1999 0101 NASDNTM-023197d6d14b5f19f2f440-5e13d29c4c016cf96cbbfd197c579b45.r81.c… · 2013. 3. 29. · NASD Notice to Members 99-35 M a y 1999 230 investments for retirement. Withdrawals

NASD Notice to Members 99-35 M ay 1999

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NASDNotice toMembers99-35The NASD RemindsMembers Of TheirResponsibilitiesRegarding The Sales OfVariable Annuities

Suggested RoutingSenior Management

A d v e r t i s i n g

Continuing Education

Corporate Finance

Executive Representatives

Government Securities

I n s t i t u t i o n a l

I n s u r a n c e

Internal Audit

Legal & Compliance

M u n i c i p a l

Mutual Fund

O p e r a t i o n s

O p t i o n s

Registered Representatives

R e g i s t r a t i o n

R e s e a r c h

S y n d i c a t e

S y s t e m s

T r a d i n g

T r a i n i n g

Variable Contracts

Executive SummaryNational Association of SecuritiesDealers, Inc. (NASD®) Rule 3010requires each member to establishand maintain a system to supervisethe activities of each registeredrepresentative and associatedperson in order to achievecompliance with the securities laws,regulations, and NASD rules.Variable life insurance and variableannuities are securities and theirdistribution is subject to NASD rules.This N o t i c e focuses on deferredvariable annuity sales and provides aset of guidelines that are intended toassist members in developingappropriate procedures relating tovariable annuity sales to customers.

The guidelines identify areas ofconcern that NASD Regulation, Inc.(NASD Regulation®) would expect tobe addressed in the procedures ofmembers that offer and sell variableannuities. Although the specificprocedures described are notmandatory, members shouldconsider supplementing theirprocedures to ensure that they willbe adequately designed to achievecompliance with legal and regulatoryrequirements.

Questions concerning this N o t i c emay be directed to Thomas M.Selman, Vice President, InvestmentCompanies/Corporate Financing,NASD Regulation, at (202) 728-8068; Lawrence Kosciulek, AssistantDirector, Advertising/InvestmentCompanies, NASD Regulation, at(202) 728-8329; or Elliot R. Curzon,Assistant General Counsel, Office ofGeneral Counsel, NASD Regulation,at (202) 728-8451.

BackgroundA variable annuity is an insurancecontract that is subject to regulationunder state insurance and securitieslaws. Although variable annuitiesoffer investment features similar inmany respects to mutual funds, a

typical variable annuity offers threebasic features not commonly found inmutual funds: (1) tax-deferredtreatment of earnings; (2) a deathb e n e fit; and (3) annuity payoutoptions that can provide guaranteedincome for life.

A customer’s premium payments topurchase a variable annuity areallocated to underlying investmentportfolios, often termedsubaccounts. The variable annuitycontract may also include aguaranteed fixed interestsubaccount that is part of thegeneral account of the insurer. Thegeneral account is composed of theassets of the insurance companyissuing the contract. The value of theunderlying subaccounts that are notguaranteed will fluctuate in responseto market changes and other factors.Because the contract ownersassume these investment risks,variable annuities are securities andgenerally must be registered underthe Securities Act of 1933.

The underlying subaccounts that arenot guaranteed are funded by aseparate account of a life insurancecompany that, absent an exemption,is required to be registered as aninvestment company under theInvestment Company Act of 1940.Variable annuities assess variousfees including fees related toinsurance features, e . g ., lifetimeannuitization and the death benefit .The fees are typically deducted fromcustomer assets in the separateaccount.

A distributor of variable annuitycontracts to individuals is required toregister as a broker/dealer under theSecurities Exchange Act of 1934 andbecome a member of the NASD. Thedistribution of variable annuitycontracts is subject to NASD rules.

Typically, variable annuities aredesigned to be long-term


230

investments for retirement.Withdrawals before a customerreaches the age of 59 1/2 aregenerally subject to a 10 percentpenalty under the Internal RevenueCode. In addition, many variableannuities assess surrender chargesfor withdrawals within a specifie dtime period after purchase.

Generally, variable annuities havetwo phases: the “accumulation”phase when customer contributionsare allocated among the underlyinginvestment options and earningsaccumulate; and the “distribution”phase when the customer withdrawsmoney, typically as a lump-sum orthrough various annuity paymento p t i o n s .

The myriad features of variableinsurance products make thesuitability analysis required underNASD rules particularly complex.NASD Regulation has addressedsuitability issues in variableinsurance products sales in Notice toMembers 96-86. In that N o t i c e,NASD Regulation stated that whenrecommending variable annuities orvariable life insurance, the memberand its registered representatives arerequired to make reasonable effortsto obtain information concerning thecustomer’s financial and tax status,investment objectives, and suchinformation used or consideredreasonable in makingrecommendations to the customer.1

In addition, a recent NASDdisciplinary action discussedmembers’ responsibilities under Rule2310 (Suitability Rule) as they applyto the sale of variable life insurance.(S e e In the Matter of DBCC No. 8 v.Miguel Angel Cruz.2)

DiscussionNASD Regulation has developed thefollowing guidelines that represent acompilation of industry practices inthe supervision of the sale of variableannuities. The guidelines do not

mandate any specific procedure.Rather, they are designed to assistmembers in developing appropriateprocedures relating to variableannuity sales practices. Theguidelines are not comprehensiveand are not intended as a substitutefor the member’s responsibilitiesunder NASD Rule 3010. Moreover,the Suitability Rule requires anassociated person of a member tomake an independent determinationwhether an investment is suitable fora particular customer, taking intoaccount the customer’s investmentobjectives and financial needs.

Customer Information

The Suitability Rule requires mem-bers and their registered representa-tives to make reasonable efforts toobtain information concerning a cus-tomer’s financial and tax status,investment objectives, and suchother information used or consideredin making recommendations to thecustomer.

1 . When recommending a variableannuity, members and their regis-tered representatives should makereasonable efforts to obtain compre-hensive customer information,including the customer’s occupation,marital status, age, number ofdependents, investment objectives,risk tolerance, tax status, previousinvestment experience, liquid networth, other investments and sav-ings, and annual income. Retentionof this customer information can bemade in conjunction with the mainte-nance of basic customer accountinformation that is required in NASDRule 3110.

2 . A registered representative shoulddiscuss all relevant facts with thecustomer, including liquidity issuessuch as potential surrender chargesand the Internal Revenue Service(IRS) penalty; fees, including mortali-

ty and expense charges, administra-tive charges, and investment adviso-ry fees; any applicable state andlocal government premium taxes;and market risk.

3 . The registered representativeshould seek to ensure that the vari-able annuity application and anyother information provided by thecustomer to the member is completeand accurate, and promptly forward-ed to a registered principal forr e v i e w .

4 . When a variable annuity transac-tion is recommended to a customer,the registered representative and aregistered principal should review thecustomer’s investment objectives,risk tolerance, and other informationto determine that the variable annuitycontract as a whole and the underly-ing subaccounts recommended tothe customer are suitable. The regis-tered principal should compare theinformation in the account applicationwith other relevant informationsources, e . g ., an account informationform, to check for apparent accuracyand consistency prior to approvingthe transaction.

Product Information

5 . The registered representativeshould have a thorough knowledgeof the specifications of each variableannuity that is recommended, includ-ing the death benefit, fees andexpenses, subaccount choices, spe-cial features, withdrawal privileges,and tax treatment.

6 . To the extent practical, a currentprospectus should be given to thecustomer when a variable annuity isrecommended. Prospectus informa-tion about important factors, such asfees and expenses and the illiquidityof the product, should be discussedwith the customer.


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7. Under NASD Rule 2210, theregistered representative may onlyuse sales material that is approvedby a registered principal of themember.

Liquidity And Earnings Accrual

Lack of liquidity, which may becaused by surrender charges orpenalties for early withdrawal underthe Internal Revenue Code, maymake a variable annuity anunsuitable investment for customerswho have short-term investmentobjectives. Moreover, although ab e n e fit of a variable annuityinvestment is that earnings accrueon a tax-deferred basis, a minimumholding period is often necessarybefore the tax benefits are likely tooutweigh the often higher feesimposed on variable annuitiesrelative to alternative investments,such as mutual funds.

8. The registered representativeshould inquire about whether thecustomer has a long-terminvestment objective and typicallyshould recommend a variableannuity only if the answer to thatquestion, with consideration of otherproduct attributes, is affirmative. Ingeneral, the registeredrepresentative should make surethat the customer understands theeffect of surrender charges onredemptions and that a withdrawalprior to the age of 59 1/2 could resultin a withdrawal tax penalty. Inaddition, the registeredrepresentative should make surethat customers who are 59 1/2 orolder are informed when surrendercharges apply to withdrawals.

9. The member should developspecial procedures to screen for anycustomer whose age may make along-term investment inappropriate,such as any customer over a specific

age. Based on certain contractfeatures, some customers ofadvanced age may be unsuitable fora variable annuity investment.

Income, Net Worth, AndContract Size Thresholds

1 0 . Members should establishprocedures to require a principal’scareful review of variable annuityinvestments that exceed a statedpercentage of the customer’s networth, and any contract in which acustomer is investing more than astated dollar amount.

Investment In Tax QualifiedAccounts

Some tax-qualified retirement plans(e . g ., 401(k) plans) providecustomers with an option to makeinvestment choices only amongseveral variable annuities. Whilethese variable annuities provide mostof the same benefits to investors asvariable annuities offered outside ofa tax-qualified retirement plan, theydo not provide any additional taxdeferred treatment of earningsbeyond the treatment provided bythe tax-qualified retirement planitself.

11. When a registered representativerecommends the purchase of avariable annuity for any tax-qualifie dretirement account (e . g ., 401(k) plan,IRA), the registered representativeshould disclose to the customer thatthe tax deferred accrual feature isprovided by the tax-qualifie dretirement plan and that the taxdeferred accrual feature of thevariable annuity is unnecessary. Theregistered representative shouldrecommend a variable annuity onlywhen its other benefits, such aslifetime income payments, familyprotection through the death benefit ,and guaranteed fees, support therecommendation.

1 2 . A member should conduct anespecially comprehensive suitabilityanalysis prior to approving the sale ofa variable annuity with surrendercharges to a customer in a tax-q u a l i fied account subject to planminimum distribution requirements.

Variable AnnuityReplacements

1 3 . The member firm may decide todevelop an exchange or replacementanalysis document or utilize anexisting form authorized by a stateinsurance commission or otherregulatory agency. If such adocument is used, then (consistentwith the requirements of variousstates) it should be completed for allvariable annuity replacements andshould include an explanation of theb e n e fits of replacing one contract foranother variable contract. Thedocument also should be signed bythe customer, the registeredrepresentative, and the registeredp r i n c i p a l .

1 4 . The registered representativeand the registered principal shoulddetermine, based on the informationprovided by the customer and theirown knowledge of the productfeatures, that replacing the existingcontract with a new contract issuitable for the customer.Consideration should be given tosuch matters as productenhancements and improvements,lower cost structures, and surrendercharges.

1 5 . The member firm shouldconsider developing compliancesystems, such as computerprograms, when available, that canmonitor and identify those registeredrepresentatives whose clients have aparticularly high rate of variableannuity replacements or rollovers.These compliance systems shouldprovide the firm with “red flags” that


232

the firm can investigate to determinewhether some of these replacementsare unsuitable.

