may determine that it is unnecessary to issue a written ruling or order.
9250. Discovery
9251. Inspection and Copying of Documents in Possession of Staff
The Hearing Officer may require the Department of Enforcement or the Department of Market Regulation to submit to the Hearing Officer a list of Documents withheld pursuant to subparagraphs (b)(1)(A) through (D) or to submit to the Hearing Officer any Document withheld. Upon review, the Hearing Officer may order the Department of Enforcement or the Department of Market Regulation to make the list or any Document withheld available to the other Parties for inspection and copying. A motion to require the Department of Enforcement or the Department of Market Regulation to produce a list of Documents withheld pursuant to paragraph (b) shall be based upon some reason to believe that a Document is being withheld in violation of the Code.
The Hearing Officer shall determine the schedule of production of documents pursuant to this Rule. Unless otherwise ordered by the Hearing Officer, the Department of Enforcement or the Department of Market Regulation shall commence making Documents available to a Respondent for inspection and copying pursuant to this Rule not later than 21 days after service of the Respondent's answer or, if there are multiple Respondents, not later than 21 days after the last timely answer is filed. If a Respondent in a multi-Respondent case fails to answer, the Department of Enforcement or the Department of Market Regulation shall make Documents available to all other Respondents not later than the later of:
In the event that a Document required to be made available to a Respondent pursuant to this Rule is not made available by the Department of Enforcement or the Department of Market Regulation, no rehearing or amended decision of a proceeding already heard or decided shall be required unless the Respondent establishes that the failure to make the Document available was not harmless error. The Hearing Officer, or, upon appeal or review, a Subcommittee, an Extended Proceeding Committee, or the National Adjudicatory Council, shall determine whether the failure to make the document available was not harmless error, applying applicable Association, Commission, and federal judicial precedent.
9253. Production of Witness Statements
Notwithstanding the provisions of Rule 9251(b),
In the event that a statement required to be made available for inspection and copying by a Respondent is not provided by the Department of Enforcement or the Department of Market Regulation, there shall be no rehearing of a proceeding already heard, or issuance of an amended decision in a proceeding already decided, unless the Respondent establishes that the failure to provide the statement was not harmless error. The Hearing Officer, or upon appeal or review, a Subcommittee, an Extended Proceeding Committee, or the National Adjudicatory Council, shall determine whether the failure to provide any statement was not harmless error, applying applicable Association, Commission, and federal judicial precedent.
9260. Hearing and Decision
9264. Motion for Summary Disposition
After a Respondent's answer has been filed and Documents have been made available to that Respondent for inspection and copying pursuant to Rule 9251, the Respondent or the Department of Enforcement or the Department of Market Regulation, without leave of the Hearing Officer, may make a motion for summary disposition of any or all the causes of action in the complaint with respect to that Respondent, as well as any defense raised in a Respondent's answer. All pre-hearing motions for summary disposition and supporting papers shall be filed at least 21 days before the time set for the hearing, or at such earlier time as ordered by the Hearing Officer. Notwithstanding the provisions of Rule 9146(d), any opposition or response to a pre-hearing motion for summary disposition shall be filed at least seven days before the time set for the hearing.
After a hearing on the merits has commenced, a Respondent or the Department of Enforcement or the Department of Market Regulation may make a motion for summary disposition of any or all of the causes of action in the complaint with respect to that Respondent or defenses raised in that Respondent's answer only with leave of the Hearing Officer.
If on motion under this rule a decision is not rendered upon the whole case or for all the relief asked and a hearing is necessary, the Hearing Panel or, if applicable, the Extended Hearing Panel, at the hearing of the motion, by examining the pleadings and the evidence before it and by questioning counsel, shall, if practicable ascertain what material facts exist without substantial controversy and what material facts are actually and in good faith controverted. It shall thereupon make an order specifying the facts that appear without substantial controversy, and directing such further proceedings in the action as are just. Upon the hearing of the action the facts so specified shall be deemed established, and the hearing shall be conducted accordingly.
A motion for summary disposition pursuant to paragraph (a) shall be accompanied by the following: a statement of undisputed facts; a supporting memorandum of points and authorities; and affidavits or declarations that set forth such facts as would be admissible at the hearing and show affirmatively that the affiant is competent to testify to the matters stated therein. A memorandum of points and authorities in support or opposition shall not exceed 35 pages.
The Hearing Officer may promptly deny or defer decisions on any motion for summary disposition, however, only the Hearing Panel or, if applicable, the Extended Hearing Panel, may grant a motion for summary disposition, except the Hearing Officer may grant motions for summary disposition with respect to questions of jurisdiction. [The Hearing Panel or, if applicable, the Extended Hearing Panel, shall promptly grant or deny the motion for summary disposition or shall defer decision on the motion.] The Hearing Panel or, if applicable, the Extended Hearing Panel, may grant the motion for summary disposition if there is no genuine issue with regard to any material fact and the Party that files the motion is entitled to summary disposition as a matter of law. If a Party files a motion under paragraph (a), the facts alleged in the pleadings of the Party against whom the motion is made shall be taken as true, except as modified by stipulations or admissions made by the nonmoving Party, by uncontested affidavits or declarations, or by facts officially noticed pursuant to Rule 9145. If a Party opposing a motion for summary disposition made under paragraph (a) cannot present, by affidavit prior to the hearing, facts essential to justify the Party's opposition to the motion, the Hearing Panel or, if applicable, the Extended Hearing Panel, may deny the motion for summary disposition or defer the decision on the motion.
9268. Decision of Hearing Panel or Extended Hearing Panel
No change.
The decision shall include:
9269. Default Decisions
Party may, for good cause shown, file a motion to set aside a default, dismissal, and the imposition of costs. Upon a showing of good cause, the Hearing Officer that entered the original order shall decide the motion. [either the Review Subcommittee or the National Adjudicatory Council may enter such an order.] If the Hearing Officer that issued the original order is not available, the Chief Hearing Officer shall appoint another Hearing Officer to decide the motion.
