Proposed Amendment to Part I of Schedule C to the NASD By-Laws Regarding Written Notification About Certain Events; Last Date for Comment: August 3, 1990

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REQUEST FOR COMMENTS

EXECUTIVE SUMMARY

The NASD requests comments on a proposal to add a new section to Part I of Schedule C to the NASD By-Laws that would require members to provide notification in writing to the appropriate district office on the occurrence of certain events affecting the ownership or control of a member.

BACKGROUND

Schedule C to the NASD By-Laws currently permits an NASD member to experience a change in ownership or control without prior review by the appropriate NASD district office. Pursuant to Section (4) to Part I of Schedule C to the NASD By-Laws, in cases where the ownership or control of an existing member changes, the NASD has the discretion to condition continuance in membership on prompt compliance with the premembership interview procedures. Notice of a change in ownership or control of a member must be filed on a revised Form BD whenever the information previously on file changes. Since the form does not specify a time for filing, a general rule of thumb has developed that filing is required within 30 days. In certain cases, a previously dormant member can become active unexpectedly or be sold or taken over by new management. While a new premembership interview can be conducted, regulatory problems may have already occurred in reference to the merger, purchase, or change of ownership of a member. The NASD believes that prompt notification of such a change in ownership will allow the NASD to act more expeditiously in determining whether a new premembership interview should be scheduled.

EXPLANATION

The amendment would require prompt notification to the member's district office after a specified significant event, rather than prior notification of such event. The amendment would require members to provide notification in writing to the applicable district office no later than five business days after a specific event, thereby indicating that prenotifying the district is permitted but not required.

The amendment would focus on four significant events the NASD has determined require prompt notification: (1) the merger of a member; (2) an acquisition by a member; (3) an acquisition of a member or substantially all of its assets; and (4) any change of more than 50 percent of the equity or partnership capital of a member. The NASD also considered whether the new provision should require notification in the case of a change in the president or chief executive officer of a member. It was determined, however, that prompt notification should focus on a change in the ownership structure of the member. A change in the president or chief executive officer of a member would not normally require notification unless accompanied by one of the four triggering events.

The NASD encourages all members and other interested persons to comment on the proposed amendment to Schedule C to the By-Laws. Comments should be directed to:

Mr. Lynn Nellius
Corporate Secretary
National Association of Securities Dealers, Inc.
1735 K Street, NW
Washington, DC 20006-1506.

Comments must be received no later than August 3, 1990. All comments will be made available for public inspection. Comments received by this date will be considered by the NASD's Membership Committee and the NASD Board of Governors. If approved by the Board, the amendments must be filed with and approved by the Securities and Exchange Commission before becoming effective.

Questions concerning this notice should be directed to Craig L. Landauer, Assistant General Counsel, at 202-728-8291.

PROPOSED NEW SECTION (5) TO PART I OF SCHEDULE C TO THE BY-LAWS

(Note: New language is underlined.)