Proposed Revision of NASD Manual
| SUGGESTED ROUTING:* |
Senior Management |
EXECUTIVE SUMMARY
The NASD, on the recommendation of its Legal Advisory Board (LAB), has undertaken a reorganization of the NASD Manual in order to make the Manual easier to use. As a first step in the Manual revision project, the LAB proposed an outline of the Manual. The LAB contemplates that, ultimately, the text of the Manual will be reorganized to conform to the outline and that the text of the Manual will then be edited to eliminate redundancies and inconsistencies. Because the outline itself is useful in locating relevant provisions contained in the Manual, however, a copy follows this notice for the benefit of NASD members. The outline was distributed as part of the November 1991 supplement to the looseleaf edition of the Manual and will be included in the next paper-bound NASD Manual.
BACKGROUND
In 1988, the NASD's Board of Governors approved the creation of the LAB, a group of attorneys who are prominent members of the securities bar. The LAB offers guidance to the NASD's Board of Governors on legal and policy issues. In 1989, the LAB recommended a project to reorganize the NASD Manual. Members of the LAB were in general agreement that the NASD Manual is currently organized in an awkward manner that makes it difficult for users to locate provisions relevant to a given topic. The NASD proposes to follow a two-step process with respect to the reorganization of the Manual. As a part of step one, the LAB prepared an outline for a proposed reorganization of the Manual. The LAB contemplated that, following the completion of the outline, the NASD, after review by appropriate committees of the Board of Governors, would physically reorder the existing text of the Manual to conform to the outline. As step two, the LAB contemplated that the NASD would undertake a substantive review of the Manual so as to eliminate inconsistencies and redundancies that would become more apparent when the text of the Manual was reordered.
To date, the LAB has completed its proposed outline for the revised Manual and has prepared a mock-up of the reordered text. Because the outline itself is useful in locating relevant sections of the Manual, the NASD has arranged to publish the outline along with the latest update to the Manual. Accordingly, the outline was included in a November 1991 mailing that transmitted updated pages to persons who subscribe to Commerce Clearing House's looseleaf version of the Manual. The outline will also be included in the next edition of the paper-bound Manual reprint. The outline, which is denominated as a "Guide to the Manual," is found on pages 21 through 24 of the looseleaf version of the Manual.
The NASD also decided to publish the outline in this Notice to Members so as to allow the greatest possible number of Manual users to benefit from the outline. Page numbers reflected on the attached outline refer to pages contained in the loose-leaf version of the Manual, as of November 1991.
The NASD and the LAB welcome any suggestions that users of the Manual may wish to offer with respect to improvements to the outline. Written comments or suggestions regarding the outline should be directed to Anne H. Wright, Senior Attorney, Office of General Counsel, National Association of Securities Dealers, Inc., 1735 K Street, NW, Washington, DC 20006-1506. Any comments that the staff receives regarding the outline will be relayed to the members of the LAB.
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. OUTLINE OF THE MANUAL
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ORGANIZATION |
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Certificate of Incorporation |
1021 |
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By-Laws |
1045 |
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Schedule A — Assessments and Fees |
1501 |
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Schedule B — District Boundaries |
1521 |
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Schedule C — Applications for Membership, Registration of Principals and Representatives, etc |
1531 |
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Limitations Upon Use of Association Name (Resolution) |
1651 |
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NASD to Furnish Current List of Membership (Rules of Fair Practice, Article VI, first and last sentences) |
2219 |
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CONDUCT STANDARDS |
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Adoption and Application (Rules of Fair Practice, Article I) |
2011 |
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Interpretations and Explanations (Resolution) |
1651 |
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Definitions (Rules of Fair Practice, Article II) |
2012 |
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Business Conduct (General) |
2014 |
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Standards of Honor and Principles of Trade (Rules of Fair Practice, Article III, § 1) |
2014 |
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Use of Manipulative, Deceptive, or Other Fraudulent Devices (Rules of Fair |
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Practice, Article III, § 18) |
2079 |
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Treatment of Customers |
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Advertisements and Sales Literature (Rules of Fair Practice, Article III, § 35) |
2156 |
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Communications |
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Recommendations to Customers — Suitability (Rules of Fair Practice, Article HI, §2) |
2051 |
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Recommending Speculative Low-Priced Securities (Policy) |
2052 |
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Recommending Purchases Beyond Customer Capability (Policy) |
2053 |
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Confirmations (Rules of Fair Practice, Article HI, § 12) "Third Market" Confirmations (Explanation) |
2069 |
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Disclosure of Control Relationship With Issuer (Rules of Fair Practice, Article III, § 13) |
2078 |
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Disclosure of Participation or Interest in Primary or Secondary Distribution (Rules of Fair Practice, Article III, § 14) |
2078 |