If a default decision is not appealed pursuant to Rule 9311 or called for review pursuant to Rule 9312 within 25 days after the date the Office of Hearing Officers serves it on the Parties, the default decision shall become the final disciplinary action of the Association for purposes of SEC Rule 19d-1(c)(1). Unless otherwise provided in the default decision, the sanction(s) shall become effective on a date to be determined by the Association staff [30 days after the default decision becomes the final disciplinary action of the Association], except that a bar or expulsion shall become effective immediately upon the default decision becoming the final disciplinary action of the Association. The Association shall serve the decision on a Respondent by [overnight] courier, facsimile or other means reasonably likely to obtain prompt service when the sanction is a bar or an expulsion.
9270. Settlement Procedure
An offer of settlement shall be in writing and signed by the person making the offer, and, if the person is represented by counsel or a representative, signed also by the counsel or representative. The offer of settlement shall contain in reasonable detail:
If a Respondent makes an offer of settlement and the Department of Enforcement or the Department of Market Regulation does not oppose it, the offer of settlement is uncontested. If an offer of settlement is determined to be uncontested by the Department of Enforcement or the Department of Market Regulation before a hearing on the merits has begun, the Department of Enforcement or the Department of Market Regulation shall transmit the uncontested offer of settlement and a proposed order of acceptance to the National Adjudicatory Council with its recommendation. If an offer of settlement is determined to be uncontested by the Department of Enforcement or the Department of Market Regulation after a hearing on the merits has begun, the Department of Enforcement or the Department of Market Regulation shall transmit the offer of settlement and a proposed order of acceptance to the Hearing Panel or, if applicable, the Extended Hearing Panel for acceptance or rejection. If accepted by the Hearing Panel or, if applicable, Extended Hearing Panel, the offer of settlement and the order of acceptance shall be forwarded to the National Adjudicatory Council to accept or reject.
If a Respondent makes an offer of settlement and the Department of Enforcement or the Department of Market Regulation opposes it, the offer of settlement is contested. When the Department of Enforcement or the Department of Market Regulation opposes an offer of settlement, the Respondent's written offer and the Department of Enforcement's or the Department of Market Regulation's written opposition shall be submitted to a Hearing Panel or, if applicable, an Extended Hearing Panel. The Hearing Panel or, if applicable, the Extended Hearing Panel, may order the Department of Enforcement or the Department of Market Regulation and the Respondent to attend a settlement conference.
9300. REVIEW OF DISCIPLINARY PROCEEDING BY NATIONAL ADJUDICATORY COUNCIL AND NASD BOARD; APPLICATION FOR COMMISSION REVIEW
9310. Appeal to or Review by National Adjudicatory Council
9311. Appeal by Any Party; Cross-Appeal
A Respondent or the Department of Enforcement or the Department of Market Regulation may file a written notice of appeal within 25 days after service of a decision issued pursuant to Rule 9268 or Rule 9269.
The National Adjudicatory Council may, in its discretion, deem waived any issue not raised in the notice of appeal or cross-appeal. The National Adjudicatory Council, the Review Subcommittee, a Subcommittee, the General Counsel or, if applicable, an Extended Proceeding Committee, [or, for a disciplinary proceeding decided under Rule 9269, the General Counsel,] shall provide the Parties with notice of, and an opportunity to submit briefs on, any issue that shall be considered by the National Adjudicatory Council if such issue was not previously set forth in the notice of appeal. Parties may submit motions to either the Review Subcommittee or the National Adjudicatory Council challenging requests for briefing made by the General Counsel under this Rule of issues that were not previously set forth in the notice of appeal.
No change.
9312. Review Proceeding Initiated By National Adjudicatory Council
If the review of a disciplinary proceeding by the National Adjudicatory Council is terminated before the National Adjudicatory Council issues a decision on the merits because all appealing Parties file a notice of withdrawal of appeal and no Party previously filed a notice of cross-appeal, or all Parties who previously filed a notice of cross-appeal file a notice of withdrawal of cross-appeal:
9313. Counsel to National Adjudicatory Council
[A Counsel to the National Adjudicatory Council shall be appointed by the General Counsel for each disciplinary case on appeal or review.] A Counsel to the National Adjudicatory Council shall have authority to take ministerial and administrative actions to further the efficient administration of a proceeding, including the authority to:
9340. Proceedings
9344. Failure to Participate Below; Abandonment of Appeal
When an appealing Party did not participate in the disciplinary proceeding before a Hearing Officer, a Hearing Panel or, if applicable, an Extended Hearing Panel, but shows good cause for the failure to participate, the National Adjudicatory Council or the Review Subcommittee may dismiss the appeal and remand the matter for further proceedings, or may order that the appeal proceed. If the appealing Party did not participate in the disciplinary proceeding before a Hearing Officer, a Hearing Panel or, if applicable, an Extended Hearing Panel, and fails to show good cause for the failure to participate, the matter shall be considered by the Subcommittee or, if applicable, the Extended Proceeding Committee, and the National Adjudicatory Council on the basis of the record and other documents, as provided in Rules 9346 and 9347. Alternatively, the National Adjudicatory Council or Review Subcommittee may remand the disciplinary proceeding with instructions. For purposes of this paragraph, failure to participate shall include failure to file an answer or otherwise respond to a complaint, or failure to appear at a scheduled hearing, but shall not include failure to request a hearing pursuant to Rule 9221.
No change.
9347. Filing of Papers in National Adjudicatory Council Proceedings
No change.
Briefs shall be due upon dates established by the Subcommittee or, if applicable, the Extended Proceeding Committee, the National Adjudicatory Council, the Review Subcommittee, or Counsel to the National Adjudicatory Council in a scheduling order. Unless the Subcommittee or, if applicable, the Extended Proceeding Committee, the National Adjudicatory Council, the Review Subcommittee, or Counsel to the National Adjudicatory Council specifies otherwise, opening briefs shall be submitted not less than 21 days from the date of the scheduling order, and answering briefs shall be submitted 21 days thereafter. When reply briefs are submitted, such briefs shall be filed not later than ten days after service of the answering brief. Counsel to the National Adjudicatory Council may not shorten a period previously established for the filing of briefs except with the consent of the Parties. The time periods listed in this provision are only applicable to the filing of opening briefs, answering briefs, and reply briefs.
