Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the National Association of Securities Dealers, Inc. Relating to Opening of Day-Trading Accounts

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41875; File No. SR-NASD-99-41]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the National Association of Securities Dealers, Inc. Relating

to Opening of Day-Trading Accounts

September 14, 1999.

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

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that

on August 20, 1999, the National Association of Securities Dealers,

Inc. (``NASD''), through its wholly-owned subsidiary, NASD Regulation,

Inc. (``NASD Regulation''), filed with the Securities and Exchange

Commission (``SEC'' or ``Commission'') the proposed rule change as

described in Items I, II, and III below, which Items have been prepared

by NASD Regulation. The Commission is publishing this notice to solicit

comments on the proposed rule change from interested persons.

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\1\ 15 U.S.C. 78s(b)(1).

\2\ 17 CFR 240.19b-4.

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

Substance of the Proposed Rule Change

NASD Regulation is proposing to amend the 2300 Series of the Rules

of the NASD to include new Rule 2360 and Rule 2361 regarding the

opening of day-trading accounts. Below is the text of the proposed rule

change. Proposed new language is in italics.

Rule 2360. Approval Procedures for Day-Trading Accounts

(a) No member that is promoting a day-trading strategy, directly or

indirectly, shall open an account for or on behalf of a non-

institutional customer, unless, prior to opening the account, the

member has furnished to the customer the risk disclosure

[[Page 51166]]

statement set forth in Rule 2361 and has:

(1) approved the customer's account for a day-trading strategy in

accordance with the procedures set forth in paragraph (b) and prepared

a record setting forth the basis on which the member has approved the

customer's account; or

(2) received from the customer a written agreement that the

customer does not intend to use the account for the purpose of engaging

in a day-trading strategy, except that the member may not rely on such

agreement if the member knows that the customer intends to use the

account for the purpose of engaging in a day-trading strategy.

(b) In order to approve a customer's account for a day-trading

strategy, a member shall have reasonable grounds for believing that the

day-trading strategy is appropriate for the customer. In making this

determination, the member shall exercise reasonable diligence to

ascertain the essential facts relative to the customer, including his

or her financial situation, tax status, prior investment and trading

experience, and investment objectives.

(c) If a member that is promoting a day-trading strategy opens an

account for a non-institutional customer in reliance on a written

agreement from the customer pursuant to paragraph (a)(2) and, following

the opening of the account, knows that the customer is using the

account for a day-trading strategy, then the member shall be required

to approve the customer's account for a day-trading strategy in

accordance with paragraph (a)(1) as soon as practicable, but in no

event later than 10 days following the date that such member knows that

the customer is using the account for such a strategy.

(d) Any record or written statement prepared or obtained by a

member pursuant to this rule shall be preserved in accordance with Rule

3110(a).

(e) For purposes of this rule, the term ``day-trading strategy''

means an overall trading strategy characterized by the regular

transmission by a customer of intra-day orders to effect both purchase

and sale transactions in the same security or securities.

(f) For purposes of this rule, the term ``non-institutional

customer'' means a customer that does not qualify as an ``institutional

account'' under Rule 3110(c)(4).

Rule 2361. Day-Trading Risk Disclosure Statement

(a) Except as provided in paragraph (b), no member that is

promoting a day-trading strategy, directly or indirectly, shall open an

account for or on behalf of a non-institutional customer unless, prior

to opening the account, the member has furnished to the customer, in

writing or electronically, the following disclosure statement:

You should consider the following points before engaging in a day-

trading strategy. For purposes of this notice, a ``day-trading

strategy'' means a strategy characterized by the regular transmission

by a customer of intra-day orders to effect both purchase and sale

transactions in the same security or securities.

Day trading can be extremely risky. Day trading generally

is not appropriate for someone of limited resources and limited

investment or trading experience and low risk tolerance. You should be

prepared to lose all of the funds that you use for day trading. In

particular, you should not fund day-trading activities with retirement

savings, student loans, second mortgages, emergency funds, funds set

aside for purposes such as education or home ownership, or funds

required to meet your living expenses.

Be cautious of claims of large profits from day trading.

You should be wary of advertisements or other statements that emphasize

the potential for large profits in day trading. Day trading can also

lead to large and immediate financial losses.

Day trading requires knowledge of securities markets. Day

trading requires in-depth knowledge of the securities markets and

trading techniques and strategies. In attempting to profit through day

trading, you must compete with professional, licensed traders employed

by securities firms. You should have appropriate experience before

engaging in day trading.

