Self-Regulatory Organizations; Notice of Filing and Order Granting Temporary Accelerated Approval of Proposed Rule Change by National Association of Securities Dealers, Inc. Relating to the Allocation and Delegation of Authority and Responsibilities by the National Association of Securities Dealers, Inc., to NASD Regulation, Inc., and The Nasdaq Stock Market, Inc.

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38645; File No. SR-NASD-96-29; Amendment No. 4]

Self-Regulatory Organizations; Notice of Filing and Order

Granting Temporary Accelerated Approval of Proposed Rule Change by

National Association of Securities Dealers, Inc. Relating to the

Allocation and Delegation of Authority and Responsibilities by the

National Association of Securities Dealers, Inc., to NASD Regulation,

Inc., and The Nasdaq Stock Market, Inc.

May 15, 1997.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on May 14,

1997, the National Association of Securities Dealers, Inc. (``NASD'')

filed with the Securities and Exchange Commission (``Commission'')

Amendment No. 4 to the proposed rule change as described in Items I, II

and III below, which Items have been prepared by the NASD.\1\ The

Commission is publishing this notice to solicit comments on the

proposed rule change as further amended by Amendment No. 4 from

interested persons and is simultaneously granting accelerated approval

to the proposed rule change for a period of six months.

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\1\ The NASD originally filed the rule change on July 2, 1996.

On July 8, 1996, the NASD filed Amendment No. 1 to the proposed rule

change. Amendment No. 1 amended the language of proposed new

Subsections II.C.4. and III.C.3 of the Delegation Plan to clarify

that it is proposed that the NASD Board of Governors have authority

to determine to both call for review or not call for review a matter

of the subsidiary Board during the 15-day period provided for

consideration by the NASD Board.

On July 10, 1996, the NASD filed Amendment No. 2 to the proposed

rule change. Amendment No. 2 requests temporary approval of the

proposed rule change for a period of 120 days. See Letter from T.

Grant Callery, Senior Vice President and General Counsel, NASD to

Katherine A. England, Assistant Director, Division of Market

Regulation, Commission (dated July 10, 1996).

On November 12, 1996, the NASD filed Amendment No. 3 to the

proposed rule change. Amendment No. 3 requested temporary approval

of the proposed rule change for a period of six months. See Letter

from T. Grant Callery, Senior Vice President and General Counsel,

NASD to Katherine A. England, Assistant Director, Division of Market

Regulation, Commission (dated November 12, 1996). The Commission

previously published notice of the proposed rule change and granted

accelerated approval to the proposed rule change for periods of 120

days and six months (Securities Exchange Act Release No. 37425 (July

11, 1996), 61 FR 37518 (July 18, 1996) (``Release 34-37425'') and

Securities Exchange Act Release No. 37957 (November 15, 1996), 61 FR

59267 (November 21, 1997) (``Release 34-37957'').

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I. Self-Regulatory Organization's Statement of the Terms of Substance

of the Proposed Rule Change

The NASD is proposing to extend the effectiveness of: (1) Rule 0130

to the NASD's rules delegating to the subsidiaries of the NASD, NASD

Regulation, Inc. (``NASDR'') and The Nasdaq Stock Market, Inc.

(``Nasdaq''), the authority to act on behalf of the Association as set

forth in a Plan of Allocation and Delegation adopted by the NASD Board

of Governors and approved by the Commission pursuant to its authority

under the Act; and (2) adopt a Plan of Allocation and Delegation of

Functions by NASD to Subsidiaries (``Delegation Plan'') setting forth

the purpose, function, governance, procedures and responsibilities of

the NASD, NASDR and Nasdaq, following the reorganization of the NASD.

Rule 0130 and the Delegation Plan originally were filed with the

Commission in SR-NASD-96-16 and were simultaneously published for

comment and approved by the Commission on a temporary basis for a

period of 90 days.\2\ Release 34-37107 contained the full text of Rule

0130 and the Delegation Plan with the exception of three changes

thereto. On July 11, 1996, the Commission issued a release publishing

for comment the three changes to the Delegation Plan and further

approving Rule 0130 and the Delegation Plan as amended for a period of

120 days.\3\ Release 34-37107 and

[[Page 28087]]

Release 34-37425 published the complete text of the rule change. On

November 15, 1996, the Commission extended temporary approval of the

instant proposed rule change for a six month period.\4\

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\2\ Securities Exchange Act Release No. 37107 (April 11, 1996),

61 FR 16948 (April 18, 1996) (``Release 34-37107'').

\3\ Release 34-37425.

\4\ Release 34-37957.

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The NASD hereby files this Amendment No. 4, pursuant to Section

19(b)(1) of the Act and Rule 19b-4 thereunder, to obtain authorization

for an interim extension of the Delegation Plan as amended for an

additional period of six months.\5\ During this interval, there will be

no further amendments to the Delegation Plan, absent Commission

approval of a corresponding Rule 19b-4 filing.\6\

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\5\ The NASD also filed Amendment No. 5 to SR-NASD-96-20,

requesting an extension of the Commission's temporary approval of

the amended NASD By-Laws for a period of six months. The Commission

is separately approving that rule change as further amended by

Amendment No. 5. See Securities Exchange Act Release No. 38644 (May

15, 1997).