9349. National Adjudicatory Council Formal Consideration; Decision
In an appeal or review of a disciplinary proceeding governed by the Rule 9300 Series that is not withdrawn or dismissed prior to a decision on the merits, the National Adjudicatory Council, after considering all matters presented in the appeal or review and the written recommended decision of the Subcommittee or, if applicable, the Extended Proceeding Committee, may affirm, dismiss, modify or reverse the decision of the Hearing Panel or, if applicable, Extended Hearing Panel, with respect to each Respondent who has appealed or cross-appealed or is subject to a call for review. The National Adjudicatory Council may affirm, modify, reverse, increase, or reduce any sanction, or impose any other fitting sanction. Alternatively, the National Adjudicatory Council or the Review Subcommittee may remand the disciplinary proceeding with instructions. The National Adjudicatory Council shall prepare a proposed written decision pursuant to paragraph (b).
9350. Discretionary Review by NASD Board
9351. Discretionary Review by NASD Board
A Governor may call a disciplinary proceeding for review by the NASD Board. [if the call for review is made within the period prescribed in paragraph (b).] The Governor should call a case for review as soon as practicable, but no later than the second NASD Board meeting following the receipt of the proposed National Adjudicatory Council decision by the NASD Board.
By a unanimous vote of the NASD Board, the NASD Board may shorten the period in subparagraph (1) to less than 15 days. By an affirmative vote of the majority of the NASD Board then in office, the NASD Board may, during the 15 day period in subparagraph (1), vote to extend the period in subparagraph (1) to more than 15 days.]
If a Governor calls a disciplinary proceeding for review [within the period prescribed in paragraph (b)], the NASD Board shall review the disciplinary proceeding as soon as practicable. [ not later than the next meeting of the NASD Board]. The NASD Board may order the Parties (excluding any Respondent who did not appeal or cross-appeal, or as to whom the issues appealed or called for review do not apply) to file briefs in connection with the review proceedings pursuant to this Rule.
After review, the NASD Board may affirm, modify, or reverse the proposed written decision of the National Adjudicatory Council. The NASD Board may affirm, modify, reverse, increase, or reduce any sanction, or impose any other fitting sanction. Alternatively, the NASD Board may remand the disciplinary proceeding with instructions. The NASD Board shall prepare a written decision that includes all of the elements described in Rule 9349(b)(1) through (6). The NASD Board shall reach a decision as soon as practicable, but no later than the second Board meeting following the call for review.
9360. Effectiveness of Sanctions
Unless otherwise provided in the decision issued under Rule 9349 or Rule 9351, a sanction (other than a bar or an expulsion) specified in a decision constituting final disciplinary action of the Association for purposes of SEC Rule 19d-1(c)(1) shall become effective on a date to be determined by Association staff [30 days after the date of service of the decision constituting final disciplinary action]. A bar or an expulsion shall become effective upon service of the decision constituting final disciplinary action of the Association [for purposes of SEC Rule 19d-1(c)(1)], unless otherwise specified therein. The Association shall serve the decision on a Respondent by [overnight] courier, facsimile or other means reasonable likely to obtain prompt service when the sanction is a bar or an expulsion.
9400. LIMITATION PROCEDURES UNDER RULES 3130 AND 3131
9410. Procedures for Regulating Activities of a Member Experiencing Financial or Operational Difficulties
9412. Notice of Limitations
The Department of Member Regulation may issue a notice directing a member to limit its business activities if the Department of Member Regulation has reason to believe that any condition specified in Rule 3130 or 3131 exists. The notice shall specify the grounds on which such action is being taken, the nature of the limitations to be imposed, the effective date of the limitations, a fitting sanction that will be imposed if the member fails to comply with the limitations set forth in the notice, and the conditions for terminating such limitations. The effective date of the limitations shall be at least seven days after the date of service of the notice. The notice also shall inform the member that it may request a hearing before the Department of Member Regulation under Rule 9413. The Department of Member Regulation shall serve the notice by facsimile or overnight [commercial] courier.
9413. [Department of Member Regulation Consideration
A member aggrieved by a notice issued under Rule 9412 may file a written request for a hearing before the Department of Member Regulation. The request shall state the specific grounds for withdrawing or modifying the limitations specified in the notice. The request shall be filed pursuant to Rules 9135, 9136, and 9137 within five days after service of the notice under Rule 9412.
A request for hearing shall stay the notice of limitations served under Rule 9412 unless the National Adjudicatory Council orders otherwise.
If a member requests a hearing under paragraph (a), the Department of Member Regulation shall conduct a hearing within 14 days after service of the notice under Rule 9412. Not less than five business days before the hearing, the Department of Member Regulation shall provide written notice to the member of the location, date, and time of the hearing by facsimile or overnight commercial courier.
The member shall be entitled to be heard in person, to be represented by an attorney, and to submit any relevant evidence. The hearing shall be recorded and a transcript prepared by a court reporter. The member may purchase a copy of the transcript from the court reporter at prescribed rates. A witness may purchase a copy of the transcript of his or her own testimony from the court reporter at prescribed rates. Proposed corrections to the transcript may be submitted by affidavit to the Department of Member Regulation within a reasonable time determined by the Department of Member Regulation. Upon notice to the participants in the hearing, the Department of Member Regulation may order corrections to the transcript as requested or sua sponte.
The record shall consist of:
The custodian of the record shall be the Department of Member Regulation.
Evidence that is proffered but not admitted during the hearing shall not be part of the record, but shall be retained by the custodian of the record until the date when the Association's decision becomes final or, if applicable, upon the conclusion of any review by the Commission or the federal courts.
Within seven days after the hearing, the Department of Member Regulation shall issue a written decision approving, modifying, or withdrawing the limitations specified in the notice. If the decision imposes limitations, the decision shall state the grounds for the limitations, the conditions for terminating such limitations, and provide for a fitting sanction to be imposed under Rule 9416 if the member fails to comply with the limitations. The Department of Member Regulation shall promptly serve the decision by facsimile or overnight commercial courier. The limitations imposed shall become effective upon service of the decision.