Day trading requires knowledge of a firm's operations. You

should be familiar with a securities firm's business practices,

including the operations of the firm's order execution systems and

procedures.

Day trading may result in your paying large commissions.

Day trading may require you to trade your account aggressively, and you

may pay commissions on each trade. The total daily commissions that you

pay on your trades may add to your losses or significantly reduce your

earnings.

Day trading on margin or short selling may result in

losses beyond your initial investment. When you day trade with funds

borrowed from a firm or someone else, you can lose more than the funds

you originally placed at risk. A decline in the value of the securities

that are purchased may require you to provide additional funds to the

firm to avoid the forced sale of those securities or other securities

in your account. Short selling as part of your day-trading strategy

also may lead to extraordinary losses, because you may have to purchase

a stock at a very high price in order to cover a short position.

(b) In lieu of providing the disclosure statement specified in

paragraph (a), a member that is promoting a day-trading strategy may

provide to the customer, in writing or electronically, prior to opening

the account, an alternative disclosure statement, provided that:

(1) The alternative disclosure statement shall be substantially

similar to the disclosure statement specified in paragraph (a); and

(2) The alternative disclosure statement shall be filed with the

Association's Advertising Department (Department) for review at least

10 days prior to use (or such shorter period as the Department may

allow in particular circumstances) for approval and, if changes are

recommended by the Association, shall be withheld from use until any

changes specified by the Association have been made or, if expressly

disapproved, until the alternative disclosure statement has been

refiled for, and has received, Association approval. The member must

provide with each filing the anticipated date of first use.

(c) For purposes of this rule, the term ``day-trading strategy''

shall have the meaning provided in Rule 2360(e).

(d) For purposes of this rule, the term ``non-institutional

customers'' means a customer that does not qualify as an

``institutional account'' under Rule 3110(c)(4).

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

Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, NASD Regulation 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 IV below. NASD Regulation has prepared summaries, set

forth in Sections A, B, and C below, of the most significant aspects of

such statements.

[[Page 51167]]

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

Statutory Basis for, the Proposed Rule Change

1. Purpose

Introduction

Certain brokerage firms focus primarily, or even exclusively, on

promoting day-trading strategies to individuals. These firms generally

advertise on the Internet and elsewhere as ``day-trading'' firms or

otherwise promote their execution and other services as desirable for

``serious'' or ``professional'' traders. In addition, many of these

firms offer training on day-trading techniques, as well as provide

computer facilities and software packages specifically designed to

support and accommodate day trading.

Day trading, however, raises unique investor protection concerns.

In general, day traders seek to profit from very small movements in the

price of a security. Such a strategy often requires aggressive trading

of a brokerage account. As a result, day trading generally requires a

significant amount of capital, a sophisticated understanding of

securities markets and trading techniques, and high risk tolerance.

Even experienced day traders with in-depth knowledge of the securities

markets may suffer severe and unexpected financial losses.

The Proposal in Special Notice to Members 99-32

To address investor protection concerns arising from day-trading

activities, on April 15, 1999, NASD Regulation issued Special Notice to

Members 99-32 soliciting comment on proposed rules regarding approval

procedures for day-trading accounts. The proposal set forth in the

Notice required a firm that had recommended an intra-day trading

strategy to an individual to approve the individual's account for day

trading. The proposal also required the firm, as part of the account

approval process, to determine that the strategy was appropriate for

the customer and to provide a disclosure statement to the customer

discussing the risks associated with day-trading activities. As further

discussed below, NASD Regulation received 39 comment letters in

response to Special Notice to Members 99-32.

The Revised Proposed Rule Change

Based on the comments received in response to the Notice and input

provided by the various NASD standing-committees, NASD Regulation has

revised the proposed rule change concerning the opening of day-trading

accounts. The proposed rule change, similar to its predecessor in

Notice to Members 99-32, focuses on disclosing the basic risks of

engaging in a day-trading strategy and assessing the appropriateness of

day-trading strategies for individuals.

In particular, the proposed rule change would require a firm that

is promoting a day-trading strategy, directly or indirectly, to deliver

a specified risk disclosure statement to a non-institutional customer

prior to opening an account for the customer. In addition, the firm

would be required to (1) approve the customer's account for day trading

or (2) obtain a written agreement from the customer stating that the

customer does not intend to use the account for day-trading activities.