\6\ The NASD filed SR-NASD-97-28, the Notice of Filing of a

Proposed Rule Change by the National Association of Securities

Dealers, Inc. (``NASD'') to Proposed Changes in the By-Laws of the

NASD, NASD Regulation, Inc., The Nasdaq Stock Market, Inc., the Plan

of Allocation and Delegation of Functions by the NASD to

Subsidiaries, Membership Application Procedures, Disciplinary

Proceedings, Other Proceedings, and Other Conforming Changes, which

contains proposed amendments to the Delegation Plan. The comment

period for this rule filing expires on June 6, 1997.

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II. Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the NASD included statements

concerning the purpose of and basis for the proposed rule change and

discussed any comments it received on the proposed rule change. The

text of these statements may be examined at the places specified in

Item V below. The NASD has prepared summaries, set forth in Sections

(A), (B), and (C) below, of the most significant aspects of such

statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

1. Purpose

The purpose of this Amendment No. 4 is to ensure continued

effectiveness of the Delegation Plan while the Commission considers

whether to grant permanent approval to the instant NASD rule filing.

Description of Delegation Plan

The Delegation Plan is organized in three principal parts, one for

each of the three major entities that will constitute the reorganized

NASD: the parent corporation, National Association of Securities

Dealers, Inc.; the regulatory subsidiary, NASD Regulation, Inc.; and

the stock market operating subsidiary, The Nasdaq Stock Market, Inc.\7\

The Delegation Plan, the contents of which are self-explanatory,

describes the purposes, functions, governance, procedures and

responsibilities of each entity.

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\7\ The Delegation Plan does not discuss other wholly owned

subsidiary corporations of the NASD, such as, the Securities Dealers

Risk Purchasing Group, Inc. and Securities Dealers Insurance Co.,

Ltd. These and any other wholly owned subsidiaries of the NASD not

described in the Delegation Plan do not perform any of the

Association's regulatory functions or the operating functions

related to the operation of The Nasdaq Stock Market. In addition,

the Delegation Plan does not address the NASD's ownership role in

corporations such as the National Securities Clearing Corporation or

the Depository Trust Company.

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The first part of the Delegation Plan describes the parent

corporation, National Association of Securities Dealers, Inc. The

Delegation Plan sets forth the purpose and function of the NASD; the

composition of the Board of Governors, including provisions relating to

the qualifications for Governors, election procedures, creation of a

National Nominating Committee,\8\ term of office, vacancies and removal

from office; the function, composition and reporting structure of the

Audit Committee and the Office of Internal Review; the function and

composition of the Management Composition Committee; and the

Commission's access to and status of officers, directors, employees,

books, records and premises of the subsidiaries.

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\8\ The National Nominating Committee is composed of at least

six and not more than nine members equally balanced between Industry

and Non-Industry Committee Members (including at least two Public

Committee Members). Two members of the National Nominating Committee

are selected by each of the Subsidiaries and the NASD, of which it

is anticipated that at least three will be Non-Industry Members.

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The second part of the Delegation Plan describes the regulatory

subsidiary, NASD Regulation, Inc. The Delegation Plan sets forth the

delegation of authority to NASDR by the NASD; the purpose, function and

authority of NASDR; the composition of and qualifications for members

of the Board of Directors from 1997 forward, including provisions

relating to election procedures; the function and composition of the

National Business Conduct Committee; the Board's procedures for

reviewing disciplinary actions, statutory disqualification decisions

and proposed rule change recommendations; and the Board's procedures

for initiating actions.

The third part of the Delegation Plan describes the stock market

operating subsidiary, The Nasdaq Stock Market, Inc. The Delegation Plan

sets forth the delegation of authority to Nasdaq; the purpose and

function of Nasdaq; the composition of and qualifications for members

of the Board of Directors, including, provisions relating to election

procedures and the authority of the Board; the Board's procedures for

reviewing listing/delisting decisions, and rule change recommendations;

the Board's procedures for initiating actions; the functions and

composition of the Quality of Markets Committee; and functions of the

Stockwatch Department.

2. Statutory Basis for the Proposed Rule Change

The NASD believes that the proposed rule change as further amended

by Amendment No. 4 is consistent with the provisions of Section

15A(b)(2) of the Act \9\ in that the terms of the Delegation Plan will

provide for the organization of the Association in a manner that will

permit the Association, through its operating subsidiaries, to carry

out the purposes of the Act, to comply with the Act, and to enforce

compliance by Association members and persons associated with members

with the Act, the rules and regulations thereunder, the rules of the

Association and the federal securities laws.

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\9\ 15 U.S.C. Sec. 78o-3.

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B. Self-Regulatory Organization's Statement on Burden on Competition

The NASD does not believe that the proposed rule change as further

amended by Amendment No. 4 will result in any burden on competition

that is not necessary or appropriate in furtherance of the purposes of

the Act, as amended.