If a member does not request a hearing under paragraph (a), the limitations specified in the notice shall become effective on the date specified in the notice. Unless the National Adjudicatory Council calls the notice for review under Rule 9414(a)(2), the limitations specified in the notice shall remain in effect until the Department of Member Regulation reduces or removes the limitations pursuant to Rule 9417(b).]
[9414.] Hearing Panel Review [National Adjudicatory Council Review]
A member aggrieved by a notice [decision] issued under Rule 9412 [9413] may file a written request [application] for hearing [review by] before a Hearing Panel [the National Adjudicatory Council] with the Office of Hearing Officers. The request [application] shall state the specific grounds for withdrawing or modifying the limitations specified in the notice. The request shall be filed pursuant to Rules 9135, 9136, and 9137 within five days after service of the notice under Rule 9412. [the review and whether oral argument is requested. The application shall be filed pursuant to Rules 9135, 9136, and 9137 within seven days after service of the decision.] The member may withdraw its request [application for review] at any time by filing a written notice with the Office of Hearing Officers [National Adjudicatory Council] pursuant to Rules 9135, 9136, and 9137.
A decision issued under Rule 9413 shall subject to a call for review by any member of National Adjudicatory Council or the Review Subcommittee within 30 days after service of the decision. If a member that receives a notice under Rule 9412 does not request a hearing under Rule 9413, the notice shall be subject to a call for review by any member of the National Adjudicatory Council or the Review Subcommittee within 30 days after the effective date of the notice. If the National Adjudicatory Council or the Review Subcommittee calls a decision or notice for review, a written notice of review shall be served promptly on the member pursuant to Rules 9132 and 9134. The notice of review shall state the specific grounds for the review and whether an oral argument is ordered. If a decision is called for review by a member of the National Adjudicatory Council or the Review Subcommittee, the National Adjudicatory Council shall review the decision.]
The Chief Hearing Officer shall assign a Hearing Officer to preside over the matter, and appoint Panelists pursuant to Rule 9231 and 9232 to the Hearing Panel. As soon as practicable after assignment, the Chief Hearing Officer shall serve the Parties with notice of the Hearing Panel.
Unless otherwise ordered by the NASD Board Executive Committee [National Adjudicatory Council], the initiation of a review under this paragraph shall stay the decision of the Department of Member Regulation or an uncontested notice until a decision constituting final action of the Association is issued.
If a member requests a hearing under paragraph (a), the a Hearing Panel shall conduct a hearing within 14 days after service of the notice under Rule 9412. Not less than five business days before the hearing, the Office of Hearing Officers shall provide written notice to the member of the location, date, and time of the hearing by facsimile or overnight courier.
The member shall be entitled to be heard in person, to be represented by an attorney, and to submit any relevant evidence. The hearing shall be recorded and a transcript prepared by a court reporter. The member may purchase a copy of the transcript from the court reporter at prescribed rates. A witness may purchase a copy of the transcript of his or her own testimony from the court reporter at prescribed rates. Proposed corrections to the transcript may be submitted by affidavit to the Office of Hearing Officers within a reasonable time determined by the Office of Hearing Officers. Upon notice to the participants in the hearing, the Department of Member Regulation may order corrections to the transcript as requested or sua sponte.
The record shall consist of:
The custodian of the record shall be the Office of Hearing Officers.
Evidence that is proffered but not admitted during the hearing shall not be part of the record, but shall be retained by the custodian of the record until the date when the Association's decision becomes final or, if applicable, upon the conclusion of any review by the Commission or the federal courts.
[If a review is initiated under this paragraph, the Department of Member Regulation shall assemble and prepare an index of the record, transmit the record and index to the National Adjudicatory Council, certify to the National Adjudicatory Council that the record is complete, and serve a copy of the record and index on the member.]
Within seven days after the hearing, the Hearing Panel shall issue a written decision approving, modifying, or withdrawing the limitations specified in the notice. If the decision imposes limitations, the decision shall state the grounds for the limitations, the conditions for terminating such limitations, and provide for a fitting sanction to be imposed under Rule 9416 if the member fails to comply with the limitations. The Office of Hearing Officers shall promptly serve the decision by facsimile or overnight courier. The limitations imposed shall become effective upon service of the decision.
The Hearing Panel shall provide its proposed written decision to the NASD Board Executive Committee. The NASD Board Executive Committee may call the proceeding for review pursuant to Rule 9415. If the NASD Board Executive Committee does not call the proceeding for review, the proposed written decision of the Hearing Panel shall become final, and the Hearing Pane shall serve its written decision on the member and the Department of Member Regulation pursuant to Rules 9132 and 9134. The decision shall be effective upon service. The decision shall constitute the final action of the Association.
The prohibitions against ex parte communications in Rule 9143 shall become effective under the Rule 9410 Series when Association staff has knowledge that a member intends to file a written application for review or that the NASD Board Executive Committee [National Adjudicatory Council] intends to review a decision on its own motion under this Rule.
The National Adjudicatory Council or the Review Subcommittee shall appoint a Subcommittee to participate in the review. The Subcommittee shall be composed of two or more members. One member shall be a member of the National Adjudicatory Council, and the remaining member or members shall be current or former members of the National Adjudicatory Council or a former Director or Governor.
If oral argument is timely requested by the member, oral argument shall be held before the Subcommittee within 14 days after service of the decision under Rule 9413. If oral argument is ordered by the Subcommittee, oral argument shall be held before the Subcommittee within 14 days after service of the order under paragraph (a)(2). The member shall be entitled to be represented by an attorney. The oral argument shall be recorded and a transcript prepared by a court reporter. The member may purchase a copy of the transcript from the court reporter at prescribed rates. A witness may purchase a copy of the transcript of his or her own testimony from the court reporter at prescribed rates. Proposed corrections to the transcript may be submitted by affidavit to the Subcommittee within a reasonable time determined by the Subcommittee. Upon notice to the participants in the hearing, the Subcommittee may order corrections to the transcript as requested or sua sponte.
