[Federal Register Volume 69, Number 191 (Monday, October 4, 2004)]
[Notices]
[Pages 59285-59286]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-22195]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-50456; File No. SR-NASD-2004-098]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Order Approving Proposed Rule Change and Amendment No. 1
Thereto Relating to Proposed Amendments to Eliminate Exemptions From
the Continuing Education Regulatory Element Requirements
September 27, 2004.
On June 25, 2004, the National Association of Securities Dealers
(``NASD'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') a proposed rule change, pursuant to section
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and rule
19b-4 thereunder,\2\ to eliminate all currently effective exemptions
from the requirement to complete the Regulatory Element of the
Continuing Education (``CE'') Program. On July 23, 2004, NASD submitted
Amendment No. 1 to the proposed rule change.\3\ The proposed rule
change, as amended, was published for comment in the Federal Register
on August 23, 2004.\4\ The Commission received no comments on the
proposal. This order approves the proposed rule change, as amended.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See letter from Grace Yeh, Assistant General Counsel, NASD,
to Katherine A. England, Assistant Director, Division of Market
Regulation, Commission, dated July 22, 2004 (``Amendment No. 1'').
In Amendment No. 1, NASD replaced in its entirety the original rule
filing.
\4\ See Securities Exchange Act Release No. 50204 (August 16,
2004), 69 FR 51873 (August 23, 2004).
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NASD Rule 1120(a) currently provides, in part, that no member shall
permit any registered person to continue to, and no registered person
shall continue to, perform duties as a registered person, unless such
person has complied with the Regulatory Element of the CE requirement
set forth in this Rule.\5\ The Regulatory Element component of NASD
Rule 1120(a)(1) requires each registered person to complete a
standardized, computer-based, interactive CE program within 120 days of
their second registration anniversary date and every three years
thereafter, or as otherwise prescribed by NASD. Registered persons who
fail to complete the Regulatory Element are deemed inactive and may not
perform in any capacity or be compensated in any way requiring
registration.
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\5\ See NASD Rule 1120(a)(1).
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Currently, two classes of persons are exempt from Regulatory
Element requirements under NASD Rule 1120(a). The first class of
persons come within the ``grandfathered'' exemption which applies to
persons who were continuously registered, without serious disciplinary
action,\6\ for more than ten years as of the Rule's effective date
(i.e., July 1, 1995). The second class of persons come within the
``graduated'' exemption, which, although discontinued as of July 1998,
continues to apply to registered persons who were ``graduated'' prior
to the discontinuation of the exemption.\7\
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\6\ For purposes of NASD Rule 1120, a significant disciplinary
action generally means a statutory disqualification as defined in
section 3(a)(39) of the Act; a suspension or imposition of a fine of
$5,000 or more; or being subject to an order from a securities
regulator to re-enter the Regulatory Element. See Rule 1120(a)(3).
\7\ When NASD Rule 1120 was first adopted in 1995, the
Regulatory Element schedule required registered persons to satisfy
the Regulatory Element on the second, fifth, and tenth anniversary
of their initial securities registration. After satisfying the tenth
anniversary requirement, a person was ``graduated'' from the
Regulatory Element. A graduated principal re-entered the Regulatory
Element if he or she incurred a significant disciplinary action. A
graduated person who was not a principal re-entered if he or she
acquired a principal registration or incurred a significant
disciplinary action.
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However, in response to recommendations made by the Securities
Industry/Regulatory Council on Continuing Education (the ``Council''),
NASD submitted a proposed rule change to eliminate all currently
effective exemptions from required participation in Regulatory Element
programs.\8\ The Council believes that there is great value in exposing
all registered industry participants to the full benefit of Regulatory
Element programs.
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\8\ The Council recommended at its December 2003 meeting that
SRO Rules (e.g., NASD Rule 1120(a)), be amended to eliminate
existing exemptions from the Regulatory Element and to require all
``grandfathered'' and ``graduated'' persons to fully participate in
future standardized CE programs, according to the Rule's prescribed
schedule.
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NASD will announce the effective date of the proposed rule change
in a Notice to Members to be published no later than 60 days following
Commission approval. Proposed amendments are expected to become
effective (1) not more than 30 days following publication of the Notice
to Members announcing Commission approval, (2) not more than 30 days
following the implementation of necessary changes to Web Central
Registration Depository (``Web CRD''), or (3) April 4, 2005, whichever
date is latest to occur.
The Commission finds that the proposed rule change, as amended, is
consistent with the requirements of section 15A of the Act,\9\ and the
rules and regulations thereunder applicable to a national securities
association.\10\ In particular, the Commission finds that the proposed
rule change is consistent with section 15A(b)(6) of the Act,\11\ which
requires, among other things, that the Association's rules be designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, and, in general, to protect
investors and the public interest. The Commission
[[Page 59286]]
believes that the proposed rule change should help to ensure that all
registered persons are kept up-to-date on regulatory, compliance, and
sales practice-related industry issues. Further, the Commission
believes that the proposed rule change will reinforce the importance of
compliance with just and equitable principles of trade by exposing all
registered industry participants to the full benefits of the Regulatory
Element programs, which include a new Regulatory Element module that
focuses specifically on ethics.
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\9\ 15 U.S.C. 78o-3.
\10\ In approving the proposed rule change, the Commission has
considered its impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
\11\ 15 U.S.C. 78o-3(b)(6).
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It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\12\ that the proposed rule change (SR-NASD-2004-098), as amended,
is approved.
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\12\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-22195 Filed 10-1-04; 8:45 am]
BILLING CODE 8010-01-M