Commission Requirements for Registration Under Section 15 of the Exchange Act

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 249

[Release No. 34-39677]

Commission Requirements for Registration Under Section 15 of the

Exchange Act

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission is adopting Interim

Form BD for the registration of brokers and dealers under the

Securities Exchange Act of 1934. The Interim Form is intended to

enhance the ability of the public to obtain information regarding

securities professionals until the redesigned CRD system is

operational.

EFFECTIVE DATE: March 16, 1998.

FOR FURTHER INFORMATION CONTACT: Catherine McGuire, Chief Counsel, or

Paul Andrews, Special Counsel at (202) 942-0073, Office of Chief

Counsel,

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Division of Market Regulation, Mail Stop 7-11, Securities and Exchange

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

SUPPLEMENTARY INFORMATION:

I. Background

On July 12, 1996, the Commission adopted amendments to Form

BD (``1996 Amendments''), the uniform application form for broker-

dealer registration under the Securities Exchange Act of 1934

(``Exchange Act'').\1\ In general, the amendments were adopted to

provide the Commission, self-regulatory organizations (``SROs''), and

state securities regulators with better information about a

registrant's disciplinary history; to elicit more precise information

about the business activities of broker-dealer applicants; and to

facilitate the electronic retrieval of information. At the time it

adopted these amendments, the Commission stated that use of Form BD, as

amended, was to coincide with the implementation of the redesigned

Central Registration Depository (``CRD''), a computer system operated

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

maintains registration information regarding broker-dealers and their

registered personnel. Among other things, the redesigned CRD system

will allow broker-dealers to file Form BD electronically.\2\

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\1\ Securities Exchange Act Rel. No. 37431 (July 12, 1996), 61

FR 37357 (July 18, 1996); see also 17 CFR 249.501.

\2\ The CRD is a customized electronic database that allows

``one-stop'' filing for broker-dealer registration among the various

state and federal regulators. In 1992, the Commission began

participating in the CRD system as part of its ongoing effort to

reduce the costs associated with broker-dealer registration.

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Although the NASD expected to implement the redesigned CRD system

in September 1996, a test of the system that began in May 1996 revealed

that additional changes were needed in the software that will be used

by broker-dealers to make electronic filings. Furthermore, the NASD

determined that broker-dealers needed additional time to prepare their

internal operations and infrastructure to support electronic filings.

As a result, the NASD delayed the implementation of the redesigned CRD

system. Because of this delay, on September 4, 1996, the Commission

suspended the compliance date for the Form BD amendments.\3\ Thus,

until the redesigned CRD system is fully functional, applicants

continue to file old Form BD.

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\3\ Securities Exchange Act Rel. No. 37632 (September 4, 1996),

61 FR 47412 (September 9, 1996).

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One of the primary goals of the enhanced CRD, as well as the Form

BD as amended, is to make certain information concerning broker-dealers

and their associated persons more readily available to the public until

the CRD redesign is complete. The NASD has determined to make the

information available through a web-based technology. To do so,

however, it is necessary to reformat a segment of Form BD.

To enhance the ability of the public to obtain information

regarding securities professionals, the Commission is adopting Interim

Form BD for use by registrants until the redesigned CRD system is

operational.\4\ Interim Form BD is based on old Form BD; it requires

registrants to file information called for by the 1996 Amendments. The

information would be in a computer format that will allow the CRD to

make the information available to the public over the WorldWide Web.

The Interim Form would not change the substance of the 1996 Amendments,

but only their appearance on a temporary basis.

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\4\ At this time, that is expected to occur shortly before the

year 2000.

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II. Description of the Interim Form BD

Interim Form BD will consist of Form BD currently in use with one

exception. Old Question 7 on Form BD will be reformatted to resemble

Question 11 on the amendments to Form BD approved by the Commission in

July 1996.\5\ The NASD, through the CRD system, will then publish the

contents of Question 7 in the interim form for public access. Question

7 requests information about the disciplinary history of the applicant

and its control affiliates, including information relating to statutory

disqualifications,\6\ other relevant history, and the applicant's

financial soundness. In order to make the disclosure more organized and

complete, Question 7 is broken into broad categories: criminal, civil,

regulatory, and financial. Disclosure of such offenses as military

court convictions, perjury, and conspiracy to commit certain offenses

is also required.

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\5\ The Commission has the authority to require the filing of

Form BD pursuant to Sections 15 and 17 of the Exchange Act. 15

U.S.C. 78o and 78q.

\6\ Sections 15(b)(1), 15(b)(4) and 15(b)(6) of the Exchange Act

authorize the Commission to deny registration to a broker-dealer if

the broker-dealer or an associated person of the broker-dealer has

engaged in the activities listed in those sections, 15 U.S.C.

78o(b)(1), (b)(4), and (b)(6). See also 15 U.S.C. 78o-3(g)(2).

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III. Effective Date

In general, the Administrative Procedure Act (``APA''), 5 U.S.C.

551, et seq., requires that agency rulemaking, such as changing Form

BD, must be subject to a public notice and comment period. 5 U.S.C.

553. That requirement has already been satisfied. In Securities

Exchange Act Rel. No. 35224, 60 FR 4040 (Jan. 12, 1995), the Commission

solicited comment on what became the 1996 Amendments to Form BD. The

substance of these amendments (namely, new Question 11) will be used in

Interim Form BD. Thus, Interim Form BD is not subject to a notice and

comment period.\7\ In addition to being unnecessary, the Commission is

of the view that soliciting comment would be impractical. The proposed

Interim Form BD would only be used on a temporary basis and to delay

its implementation until after a notice and comment period would

significantly reduce its efficacy.

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\7\ Alternatively, Section 553(b)(3)(B) of the APA provides that

an agency may dispense with prior notice and comment when it finds,

for good cause, that such notice and public comment are

``impracticable, unnecessary, or contrary to the public interest.''

5 U.S.C. 533(b)(3)(B). Because Interim Form BD makes no substantive

or material change to the 1996 Amendments, and the Commission has

already solicited comment on those amendments, the Commission finds

that good cause exists such that notice and comment are unnecessary

for the adoption of Interim Form BD.

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Moreover, although the APA generally requires publication of such

amendments at least thirty days before their effective date, this

requirement does not apply if the Commission determines, for good

cause, not to provide a thirty-day period. See 5 U.S.C. 533(d). In

light of the previous notice and comment period in connection with the

Form BD amendments, as well as the fact that Interim Form BD will

provide investors with immediate and inexpensive access to the relevant

information concerning broker-dealers and their associated persons, the

Commission here finds that good cause exists such that Interim Form BD

is effective as of 16, 1998. The use of Interim Form BD is prospective

only. Registrants already registered with the Commission need not

refile on Interim Form BD.

IV. Statutory Basis

15 U.S.C. 78o, 78q, 78w.

List of Subjects in 17 CFR Part 249

Broker-Dealers, Reporting and recordkeeping requirements,

Securities.

For the reasons set forth above, the Commission hereby amends Title

17, Chapter II, part 249 of the Code of Federal Regulations as follows:

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PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

1. The authority citation for Part 249 continues to read in part as

follows:

Authority: 15 U.S.C. 78a, et seq., unless otherwise noted;

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Note: Form BD does not, and the Interim Form will not, appear in

the Code of Federal Regulations.

2. By amending Form BD (referenced in Section 249.501) to revise

Question 7 to read as follows:

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By the Commission.

Dated: February 18, 1998.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98-4711 Filed 2-24-98; 8:45 am]

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