The Subcommittee shall conduct its review on the basis of the record, any written submissions by the member and the Department of Member Regulation, and the decision issued pursuant to Rule 9413(i). If oral argument is requested or ordered, Subcommittee also may consider any submissions or additional arguments by the member and the Department of Member Regulation.
The Subcommittee may consider any additional relevant and material evidence if the member shows good cause for not previously submitting such evidence. If additional evidence is accepted by the Subcommittee, the evidence shall be included in the record. Proffered evidence that is not accepted into the record by the Subcommittee shall be retained until the date when the Association's decision becomes final or, if applicable, upon the conclusion of any review by the Commission or the federal courts.
The Subcommittee shall present a recommended decision in writing to the National Adjudicatory Council not later than seven days before the meeting of the National Adjudicatory Council at which the proceeding shall be considered.
After considering all matters presented in the review and the written recommended decision of the Subcommittee, the National Adjudicatory Council] may affirm, modify, or reverse the Department of Member Regulation's decision or remand the proceeding with instructions. The National Adjudicatory Council shall prepare a proposed written decision pursuant to subparagraph (2).
The decision shall include:
The National Adjudicatory Council shall provide its proposed written decision to the NASD Board. The NASD Board may call the proceeding for review pursuant to Rule 9415. If the NASD Board does not call the proceeding for review, the proposed written decision of National Adjudicatory Council shall become final, and the National Adjudicatory Council shall serve its written decision on the member and the Department of Member Regulation pursuant to Rules 9132 and 9134. The decision shall be effective upon service. The decision shall constitute the final action of the Association, unless National Adjudicatory Council remands the proceeding.]
9415. Discretionary Review by the NASD Board Executive Committee
A member of the NASD Board Executive Committee [Governor] may call a proceeding for review by the NASD Board Executive Committee if the call for review is made within the period prescribed in paragraph (b).
A member of the NASD Board Executive Committee [Governor] shall make his or her call for review not later than the next meeting of the NASD Board Executive Committee that is at least 15 days after the date on which the NASD Board Executive Committee receives the proposed written decision of the Hearing Panel [National Adjudicatory Council]. By a unanimous vote of the NASD Board Executive Committee, the NASD Board Executive Committee may shorten the period to less than 15 days. By an affirmative vote of the majority of the NASD Board Executive Committee then in office, the NASD Board Executive Committee may, during the 15 day period, vote to extend the period to more than 15 days.
If an NASD Board Executive Committee member [Governor] calls a proceeding for review within the period prescribed in paragraph (b), the NASD Board Executive Committee shall review the proceeding not later than the next meeting of the NASD Board Executive Committee. The NASD Board Executive Committee may order the filing of briefs in connection with its review proceedings pursuant to this Rule.
After review, the NASD Board Executive Committee may affirm, modify, or reverse the proposed written decision of the Hearing Panel [National Adjudicatory Council]. Alternatively, the NASD Regulation Board may remand the proceeding with instructions. The NASD Board Executive Committee shall prepare a written decision that includes all of the elements described in Rule 9414(k)[(c)(2)].
The NASD Board Executive Committee shall issue and serve its written decision on the member and the Department of Member Regulation pursuant to Rules 9132 and 9134. The decision shall be effective upon service. The decision shall constitute the final action of the Association, unless the NASD Board Executive Committee remands the proceeding.
9416. Enforcement of Sanctions
If the Department of Member Regulation determines that a member has failed to comply with any limitations imposed by a decision or an effective notice under the Rule 9410 Series that has not been stayed, the Department of Member Regulation shall issue an order imposing the sanctions set forth in the decision or notice and specifying the effective date and time of such sanctions. The Department of Member Regulation shall serve the order on the member by facsimile or overnight [commercial] courier.
Unless otherwise ordered by the NASD Board Executive Committee [National Adjudicatory Council], a request for a hearing pursuant to this Rule shall not stay the effectiveness of the order issued under paragraph (a).
Within four days after the hearing, the Hearing Panel [Department of Member Regulation] shall affirm, modify, or reverse the order issued under paragraph (a). The Office of Hearing Officers [Department of Member Regulation] shall serve the decision on the member pursuant to Rules 9132 and 9134. The decision shall become effective upon service and shall constitute final action of the Association.
9500. OTHER PROCEEDINGS
9510. Summary and Non-Summary Proceedings
9512. Initiation of Summary Proceeding
A notice issued under this subsection shall state the specific grounds and include the factual basis for the summary suspension, limitation, or prohibition and state that the member, associated person, or other person may file a written request for a hearing under Rule 9514. The notice shall be served by facsimile or overnight [commercial] courier.
9513. Initiation of Non-Summary Proceeding
Association staff may initiate a proceeding authorized under Rule 9511(a)(2)(A) or (B), by issuing a written notice to the member, associated person, or other person. The notice shall specify the grounds for and effective date of the cancellation, suspension, bar, limitation, or prohibition and shall state that the member, associated person, or other person may file a written request for a hearing under Rule 9514. The notice shall be served by facsimile or overnight [commercial] courier.
9514. Hearing and Decision
No change.
If the member, associated person, or other person subject to the notice issued under Rule 2210, 2220, 9512(a), or 9513(a) does not file a written request for a hearing within the seven day time period specified in [under] subparagraph (1), the notice shall constitute final action by the Association.
No change.
If a member, associated person, or other person subject to a notice under Rule 2210, 2220, 9512, or 9513 files a written request for a hearing, an appropriate department or office of the Association shall be designated as a Party in the proceeding, and a Hearing Panel shall be appointed.
No change.
If a member, associated person, or other person who is subject to a notice issued under Rule 9512(a) files a written request for a hearing, a hearing shall be held within seven days after the filing of the request for hearing. Not less than five days before the hearing, the Hearing Panel shall provide written notice to the Parties of the location, date, and time of the hearing by facsimile or overnight [commercial] courier.
If a member, associated person, or other person who is subject to a notice issued under Rule 2210, 2220, or 9513(a) files a written request for a hearing, a hearing shall be held within 40 [21] days after the filing of the request for hearing. The Hearing Panel may, during the initial 40 [21] day period, extend the time in which the hearing shall be held by an additional 30 [21] days on its own motion or at the request of a Party. Not less than five days before the hearing, the Hearing Panel shall provide written notice to the Parties of the location, date, and time of the hearing by facsimile or overnight [commercial] courier.