1 6 . A retail member should adoptother measures reasonably designedto ensure that replacement salesactivity by its registeredrepresentatives complies with NASDrules. Members that “wholesale”variable annuities are reminded thatthey are also subject to NASD rules,and that they should avoid marketingstrategies that are designed primarilyto encourage inappropriatereplacement sales. Upon reasonablerequest and to the extent practical,wholesale members should assistretail broker/dealers in monitoring the

replacement activity of theircustomers.

Endnote1Notice to Members 96-86 also listed specif-

ic factors that could be considered when rec-

ommending variable annuities and variable

life insurance contracts. These factors are:

• a representation by a customer that his

or her life insurance needs were already

met;

• the customer’s express preference for

an investment other than an insurance

product, the customer’s inability to

appreciate fully how much of the pur-

chase payment or premium is allocated

to cover insurance or their costs, and a

customer’s ability to understand the

complexity of variable products

generally;

• the customer’s willingness to invest a

set amount on a yearly basis;

• the customer’s need for liquidity and

short-term investment;

• the customer’s immediate need for

retirement income; and

• the customer’s investment sophistica-

tion and whether he or she is able to

monitor the investment experience of the

separate account.

2Complaint No. C8A930048 (NBCC Oct. 31,

1997)

© 1999, National Association of Securities Dealers,

Inc. (NASD). All rights reserved.


233

NASDNotice toMembers99-36Members Reminded ToReport ExecutiveRepresentative AndAddress Changes




Corporate Finance




I n s u r a n c e

Internal Audit

Legal & Compliance

M u n i c i p a l

Mutual Fund

O p e r a t i o n s

O p t i o n s



R e s e a r c h

S y n d i c a t e

S y s t e m s

T r a d i n g

T r a i n i n g

Variable Contracts

Executive SummaryThe Office of the Corporate Secre-tary would like to remind members ofthe importance of updating ExecutiveRepresentative information, as wellas mailing addresses for main offic e sand branch offices.

The National Association of Securi-ties Dealers, Inc. (NASD®) By-Lawsrequire each member to appoint andcertify to the NASD one “ExecutiveRepresentative.” The Executive Rep-resentative of a member firm must bea registered principal and a seniormanager within the firm. The individ-ual designated as the Executive Rep-resentative will represent, vote, andact in all NASD affairs.

Please note that Executive Repre-sentative information must now beupdated via the Internet. Making cer-tain that the Central RegistrationDepository (CRDS M) is updated withchanges in address and contact peo-ple, ensures that member mailings,e . g ., voting information, will be proper-ly directed. The procedures for chang-ing Executive Representativeinformation are as follows:

Go to the NASD Regulation, Inc.(NASD Regulation®) Web Site(w w w . n a s d r . c o m) and make appro-priate changes on the NASD Mem-ber Firm Contact Questionnaire Webpage (go to the “Members CheckHere” section and click on “Contact

Questionnaire” or go directly tow w w . n a s d r . c o m / 2 6 9 5 . h t m). You willneed your User ID and password toaccess the Contact Questionnaire.(User IDs and passwords were dis-tributed to members in a mailing ear-lier this year. Contact the CRD/PDGateway Phone Center at (301) 869-6699 if you have a problem with yourUser ID or password or in updatingthe information.)

To change the address for mailingssent to both main offices and brancho f fices, or to update the contactname, a properly executed ScheduleE of Form BD must be sent to CRD.N o t i fications submitted on U.S. PostO f fice address change cards cannotbe processed. The Form BD is avail-able at the following Web page:w w w . n a s d r . c o m / 3 4 2 0 d . h t m

Please note that given the new pro-cedures, the NASD will not acceptany changes submitted in print form,such as the Executive Representa-tive Form that was included withNotice to Members 98-53.

Questions concerning this N o t i c emay be directed to Joan C. Conley,Senior Vice President and CorporateSecretary, Office of the CorporateSecretary, at (202) 728-8381.




235

NASDNotice toMembers99-37NASD Reminds MembersOf Their Obl i g a t i o n sRegarding ElectronicD i s t ri bution Of NasdaqAnd OTC Market Data




Corporate Finance




I n s u r a n c e

Internal Audit

Legal & Compliance

M u n i c i p a l

Mutual Fund

O p e r a t i o n s

O p t i o n s



R e s e a r c h

S y n d i c a t e

S y s t e m s

T r a d i n g

T r a i n i n g

Variable Contracts

Executive SummaryThe National Association ofSecurities Dealers, Inc. (NASD®)requires member firms that distributeN a s d a q®, OTC Bulletin Board®,and/or other OTC market datathrough on-line trading systems orother electronic distribution media,including the Internet, to follow allNasdaq market data distributionpolicies. Electronic media include—but are not limited to—member fir mon-line trading systems that providemarket data in support of tradingactivities.

Market data distributionrequirements include fulfillment ofcontractual obligations, accurate andnon-misleading display of marketdata, reporting of fee-liable usage,and administration of subscriberagreements with end users ofNasdaq market data. This N o t i c eprovides explanations of thesepolicies and requirements as theyapply to on-line trading systems,electronic distribution media, andInternet distribution.

Questions concerning this N o t i c emay be directed to Nasdaq Tradingand Market Services at (202) 728-8480. Additional information anddocumentation is also available atthe Nasdaq TraderS M Web Site(w w w . n a s d a q t r a d e r . c o m) .

Requirements ConcerningMarket Data Distribution AndDisplayAs broker/dealers enter into the on-line trading environment, it isimportant to realize that there ares p e c i fic Nasdaq requirements for thedistribution of real-time and delayedmarket data on the Internet andother electronic media. Most on-linebrokerage Web sites providecustomers with access to Nasdaqreal-time quotes prior to tradeexecution.

F u l fillment Of ContractualO b l i g a t i o n sAll organizations, including on-line

brokerage firms, are required toobtain approval from Nasdaq prior todistribution of any real-time ordelayed Nasdaq market data via theInternet or other electronic media.Nasdaq must approve theentitlement systems and subscriberagreement administration for alldistributors of real-time Nasdaqmarket data prior to initiation ofservice. To ensure that the on-linebrokerage customers view completeand accurate data when makinginvestment decisions, distributorsmust demonstrate that they adhereto all mandatory displayrequirements established by NasdaqTrading and Market Services. Toinitiate the approval process for yourfirm or Internet site, all distributors(both real-time and delayed) arerequired to submit the N a s d a qVendor Agreement and A t t a c h m e n tA (System Description) which isavailable to view and print on theNasdaq Trader Web Site(w w w . n a s d a q t r a d e r . c o m).

Fee-Liable Usage Of NasdaqMarket DataAll real-time Nasdaq data, includingindex data, is considered fee-liableand subject to monthly reportingrequirements. Nasdaq requires thatall distributors of real-time Nasdaqmarket data submit monthly reportsindicating their usage and distributionof real-time Nasdaq market data.These reports are used to generateNasdaq invoicing of market datafees. Please refer tow w w . n a s d a q t r a d e r . c o m for acomplete listing of Nasdaq marketdata fees.

Subscriber AgreementsAll distributors of real-time Nasdaqmarket data are required to executea Nasdaq Subscriber Agreementwith each customer or subscriberprior to initiation of services.Distributors may choose to executethe Nasdaq Subscriber Agreementelectronically or by hard copy. On-line administration of the N a s d a qSubscriber Agreement can beaccommodated upon prior approval


236

from Nasdaq. For additionalinformation about the N a s d a qSubscriber Agreement, please callNasdaq Trading and MarketServices.

If a broker/dealer uses a third-partyservice to operate its electronic

media or Internet site, it is imperativethat Nasdaq is fully aware and hasapproved these arrangements. It isthe broker/dealer’s responsibility toensure that all parties are adheringto Nasdaq policies. If you would liketo verify that your firm or Internetsites have been approved by

Nasdaq, please contact Trading andMarket Services at (202) 728-8480.




237

N A S DNotice toMembers 9 9 - 3 8F i xed Income Pri c i n gSystem Additions,C h a n g e s, And DeletionsAs Of March 23, 1999

S u ggested RoutingSenior Management



Corporate Finance



I n s u r a n c e

Internal Audit

Legal & Compliance

M u n i c i p a l

Mutual Fund

O p e r a t i o n s

O p t i o n s



R e s e a r c h

S y n d i c a t e

S y s t e m s

T r a d i n g

T r a i n i n g

Variable Contracts

As of March 23, 1999, the following bonds were added to the Fixed IncomePricing SystemS M ( F I P S®) .

S y m b o l N a m e C o u p o n M a t u r i t y

A B E C . G A Albecca Inc. 1 0 . 7 5 0 0 8 / 1 5 / 0 8A F G N . G A American & Foreign Power Inc. 5 . 0 0 0 0 3 / 0 1 / 3 0A M L U . G A American Cellular Corp. 1 0 . 5 0 0 0 5 / 1 5 / 0 8A P W . G A Applied Power Inc. 8 . 7 5 0 0 4 / 0 1 / 0 9A W . G A Allied Waste Industry Inc. 1 1 . 3 0 0 0 6 / 0 1 / 0 7B C H O . G A Birch Telecom Inc. 1 4 . 0 0 0 0 6 / 1 5 / 0 8B L L . G A Ball Corp. 7 . 7 5 0 0 8 / 0 1 / 0 6B L L . G B Ball Corp. 8 . 2 5 0 0 8 / 0 1 / 0 8B V F . G A Biovail Corp. Int’l New 1 0 . 8 7 5 1 1 / 1 5 / 0 5C G X E . G B Cogentrix Energy Inc. 8 . 7 5 0 1 0 / 1 5 / 0 8C I D L . G C Citadel Broadcasting Co. 9 . 2 5 0 1 1 / 1 5 / 0 8C O L . G H Columbia/HCA Healthcare Corp. 6 . 9 1 0 0 6 / 1 5 / 0 5C P N . G F Calpine Corp. 7 . 6 2 5 0 4 / 1 5 / 0 6C P N . G G Calpine Corp. 7 . 7 5 0 0 4 / 1 5 / 0 9C V G C . G A Convergent Communications Inc. 1 3 . 0 0 0 0 4 / 0 1 / 0 8E N S O . G C Envirosource Inc. 9 . 7 5 0 0 6 / 1 5 / 0 3E Y R A . G A Eye Care Centers of America 9 . 1 2 5 0 5 / 0 1 / 0 8F S H . G D Fisher Scientific Intl Inc. 9 . 0 0 0 0 2 / 0 1 / 0 8F V B D . G A Favorite Brands Intl Inc. 1 0 . 7 5 0 0 5 / 1 5 / 0 6G I Y . G A General Physics Corp. 6 . 0 0 0 0 6 / 3 0 / 0 4G K Y S . G A Golden Sky System Inc. 1 2 . 3 7 5 0 8 / 0 1 / 0 6H A V A . G A Harvard Industries Inc. 1 1 . 1 2 5 0 8 / 0 1 / 0 5I N T P . G A Interep Natl Radio Sales Series B 1 0 . 0 0 0 0 7 / 0 1 / 0 8I R P U . G A Interpool Capital Trust 9 . 8 7 5 0 2 / 1 5 / 2 7I T C D . G C ITC Deltacom Inc. 9 . 7 5 0 1 1 / 1 5 / 0 8J F R A . G A Jafra Cosmetics Intl Inc. 1 1 . 7 5 0 0 5 / 0 1 / 0 8K N E . G N KN Energy Inc. 6 . 4 5 0 1 1 / 3 0 / 0 1L C P . G A Loews Cineplex Entertainment 8 . 8 7 5 0 8 / 0 1 / 0 8L D C I . G A Longdistance Intl Inc. 1 2 . 2 5 0 0 4 / 1 5 / 0 8M H X . G A Meristar Hospitality Corp. 8 . 7 5 0 0 8 / 1 5 / 0 7M L U H . G A Metallurg Holdings Inc. 1 2 . 7 5 0 0 7 / 1 5 / 0 8N F F . G C Neff Corp. 1 0 . 2 5 0 0 6 / 0 1 / 0 8N T L Q . G C Natl. Equipment Svs Series D 1 0 . 0 0 0 1 1 / 3 0 / 0 4N W A C . G E Northwest Airlines Inc. 8 . 5 2 0 4 / 0 7 / 0 4O A C . G B Ocwen Asset Investment Corp. 1 1 . 5 0 0 0 7 / 0 1 / 0 5P E Z L . G A Pennzoil Co. 9 . 6 2 5 1 1 / 1 5 / 9 9P E Z L . G B Pennzoil Co. 1 0 . 6 2 5 0 6 / 0 1 / 0 1P E Z L . G C Pennzoil Co. 1 0 . 1 2 5 1 1 / 1 5 / 0 9P E Z L . G D Pennzoil Co. 1 0 . 2 5 0 1 1 / 0 1 / 0 3P G H N . G A Paragon Health Networks Inc. 9 . 5 0 0 1 1 / 0 1 / 0 7P G H N . G B Paragon Health Networks Inc. 1 0 . 5 0 0 1 1 / 0 1 / 0 7P G T V . G B Pegasus Communications 9 . 7 5 0 1 2 / 0 1 / 0 6P P E . G A Park Place Entertainment Corp. 7 . 8 7 5 1 2 / 1 5 / 0 5P R . G C Price Communication Wireless