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Forwarding of Proxy Material, Annual Reports, etc. (Interpretation) |
2041 |
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Disclosure of Financial Condition to Customers (Rules of Fair Practice, Article HI, §22) |
2097 |
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Availability to Customers of Certificate, By-Laws, Rules, and Codes of Procedure (Rules of Fair Practice, Article IV, § 1) |
2203 |
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Special Accounts |
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Discretionary Accounts (Rules of Fair Practice, Article III, § 15) |
2078 |
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Margin Accounts (Rules of Fair Practice, Article III, § 30, Appendix A) |
2114 |
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Options — See Special Products, Below |
2116 |
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Transactions With Customers |
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Fair Dealing With Customers (Policy) |
2052 |
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Excessive Trading Activity ("Churning" or "Overtrading") |
2052 |
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Trading in Mutual Fund Shares |
2052 |
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Transactions in Discretionary Accounts in Excess of or Without Actual Authority |
2053 |
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Unauthorized Transactions |
2053 |
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Other Fraudulent Activities |
2053 |
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Guaranteeing Customers Against Loss (Rules of Fair Practice, Article III, § 19(e)) |
2083 |
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Sharing in Customers' Profits or Losses (Rules of Fair Practice, Article III, § 19(f)) |
2083 |
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Best Execution and Interpositioning — Execution of Retail Transactions in the Over-the-Counter Market (Interpretation) |
2038 |
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Commissions, Markups, and Charges |
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Net Prices to Person Not in Investment Banking or Securities Business (Rules of Fair Practice, Article III, § 23) |
2097 |
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Dealing With Nonmembers |
2097 |
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Charges for Services Performed (Rules of Fair Practice, Article III, § 3) |
2055 |
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Fair Practice and Commissions (Rules of Fair Practice, Article III, § 4) |
2056 |
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Markups (Policy) |
2056 |
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Installment or Partial Payment Sales (Rules of Fair Practice, Article III, § 20) |
2094 |
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Customers' Securities and Funds |
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Prompt Receipt and Delivery of Securities (Interpretation) |
2039 |
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Customers' Securities and Funds (See Books and Records and Financial Condition) |
2095 |
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Securities Distributions |
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Review of Corporate Financing (Interpretation) |
2023 |
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Securities of Members and Affiliates (Schedule E) |
1611 |
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Free-Riding and Withholding (Interpretation) |
2043 |
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Fixed Price Offerings |
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Securities Taken in Trade (Rules of Fair Practice, Article III, § 8 and Interpretation) |
2065 |
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Selling Concessions, Discounts and Other Allowances (Rules of Fair Practice, Article III, § 24 and Interpretation) |
2097 |
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Transactions With Related Persons (Rules of Fair Practice, Article III, § 36 and Interpretation) |
2177 |
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Offerings "At the Market" (Rules of Fair Practice, Article III, § 16) |
2079 |
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Contents of Selling Group Agreements (Rules of Fair Practice, Article III, § 7) |
2065 |
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Solicitation of Purchases on an Exchange to Facilitate a Distribution (Rules of Fair Practice, Article III, §17) |
2079 |
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Special Products |
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Direct Participation Programs (Rules of Fair Practice, Article III, § 34) |
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Appendix F |
2148 |
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Insurance Company Variable Contracts (Rules of Fair Practice, Article III, §29) |
2113 |
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Investment Company Securities (Rules of Fair Practice, Article HI, § 26) |
2105 |
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Options (Rules of Fair Practice, Article III, § 33) |
2127 |
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Appendix E |
2128 |
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Options-Related Communications |
2195 |
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Rules of Fair Practice, Article III, § 35(f) |
2172 |
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Government Securities |
2263 |
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Responsibilities to Other Brokers or Dealers |
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Dealing With Nonmember Broker or Dealer (Rules of Fair Practice, Article III, § 25) |
2101 |
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Transactions Between Members and Nonmembers (Interpretation) |
2101 |
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Charges for Services Performed (Rules of Fair Practice, Article III, § 3) |
2055 |
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Disclosure of Financial Condition to Other Members (Resolution Under Rules of Fair Practice, Article III, § 22).. |
2097 |
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Responsibilities Relating to Associated Persons, Employees, and Others' Employees |