No change.
9516. Reinstatement
A member, associated person, or other person who has been suspended or limited by a final action of the Association under the Rule 9510 Series may file a written request for reinstatement on the ground of full compliance with the conditions of the suspension or limitation. The request shall be filed with the department or office of the Association that acted as a Party in the proceeding. The head of the department or office shall serve its response on the member or person via facsimile or overnight [commercial] courier within five days after receipt of the request. If the head of the department or office denies the request, the member or person may file a written request for relief with the Review Subcommittee [NASD Board]. The Review Subcommittee [NASD Board] shall respond to the request in writing within 14 days after receipt of the request. The Review Subcommittee [NASD Board] shall serve its response by facsimile or overnight [commercial] courier.
9520. Eligibility Proceedings
9521. Purpose and Definitions
The Rule 9520 Series sets forth procedures for a person to become or remain associated with a member, notwithstanding the existence of a [statutory] disqualification as defined in Article III, Section 4 of the NASD By-Laws [Section 3(a)(39) of the Act] and for a current member or person associated with a member to obtain relief from the eligibility or qualification requirements of the NASD By-Laws and the Rules of Association. Such actions hereinafter are referred to as "eligibility proceedings."
9522. Initiation of Eligibility Proceeding; Member Regulation Consideration
If Association staff has reason to believe that a [statutory] disqualification exists or that a member or person associated with a member otherwise fails to meet the eligibility requirements of the Association, Association staff shall issue a written notice to the member or applicant for membership under Rule 1013 [associated person]. The notice shall specify the grounds for such disqualification or ineligibility.
A notice issued to a disqualified member [that is subject to a statutory disqualification or is otherwise ineligible for membership] shall state that the disqualified member may apply for relief by filing an [written] application [for relief pursuant to paragraph (c) with the National Adjudicatory Council] or, in the case of a matter set forth in Rule 9522(e)(1), a written request for relief, within ten business days after service of the notice. If the member fails to file the [written] application [for relief] or, where appropriate, the written request for relief, within the 10-day period, the membership of the member shall be canceled, unless the Department of Member Regulation grants an extension for good cause shown.
A notice issued [to] regarding a[n] [associated] disqualified person [who is subject to a statutory disqualification or is otherwise ineligible for association] to a member or applicant for membership under Rule 1013 shall state that [a] such member or applicant for membership may file an application [apply for relief] on behalf of itself and such person [by filing a written application for relief pursuant to paragraph (c) with the National Adjudicatory Council] or, in the case of a matter set forth in Rule 9522(e)(1), a written request for relief, within ten business days after service of the notice. If the member fails to file the [written] application [for relief] or, where appropriate, the written request for relief, within the 10-day period, the registration of the [associated] disqualified person shall be revoked, unless the Department of Member Regulation grants an extension for good cause shown.
A member shall file an [written] application [for relief from the eligibility requirements of the Association pursuant to paragraph (c) with the National Adjudicatory Council] or, in the case of a matter set forth in Rule 9522(e)(1), a written request for relief, with the Central Registration Depository/ Public Disclosure, if the member determines prior to receiving a notice under paragraph (a) that:
[A written application for relief shall be submitted on Form MC-400 and shall include a detailed statement demonstrating why the requested relief should be granted.]
A member may withdraw its application or written request for relief prior to a hearing [at any time] by filing a written notice with the [National Adjudicatory Council] Central Registration Depository/Public Disclosure pursuant to Rules 9135, 9136, and 9137. A member may withdraw its application after the start of a hearing but prior to the issuance of a decision by the National Adjudicatory Council with prior written consent of the National Adjudicatory Council.
The prohibitions against ex parte communications set forth in Rule 9143 shall become effective under the Rule 9520 Series when Association staff has initiated the eligibility proceeding and Association staff has knowledge that a member intends to file an [written] application or written request for relief pursuant to the Rule 9520 Series [with the National Adjudicatory Council].
The Department of Member Regulation, as it deems consistent with the public interest and the protection of investors, may grant a written request for relief from the eligibility requirements by a disqualified member or a sponsoring member without the filing of an application by such disqualified member or sponsoring member if a disqualified member or disqualified person is subject to one or more of the following conditions but is not otherwise subject to disqualification:
The Department of Member Regulation, as it deems consistent with the public interest and the protection of investors, may approve an application filed by a disqualified member or sponsoring member if a disqualified member or disqualified person is subject to one or more of the following conditions but is not otherwise subject to disqualification (other than a matter set forth in subparagraph(e)(1)):
9523. Acceptance of Member Regulation Recommendations and Supervisory Plans by Consent Pursuant to SEC Rule 19h-1
9524[9523]. National Adjudicatory Council Consideration
The disqualified member or sponsoring member, as the case may be, and the Department of Member Regulation [Not less than fourteen days before the hearing, the member] shall be notified via mail, facsimile, or overnight [commercial] courier of the location, time, and date of the hearing not less than fourteen business days before the hearing, unless the parties agree to shorten the time period.
The disqualified member, sponsoring member, [its current or prospective associated] and/or disqualified person, as the case may be, and, the Department of Member Regulation, shall be entitled to be heard in person, to be represented by an attorney, and to submit any relevant evidence.
At any time prior to the issuance of the decision of the Hearing Panel, after obtaining consent of all the Parties, the Hearing Panel may extend or shorten any time limits prescribed by the Code for the filing of any papers and may postpone or adjourn any hearing.
The hearing shall be recorded and a transcript prepared by a court reporter. The disqualified member, sponsoring member, and/or [the current or prospective associated] disqualified person, as the case may be, may purchase a copy of the transcript from the court reporter at prescribed rates. A witness may purchase a copy of the transcript of his or her own testimony from the court reporter at prescribed rates. Proposed corrections to the transcript may be submitted by affidavit to the Hearing Panel within a reasonable time determined by the Hearing Panel. Upon notice to the participants in the hearing, the Hearing Panel may order corrections to the transcript as requested or sua sponte.
