Notice of Filing and Order Granting Temporary Accelerated Approval

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38909; File No. SR-NASD-96-29; Amendment No. 5]

Notice of Filing and Order Granting Temporary Accelerated

Approval

August 7, 1997.

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.

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 August

5, 1997, the National Association of Securities Dealers, Inc.

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

(``Commission'') Amendment No. 5 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. 5 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 Commission previously published notice of the proposed

rule change and granted accelerated approval thereto for periods of

120 days, six months and six months (Securities Exchange Act Release

No. 37425 (July 11, 1996), 61 FR 37518 (July 18, 1996) (``Release

No. 34-37425''), Securities Exchange Act Release No. 37957 (November

15, 1996), 61 FR 59267 (November 21, 1997) (``Release No. 34-

37957'') and Securities Exchange Act Release No. 38645 (May 15,

1997), 62 FR 28086 (May 22, 1997) (``Release No. 34-38645''),

respectively.

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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 amend the 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, NASD Regulation, Inc. (``NASD

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

the reorganization of the NASD.

The initial version of the Delegation Plan (with the implementing

provisions contained in Rule 0130) was originally filed with the

Commission in SR-NASD-96-16. It was published for comment and approved

by the Commission on a temporary basis for a period of 90 days.\2\ On

July 11, 1996, the Commission issued another release publishing for

comment three changes to the Delegation Plan and further approving the

Delegation Plan as amended for a period of 120 days.\3\ On November 15,

1996 and May 15, 1997, the Commission extended temporary approval of

the instant proposed rule change for two additional six month

periods.\4\

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

61 FR 16948 (April 18, 1996) (``Release No. 34-37107'').

\3\ Release No. 34-37425. Release Nos. 34-37107 and 34-37425

published the complete text of the rule change.

\4\ Release Nos. 34-37957 and 34-38645, respectively.

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On April 18, 1997, the NASD filed SR-NASD-97-28, seeking approval

of, among other matters, certain proposed amendments to the Delegation

Plan.\5\ The proposed amendments to the Delegation Plan contained

therein were withdrawn by Amendment No. 3 thereto.\6\

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\5\ Securities Exchange Act Release No. 38545 (April 24, 1997),

62 FR 25226 (May 8, 1997) (``Release No. 34-38545''), the Notice of

Filing of a Proposed Rule Change by the National Association of

Securities Dealers, Inc. 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

(``Release No. 34-38545''). The comment period for Release No. 34-

38545 expired on June 6, 1997. SR-NASD-97-28 is being approved

simultaneously with the instant filing, see Securities Exchange Act

Release No. 38908 (``Release No. 34-38908'').

\6\ See Letter from Alden S. Adkins, Vice President and General

Counsel, NASD Regulation, to Katherine A. England, Assistant

Director, Division of Market Regulation, Commission (dated July 11,

1997).

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The NASD hereby files this Amendment No. 5 to the instant rule

filing, pursuant to Section 19(b)(1) of the Act and Rule 19b-4

thereunder, to continue temporary approval of the Delegation Plan,

revised to conform to the Rules of the Association, as amended by

Release No. 34-38908. Approval until November 15, 1997, the remaining

effective period of Amendment No. 4 to the instant rule filing, is

requested. During this interval, there will be no further amendments to

the Delegation Plan, absent Commission approval of a corresponding Rule

19b-4 filing.

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

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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. 5 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 self-regulatory organization: the

parent corporation, NASD; the regulatory subsidiary, NASD Regulation;

and the stock market operating subsidiary, Nasdaq.\7\ The Delegation

Plan, the contents of which are self-explanatory, describes the

purposes, functions, governance, procedures and responsibilities of

each of these entities.

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\7\ The NASD, NASD Regulation and Nasdaq are collectively

referred to herein as the ``Association.'' The Delegation Plan does

not discuss other wholly owned subsidiary corporations of the NASD,

such as the Securities Dealers Risk Purchasing Group, Inc. and the

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 Nasdaq. 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, the NASD. 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 Compensation 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. It is anticipated that there

will be at least three Non-Industry Members, including at least two

Public Committee Members.

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The second part of the Delegation Plan describes the regulatory

subsidiary, NASD Regulation. The Delegation Plan sets forth the

delegation of authority to NASD Regulation by the NASD; the purpose,

function and authority of NASD Regulation; the composition of, and

qualifications for members of, the Board of Directors, 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, Nasdaq. 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.

The Rules of the Association, as amended by Release No. 34-38908,

include modifications of the time periods for certain procedures

described in the Delegation Plan. The amendments to the Delegation Plan

proposed by this Amendment No. 5 conform to these modifications and

further amplify the delegation of functions and authority to NASD

Regulation.

2. Statutory Basis for the Proposed Rule Change

The NASD believes that the proposed rule change as further amended

by Amendment No. 5 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 NASD, 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. 70o-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. 5 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.\10\ However,

in connection with the NASD's publication for member vote of proposed

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

95-101 (December 11, 1995) (``Notice 95-101''), 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 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 95-101 in order to permit

the reorganization of its Board of Governors consistent with the

Delegation Plan submitted in SR-NASD-96-16.

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\10\ The comment letters received in connection with Release No.

34-38545 did not address the Delegation Plan.

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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) of the Act for approving the proposed rule change

as further amended by Amendment No. 5 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. 5 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

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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, the rules of the NASD

and the federal securities laws. Furthermore, the amendments are

designed (with amendments to the Rules of the Association

simultaneously approved in Release No. 34-38908, as discussed above) to

insure a fair representation of the NASD's members in the selection of

its directors and administration of its affairs as well as to comply

with the public and non-industry participation 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 NASD

Regulation 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 sets forth the purpose, functions,

governance, procedures, and responsibilities of the NASD, NASD

Regulation 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 NASD Regulation 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, six months, and six months.\11\ The second six month

approval period is scheduled to expire on November 15, 1997. No comment

letters concerning the instant proposed rule change were received by

the Commission.

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\11\ Release Nos. 34-37425, 34-37957, and 34-38645,

respectively.

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Accordingly, the Commission believes that accelerating the approval

of the proposed rule change as further amended by Amendment No. 5 will

benefit members and the public interest by more fully implementing the

reorganization of the NASD and its subsidiaries.\12\

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\12\ In approving this rule filing, the Commission has

considered the proposed rule filing's impact on efficiency,

competition, and capital formation. 15 U.S.C. 78c(f).

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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 September 4, 1997.

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

that the proposed rule change SR-NASD-96-29, as amended by Amendment

No. 5, 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. 97-21446 Filed 8-13-97; 8:45 am]

BILLING CODE 8010-01-M