A firm would not be permitted to rely on the written agreement from the

customer if the firm knows that the customer intends to use the account

for day trading. In addition, if a firm knows that a customer who

provided such an agreement is engaging in a day-trading strategy, the

firm would be required to approve the account for day trading.

As part of the account approval process, a firm would be required

to have reasonable grounds for believing that the day-trading strategy

is appropriate for the customer. In making this determination, the firm

would be required to exercise reasonable diligence to ascertain the

essential facts relative to the customer, including his or her

financial situation, tax status, prior investment and trading

experience, and investment objectives. The firm also would be required

to prepare a record setting forth the basis on which the firm has

approved the customer's account. Any record or written statement

prepared or obtained by the firm pursuant to the proposed rule change

would have to be preserved in accordance with NASD Rule 3110(a).

Requirement To Approve the Account for Day Trading

Elimination of the Term ``Recommend''

As noted above, the proposal articulated in Notice to Members 99-32

applied to firms that had recommended an intra-day trading strategy to

individual investors. Many commenters raised serious concerns with the

proposal's use of the term ``recommend.'' While the proposed rules did

not define ``recommendation'' in the context of day trading, Notice to

Members 99-32 provided general guidance on the types of activities that

would constitute a recommendation in this context. The Notice stated

that in general, a member would be recommending a day-trading strategy

for purposes of the proposed rules if it affirmatively promoted day

trading through advertising, training seminars, or direct outreach

programs, and an individual engaged in day trading in response to those

solicitations.

Many commenters voiced concerns that the Notice adopted an overly

broad view of ``recommendation,'' and feared that this broader view

would be applied in other contexts. In particular, these commenters

were concerned that advertisements or other promotions alone would be

deemed to trigger a firm's duty to customers under the NASD's general

suitability rule, Rule 2310. In this regard, one commenter stated its

belief that the historical understanding that a recommendation is a

specific communication from a broker to a customer at a specific time

must be maintained. A second commenter suggested that the rules include

a clear statement that ``recommendation'' for purposes of the rules

shall mean ``recommendation'' as that term is commonly used throughout

NASD rules, other Notices to Members, and NASD interpretative letters.

This same commenter believed the rules should explicitly state that

advertising does not constitute a recommendation for purposes of the

proposed rules.

Several commenters suggested specific interpretations of the term

``recommendation'' in the day-trading context. For instance, one

commenter expressed the view that the types of conduct that constituted

``recommending'' involved actively reaching out to the investing public

with the goal of reaping financial benefits from the recommendation

being made. The commenter also believed that the definition of

recommendation should expressly exclude conduct such as solely

operating a Web site that provided general financial information and

news. A second commenter suggested exempting from the proposed rules

those Internet-based firms that do not provide individualized

instructions or guidance with respect to day trading, and that do not

promote or endorse particular investment strategies to customers on an

individual basis. Many commenters, after addressing issues raised by

the proposal's use of the term ``recommendation,'' suggested that the

proposal be limited to a risk disclosure requirement.

In contrast, several commenters believed that the proposed rules

should apply to a broader scope of firms and firm activities, such as

to any firm that permits or accepts intra-day trading transactions. In

this regard, one commenter opined that all firms

[[Page 51168]]

promoting, advertising, recommending, or providing their customers with

the opportunity to day trade should be required to comply with the

rules. Another commenter suggested that the proposed rules should apply

to all firms that promote or advertise day-trading activities or that

have more than a certain percentage of day-trading accounts.

After considering the comments, NASD Regulation has revised the

proposed rule change to apply to those firms that are ``promoting a

day-trading strategy.'' This revision should address commenters'

concerns that the interpretation of the term ``recommendation'' in the

day-trading context could obfuscate use of the term in the general

suitability area. By using the concept of ``promoting a day-trading

strategy,'' the proposed rule change also would more clearly apply to

those situations where a member firm either solicits a person on an

individual basis or advertises to the general public.

NASD Regulation has determined not to define ``promoting a day-

trading strategy'' for purposes of the proposed rule change. However,

NASD Regulation believes that the promotion by a member of efficient

execution services or lower execution costs based on multiple trades

alone would not trigger the requirements under the proposed rule

change. In addition, merely providing general investment research or

advertising the high quality or prompt availability of such general

research would not constitute the promotion of day trading under the

proposal. Similarly, merely having a Web site that provides general

financial information or news or that allows the multiple entry of

intra-day purchases and sales of the same securities would not

constitute the promotion of day trading.