Series B 9 . 1 2 5 1 2 / 1 5 / 0 6P S I X . G B Psinet Inc. 1 1 . 5 0 0 1 1 / 0 1 / 0 8P X D . G A Pioneer Natural Resource 7 . 2 0 0 0 1 / 1 5 / 2 8P X D . G B Pioneer Natural Resource 6 . 5 0 0 0 1 / 1 5 / 0 8Q W S T . G D Qwest Communications Inc. 7 . 5 0 0 1 1 / 0 1 / 0 8


238


R B H G . G A Rab Holdings Inc. 1 3 . 0 0 0 0 5 / 0 1 / 0 8R B I D . G A Rab Enterprises Inc. 1 0 . 5 0 0 0 5 / 0 1 / 0 5R V S U . G G Revlon Consumer Products Corp. 9 . 0 0 0 1 1 / 0 1 / 0 6S G O . G C Seagull Energy Corp. 7 . 8 7 5 0 8 / 0 1 / 0 3S G O . G D Seagull Energy Corp. 7 . 5 0 0 0 9 / 1 5 / 2 7S P F . G D Standard Pacific Corp. 8 . 5 0 0 0 4 / 0 1 / 0 9S T N . G E Station Casinos Inc. 8 . 8 7 5 1 2 / 0 1 / 0 8T C O M . G C Tele-Communications Inc. 1 1 . 1 2 5 1 0 / 0 1 / 0 3T L L P . G G Toll Corp. 8 . 0 0 0 0 5 / 0 1 / 0 9T L M U . G A Telemundo Holdings Inc. Series B 1 1 . 5 0 0 0 8 / 1 5 / 0 8T R A M . G E Transamerican Refining Corp.

Series B 1 6 . 0 0 0 0 6 / 3 0 / 0 3U N T A . G C United Artists Theaters Co. 0 . 0 0 0 1 0 / 1 5 / 0 7V T S . G B Veritas DGC Inc. Series C 9 . 7 5 0 1 0 / 1 5 / 0 3W L W H . G B Woolworth Corp. 8 . 5 0 0 0 1 / 1 5 / 2 2

As of March 23, 1999, the following bonds were deleted from FIPS.


A W . G A Allied Waste Industry Inc. 1 1 . 3 0 0 0 6 / 0 1 / 0 7B C E G . G A Bank of New England Corp. 8 . 7 5 0 0 4 / 0 1 / 9 9G N D . G B Grand Casinos Inc. 9 . 0 0 0 1 0 / 1 5 / 0 4H A R T . G A Heartland Wireless

Communications Inc. 1 3 . 0 0 0 0 4 / 1 5 / 0 3H A R T . G B Heartland Wireless

Communications Inc. 1 3 . 0 0 0 0 4 / 1 5 / 0 3H A R T . G C Heartland Communications Inc. 1 4 . 0 0 0 1 0 / 1 5 / 0 4H A V A . G A Harvard Industry Inc. 1 1 . 1 2 5 0 8 / 0 1 / 0 5H M H C . G A Hallmark Healthcare Corp. 1 0 . 6 2 5 1 1 / 1 5 / 0 3H O A . G A Showboat Marina CP/Finl 1 3 . 5 0 0 0 3 / 1 5 / 0 3I K . G A Interlake Corp. 1 2 . 1 2 5 0 3 / 0 1 / 0 2K F I N . G C K&F Industry Inc. 1 0 . 3 7 5 0 9 / 0 1 / 0 4L F F U . G A Lifestyle Furnishings Inc. 1 0 . 8 7 5 0 8 / 0 1 / 0 6M V E . G A MVE Inc. 1 2 . 5 0 0 0 2 / 1 5 / 0 2P I D M . H K Piedmont Aviation Series D 1 0 . 0 0 0 0 3 / 2 8 / 9 9P I D M . H L Piedmont Aviation Series E 1 0 . 0 0 0 0 3 / 2 8 / 9 9P I D M . H M Piedmont Aviation Series F 1 0 . 0 0 0 0 3 / 2 8 / 9 9P I D M . H N Piedmont Aviation Series G 1 0 . 0 0 0 0 3 / 2 8 / 9 9R C A R . G A R C / A r b y ’ s 9 . 7 5 0 0 8 / 0 1 / 0 0R P N B . G A Repap New Brunswick Inc. 1 0 . 6 2 5 0 4 / 1 5 / 0 5S B G I . G A Sinclair Broadcast Group Inc. 1 0 . 0 0 0 1 2 / 1 5 / 0 3T L I I . G A Transleasing Intl Inc. 1 0 . 5 0 0 1 0 / 1 5 / 0 2T L L P . G F Toll Corp. 9 . 5 0 0 0 3 / 1 5 / 0 3U N T A . G C United Artists Theaters Co. 0 . 0 0 0 1 0 / 1 5 / 0 7W B C . G A Westbridge Cap Corp. 1 1 . 0 0 0 0 3 / 0 1 / 0 2


239

As of March 23, 1999, changes were made to the symbols of the following FIPS bonds:

New Symbol Old Symbol N a m e C o u p o n M a t u r i t y

F E N Y . G A F E N . G A Forcenergy Inc. 9 . 5 0 0 1 1 / 0 1 / 0 6F E N Y . G B F E N . G B Forcenergy Inc. 8 . 5 0 0 0 2 / 1 5 / 0 7R I H F . G C R T . G C Resorts Intl Hotel Fing Inc. 1 1 . 0 0 0 0 9 / 1 5 / 0 3

All bonds listed above are subject to trade-reporting requirements. Questions pertaining to FIPS trade-reportingrules should be directed to Stephen Simmes, Market Regulation, NASD Regulation®, at (301) 590-6451.

Any questions regarding the FIPS master file should be directed to Cheryl Glowacki, Nasdaq® Market Operations, at(203) 385-6310.

© 1999, National Association of Securities Dealers, Inc. (NASD). All rights reserved.

Special NASD Notice to Members 99-39 M ay 1999

257

SpecialNASDNotice toMembers99-39The NASD Prepares ForMove To Decimals




Corporate Finance




I n s u r a n c e

Internal Audit

Legal & Compliance

M u n i c i p a l

Mutual Fund

O p e r a t i o n s

O p t i o n s



R e s e a r c h

S y n d i c a t e

S y s t e m s

T r a d i n g

T r a i n i n g

Variable Contracts

Executive SummaryThe National Association ofSecurities Dealers, Inc. (NASD®) ispreparing to move from fractionalpricing to decimal pricing by June 30,2000, in order to meet the time frameestablished by the Securities andExchange Commission (SEC).

The move to decimal pricing(Decimalization) means theconversion of all securities industrysystems from fractional pricing todecimal pricing, i . e ., in dollars andcents. Decimalization is acomplicated process which impactsevery area of the securities industry.Each place that a system currentlycompiles, stores, or displaysfractional pricing must be convertedto accommodate decimal pricing.Any written materials containingfractional pricing must be updated tor e flect decimal pricing. Adequatetraining for floor specialists andtraders will have to be developed andp r o v i d e d .

The SEC-targeted conversion date isjust over a year away. However, allinternal tests and industry tests mustbe completed and all systems mustbe converted before the deadline ofJune 30, 2000 (see proposed timeframe on page 259).

The NASD is sharing this informationwith members about this importantindustry-wide effort as a first step inawareness about Decimalization. Inthe coming months, the NASD willcontinue to communicate withmembers on a regular basis aboutthis initiative.

This Special Notice to Membersoutlines the securities industry’sefforts to prepare for trading indecimals. This outline includesbackground information, benefits ofdecimal pricing, the industry timeframe, and steps firms will need to

take to prepare for the conversion.This Special Notice also discussesNASD participation in SecuritiesIndustry Association (SIA) activities,and the results of the SIA-commissioned industry study onmessage traffic and capacity.

The NASD is committed to thesuccessful industry-wide conversionto Decimalization. We are continuingto move ahead with the SEC andCongress to achieve the SEC-proposed conversion date of June30, 2000. We will also continue toreview systems and evaluate theimpact of decimal pricing and theissues associated with conversion,implementation, testing, and fin a lcutover, keeping close at hand theNASD mission to protect marketintegrity, the interest of the investor,readiness of our member firms, andgiven the latest volume predictionsfor decimal trading, the technologicalaspects of this change.

Questions regarding this S p e c i a lNotice may be directed to the NASDDecimalization ProgramManagement Office via e-mail tod e c i m a l s @ n a s d . c o m or via the toll-free phone number, (888) 227-1330.

DiscussionNASD member firms that are work-ing diligently on technology initiativessuch as Year 2000 and the OrderAudit Trail SystemS M ( O A T SS M) arenow just over a year away from thescheduled completion of anothermajor initiative: Decimalization. TheSEC has called for the industry-wideconversion from fractional pricing todecimal pricing to occur by June 30,2000. The NASD is working closelywith the SIA, SEC, and stock andoptions exchanges to ensure that allmember firms are aware of theactions they need to take in order tobe ready for the conversion.


