Proposed Amendment to Article III, Section 21 of the NASD Rules of Fair Practice Relating to Short Sales
IMPORTANT MAIL VOTE
OFFICERS, PARTNERS AND PROPRIETORS
TO: All NASD Members and Other Interested Persons
LAST VOTING DATE IS MAY 23, 1986
Members of the National Association of Securities Dealers, Inc. (NASD), are invited to vote on a proposed amendment to Article III, Section 21 of the NASD Rules of Fair Practice. The proposed amendment has been approved by the NASD Board of Governors and now requires the membership's approval.
The proposed amendment to Article III, Section 21 of the NASD Rules of Fair Practice would require customer order tickets to be marked "long" or "short." Under the proposal, an order may be marked "long" only if (1) the customer's account is "long" the security; or (2) the member is informed that the customer owns the security and will deliver it as soon as possible without undue inconvenience or expense. The text of the proposed amendment is attached as Exhibit 1.
The proposed amendment to Article III, Section 21 was published for comment on December 24, 1985 (Notice to Members 85-87). If approved by the membership, the proposed amendment will be filed with the Securities and Exchange Commission.
Also published for comment in Notice to Members 85-87 were proposed amendments to the Interpretation of the Board of Governors on Prompt Receipt and Delivery of Securities (Interpretation) that imposed specific requirements for members accepting "short" customer sell orders. Under the proposed amendments, a member would be prohibited from accepting a "short" sale order from a customer unless the member makes an affirmative determination that it will receive delivery of the security from the customer or that it can borrow the security on behalf of the customer for delivery by settlement date. These amendments were approved by the NASD Board of Governors and will be submitted to the Securities and Exchange Commission for approval. Pursuant to Article VII of the NASD By-Laws, amendments to an Interpretation of the Board of Governors do not require a membership vote. The text of the amendments to the Interpretation is attached as Exhibit 2 for informational purposes only.
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The Board of Governors believes that the amendment to Article III, Section 21 of the NASD Rules of Fair Practice is necessary and appropriate and recommends that members vote their approval.
Please mark the attached ballot according to your convictions and return it in the enclosed stamped envelope to "The Corporation Trust Company." Ballots must be postmarked no later than May 23, 1986.
Questions concerning this notice may be directed to Mary S. Head, NASD Office of the General Counsel, at (202) 728-8284.
Frank J. Wilson
Executive Vice President and General Counsel
PROPOSED AMENDMENT TO ARTICLE III, SECTION 21 OF THE NASD RULES OF FAIR PRACTICE
Add a new subsection (b) and renumber the existing subsections:
Information on orders
For Informational Purposes Only
PROPOSED AMENDMENTS TO THE INTERPRETATION OF THE BOARD OF GOVERNORS ON PROMPT RECEIPT AND DELIVERY OF SECURITIES
(Note: New language is underscored; language to be deleted is bracketed.)
It shall be deemed a violation of Article III, Section 1 of the Rules of Fair Practice of the Association for a member to violate the provisions of the following interpretation thereof:
No member or persons associated with a member shall accept [execute] a long sale [sell] order for any customer in any security unless:
No member or person associated with a member shall accept a "short" sale order for any customer in any security unless the member makes an affirmative determination that it will receive delivery of the security from the customer or that it can borrow the security on behalf of the customer for delivery by settlement date.
To satisfy the requirements for "reasonable assurance" contained in sub-paragraph (l)(c) above, the member or person associated with a member must make a notation on the order ticket at the time he takes the order which reflects his conversation with the customer as to the present location of the securities in question, whether they are in good deliverable form and his ability to deliver them to the member within five (5) business days.