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Supervision (Rules of Fair Practice, Article III, § 27) |
2177 |
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Fidelity Bonds (Rules of Fair Practice, Article III, § 32) Appendix C |
2124 |
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Employment of Disciplined Associated Persons (Interpretation Under Rules of Fair Practice, Article V, § 1) |
2215 |
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Associated Persons' Outside Business Activities (Rules of Fair Practice, Article III, §43) |
2191 |
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Associated Persons' Participation in Private Securities Transactions (Rules of Fair Practice, Article III, §40) |
2189 |
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Transactions for or by Associated Persons (Rules of Fair Practice, Article III, § 28) |
2178 |
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Notice of Disciplinary Action (Schedule C, Part V) |
1543 |
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Influencing or Rewarding Employees of Others (Rules of Fair Practice, Article III, § 10) |
2068 |
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Books and Records and Financial Condition |
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Books and Records (Rules of Fair Practice, Article III, § 21) |
2095 |
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General |
2095 |
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Customer Order Tickers |
2095 |
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Accounts |
2095 |
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Written Complaints |
2095 |
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Predispute Arbitration Agreements With Customers |
2095 |
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Fictitious Accounts (Policy — Fair Dealing With Customers) |
2052 |
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Use of Information as to Ownership of Securities Obtained in Fiduciary Capacity (Rules of Fair Practice, Article III, § 9) |
2068 |
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Customers' Securities or Funds (Rules of Fair Practice, Article III, § 19(a)-(d)) |
2083 |
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Explanation of Segregation (Rules of Fair Practice, Article 111, § 19(a)-(d)) |
2083 |
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Unauthorized Use or Borrowing of Customers' Funds (Policy — Fair Dealing With Customers) |
2052 |
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Members Experiencing Financial and/or Operational Difficulties (Rules of Fair Practice, Article III, § 38 and Explanation) |
2179 |
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Change in Exempt Status Under Exchange Act Rule 15c3-3 (Rules of Fair Practice, Article III, § 39) |
2186 |
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Providing NASD Membership List to Offices and Associated Persons (Rules of Fair Practice, Article VI, second sentence) |
2219 |
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Settlements |
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Uniform Practice Code |
3501 |
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Securities "Failed to Receive" and "Failed to Deliver" (Rules of Fair Practice, Article III, §31) |
2123 |
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Appendix B |
2123 |
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Trading (General) |
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Publication of Transactions and Quotations (Rules of Fair Practice, Article III, § 5) |
2063 |
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Manipulative and Deceptive Quotations (Interpretation) |
2063 |
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Offers at Stated Prices (Rules of Fair Practice, Article III, § 6) |
2064 |
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Firmness of Quotations (Policy) |
2064 |
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Payments Designed to Influence Market Price (Rules of Fair Practice, Article III, § 11) |
2069 |
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Transactions During Trading Halt (Rules of Fair Practice, Article III, § 42) |
2190 |
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Short Positions — Recording and Reporting (Rules of Fair Practice, Article III, §41) |
2190 |
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Reporting Certain OTC Transactions to Consolidated Tape (Schedule G) |
1631 |
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Reporting Transactions in Certain Non-Nasdaq Securities (Schedule H) |
1653 |
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TRADING SYSTEMS |
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Nasdaq (Schedule D) |
1561 |
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Member Requirements |
1580 |
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Issuer Requirements |
1564 |
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Small Order Execution System (SOES) |
2303 |
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Intermarket Trading System/Computer Assisted Execution System (ITS/CAES) (Rules of Fair Practice, Article III, § 37 and Rules of Practice and Procedure for ITS/CAES) |
2501 |
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PORTAL (Schedule I) |
1671 |
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Member Requirements |
1675 |
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Issuer Requirements |
1673 |
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OTC Bulletin Board (Schedule H) |
1653 |
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PROCEDURE |
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Complaints (Rules of Fair Practice, Article IV, §§ 2-4) |
2203 |
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Investigation (Rules of Fair Practice, Article IV, § 5) |
.2205 |
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Suspension of Members for Failure to Furnish Information Duly Requested (Resolution) |
2205 |
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Sanctions (Rules of Fair Practice, Article V, §§ 1-3) |
2215 |
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Notice of Penalties (Resolution) |
2215 |
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Code of Procedure |
3001 |
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Code of Arbitration Procedure |
3701 |
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