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HistoryIn 1997 and 1998, congressionalsubcommittees were formed andhearings were held on proposed leg-islation that would direct the SEC torequire that securities be traded indollars and cents instead of the tradi-tional fractions. The subcommitteesfound that industry representativeswere committed to converting to deci-mals, and identified the following ben-e fits in their research:

• Pricing is more easily under-stood in dollars and cents. Thiscould bring more investors to them a r k e t p l a c e .

• There is an increased savingspotential for investors if decimalpricing leads to smaller priceincrements and narrower spreads.Narrower spreads mean investorspay less in commissions.

• Decimal pricing would makeU.S. markets more compatiblewith non-U.S. markets thatalready trade in decimals.

In May 1998 in testimony to the Sub-committee on Finance and Haz-ardous Materials, the GeneralAccounting Office (GAO) recom-mended to Congress that alle x c h a n g e s :

1) Prepare a comprehensive planfor implementing decimal tradingto include interim milestones,industry-wide testing, and imple-mentation target dates.

2) Work with the SIA and the SECto delineate technical standardsand specifications that receivebroad industry support.

The NASD concurs with the views ofthe other markets that the conversionto decimal trading must be carefullyorganized and must occur industry-wide. Therefore, the NASD estab-lished a Decimalization Program

Management Office (DPMO) inAugust 1998, dedicated to managingand coordinating the conversion effortboth internally and with NASD mem-ber firms. The DPMO formed projectteams within all its companies, includ-ing the American Stock Exchange®, toassess the impact of this conversionon information systems. Systemsinventories were validated, and allsystems and applications were exam-ined to determine the extent ofchanges required for decimal conver-sion. This process, which is very simi-lar to the process used to assessYear 2000 impact, resulted in a com-prehensive list of systems thatrequire remediation, replacement, orretirement. Project plans and majormilestones have been identified forimpacted systems. The DPMO ismaintaining and tracking major mile-stones, baselining and monitoring theprogress of the conversion effort forthe enterprise.

What Is Currently HappeningIn line with the GAO’srecommendation, the NASD is takinga proactive role with the SIA inexamining both technical andbusiness issues associated withDecimalization. Staff from the DPMOserve on the SIA DecimalizationSteering Committee and theimplementation, testing, andcommunication subcommittees.These subcommittees are taking anin-depth look at the challenges ofconverting to decimal trading, andwill make recommendations aboutbusiness and technicals p e c i fications. Some of the issuessurrounding Decimalization arerelated to Minimum Price Variation(MPV), quoting and trading volume,new emerging trading strategies, andcapacity issues.

The SIA commissioned SRIConsulting, Inc., to conduct anindustry-wide survey to look atmessage traffic and capacity in MPV

increments of a nickel and a penny.The survey, which was released inlate April, forecasts dramaticincreases in quoting and messaget r a f fic, particularly with pennyincrements. The survey predictsincreases that raise real capacitychallenges for the industry as awhole. Full survey results are postedon the SIA Web Site (w w w . s i a . c o m) .The SIA, after conversations with theSEC in April, is currentlyrecommending that firms plan on anMPV of a penny. The NASDcontinues to study the impact of apenny MPV on trading and capacity.

In addition, the SIA has targeted atime frame for the industry and theDPMO has identified projectmilestones to guide the memberfirms to the June 30, 2000conversion date. To accomplish theconversion, firms will need to identifythe systems and applicationsimpacted by the change, remediatethe code/applications, and validatethrough testing (internal, external,point-to-point, and industry testing).All of this needs to be done beforethe industry commences decimalt r a d i n g .

In fact, the SIA ImplementationCommittee is still looking atstrategies for converting to decimaltrading. There are two strategiescurrently being discussed. In a“phase-in” cutover, issues would beconverted to decimal trading letter byletter (i . e ., issues beginning with theletter “E”). In a phase-inimplementation, firms will have to beable to process both fractions anddecimals at the same time, althoughmixed trading will not be allowed onany single issue. The other strategybeing discussed is a total industrycutover, or “big bang”implementation. Under eitherstrategy, firms should be prepared tofall back to fractions the next tradingday, should problems arise. At thispoint, failure scenarios have not


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Proposed Time Frame

Following is the preliminary time frame currently being recommended by the SIA after conversations with the SEC:

Industry Milestone Completion Date• Identify the systems and applications impacted by the decimal conversion August 1999• Commencement of Decimal Trading June 30, 2000

The DPMO has established potential completion dates for high-level milestones for members to consider when cre-ating their Decimalization plans. This is a tentative schedule and subject to change.

Industry Milestone Completion Date• Identify the systems and applications impacted by the decimal conversion August 1999• Remediate the affected code/applications December 1999• Validate through testing – internally Dec. 1999 - Feb. 2000• Validate through testing – point-to-point March 2000• Industry testing April 2000 - May 2000• Commencement of Decimal Trading June 30, 2000

The DPMO is committed to supporting your Decimalization efforts. Please direct any questions or comments to usvia e-mail at d e c i m a l s @ n a s d . c o m or via our toll-free phone number, (888) 227-1330.

been defined. As details on businessand technical specifications becomeavailable, they will be communicatedto members by the DPMO.

The SIA intends to solicit feedbackfrom member firms through arecently distributed survey onindustry preparedness. Responsesto the survey will be used inconjunction with recommendationsfrom the Steering Committee andsubcommittees to develop a detailedtime frame for decimal tradingimplementation.

What You Can Expect FromThe NASDN a s d a q® is working diligently on con-verting its systems to trade in deci-mals by the SEC time frame. Asmore information becomes available,

the Nasdaq-Amex Market GroupS M

will continue to evaluate the overallimpact of schedules and conversionstrategies on member firms, the indi-vidual investor, and the market as aw h o l e .

In the meantime, member fir m sshould expect more informationabout Decimalization from theDPMO. This Notice is the first ofmany communications designed tokeep you informed of new develop-ments, changes to industry sched-ules, testing guidelines, results of theSIA survey, and other pertinent infor-mation. This information will come inthe form of articles and other com-munications in various NASD publi-cations and on its various Web sites,as well as through faxes and e-mails.You can get current information on

Decimalization, including contactinformation by visiting the Nasdaq-Amex Newsroom Web Site(w w w . n a s d a q - a m e x n e w s . c o m), andby visiting the NASD Regulation®

Web Site (w w w . n a s d r . c o m) .

We welcome your comments andsuggestions on the NASD Decimal-ization Program and communicationmethods, as well as the overallimpact of Decimalization on yourfirm. Please contact us via e-mail atd e c i m a l s @ n a s d . c o m or via our toll-free phone number, (888) 227-1330.We will make every effort to respondto you as quickly as possible.




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© 1999, National Association of Securities Dealers, Inc. (NASD). All rights reserved.NASD is a registered service mark of the National Association of Securities Dealers, Inc. Central Registration Depository (CRD) is a service mark of the

NASD and the North American Securities Administrators Association, Inc. (NASAA). NASD Regulation is a service mark of NASD Regulation, Inc. NASD Notices to Members is published monthly by NASD Corporate Communications, Kim Dineen, Editor, NASD Editorial Services Department, 1735

K Street, NW, Washington, DC 20006-1500, (202) 728-8370. No portion of this publication may be copied, photocopied, or duplicated in any form or byany means, except as described below, without prior written consent of the NASD. Members of the NASD are authorized to photocopy or otherwiseduplicate any part of this publication without charge only for internal use by the member and its associated persons. Nonmembers of the NASD may obtainpermission to photocopy for internal use through the Copyright Clearance Center (CCC) for a $3-per-page fee to be paid directly to CCC, 222 RosewoodDrive, Danvers, MA 01923.

NOTE: As of January 1999, there has been a change in Notices to Members d i s t r i b u t i o n : Members no longer receive complimentary copies ofNotices to Members. Each Executive Representative is entitled to one annual subscription at cost ($15 per year). Additional annual subscriptions areavailable for $225; single issues cost $25. Send a check or money order (payable to the National Association of Securities Dealers, Inc.) to NASDMediaSource, P.O. Box 9403, Gaithersburg, MD 20898-9403, or to phone in an order using American Express, MasterCard, or Visa charge, call (301)590-6142, Monday to Friday, 9 a.m. to 5 p.m., Eastern Time. Back issues may be ordered by calling MediaSource at (301) 590-6142.

NASD Notices to Members (December 1996 to current) are also available on the Internet at w w w . n a s d r . c o m.

Special Notices to Members are published on an accelerated basis and distributed independently of monthly Notices to Membersnewsletters. Numerical sequencing may thus appear to contain gaps during a given monthly publication cycle. Such temporary gapsreflect a priority in the production process and will disappear at the conclusion of monthly electronic posting and print distribution.


261

Executive SummaryThe purpose of this Special Notice to Members is to advise members of theimpending election to fill forthcoming vacancies on the District Committeesand the District Nominating Committees. The procedures to fill thesevacancies are included with this Special Notice to Members. Members areencouraged and requested to submit names of candidates to the appropriateDistrict Nominating Committee Chairman or to the District Director by June15, 1999. Individuals from member firms of all sizes are encouraged tosubmit names for consideration on the District Committees and DistrictNominating Committees. Every District Committee will have at least o n emember from a small firm. Information on District Nominating Committee andDistrict Committee members serving through 2001 and 2002 is included inExhibit I. Information on District Election Procedures is included in Exhibit II.

All candidates will be requested to complete a biographical form. The DistrictDirector will provide each nominee with a biographical form for completion.The completed form will be provided to all District Nominating Committeemembers for review.

Members are reminded to report Executive Representative information andaddress changes for the firm’s main and branch offices. This will ensure thatmember mailings, such as election information, will be properly directed. SeeNotice to Members 99-36 on the NASDRS M Web Site (w w w . n a s d r . c o m) formore information. Failure to keep this information accurate may jeopardizethe member’s ability to participate in District elections as well as othermember votes.

Questions concerning this N o t i c e may be directed to the District Directornoted or to Joan Conley, Corporate Secretary, National Association ofSecurities Dealers, Inc. (NASD®), at (202) 728-8381.

SpecialNASDNotice toMembers99-40NASD Info rms MembersOf Upcoming Distri c tCommittee And D i s t ri c tNominating CommitteeE l e c t i o n s




Corporate Finance




I n s u r a n c e

Internal Audit

Legal & Compliance

M u n i c i p a l

Mutual Fund

O p e r a t i o n s

O p t i o n s



R e s e a r c h

S y n d i c a t e

S y s t e m s

T r a d i n g

T r a i n i n g


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Exhibit I

DISTRICT 1Elisabeth P. Owens, District Director

525 Market Street, Suite 300San Francisco, CA 94105

(415) 882-1200

District Committee Vacancies: 3

District Committee Chair: William A. Svoboda

District Nominating Committee Chair: John J. Sanders, Jr.

To Serve Until January 2001

Steven R. Aaron Hambrecht & Quist LLC, San Francisco, CA Janet W. Campbell Protected Investors of America, San Francisco, CA Douglas C. Heske Piper Jaffray, San Francisco, CA


John H. Chung First Security Van Kasper, San Francisco, CA Steven D. Piper Volpe Brown Whelan & Company LLC,

San Francisco, CA

Nominating Committee

Deborah R. Gatzek Franklin/Templeton Distributors, San Mateo, CA John C. Helmer Caldwell Securities, Inc., Danville, CA Lawrence R. McKulla Prudential Securities, San Francisco, CA John J. Sanders, Jr. BancBoston Robertson Stephens, Inc., San Francisco, CA John E. Schmidt Credit Suisse First Boston, San Francisco, CA

If you are interested in nominating yourself or a colleague to the District 1 Committeeor the District Nominating Committee, please contact the District Nominating Com-mittee Chairman or the District Director at the above address.