However, a member would be subject to the proposed rule change if

it affirmatively promotes day-trading activities or strategies through

advertising, training seminars, or direct outreach programs. For

instance, a firm generally would be subject to the proposed rule change

if its advertisements address the benefits of day trading, rapid-fire

trading, or momentum trading, or encourage persons to trade or profit

like a professional trader. A firm also would be subject to the

proposed rule change if it promotes its day-trading services through a

third party. Moreover, the fact that many of a firm's customers are

engaging in a day-trading strategy would be relevant in determining

whether a firm has promoted itself in this way.

Notably, while the proposed rule change does not define the term

``promoting a day-trading strategy,'' firms could submit their

advertisements to NASD Regulation's Advertising Department for review

and guidance on whether the content of the advertisement constitutes

such activity for purposes of the rule change. As a result, the

proposed rule change, as revised, should both limit concerns about any

effect of the proposal on the NASD's general suitability rule and allow

firms to better determine whether a particular advertisement would

trigger the rule prior to publication or distribution of the

advertisement.

Persons Covered by the Proposed Rules

Comments also were varied regarding whether any proposed day-

trading rules should reach a broader range of customers. One commenter

stated that the application of the rules should not be limited to

natural persons, but should include ``non-institutional customers'' as

defined by NASD Rules. This commenter noted that many day traders have

opened accounts under partnership or corporate names and that these

customers typically are no more sophisticated than customers who open

accounts in their own names. Several commenters also believed that all

existing customers should be covered by day-trading rules or, at a

minimum, receive a risk disclosure statement. One individual suggested

that any proposed day-trading rules should apply to all new day-trading

accounts, rather than to new customers.

In response to commenter's concerns, NASD Regulation has determined

to revise the proposal to apply to all non-institutional customers. For

purposes of the proposed rule change, the term ``non-institutional

customer'' would mean a customer that does not qualify as an

``institutional account'' under NASD Rule 3110(c)(4). Rule 3110(c)(4)

defines ``institutional account'' to mean the account of (1) a bank,

savings and loan association, insurance company, or registered

investment company; (2) an investment adviser registered either with

the SEC under Section 203 of the Investment Advisers Act of 1940 or

with a state securities commission (or agency or office performing like

functions); or (3) any other entity (whether a natural person,

corporation, partnership, trust, or otherwise) with total assets of at

least $50 million. Applying the proposed rule change to non-

institutional customers would ensure that most individuals would be

covered by the proposed rule change, regardless of whether they engage

in day-trading activities in their own name or in the name of a

corporation or partnership. As revised, the proposed rule change would

not apply to an existing customer unless the customer opens a new

account at a firm that is promoting a day-trading strategy.

Accounts Used For Purposes Other Than Day-Trading Activities

As an alternative to approving an account for a day-trading

strategy, the proposed rule change would permit a firm that is

promoting a day-trading strategy to obtain from the customer a written

agreement that the customer does not intend to use the account for the

purposes of day trading (``other-use agreement''). In addition, the

firm would be required to provide a risk disclosure statement to the

customer even if the firm obtains an other-use agreement. A firm would

not be permitted to rely on an other-use agreement if it knows that the

customer intends to use the account for day trading. Moreover, if a

firm opens an account for a customer in reliance on an other-use

agreement, but later knows that the customer is using the account for

day-trading activities, then the firm would be required to approve the

customer's account for day trading in accordance with the rule as soon

as practicable, but in no event later than ten days from the date of

discovery.

Elements To Consider in Making Appropriateness Determinations

Commenters also suggested additional elements that a firm should

consider in order to assess the appropriateness of a day-trading

strategy for an individual. For example, several commenters believed

that firms should be required to determine the source of funds that an

individual intends to use for day-trading activities. Other commenters,

however, voiced concerns that any such requirement would be an invasion

of privacy or questioned why this requirement would not apply to all

types of brokerage accounts. One individual believed that all persons

should be required to meet a minimum net worth standard in order to

engage in day trading.

After considering the comments, NASD Regulation has revised the

proposed rule change to require a firm that is promoting a day-trading

strategy to have reasonable grounds for believing that the strategy is

appropriate for the customer and to exercise reasonable diligence to

ascertain the essential facts relative to the customer. The proposed

rule change continues to require a firm to review the customer's

financial situation, prior investment and trading experience, and

investment objectives. A firm also would be expressly required

[[Page 51169]]

to review the customer's tax status. The proposed rule change, however,

would not require firms to determine the source of funds, primarily

because of concerns with defining the scope of any such obligation and

the risks of imposing disproportionate burdens on firms.