C. Self-Regulatory Organization's Statement on Comments on the Proposed

Rule Change Received From Members, Participants, or Others

Written comments were neither solicited nor received. However, in

connection with the publication for member vote of proposed amendments

to the By-Laws to implement the Delegation Plan in Notice to Members

95-101 (December 11, 1995), attached as Exhibit 2 to proposed rule

change SR-NASD-96-02, the NASD received three comments which were

attached as Exhibit 4 to that proposed rule change. The NASD's

statement on the comments received with respect to Notice to

[[Page 28088]]

Members 95-101 is set forth in SR-NASD-96-02 and was published by the

Commission in Securities Exchange Act Release No. 37106 (April 11,

1996), 61 FR 16944 (April 18, 1996). SR-NASD-96-02 proposed certain of

the By-Law amendments issued for member vote in Notice to Members 95-

101 (December 11, 1995) in order to permit the reorganization of its

Board of Governors consistent with the Delegation Plan submitted in SR-

NASD-96-16.

III. Date of Effectiveness of the Proposed Rule Change and Timing for

Commission Action

The NASD has requested that the Commission find good cause pursuant

to Section 19(b)(2) for approving the proposed rule change as further

amended by Amendment No. 4 prior to the 30th day after publication in

the Federal Register.

IV. Discussion

The Commission finds that the proposed rule change as further

amended by Amendment No. 4 is consistent with the requirements of the

Act and the rules and regulations thereunder applicable to the NASD

and, in particular, the requirements of Section 15A of the Act and the

rules and regulations thereunder. The Commission believes that the

proposed rule change will allow the NASD to carry out the purposes of

the Act to comply with, and enforce compliance by its members and

associated persons with, the provisions of the Act, the rules and

regulations thereunder, and the rules of the NASD. Furthermore, the

amendments are designed (with amendments to the NASD By-Laws

simultaneously approved in SR-NASD-96-20, as set forth below) to assure

a fair representation of the NASD's members, in the selection of its

directors and administration of its affairs as well as comply with the

public and non-industry participant requirements of the Act. It is

envisioned that these rules and any subsequent changes that may be

implemented from time-to-time will enable the NASD to better comply

with the requirements of Section 15A(b)(2) in particular and the Act in

general.

The Commission finds good cause for approving the proposed rule

change prior to the 30th day after the date of publication of notice of

filing thereof in that accelerated approval will enhance the NASD's

ability to carry out its regulatory obligations under the Act. The

Commission believes that the proposed rule change is intended to

accomplish certain allocations and delegations of authority necessary

to reorganize the NASD, and establish as separate subsidiaries the

NASDR and Nasdaq in accordance with the September 1995 recommendations

of The Select Committee on Structure and Governance in order to enable

the NASD to meet its regulatory and business obligations. The

Delegation Plan, which is part of this proposed rule change, sets forth

the purpose, functions, governance, procedures, and responsibilities of

the NASD, the NASDR and Nasdaq following the reorganization of the

NASD. The NASD's Board of Governors, which has been reorganized to be

consistent with the proposed rule change, has held meetings to carry

out the business of the Association. The subsidiaries also have held

meetings of the Board of Directors of NASDR and Nasdaq in order to

carry out the business of the subsidiaries during the period in which

the Delegation Plan has been effective.

The instant proposed rule change was previously published for

comment and approved by the Commission on a temporary basis for periods

of 120 days and six months.\10\ The six month approval period is

scheduled to expire by May 15, 1997. No comment letters concerning the

instant proposed rule change were received by the Commission. The

reorganization of the NASD Board of Governors is also reflected in rule

changes to the NASD By-Laws submitted in rule filing SR-NASD-96-20,

which also was previously granted temporary approval for six

months.\11\ The Commission is also extending its temporary approval of

that proposed rule change.\12\

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\10\ Release Nos. 34-37425 and 34-37957, respectively.

\11\ Securities Exchange Act Release No. 37956 (November 15,

1996), 61 FR 59265 (November 21, 1996).

\12\ See Securities Exchange Act Release No. 38644 (May 15,

1997).

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Accordingly, the Commission believes that accelerating the approval

of the proposed rule change as further amended by Amendment No. 4 will

benefit members and the public interest by fully implementing the

reorganization of the NASD and its subsidiaries.

V. Solicitation of Comments

Interested persons are invited to submit written data, views, and

arguments concerning the foregoing. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.

Copies of the submission, all subsequent amendments, all written

statements with respect to the proposed rule change that are filed with

the Commission, and all written communications relating to the proposed

rule change between the Commission and any person, other than those

that may be withheld from the public in accordance with the provisions

of 5 U.S.C. 552, will be available for inspection and copying in the

Commission's Public Reference Room. Copies of such filing will also be

available for inspection and copying at the principal office of the

NASD. All submissions should refer to the file number in the caption

above and should be submitted by June 12, 1997.

It is therefore ordered, pursuant to Section 19(b)(2) of the Act,

that the proposed rule change SR-NASD-29, as amended by Amendment No.

4, be, and hereby is, approved through November 15, 1997.

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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Jonathan G. Katz,

Secretary.

[FR Doc. 97-13458 Filed 5-21-97; 8:45 am]

BILLING CODE 8010-01-M