263

DISTRICT 2Lani M. Sen Woltmann, District Director300 South Grand Avenue, Suite 1600

Los Angeles, CA 90071(213) 627-2122


District Committee Chair: Joan B. Seidel

District Nominating Committee Chair: Will be selected May 1999


James B. Guillou Sutro & Co., Incorporated, La Jolla, CA Andrew E. Haas Bear Stearns & Co., Inc., Los Angeles, CA Richard E. Wiseley CIBC Oppenheimer & Co., Los Angeles, CA Richard P. Woltman Spelman & Co., Inc., San Diego, CA


Margaret M. Black Morgan Stanley Dean Witter, Beverly Hills, CA Diane P. Blakeslee Blakeslee & Blakeslee, Inc., San Louis Obispo, CA Jack R. Handy, Jr. Financial Network Investment Corporation,

Torrance, CA Dean A. Holmes American General Financial Group, Anaheim, CA


George H. Casey Crowell Weedon & Co., Los Angeles, CA Carl E. Lindros Santa Barbara Securities, Inc., Santa Barbara, CAFredric M. Roberts F. M. Roberts & Company, Los Angeles, CA Robert L. Winston American Funds Distributors, Inc., Los Angeles, CA

If you are interested in nominating yourself or a colleague to the District 2 Commit-tee or the District Nominating Committee, please contact any member of the DistrictNominating Committee or the District Director at the above address.


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DISTRICT 3

Frank J. Birgfeld, District DirectorRepublic Plaza Building

370 17th Street, Suite 2900Denver, CO 80202-5629

(303) 446-3100

James G. Dawson, District DirectorTwo Union Square

601 Union Street, Suite 1616Seattle, WA 98101-2327

(206) 624-0790


District Committee Chair: Thomas A. Petrie

District Nominating Committee Chair: Richard Royse


Thomas R. Hislop Peacock, Hislop, Staley & Given, Inc., Phoenix, AZ Gerald Meyer D. A. Davidson & Co., Great Falls, MT John Morton Morton Clarke Fu & Metcalf, Inc., Seattle, WA Terry Lee Richards PaineWebber, Inc., Salt Lake City, UT


James Barnyak Salomon Smith Barney, Inc., Seattle, WA David Griswold Frank Russell Securities, Inc., Tacoma, WA James E. Stark Charles Schwab & Co., Phoenix, AZ Thomas Williams TIAA/CREF, Denver, CO


Vincent Asaro SunAmerica Securities, Inc., Phoenix, AZJames Kerr Ragen Mackenzie Incorporated, Seattle, WAWilliam Papesh WM Funds Distributor, Inc., Spokane, WA Anthony Petrelli Neidiger Tucker Bruner, Inc., Denver, CORichard Royse Salomon Smith Barney, Inc., Portland, OR

If you are interested in nominating yourself or a colleague to the District 3 Commit-tee or the District Nominating Committee, please contact the District NominatingCommittee Chairman or the District Director at the above address.


265

DISTRICT 4Jack Rosenfield, District Director

120 W. 12th Street, Suite 900Kansas City, MO 64105

(816) 421-5700


District Committee Chair: Wayne H. Peterson

District Nominating Committee Chair: Edward J. Berkson


Antonio J. Cecin Piper Jaffray Inc., Minneapolis, MN Cheryl Cook-Schneider Edward Jones, St. Louis, MO Robert J. Goodmanson Robert W. Baird & Co., Inc., St. Paul, MN Brent M. Weisenborn Security Investment Company of Kansas City,

Kansas City, MO


Robert M. Chambers Chambers Martin & Co., Des Moines, IAJohn R. Lepley Princor Financial Services Corp., Des Moines, IA William M. Lyons American Century Investment Services, Inc.,

Kansas City, MO Nancy E. Varner Mercantile Investment Services, Inc., St. Louis, MO


Patricia S. Bartholomew Craig-Hallum Capital Group, Inc., Minneapolis, MN Edward J. Berkson Locust Street Securities, Inc., Des Moines, IANorman Frager Walnut Street Securities, St. Louis, MOAlbert W. Lauth First St. Louis Securities, Inc., St. Louis, MO Todd W. Miller Miller, Johnson & Kuehn, Inc., Minneapolis, MN



266

DISTRICT 5Warren A. Butler, Jr., District Director

1100 Poydras StreetEnergy Centre, Suite 850

New Orleans, LA 70163-0802(504) 522-6527


District Committee Chair: J. French Hill

District Nominating Committee Chair: James C. Bradford, Jr.


Benjamin D. Capshaw, III Morgan Stanley Dean Witter, New Orleans, LA James S. Jones Crews & Associates, Inc., Little Rock, AR Dene R. Shipp SunTrust Equitable Securities, Nashville, TN John C. West EVERN Securities, Inc., Memphis, TN


James D. Hudgins SouthTrust Securities, Inc., Birmingham, AL Leroy H. Paris, II Mississippi Securities Company, Jackson, MS Duncan F. Williams Duncan-Williams, Inc., Memphis, TN


H. Kenneth Bennett Stephens, Inc., Little Rock, ARJames C. Bradford, Jr. J.C. Bradford & Co., Nashville, TNBill Carty Carty & Company, Inc., Memphis, TNWilliam T. Patterson Morgan Keegan & Company, Inc., Jackson, MSKenneth L. Wagner J.J.B. Hilliard, W.L. Lyons, Inc., Louisville, KY



267

DISTRICT 6Bernerd Young, District Director

12801 N. Central Expressway, Suite 1050Dallas, TX 75243 (972) 701-8554


District Committee Chair: William D. Connally

District Nominating Committee Chair: George Stark


Daniel C. Dooley May Financial Corp., Dallas, TX Ronald J. Gard Salomon Smith Barney, Inc., Dallas, TX Jim G. Rhodes Rhodes Securities, Inc., Ft. Worth, TX


Fredrick W. McGinnis PaineWebber, Houston, TX Sue H. Peden SWS Financial Services, Dallas, TX Joseph H. Storthz Transamerica Financial Resources, Houston, TX


John W. Ferguson May Financial Corp., Dallas, TX Robert Gunn, III Gunn & Company Incorporated, San Antonio, TXWilliam B. Madden Madden Securities Corporation, Dallas, TXGary V. Murray Murray Traff Securities, Inc., Tyler, TX George Stark Burnham Securities, Inc., Houston, TX


DISTRICT 7Alan M. Wolper, District DirectorOne Securities Centre, Suite 500

3490 Piedmont Road, NEAtlanta, GA 30305

(404) 239-6100


District Committee Chair: R. Charles Shufeldt

District Nominating Committee Chair: Richard V. McGalliard


Robert M. Balentine Balentine & Company, Atlanta, GA James J. Buddle Capital Brokerage Corporation, Richmond, VA M. Anthony Greene Raymond James Financial Services, Inc., Atlanta, GA J. Lee Keiger III Davenport & Company LLC, Richmond, VA Raymond W. Snow BT Alex. Brown Incorporated, Palm Beach, FL


James W. Hamilton, Jr. Prudential Securities Incorporated, Atlanta, GA Edward R. Hipp, III Centura Securities, Inc., Rocky Mount, NC Roark A. Young Young, Stovall and Company, Miami, FL


John L. Dixon Mutual Service Corporation, West Palm Beach, FL Franklin C. Golden James M. Myers and Co., Charlotte, NC W. Robb Hough, Jr. William R. Hough & Co., St. Petersburg, FLStuart J. Knobel Edgar M. Norris & Co., Inc., Anderson, SC Richard V. McGalliard Interstate/Johnson Lane Corporation, Atlanta, GA

If you are interested in nominating yourself or a colleague to the District 7 Com-mittee or the District Nominating Committee, please contact the District Nominat-ing Committee Chairman or the District Director at the above address.


268


269

DISTRICT 8Carlotta A. Romano, District Director

10 South LaSalle, 20th FloorChicago, IL 60603-1002

(312) 899-4400

William H. Jackson, Jr., District DirectorRenaissance on Playhouse Square

1350 Euclid Avenue, Suite 650Cleveland, OH 44115

(216) 694-4545


District Committee Chair: Anthony M. Sanfil i p p o

District Nominating Committee Chair: Earl Clifford Oberlin, III


William C. Alsover Centennial Securities Company, Inc., Grand Rapids, MI

Wallen L. Crane Salomon Smith Barney, Inc., Farmington Hills, MI Alan H. Newman J.J.B. Hilliard, W.L. Lyons, Inc., Evansville, IN Bruce J. Young Mesirow Financial, Inc., Chicago, IL


R. Jack Conley VESTAX Securities Corporation, Hudson, OH Mary D. Esser Cressman Esser Securities, Inc., Naperville, IL Glen Hackmann Robert W. Baird & Co., Inc., Milwaukee, WI Robert A. Perrier Butler, Wick & Co., Inc., Cleveland, OH Kathleen A. Wieland William Blair & Company, L.L.C., Chicago, IL


Kathy J. Birk Morgan Stanley Dean Witter, Carmel, INLewis H. Echlin Roney & Co., L.L.C., Detroit, MIPaul Murin David A. Noyes & Co., Chicago, ILEarl Clifford Oberlin, III SKY Investments Corp., Bryan, OHWilliam H. Richardson Trubee, Collins & Co., Inc., Buffalo, NY

If you are interested in nominating yourself or a colleague to the District 8 Com-mittee or the District Nominating Committee, please contact the District Nominat-ing Committee Chairman or the District Director at the above address.


270

DISTRICT 9John P. Nocella, District Director

11 Penn Center1835 Market Street, Suite 1900

Philadelphia, PA 19103(215) 665-1180

Gary K. Liebowitz, District Director581 Main Street, 7th flo o rWoodbridge, NJ 07095

(732) 596-2000


District Committee Chair: James Malespina

District Nominating Committee Chair: John J. Gray


Victor M. Frye Calvert Distributors, Inc., Bethesda, MD Phillip C. Graham Legg Mason Wood Walker, Incorporated,

Philadelphia, PA Jerome J. Murphy Janney Montgomery Scott Inc., Philadelphia, PA


A. Louis Denton Philadelphia Corporation for Investment Services, Philadelphia, PA

Thomas W. Neumann Sherwood Securities Corp., Jersey City, NJ Joseph S. Rizzello Vanguard Marketing Corporation, Valley Forge, PA Gregory R. Zappala RRZ Public Markets, Inc., Cranberry Township, PA


Mark W. Cresap Cresap, Inc., Radnor, PA John J. Gray Janney Montgomery Scott Inc., Philadelphia, PA Dennis V. Marino Sherwood Securities Corp., Jersey City, NJ Eric H. Pookrum Innova Securities, Inc., Suitland, MD Robert A. Woeber Arthurs, Lestrange & Company Incorporated,

Pittsburgh, PA

If you are interested in nominating yourself or a colleague to the District 9 Com-mittee or the District Nominating Committee, please contact the District Nomi-nating Committee Chairman or the District Director at the above address.


