SEC Approval of Amendment to Code of Procedure Regarding Summary Remedial Proceedings, Effective July 1, 1990
*These are suggested departments only. Others may be appropriate for your firm.
The Securities and Exchange Commission has approved an amendment to the Code of Procedure that would create a new procedure by which the NASD could take appropriate remedial actions against an NASD member or an associated person if such member or person has engaged, and there was a reasonable likelihood that the member or person will again engage, in securities law violations. The text of the amendment follows this notice.
The Securities and Exchange Commission (SEC) has approved an amendment to the Code of Procedure that will permit the NASD to suspend membership of, or condition the membership of a broker-dealer, or suspend or condition a person's association with a broker-dealer if the broker-dealer or person has engaged, and there is a reasonable likelihood the broker-dealer or person will again engage, in acts or practices inconsistent with just and equitable principles of trade.
The amendment provides the NASD with a wide range of actions it could take against a member or associated person for ongoing violations, including imposing limitations or conditions on or the suspension of the firm's membership or the person's registration. This range of permissible actions will allow the NASD to tailor the action taken to meet the needs of the situation. The firm or person that is the subject of such a proceeding would have the right to a hearing prior to the NASD taking any action and, once the Board acts in reviewing the action, that decision could be appealed to the SEC.
Under the new procedure, such a proceeding will be initiated only after a finding by the NASD Executive Committee that the proceeding is needed to protect the public interest. The NASD will notify the member and/or associated person of the time and place of the hearing. The matter will be considered by a District Committee hearing panel consisting of at least three persons, and this panel will render its decision within five days of the hearing.
Any party aggrieved by the decision, or the Board itself, will have the opportunity to ask that this decision be reviewed by a committee of the Board of Governors. Any such request will not operate as a stay of the district panel's decision. Upon any application for review, a hearing before a Special Hearing Committee of the Board will be held within five days. Any decision rendered by the Special Hearing Committee will be a final action of the NASD and can be appealed to the SEC. All decisions rendered will be in writing, and any member or person will have the right to appear in person, submit any relevant evidence, and be represented by counsel.
Questions concerning this notice may be directed to Craig L. Landauer, Assistant General Counsel, NASD Office of General Counsel, at (202)728-8291.
TEXT OF PROPOSED RULE CHANGE
(Note: New text is underlined.)
NASD CODE OF PROCEDURE
Expedited Remedial Proceedings
Sec. 1. This Article establishes procedures for Expedited Remedial Proceedings. These proceedings are in addition to those established for summary suspension or revocation pursuant to Article VI or VIII of this Code of Procedure. Pursuant to the Expedited Remedial Proceedings, the Corporation may suspend the membership of a member or impose conditions upon its continued operation or suspend a person from being associated with a member or impose conditions on such person's continued association with a member. These procedures are adopted pursuant to and in implementation of Section 15A(b)(6) and Section 15A(g) (3)(A) and (B) of the Securities Exchange Act of 1934 which permits the Association to take such action if the broker or dealer or person has engaged, and there is a reasonable likelihood the broker or dealer or person will again engage, in acts or practices inconsistent with just and equitable principles of trade.
Commencement of Expedited Remedial Proceedings
Sec. 2. A determination to commence an Expedited Remedial Proceeding pursuant to Section 1 shall be made only upon approval of the Executive Committee of the Board of Governors and a conclusion by it that such action is in the public interest. In arriving at this conclusion the Executive Committee shall consider the egregious nature of the conduct and the likelihood of continuing violations. Upon commencement of this proceeding, the Corporation shall send notice thereof to the member or person associated with a member. Such notification shall contain a statement of the specific grounds on which such action is taken. The date and location of the hearing shall be sent to the member or person at least five (5) business days prior to the hearing. The matter shall be presented to a hearing panel designated by the District Business Conduct Committee or Market Surveillance Committee and shall consist of at least three members from the Committee which has jurisdiction over the proceeding.
District or Market Surveillance Committee Decision
Sec. 3. A written decision setting forth the findings made and the grounds upon which that determination is based shall be issued by the District or Market Surveillance Committee hearing panel within five (5) business days of the date of the hearing, and a copy shall be sent to the party against whom the Corporation has taken expedited action and, in the case of a person associated with a member, the member with whom the party is presently an associated person. Any decision conditioning or suspending a member or person associated with a member under this Article shall specify the time period, not to exceed six months, for which the conditions or suspension shall remain in effect and the conditions, if any, which must be fulfilled during the specified time period in order to have the conditions or suspension removed.
Review by Board
Sec. 4. The District or Market Surveillance Committee decision shall be subject to review by the Board of Governors on its own motion within five (5) business days after issuance of the written decision. Any such decision shall also be subject to review upon application of any person aggrieved thereby filed within five (5) business days after issuance. The institution of a review, whether on application of the aggrieved person or on the initiative of the Board, shall not operate as a stay of the decision. Upon receipt of an application for review, a hearing will be held within five (5) business days after receipt of such application. Unless extended by the Board hearing panel in its discretion for good cause shown, oral argument in hearings held under this Article shall be limited to 30 minutes each for the respondents and for a representative of the District or Market Surveillance Committee. The introduction of new evidence shall not be permitted unless good cause is shown for not introducing it at the hearing held before the District or Market Surveillance Committee hearing panel.
Sec. 5. Upon consideration of the record, and after such further hearings as it shall order, the Board shall, in writing, affirm, modify, reverse, dismiss, or remand the decision to the District or Market Surveillance Committee. The Board shall set forth the findings made and the specific grounds upon which its determination is based. Any decision conditioning or suspending a member or person associated with a member under this Article shall specify the time period, not to exceed six months, for which the conditions or suspension shall remain in effect and the conditions, if any, which must be fulfilled during the specified time period in order to have the conditions or suspension removed. A decision rendered by a three member hearing panel designated by the Board shall constitute final action by the Corporation. A written decision shall be issued by the Board hearing panel within five (5) business days of the date of the hearing, and a copy shall be sent to the party against whom the Corporation has taken expedited action and, in the case of a person associated with a member, the member with which the party is presently an associated person.
Sec. 6. At any hearing held under this Article, a record shall be kept and the member or person associated with a member and the Corporation shall be entitled to be heard in person and be represented by counsel.
Other Action Not Foreclosed
Sec. 7. Action by the Corporation under this Article shall not foreclose action by the Corporation under any other provisions of this Code or the Rules of Fair Practice where a violation of the Rules of the Corporation may be involved.
Application to Commission for Review
Sec. 8. Any party against whom expedited action has been taken by the Board of Governors may make application for review to the Securities and Exchange Commission in accordance with Section 19 of the Securities Exchange Act of 1934, as amended. There shall be no stay of the Board's action upon appeal to the Commission unless the Commission determines otherwise.