The record shall consist of:
The custodian of the record shall be the Office of General Counsel of NASD Regulation.
Evidence that is proffered but not admitted during the hearing shall not be part of the record, but shall be retained by the custodian of the record until the date when the Association's decision becomes final or, if applicable, upon the conclusion of any review by the Commission or the federal courts.
On the basis of the record, the Hearing Panel shall present a recommended decision in writing on the request for relief to the Statutory Disqualification Committee. After considering the record and recommendation of the Hearing Panel, the Statutory Disqualification Committee shall present its recommended decision in writing to the National Adjudicatory Council [not later than seven days before the meeting of the National Adjudicatory Council at which the eligibility proceeding shall be considered].
After considering all matters presented in the request for relief, the Statutory Disqualification Committee's recommended decision, the public interest, and the protection of investors, the National Adjudicatory Council may grant or deny the request for relief, and, if relief is granted, impose conditions on the disqualified member, sponsoring member, and/or [its current or prospective associated] disqualified person, as the case may be. At any time prior to the issuance of its recommendation, the National Adjudicatory Council may order the Parties to supplement the record with any additional information that the National Adjudicatory Council deems necessary. Alternatively, the National Adjudicatory Council may remand the eligibility proceeding. The National Adjudicatory Council shall prepare a proposed written decision pursuant to subparagraph (2).
The decision shall include:
The National Adjudicatory Council shall provide its proposed written decision to the NASD Board. The NASD Board may call the eligibility proceeding for review pursuant to Rule 9525 [9524]. If the NASD Board does not call the eligibility proceeding for review, the proposed written decision of the National Adjudicatory Council shall become final, and the National Adjudicatory Council shall serve its written decision on the disqualified member, sponsoring member, and/or [the current or prospective associated] disqualified person, as the case may be, and the Department of Member Regulation pursuant to Rules 9132 and 9134. [The decision shall be effective upon service.] The decision shall constitute final action of the Association, unless the National Adjudicatory Council remands the eligibility proceeding. The decision shall be effective upon approval by the Commission.
9525[9524]. Discretionary Review by the NASD Board
After review, the NASD Board may affirm, modify, or reverse the proposed written decision of the National Adjudicatory Council. Alternatively, the NASD Board may remand the eligibility proceeding with instructions. The NASD Board shall prepare a written decision that includes all of the elements described in Rule 9524(b)(2) [9523(b)(2)].
The NASD Board shall issue and serve its written decision on the disqualified member, sponsoring member, and/or disqualified [the current or prospective associated] person, as the case may be, and the Department of Member Regulation pursuant to Rules 9132 and 9134. The decision shall [be effective upon service. The decision shall] constitute the final action of the Association, unless the NASD Board remands the proceeding. The decision shall be effective upon approval by the Commission.
Notwithstanding Rules [9523 and] 9524and 9525, the NASD Board Executive Committee, upon request of the Statutory Disqualification Committee, may direct an expedited review of a recommended written decision of the Statutory Disqualification Committee if the NASD Board Executive Committee determines that expedited review is necessary for the protection of investors.
No change.
If no Governor calls the proceeding for review within the time prescribed, the decision shall become final, and the Statutory Disqualification Committee shall serve the decision on the disqualified member, sponsoring member, and/or disqualified [the current or prospective associated] person, as the case may be, and the Department of Member Regulation pursuant to Rules 9132 and 9134. The decision shall [be effective upon service and shall] constitute final action of the Association. The decision shall be effective upon approval by the Commission.
If a Governor calls the eligibility proceeding for review within the prescribed time, a review panel shall meet and conduct a review not later than 14 days after the call for review. The review panel shall be composed of the NASD Board Executive Committee, except that the Governor who calls the proceeding for review shall serve on the review panel in lieu of a member of the Executive Committee who has the same classification (Industry, Non-Industry, or Public) as such Governor. The review panel may affirm, modify, or reverse the recommended written decision of the Statutory Disqualification Committee or remand the eligibility proceeding with instructions. The review panel shall prepare, issue, and serve its decision pursuant to Rule [9524] 9525(d) and (e).
9527[9526]. Application to Commission for Review
The right to have any action taken pursuant to this Rule Series reviewed by the Commission is governed by Section 19 of the Act. [The filing of an application for review shall not stay the effectiveness of final action by the Association, unless the Commission otherwise orders.]
9530. Suspension or Cancellation for Failure to Pay Dues, Fees and Other Charges
9531. NoticeNo change.
Association staff shall serve the notice via personal service, [by] facsimile or overnight [commercial] courier and shall file a copy of the notice with the Office of Hearing Officers.
No change.
9532. Hearing
No change.
Not later than seven days before the hearing, the NASD Treasurer shall serve the member or person associated with a member via overnight [commercial] courier with all documents that were considered in connection with the decision to issue a notice under Rule 9531 and provide copies of the same to the Hearing Officer.
9535. Termination of Suspension
A suspended member or person may file a written request for termination of the suspension on the ground of full compliance with the notice issued under Rule 9531 or, if applicable, the conditions of a decision under Rule 9533, with the Office of Hearing Officers. The Office of Hearing Officers shall respond to the request in writing within five days after receipt of the request. The Office of Hearing Officers shall send the written response via overnight [commercial] courier or facsimile.
9540. Failure to Provide Information or Meet the Eligibility and Qualification Standards
9541. Notice
If a member fails to provide any information, report, material, data, or testimony requested or required to be filed pursuant to the NASD By-Laws or the Rules of the Association, or fails to keep its membership application or supporting documents current, the Association staff may provide written notice to such member specifying the nature of the failure and stating that the failure to take corrective action within 20 days after service of the notice constitutes grounds for suspension of membership.
If a person associated with a member fails to provide any information, report, material, data, or testimony requested or required to be filed pursuant to the NASD By-Laws or the Rules of the Association, the Association staff may provide written notice to such person specifying the nature of the failure and stating that the failure to take corrective action within 20 days after service of the notice constitutes grounds for suspending the association of the person with the member.