271

DISTRICT 10David A. Leibowitz, Sr., District Director

NASD Financial Center33 Whitehall Street

New York, NY 10004(212) 858-4000


District Committee Chair: Joan Caridi

District Nominating Committee Chair: Michael F. Dura


Herbert Ackerman Neuberger & Berman, LLC, New York, NY Arthur S. Ainsberg Brahman Securities Inc., New York, NY Williams P. Behrens Ernst & Co., New York, NY Laurence H. Bertan Sanford C. Bernstein & Co., Inc., New York, NY Mark D. Madoff Bernard L. Madoff Investment Securities, New York, NY Stuart L. Sindell Dillon, Read & Co., Inc., New York, NY


John Lachello Ing Baring Furman Selz, New York, NY Philip V. Oppenheimer Oppenheimer & Close Inc., New York, NY Gary Salamone Schroder & Co. Inc., New York, NY Eugene A. Schlanger Nomura Securities International, Inc., New York, NYLawrence F. Sherman Mony Securities Corp., New York, NYTom M. Wirtshafter Nathan & Lewis Securities Inc., New York, NY


Michael F. Dura Schroder & Co., Inc., New York, NYJoseph A. Gottlieb Bear, Stearns & Co. Inc., New York, NYJoan S. Green BT Brokerage Corporation, New York, NYNorman H. Pessin Neuberger & Berman, New York, NY Stuart J. Voisin Stuart, Coleman & Co., Inc., New York, NY



272

DISTRICT 11Willis H. Riccio, District Director260 Franklin Street, 16th Floor

Boston, MA 02110(617) 261-0800


District Committee Chair: Stephanie Brown

District Nominating Committee Chair: Mary Toumpas


Michael J. Dell'Olio Investment Management and Research, Inc., South Portland, ME

Frank V. Knox, Jr. Fidelity Distributors Corporation, Boston, MA Laurie Lennox SunLife of Canada (U.S.) Distributors, Inc.,

Boston, MA Kenneth Unger Boston Capital Services, Inc., Boston, MA


Stephen O. Buff BancBoston Robertson Stephens, Boston, MA Gerard A. Rocchi W.S. Griffith & Co., Inc., Hartford, CT James P. Rybeck The RYBECK, Division of Fechtor, Detwiler & Co.,

Inc., Meriden, CT Dennis R. Surprenant Cantella & Co., Inc., Boston, MA


John A. Goc Boston Institutional Services, Boston, MAGrant Kurtz Advest, Inc., Hartford, CT Wilson G. Saville Barrett & Company, Providence, RI Edward L. Sherr Carl P. Sherr & Company, Worcester, MAMary Toumpas American Skandia Marketing, Inc., Shelton, CT

If you are interested in nominating yourself or a colleague to the District 11Committee or the District Nominating Committee, please contact the DistrictNominating Committee Chairman or the District Director at the above address.


273

Exhibit II

NASD Regulation, Inc.

1999 District Election Procedures For Year 2000/District Committees And District Nominating Committees

Regular Election

1. Each NASD Regulation® District shall maintain a District Nominating Committee in the manner specified inArticle VIII of the By-Laws of NASD Regulation, Inc.

2. The Secretary of NASD Regulation, Inc. (“the Corporation”) will notify in writing the Chairman of each DistrictCommittee and the Chairman of the District Nominating Committee of the upcoming vacancies on both theDistrict Committee and the District Nominating Committee, and the procedures to follow to fill the vacancies. Acopy of these letters will be provided to the District Directors.

The District Nominating Committee will be provided by Corporation staff with information considered relevant tothe nominating process, including analytical data pertaining to the District membership.

3. The Secretary of NASD Regulation and the Membership Department will prepare a Notice to Membersreminding all members of their responsibility and obligation to keep current and accurate information on theirExecutive Representatives and branch office addresses. The Notice to Members will contain a reference to theNASDRSM Web Site (www.nasdr.com) and detail the process for changing a firm’s Executive Representative.This Notice to Members will note that failure to keep this information accurate may jeopardize the member’sability to participate in District elections as well as other member votes.

4. The Secretary of the Corporation on behalf of the District Committee Chairman will send a Notice to Membersannouncing the forthcoming elections to the Executive Representative and each branch office of all memberseligible to vote in that District. Members will be requested to submit names of candidates to the DistrictNominating Committee or the District Director. The Notice to Members will contain: a) the number of vacanciesfor each District; b) the remaining members of each District Committee; and c) a reference to the Web site andprocedures for being considered an additional candidate.

5. The District Nominating Committee will endeavor to secure fair representation of all types of members presentin the District on the District Committee, including small firms. One small firm member of each DistrictCommittee will serve a one-year term on the Small Firm Advisory Board.

6. The District Nominating Committee will review the background and qualifications of the proposed candidatesand the District profile information provided by Corporation staff, and will determine its slate of candidates forthe election.

7. The District Nominating Committee will certify to the District Committee each candidate nominated by theDistrict Nominating Committee.

8. Within five (5) calendar days after this certification, a Notice to Members shall be sent to the ExecutiveRepresentative, communicating the nominees for the vacancies on the District Committees.

9. If an officer, director, or employee of an NASD member is interested in being considered as an additionalcandidate, he/she must indicate his/her interest to the District Director within fourteen (14) calendar days of thedate of the Notice to Members referenced in #8 above. The District Director shall make a written record of thetime and date of such notification.

If an additional candidate does not come forward after the 14 days, the election of the committee is complete.


274

10. Additional candidate(s) may be nominated if a petition signed by the Executive Representative of at least 10percent of the members eligible to vote in the District is filed with the District Nominating Committee within 30calendar days from the mailing date of the Notice to Members referenced in #8 on the previous page, unlessthe Secretary of NASD Regulation grants additional time for good cause shown.

11. If no additional candidate(s) are nominated within the 30-calendar day period, then the candidates nominatedby the District Nominating Committee shall be considered duly elected, and the District Committee shallcertify the election to the Board of Directors of NASD Regulation.

12. If any additional candidate(s) are nominated, the procedures outlined in the Contested Election Procedureswill apply.

Additional information pertaining to the District Election Procedures can be found in Article VIII of the By-Laws ofNASD Regulation. The By-Laws can be found in the on-line NASD Manual at www.nasdr.com.


275







Notices to Members

YEAR 2000 UPDATEJune 1999

If you have questions regarding any of these or other issues, please contact the NASD Year 2000Program Office by e-mail at [email protected] or by calling our toll-free number at (888) 227-1330.

Year 2000 Activity Countdown

What is your firm doing today to beready for the Year 2000 challenge?Are you…

✦ Completing remediation of mission-critical businesssystems, facilities, and equipment?

✦ Continuing to monitor mission-critical, third-party,and service provider Year 2000 progress, includingclearing organizations, banks, and utilities?

✦ Ensuring Year 2000 warranty language in contracts?

✦ Revalidating your inventory of mission-criticalbusiness systems to identify any missed or newlyadded systems due to business changes?

✦ Continuing to test mission-critical business systems,facilities, and equipment, including testing withexternal parties?

✦ Developing plans to keep mission-critical businesssystems, facilities, and equipment Year 2000compliant over the next six months?

✦ Verifying that all desktop applications are Year 2000compliant?

✦ Conducting legal reviews of Year 2000 plans andprogress?

✦ Completing contingency plans for business functionsand service providers?

✦ Arranging adequate staffing for the Year 2000transition, including the January 1 and 2, 2000,weekend?

✦ Keeping abreast of how the proposed Securities andExchange Commission (SEC) Operational CapabilityRules (SEC Rules 15b7-2 and 15b7-3T) might affectyour organization? To learn more about these rules,visit the SEC Web Site at www.sec.gov.

✦ Registering for National Association of SecuritiesDealers, Inc. (NASD®) Year 2000 Virtual Workshops?

✦ Communicating your firm’s Year 2000 readiness toinvestors and other key constituents?

Year 2000 Investor CommunicationIt is important that broker/dealers communicate accurateand complete information to customers about their Year2000 readiness. As investors become increasingly awareof the potential problems caused by the coming centurychange, you may get an increasing number of questionsabout what your firm is doing to become Year 2000 ready.

The NASD, through its Year 2000 Investor Program, isadvising investors to:

✦ Keep records of their financial transactions.

✦ Stay informed about what their brokerage firm, bank, investment adviser, and other serviceproviders are doing to become Year 2000 ready.

✦ Not worry about obtaining stock certificates sincefirms have extensive records on hand to answerquestions.

The NASD Year 2000 Program Office, the SEC, and the Securities Industry Association have developed a Year 2000 Investor Kit with additional communications for investors. It includes checklists, frequently askedquestions, resources, and other general information that address investors’ concerns about the Year 2000challenge. The Kit is available on the NASD and NASDRWeb Sites (www.nasd.com and www.nasdr.com), and acopy will be mailed to NASD member firms in early July.NASD members may want to share this information indiscussing Year 2000 issues with its customers.

YEAR 2000 UPDATE

Voluntary Form BD-Y2K FilingThe SEC is providing registered broker/dealers the opportunity to voluntarilyupdate progress on their Year 2000 compliance efforts by filing an updatedForm BD-Y2K. This Form would update the firm’s status as of June 30,1999, and should be filed with the SEC and the firm’s designated examiningauthority no later than July 30, 1999.

A broker/dealer electing to make this voluntary filing must update each Part of the Form that it previously filed under the previous required filingrequirements. For example, a firm that previously filed, as of March 15,1999, Parts I and II for Form BD-Y2K and an accountant’s report (Part III),must file updated versions of all three parts of the Form.

Important Note: This voluntary update will not serve as an extension of theApril 30, 1999, required reporting date for member firms to fill out the FormBD-Y2K. If your firm has not completed this filing requirement, contact theNASD Year 2000 Program Office immediately at (888) 227-1330.

Voluntary TestingNASD Regulation and the Year 2000 Program Office continue to encourageyour firm to voluntarily test with the NASD External Test Center. Thisdedicated Year 2000 test environment was created to provide NASDmembers with the capability to conduct point-to-point testing of NASDRegulation applications. To schedule a test, obtain test procedures, or tolearn more about our voluntary testing program, call the Year 2000 ProgramOffice at (888) 227-1330.