Definition of an Intra-Day Trading Strategy

The proposal set forth in Notice to Members 99-32 defined ``intra-

day trading strategy'' to mean ``an overall trading strategy

characterized by the regular transmission by a customer of multiple

intra-day electronic orders to effect both purchase and sale

transactions in the same security or securities.'' Several commenters

suggested a broader definition of the term. For example, one commenter

stated that the term should include a person who regularly makes only

one buy and one sale of a particular security or group of securities on

a daily basis. A second commenter believed that the term should include

short-term trading strategies that could occur over, for example, a

two-day period. Another commenter suggested that the definition include

any offer and sale of the same security if the offer and sale are

accomplished prior to settlement.

In contrast, one commenter emphasized its belief that the long-

standing historical definition of a day trader requires a pattern of

day trades, noting that there are legitimate reasons to buy and sell a

single security in a single day that are not premised on a day-trading

strategy. This commenter suggested that the proposal apply only when a

clearly defined and easily identified pattern of activity exists over a

considerable period of time. Another commenter expressed a general view

that the definition of day trading lacked sufficient clarity, and

raised a series of questions regarding the scope of the term, including

whether it should include the transmission of orders in a non-

electronic environment.

In light of the comments, NASD Regulation has revised the proposed

definition of ``day-trading strategy'' to mean ``an overall trading

strategy characterized by the regular transmission by a customer of

intra-day orders to effect both purchase and sale transactions in the

same security or securities.'' NASD Regulation believes that the

revised definition would include those instances where an individual

regularly transmits one or more purchase and sale (i.e., ``round-

trip'') transactions in a single day. In addition, although as a

practical matter, day trading typically requires electronic delivery of

orders, the proposed definition of ``day-trading strategy'' has been

revised to include orders transmitted by non-electronic means, such as

by telephone.

Requirement To Provide Day-Trading Risk Disclosure Statement

As discussed above, the proposed rule change would require a firm

that is promoting a day-trading strategy to deliver a disclosure

statement to the customer discussing the unique risks posed by day

trading. The disclosure statement would include several factors that a

customer should consider before engaging in day trading, including that

the customer should be prepared to lose all of the funds that he or she

uses for day trading and that day trading on margin may result in

losses beyond the initial investment. The firm would be permitted to

develop an alternative risk disclosure statement, provided that the

alternative statement was substantially similar to the mandated

statement and was filed with, and approved by, NASD Regulation's

Advertising Department.

Many commenters agreed that customers should receive additional

information on the risks of day trading or other on-line trading

activities. One commenter suggested that firms be required to provide a

risk disclosure statement to all new individual customers, rather than

limit dissemination to individuals to whom firms have recommended a

day-trading strategy. In contrast, another commenter believed that it

was more effective for the NASD to provide risk disclosures to

potential customers in an educational atmosphere, such as the NASD's

Web site. Some commenters suggested specific revisions to the proposed

risk disclosure statement. In this regard, one commenter proposed that

the statement include the language from the text of the Notice that day

trading generally would not be appropriate for someone of limited

resources and limited investment or trading experience and low risk

tolerance. Another commenter expressed concern that the suggestion in

the disclosure statement that persons inquire as to a firm's capacity

to permit customers to engage in day trading might place an unrealistic

obligation on the customer.

Comments generally were divided as to whether customers should be

required to acknowledge receipt of the disclosure statement. One

commenter believed that a firm should be able to provide a copy of the

statement on its Web site or in an initial mailing to the customer at

the time of account opening. The commenter stated that the document was

a disclosure of risks and not an agreement between the parties. Another

commenter asserted that firms should have flexibility in deciding

whether to require a customer to sign the statement. In contrast, one

commenter emphasized that requiring customers to acknowledge receipt of

the statement would protect both the customer and the firm. In

addition, one individual suggested that the proposed rules require

customers to sign the statement and to wait three days prior to trading

to allow for additional reflection and consideration.

After considering the comments, NASD Regulation has modified the

proposed rule change to require firms promoting a day-trading strategy

to deliver the risk disclosure statement to all non-institutional

customers prior to opening an account for such customers. NASD

Regulation is not recommending that all firms be required to

disseminate the disclosure statement to all new customers because the

benefits of such a requirement are unclear. However, NASD Regulation

will continue to monitor the growth of day-trading activities to

determine whether, in the future, such a requirement might be

justified. In addition, NASD Regulation encourages all firms,

particularly firms that provide on-line trading capability, to provide

the mandated risk disclosure statement or a substantially similar

disclosure statement to their customers.