If a member becomes ineligible for continuance in membership because it does not meet the eligibility and qualification standards set forth in Article III of the By-Laws, the Association staff may provide written notice to such member stating that the failure to become eligible for continuance in membership within 20 days after service of the notice constitutes grounds for cancellation of membership.
The Association staff shall serve the member or person associated with a member with such notice via personal service or overnight courier or by facsimile at location described in Rule 9134(b). Service by overnight courier shall be accomplished by sending the papers through an overnight courier service that generates a written confirmation of receipt or of attempts at delivery.
A notice issued and served under this Rule shall becomes effective 20 days after the date of service of the notice.
9542. Hearing
Within five days after the date of service of a notice issued under Rule 9541, the member or person served with such notice may file with the Office of Hearing Officers a written request for a hearing. The request shall state with specificity why the member or person believes that the notice should be set aside. The request for the hearing shall stay the effective date of the notice.
If a hearing is requested, based upon a notice issued under Rule 9541(a) or (b), the Chief Hearing Officer shall assign a Hearing Officer to preside over the matter, and appoint Panelists pursuant to Rules 9231 and 9232 to the Hearing Panel. As soon as practicable after the assignment, the Chief Hearing Officer shall serve the Parties with notice of the Hearing Panel.
If a hearing is requested, based upon a notice issued under Rule 9541(c), the Chief Hearing Officer shall assign a Hearing Officer to conduct the hearing and decide whether the member should be canceled. As soon as practicable after the assignment, the Chief Hearing Officer shall serve the Parties with notice of the Hearing Officer.
The Parties shall be the member or person to whom the notice was issued and the head of the department or office that issued the notice under Rule 9541.
The hearing shall be held within 45 days after the date of service of the notice under Rule 9541. Not later than seven days before the hearing, the Hearing Officer shall serve the Parties with written notice of the date and time of the hearing.
Not later than seven days before the hearing, the head of the department or office that issued the notice under Rule 9541 shall serve the member or person associated with a member via overnight courier with all documents that were considered in connection with the decision to issue a notice under Rule 9541 and provide copies of the same to the Hearing Officer.
The Parties may be represented by counsel at a hearing conducted under this Rule.
Formal rules of evidence shall not apply to a hearing under this Rule. Not later than four days before the hearing, the Parties shall exchange copies of proposed hearing exhibits and witness lists and provide copies of the same to the Hearing Officer.
A person who is subject to the jurisdiction of the Association shall testify under oath or affirmation. The oath or affirmation shall be administered by a court reporter or a notary public.
At any time during its consideration, the Hearing Officer may direct the Parties to submit additional information. Any additional information submitted shall be provided promptly to all Parties at least one business day before the Hearing Panel renders its decision.
The hearing shall be recorded and a transcript prepared by a court reporter. A Party may purchase a copy of the transcript from the court reporter at prescribed rates. A witness may purchase a copy of the transcript of his or her own testimony from the court reporter at prescribed rates. Proposed corrections to the transcript may be submitted by affidavit to the Hearing Officer within a reasonable time determined by the Hearing Officer. Upon notice to the participants in the hearing, the Hearing Officer may order corrections to the transcript as requested or sua sponte.
The record shall consist of all documents that were considered in connection with the decision to issue a notice under Rule 9541, the notice issued under Rule 9541, the request for hearing filed under Rule 9542, the transcript of the hearing, and each document or other item of evidence presented to or considered by the Hearing Panel renders its decision. The Office of Hearing Officers shall be the custodian of the record.
If a member or person fails to appear at a hearing for which he has notice, the Hearing Officer may dismiss the request for a hearing as abandoned, and the notice issued under Rule 9541 shall become final. Upon a showing of good cause, the Hearing Officer may withdraw a dismissal entered pursuant to this subparagraph.
9543. Decision
The Hearing Panel may impose any fitting sanction, including fines, suspension, expulsions and bars, based upon the failure to provide any information, report, material, data, or testimony requested or required to be filed pursuant to the NASD By-Laws or the Rules of the Association, or failure to keep a membership application or supporting documents current. The Hearing Panel shall prepare a proposed written decision, and if the Hearing Panel determines that a sanction should be imposed, the proposed written decision shall state the grounds for the sanction, and in the case of a suspension, the conditions for termination the suspension. A Party sanctioned under this Rule will have the right to appeal such a decision to the National Adjudicatory Council and ultimately to the NASD Board, in accordance with the Rule 9300 Series. If not timely appealed or called for review, the majority decision shall constitute final disciplinary action of the Association for purposes of SEC Rule 19d-1(c)(1).
The Hearing Officer may cancel the membership of any member who is ineligible for continuance in membership because it does not meet the eligibility and qualification standards set forth in Article III of the By-Laws. The Hearing Officer shall prepare a proposed written decision, and if the Hearing Officer determines that a cancellation should be imposed, the proposed written decision shall state the grounds for the cancellation. A member canceled under this Rule will have the right to appeal such a decision to the National Adjudicatory Council and ultimately to the NASD Board, in accordance with the Rule 9300 Series. If not timely appealed or called for review, the majority decision shall constitute final disciplinary action of the Association for purposes of SEC Rule 19d-1(c)(1).
9544. Defaults
Respondents may file motions for reinstatement with the head of the department that issued the original pre-suspension notice under Rules 9541(a) or (b) within six months of the date of the original presuspension notice. If such a notion is filed, a Hearing Panel will be convened under Rule 9542, and the Hearing Panel may impose any fitting sanction. Respondents who are suspended pursuant to Rules 9541(a) or (b) and who fail to request hearing to challenge the suspensions within six months or receipt of the pre-suspension notice issued Rules 9541(a) or (b) will automatically be barred or expelled.
9545. Notice to Membership
The Association shall provide notice of a suspension, expulsion, cancellation, or bar under this Rule Series and the grounds therefor in the next membership supplement.
9546. Copies of Notices and Decisions to Member
A copy of a notice or decision under the Rule 9540 Series that is served on a person associated with a member shall be served on such member.
9547. Other Action Not Foreclosed
Action by the Association under the Rule 9540 Series shall not foreclose action by the Association under any other Rule.