June 15 Exchanges and Utilities Update

Password: Practices Conf. #: 3117326

Issues to be covered:

✦ State of exchanges & utilities ✦ Upcoming developments ✦ Related broker/dealer

developments

June 29 Risk ManagementPassword: Risk Conf. #: 3116085


✦ Key principles in riskmanagement

✦ What the NASD is doing ✦ What clearing firms and

introducing firms can do ✦ Event horizon strategies

July 20 Legal Issues & Year 2000

Password: LegalConf. #: 3117340


✦ Due diligence efforts forbroker/dealers

✦ Litigation helpful hints ✦ Recent developments in

disclosure

July 22 Certification and Compliance

Password: CertificationConf. #: 3117355


✦ New rules pertaining toguidelines

✦ How the rules affect thebroker/dealer community

✦ Helpful hints on complianceissues

July 29 Exchanges and Utilities Update

Password: Exchanges Conf. #: 3117514


✦ State of exchanges & utilities ✦ Upcoming developments ✦ Related broker/dealer

developments

August 5 Contingency Strategies for Small Firms

Password: StrategiesConf. #: 3117421


✦ Overview of the typical smallfirm contingency planningdifficulties

✦ Trends in contingencyplanning

✦ Timeline vs. impact ✦ External/internal contingency

planning

August 10 Peer Review of Best Practices II

Password: PracticesConf. #: 3117455


✦ Case studies ofbroker/dealers’ Year 2000best practices

August 19 Investor Communication “Best Practices”

Password: CommunicationConf. #: 3117463


✦ Frequent problems ✦ Disclosure issues ✦ Best practices

August 24 Contingency Strategies for Large Firms

Password: StrategiesConf. #: 3117500


✦ Overview of typical large firmcontingency planningchallenges

✦ Trends in contingencyplanning

✦ Timeline vs. impact ✦ External/internal contingency

planning

Sept. 14 Certification of Year 2000Compliance

Password: CertificationConf. #: 3117560


✦ Certification and the Year2000 issue

✦ Latest developments incertification

✦ Best practices for all types offirms

Sept. 21 Peer Review of Best Practices III

Password: PracticesConf. #: 3117592


✦ A year review of the biggestchallenges faced by brokersand dealers of all size firms

✦ Summary of the top 10 bestpractices to managing Year2000

Year 2000 Education And EventsThe NASD Year 2000 Program Office is continuing to offer Virtual Workshops— conference call-in sessions. TheNASD strongly encourages registration for these sessions by calling (888) 567-0578. After placing the call, listento the greeting, and provide the following information when prompted: firm name, Broker/Dealer #, and workshopdate. On the day of the session, call (800) 857-7323 and indicate the password and confirmation numberprovided for the specific workshop. See below for a list of these specific workshops organized by date of session,as well as a brief summary of the issues to be discussed.

More Information/QuestionsNASD Year 2000 Program Office

e-mail: [email protected]: (888) 227-1330

Topic Location Date Time

Exchanges and Utilities Update Virtual June 15 11:00 a.m., ET

Risk Management Virtual June 29 11:00 a.m., ET

Legal Issues & Year 2000 Virtual July 20 11:00 a.m., ET

Certification and Compliance Virtual July 22 11:00 a.m., ET

Exchanges and Utilities Update Virtual July 29 11:00 a.m., ET

Contingency Strategies for Small Firms Virtual Aug. 5 11:00 a.m., ET

Peer Review of Best Practices II Virtual Aug. 10 11:00 a.m., ET

Investor Communication “Best Practices” Virtual Aug. 19 11:00 a.m., ET

Contingency Strategies for Large Firms Virtual Aug. 24 11:00 a.m., ET

Certification of Year 2000 Compliance Virtual Sept. 14 11:00 a.m., ET

Peer Review of Best Practices III Virtual Sept. 21 11:00 a.m., ET

NASD Year 2000 Event Calendar

Year 2000 Education And Events

NASD Notice to Members 99-41 June 1999

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NASDNotice toMembers99-41NASD Announces NewElectronic Filing SystemFor Corp o rate FinancingF i l i n g s




Corporate Finance




I n s u r a n c e

Internal Audit

Legal & Compliance

M u n i c i p a l

Mutual Fund

O p e r a t i o n s

O p t i o n s



R e s e a r c h

S y n d i c a t e

S y s t e m s

T r a d i n g

T r a i n i n g

Variable Contracts

Executive SummaryIntroduction of an ElectronicFiling System

NASD Regulation, Inc. (NASD Regu-l a t i o n®) is announcing that it willdeploy an electronic filing systemthat will permit National Associationof Securities Dealers, Inc. (NASD®)members, their counsel, or vendorsto file information electronically withthe Corporate Financing Department(Department). NASD Conduct Rule2710 (the Corporate Financing Ruleor Rule) requires members to fil emost proposed public offerings withthe Department. The Departmentreviews these filings prior to the com-mencement of an offering in order todetermine whether the underwritingterms and arrangements meet therequirements of applicable NASDr u l e s .

The new electronic filing system con-sists of two components: COBRA(the “Corporate Offerings BusinessRegulatory Analysis System”) andCOBRADesk. COBRA is a client-server software application and com-munication system, including adatabase, that will receive and pro-cess electronic filings of critical distri-bution-related informationtransmitted to the Department from arelated external system,COBRADesk. COBRADesk is aclient software application that willreside in the offices of member fir m s ,their counsel, or vendors (fil e r s ) ,which they can use to transmit offer-ing information.

Questions about this N o t i c e s h o u l dbe directed to LaNita Tyler or KembaWalker, Corporate Financing Depart-ment, NASD Regulation, at (202) 974-2700.

Enhancement Of ReviewProcessCOBRA and COBRADesk shouldb e n e fit members, investors, and the

Department by improving the effi-ciency of the review process,decreasing review time, and reduc-ing the amount of paper correspon-dence and documents required to befiled. In addition, the system will pro-vide each filer with a local electronicdatabase of information it has fil e dwith the Department.

The Corporate Financing Rule cur-rently requires a member to file fiv ecopies of the offering documents.Members that file throughCOBRADesk will be deemed to havemet this filing requirement, and willnot have to file paper copies of theoffering documents unless specific a l-ly requested by the Department.

The Department’s staff will accessthe offering documents from theSecurities and Exchange Commis-sion’s (SEC) EDGAR system. Inaddition, the system will permit elec-tronic correspondence between theDepartment and filers, thereby fur-ther alleviating the need for papercorrespondence. NASD membersthat participate in nonregistered pub-lic offerings that are not filed onEDGAR may continue to submitoffering documents in paper format,while sending supplementary offer-ing information via COBRADesk.

Deployment Of The System

The Department will deploy the sys-tem after June 30, 1999. Initially, theuse of COBRADesk will be volun-tary; however, the Department antici-pates that most filers will useCOBRADesk because it will be moree f ficient than the current process.The Department intends to later rec-ommend that NASD Regulation pro-mulgate a rule requiring members touse the system for all offerings fil e dwith the Department.

Filers that complete the attachedform and return it to the Departmentby June 1, 1999, will receive the


280

COBRA software, one printermodem, one printer, and printerpaper free of charge. Each user ofCOBRADesk must enter into a sub-licensing agreement with NASDRegulation and have a dedicatedanalog phone line for the printer. T oobtain this merchandise free ofcharge by the July 1, 1999 launchdate, complete the attached formand return it to the Department nolater than June 1, 1999.

The COBRADesk software will comewith installation instructions andshould be installed by the July 1,1999 launch date. The Departmentwill continue to accept non-electronicfilings after July 1, 1999, but weencourage filers to transition to elec-tronic filings after July 1, 1999. Wewill provide filers with computer-based training software after July 1,1999, that will instruct filers how tomake a filing using COBRADesk. Inaddition, members may contact theNASD Regulation “Help Desk” at(800) 321-NASD with technical ques-tions regarding COBRADesk or withsubstantive questions regarding theproper filing of offering information.

For those filers that want moredetailed information about filing offer-ings using COBRADesk, NASD Reg-ulation will conduct“Train-the-Trainer” workshops at theChase Conference Centers in NewYork City on July 13 and 14, 1999.Attendance at a workshop may beuseful for some filers, particularlythose firms with several employeeswho are involved in filing offeringswith the Department. To participatein one of the “Train-the-Trainer”workshops, please complete Item4 on the attached COBRADeskRequest Form. Since space inthese workshops is limited, werequest that each interested fil e rsend no more than one person. Afee of $100 is required for each par-t i c i p a n t .

BackgroundNASD Regulation is announcing thatit intends to deploy the COBRA andCOBRADesk systems in order toimprove the efficiency of its reviewprocess and to alleviate the paper-work burden on members and theircounsel that file information with theDepartment. In April 1999, theDepartment began a 30-day pilotprogram for COBRA. In the pilot, theDepartment’s staff and some of itsmost frequent filers have been ableto test the system. The results of thepilot program indicate that COBRAand COBRADesk will streamline theDepartment’s review process andenhance the speed and accuracy ofcommunications with members andtheir counsel.

Current Requirements ForFiling The Corporate Financing Rulerequires NASD members (usuallythe managing underwriter) or theircounsel to file:

Five copies of:

• the registration statement;• the amended registration state-ment; and • the offering circular or memoran-dum.

Three copies each of:

• the underwriting agreement;• the agreement among underwrit-e r s ;• selected dealer agreements;• letters of intent; and• consulting agreements, warrantagreements, and any other docu-ment that describes the underwrit-ing or other arrangement inconnection with or related to thedistribution.

The Rule also requires that supple-mentary information be filed, suchas:

• the exact amount and types ofcompensation to be paid in connec-tion with distributing the securities;

• the NASD affiliation or associationof all officers, directors, and principalshareholders of the issuer; and

• details of all acquisitions of securi-ties by the underwriter or relatedpersons.

The Department receives thousandsof packages and letters each yearfrom underwriters or their counsel, incompliance with the Department’s fil-ing requirements and in response torequests by the Department for addi-tional information. These documentsand information are sent to theDepartment in hard copy by regularmail, courier, or fax. The Depart-ment’s analysts review these docu-ments and enter information into theDepartment’s database. This infor-mation is used by the Department todetermine whether underwritingterms and arrangements meet therequirements of applicable NASDrules.

Filing Through COBRADesk1

By using COBRADesk, filers will beable to make filings with the Depart-ment at any time of the day. TheDepartment will receive the informa-tion and then be able to access theoffering documents from EDGAR.Most filers will not need to sendpaper documents to the Departmentand will not have to rely on couriers,mail, or fax. Filing fees can be sub-mitted by wire transfer (as well ascheck or money order). COBRADeskwill automatically calculate filing feesin accordance with NASD rulesbased on the size of an offering.


281

Some filings may need to be accom-panied by paper documents, if, forexample, offering documents are notfiled with the SEC on EDGAR or theDepartment needs information in cer-tain other documents, such as under-writing agreements, that are not inelectronic form. The Departmentintends to continue to develop itsprocesses to minimize the need forsupplementary paper filings wherepossible.

COBRA and COBRADesk will pro-vide a more efficient mechanism forcommunications between filers andNASD Regulation. In addition, theDepartment anticipates that theCOBRADesk filing process willreduce members’ costs by reducingexpenses for printing and delivery.

CostsFilers that complete the attachedform and return it to the Departmentby June 1, 1999, will receive theCOBRADesk software, one printermodem, one printer, and printerpaper free of charge. Filers thatrequest a “network” version ofCOBRADesk and more than oneprinter will be charged a fee for theadditional printers. In order to useCOBRADesk, filers must have ananalog phone line dedicated to the

printer. NASD Regulation will not beresponsible for the cost of the phonel i n e .

NASD Regulation also will conduct“Train-the-Trainer” workshops atChase Conference Centers, 1 ChaseManhattan Plaza, 28th floor, NewYork City on July 13 and 14, 1999. Afee of $100 is required for each par-t i c i p a n t .

Technical Requirements

COBRADesk has the following mini-mum workstation requirements:

• Pentium PC 166 or better

• 32 MB RAM

• Windows95/Windows98 orN T 4 . 0

• 100 MB of Free Hard DriveS p a c e

• 1 available Communication Port

• US Robotics Courier Modem(provided to users with the printerand paper)

• An analog phone line dedicatedto the COBRA Printer

We recommend that all PCs runningthe COBRADesk Application have abackup procedure in place.