The disclosure statement also has been revised to include the

additional key point that day trading generally is not appropriate for

persons of limited resources and limited investment or trading

experience and low risk tolerance. The provision in the proposed

statement that an individual should confirm that a firm has adequate

capacity to support day-trading activities has been deleted, in light

of concerns that the provision might place undue burdens on the

customer.

Comments Suggesting No or Minimal Regulatory Response

Those commenters that opposed any action in the area of day trading

generally questioned why day-trading activities merited special

regulation. For example, two commenters emphasized that many

investments were risky and generally believed that the proposed rules

inappropriately targeted day-trading firms. Some commenters also

suggested that the proposed rules were paternalistic. Another commenter

raised concerns that the proposal unfairly suggested to investors that

on-line trading is somehow less scrupulous and more risky than trading

through a traditional broker-dealer. This commenter also believed that

the

[[Page 51170]]

existing regulatory framework provides ample means to combat abuses

associated with day trading. In addition, one commenter generally

stated that it was premature to attempt regulation of day-trading

practices. Several individual commenters, in opposing regulation of day

trading, emphasized the benefits of electronic trading and their

ability to protect themselves.

As noted above, however, NASD Regulation believes that the proposed

rule change focuses on the promotion of trading strategies that present

very high risk to individuals and, as revised, should be easier for

firms to apply to their activities. Firms that are actively promoting a

day-trading strategy should be responsible for assessing whether the

strategy is appropriate for an individual who opens a day-trading

account at that firm. These firms also should be required to disclose

the risks of engaging in a day-trading strategy to an individual prior

to opening an account for that individual.

2. Statutory Basis

NASD Regulation believes that the proposed rule change is

consistent with Section 15A(b)(6) of the Act \3\ in that the proposed

rule change is 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. NASD Regulation

believes that the proposed rule change codifying the obligation of

firms promoting day-trading strategies to disclose the risk of these

strategies to non-institutional customers and to determine whether the

strategy is appropriate for a customer will help to protect investors

and the public interest in an increasingly more sophisticated trading

environment.

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\3\ 15 U.S.C. 78o-3(b)(6).

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(B) Self-Regulatory Organization's Statement on Burden on Competition

NASD Regulation does not believe that the proposed rule change will

result in any burden on competition that is not necessary or

appropriate in furtherance of the purposes of the Act.

(C) Self-Regulatory Organization's Statement on Comments on the

Proposed Rule Change Received From Members, Participants, or Others

The proposed rule change was published for comment in NASD Special

Notice to Members 99-32 (April 15, 1999). The comment period expired on

May 31, 1999. Thirty-nine comment letters were received in response to

the Notice. Copies of the comment letters and a brief summary of the

comment letters have been provided to the Commission. Of the 39 comment

letters received, approximately 13 were in favor of the proposed rule

change, 8 supported risk disclosure only, 12 were opposed to the

proposed rule change, and 6 expressed no opinion or addressed broader

issues.

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

for Commission Action

Within 35 days of the date of publication of this notice in the

Federal Register or within such longer period (i) as the Commission may

designate up to 90 days of such date if it finds such longer period to

be appropriate and publishes its reasons for so finding or (ii) as to

which the self-regulatory organization consents, the Commission will:

A. by order approve such proposed rule change, or

B. institute proceedings to determine whether the proposed rule

change should be disapproved.

IV. Solicitation of Comments

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

arguments concerning the foregoing, including whether the proposed rule

change is consistent with the Act. In addition, the Commission seeks

comment on the following specific issues: (1) whether the proposal

should cover existing day-trading accounts; (2) whether the proposed

definition of ``day-trading strategy'' is appropriate; (3) whether the

proposed risk disclosure statement is adequate; and (4) whether the

firm should be required to obtain a customer's acknowledgment of

receipt of the risk disclosure document.

Persons making written submissions should file six copies thereof

with the Secretary, Securities and Exchange Commission, 450 Fifth

Street, N.W., Washington, D.C. 20549-0609. 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 File No. SR-NASD-99-41 and should be

submitted by October 12, 1999.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\4\

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\4\ 17 CFR 200.30-3(a)(12).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 99-24493 Filed 9-20-99; 8:45 am]

BILLING CODE 8010-01-M