Endnote1An Application Program Interface (API) will

be available to vendors that may want to

develop their own COBRADesk-related

client software. To ensure access compati-

bility, the API will provide information and

instructions needed to create and transmit a

properly formatted electronic file of informa-

tion to COBRA. Interested vendors should

forward their request on company letterhead

to the Corporate Financing Department and

provide a contact person name and tele-

phone number.




282

COBRADESK REQUEST FORM

To Order COBRADesk Software, Modem, Printer, and Printer Paper

1. Firm Name: (please print) ____________________________________________Address: _________________________________________________________(software, printer modem, printer, and paper will be sent to this address)City/state/zip: _________________________________ _ _ _ _ _ _ _ _ _ ____ _______Contact Person: __________________________________________ _ _ _ ______Daytime Phone: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

2. Phone Number of the Analog Phone Line that will be Dedicated to the Printer: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

3. Will your firm need a network version of the software: Yes No

Software: 3.25” Floppy Disc CD ROM

4. To reserve a date for participation in a training session in New York, please indicate the date you would like to attend:

July 13, 1999July 14, 1999

Name of participant: ___________________________ _ _ _ _______ _ _ _ _______Due to space limitations, we must limit participation in the workshops to one person per filer. Please include a check payable to the National Association of Securities Dealers in the amount of $100 if a person from your firm will participate in the training.

The workshops will be conducted at Chase Conference Centers, 1 Chase Manhattan Plaza, 28th floor, New York, New York from 9:00 a.m. until 3:00 p.m.

Please mail (if a check is included) or fax this form to:NASD Regulation, Inc.Corporate Financing Department1801 K Street, NW, 8th FloorWashington, D.C. 20006Attn: COBRADeskFax: (202) 974-2732


283

NASDNotice toMembers99-42NASD Offers GuidanceOn Complying With NoticeRequirements Of NewSEC Rule RegardingA l t e rn a t i ve Tra d i n gS y s t e m s




Corporate Finance




I n s u r a n c e

Internal Audit

Legal & Compliance

M u n i c i p a l

Mutual Fund

O p e r a t i o n s

O p t i o n s



R e s e a r c h

S y n d i c a t e

S y s t e m s

T r a d i n g

T r a i n i n g

Variable Contracts

Executive SummaryOn April 21, 1999, Securities andExchange Commission (SEC) Rules3a1-1, 3b-16, and Regulation Alter-native Trading System (RegulationATS) became effective. Rule301(b)(2) of Regulation ATS requiresalternative trading systems (ATS) tocomply with certain notice provisions.S p e c i fically, duplicate originals ofcertain reports that must be filed withthe SEC pursuant to Regulation ATSmust also be filed simultaneouslywith the National Association ofSecurities Dealers, Inc. (NASD®) ifthe NASD is the designated examin-ing authority (DEA) for the ATS.

Questions regarding this N o t i c e m a ybe directed to Patricia Casimates,Assistant Director, Market Regula-tion Department, NASD Regulation,Inc., (NASD Regulation®), at (301)5 9 0 - 6 4 4 7 .

Reg ATS Notice RequirementsInitial Operation Report OnForm ATS

At least 20 days prior to commencingoperation as an ATS, the ATS mustfile an initial operation report onForm ATS in accordance with theinstructions therein. If the ATS is cur-rently operating as of April 21, 1999,the initial operating report shouldhave been filed no later than May 11,1 9 9 9 .

Amendments To Form ATS

At least 20 calendar days prior toimplementing a material change tothe operation of the ATS, the ATSmust file an amendment on FormATS. Additionally, if any informationcontained in the initial operationreport becomes inaccurate for anyreason and has not been previously

reported to the SEC as an amend-ment on Form ATS, the ATS mustfile an amendment on Form ATScorrecting such information within 30calendar days after the end of eachcalendar quarter in which the ATShas operated. Moreover, an ATSmust promptly file an amendment onForm ATS correcting informationpreviously reported on Form ATSafter discovery that any informationpreviously filed was inaccurate whenfil e d .

Cessation Of OperationsReport On Form ATS

Upon ceasing to operate as an ATS,the ATS shall promptly file a cessa-tion of operations report on FormATS in accordance with the form’si n s t r u c t i o n s .

Filing Of Form ATS AndAmendments

All the reports described aboveshould be filed with:

U.S. Securities & ExchangeCommission Division of Market RegulationStop 10-2, 450 5th Street, N.W.Washington, D.C. 20549

All reports are considered filed uponreceipt by the SEC.

If the NASD is the DEA for the ATS,duplicate originals of these reportsmust also be filed with the NASD1 b ymailing the documents to:

Form ATS Maintenance CoordinatorMarket Regulation Department9513 Key West AvenueRockville, Maryland 20850

All the above described reports aredeemed confidential when fil e d .


284

Endnote1Pursuant to SEC Regulation ATS, Rule

301(b)(9), an ATS must also file certain sum-

mary transaction information required by

Form ATS-R within 30 calendar days after

the end of each calendar quarter and 10 cal-

endar days after the ATS ceases to operate.

Originals of these reports should be filed

only with the SEC. Duplicates should be pro-

vided to the NASD or other DEA only upon

request.




285

NASDNotice toMembers99-43

Update On OTC BulletinBoard Eligibility Rule




Corporate Finance




I n s u r a n c e

Internal Audit

Legal & Compliance

M u n i c i p a l

Mutual Fund

O p e r a t i o n s

O p t i o n s



R e s e a r c h

S y n d i c a t e

S y s t e m s

T r a d i n g

T r a i n i n g

Variable Contracts

Executive SummaryIn Notice to Members 99-15, theNational Association of SecuritiesDealers, Inc. (NASD®) describedamendments to NASD Rules 6530and 6540 to limit quotations on theOTC Bulletin Board® (OTCBB) to thesecurities of companies that reporttheir current financial information tothe Securities and Exchange Com-mission (SEC), banking, or insuranceregulators and described when thoserules would be applied to issuerstrading on the OTCBB. The amend-ments will become effective over an18-month period, based on theissuer’s symbol. This N o t i c e i n c l u d e sthe effective date schedule that hasbeen published on the OTCBB WebSite (w w w . o t c b b . c o m) since Januaryand describes the requirements asecurity must meet to be quoted afterit is subject to the amendments.

Questions regarding this N o t i c eshould be directed to Liz Heese,Product Manager, Trading and Mar-ket Services, The Nasdaq StockMarket, Inc., at (202) 728-8191; SaraNelson Bloom, Associate GeneralCounsel, Office of General Counsel,The Nasdaq Stock Market®, at (202)728-8478; or Arnold Golub, SeniorAttorney, Office of General Counsel,The Nasdaq Stock Market, at (202)7 2 8 - 6 9 3 8 .

BackgroundThe OTCBB is a quotation servicethat displays real-time quotes, last-sale prices, and volume informationin domestic and certain foreign secu-rities. Eligible securities includenational, regional, and foreign equityissues; and warrants, units, andAmerican Depositary Receipts(ADRs) not listed on any other U.S.

national securities market orexchange. Although the OTCBB isoperated by the NASD, it is unlikeThe Nasdaq Stock Market or otherlisted markets where individual com-panies apply for listing and mustmeet and maintain strict listing stan-dards; instead, individual brokeragefirms or Market Makers initiate quota-tions for specific securities on theOTCBB. Currently, approximately6,500 securities are quoted on theO T C B B .

On January 4, 1999, the SECapproved amendments to NASDRules 6530 and 6540. As revised,Rule 6530 limits quotations on theOTCBB to the securities of issuersthat report their current fin a n c i a linformation to the SEC, banking, orinsurance regulators and Rule 6540prohibits a member from quoting asecurity on the OTCBB unless theissuer has made current fil i n g s .These amendments were discussedin Notice to Members 99-15 and thefull text of the rules appears in thatN o t i c e. Notice to Members 99-15also indicated that the new require-ments were already effective forsecurities not quoted on the OTCBBon January 4, 1999, and published aschedule for the effectiveness of therevised rules with respect to issuersthat were trading on the OTCBB asof that date. The NASD made slightm o d i fications to that schedule andhas published the modified scheduleon the OTCBB Web Site since Jan-uary. In order to continue to be quot-ed on the OTCBB, securities quotedon the OTCBB as of January 4,1999, must be in compliance with thenew eligibility requirement basedupon the schedule on the followingp a g e .1


286

Effective Date Schedule

S c h e d u l e Issue SymbolJuly 1999 A - AD

August 1999 AE - AO

September 1999 AP - BI

October 1999 BJ - CT

November 1999 CU - FL

December 1999 FM - IG

January 2000 IH - MD

February 2000 ME - OR

March 2000 OS - R

April 2000 S - TN

May 2000 TO - Z

June 2000 All Banks & Insurance C o m p a n i e s

Eligibility RequirementsTo continue to be quoted after thefirst trading day of the scheduledmonth, the issuer of the securitymust be:

• registered with the SEC under Sec-tion 13 or 15(d) of the Securities andExchange Act of 1934 (Act), aninvestment company registeredunder the Investment Company Act,an insurance company described inSection 12(g)(2)(G) of the Act, or abank or savings association that isnot required to file reports with theSEC; and

• current in its required filings. To becurrent, the issuer must have filed itslatest required annual filing and anysubsequent quarterly filings.

In the alternative, a security will bedeemed eligible if the issuer has fil e da Form 10 or a Form 10SB and hascleared all comments by the SEC.

A list of all OTCBB securities andtheir eligibility status according toNasdaq’s records will be available onw w w . o t c b b . c o m. If you believe thestatus of a security is incorrect,please e-mail the correct eligibilitystatus, and the CIK code if the issueris an EDGAR filer, to o t c b b f e e d b a c k @ n a s d . c o m, using“OTCBB Eligibility status correction”as the subject line of the email.

Endnote1This schedule is subject to change at the

discretion of the NASD. The NASD will use

the issue symbol as it appears in the OTCBB

quotation system on January 4, 1999, to

determine where a particular issue falls in

the schedule. Subsequent symbol changes

will not be considered in determining an

issuer’s phase-in date.




287

NASDNotice toMembers99-44SEC Approve sI n t e rpretations AndAllocation Chart Fo rP r o p ri e t a ry Accounts OfI n t r o d u c i n gB r o ke r / D e a l e r s




Corporate Finance




I n s u r a n c e

Internal Audit

Legal & Compliance

M u n i c i p a l

Mutual Fund

O p e r a t i o n s

O p t i o n s



R e s e a r c h

S y n d i c a t e

S y s t e m s

T r a d i n g

T r a i n i n g

Variable Contracts

Executive SummaryOn November 3, 1998, the Securitiesand Exchange Commission (SEC)issued a No-Action Letter to clarify itsposition under SEC Rule 15c3-1 (NetCapital Rule) regarding the capitaltreatment of assets in the proprietaryaccount of an introducingbroker/dealer (PAIB) held by aclearing broker/dealer. NationalAssociation of Securities Dealers,Inc. (NASD®) Notice to Members 9 8 - 9 9 discusses PAIB in greaterdetail and also provides a copy of theSEC’s No-Action Letter.

The letter allows introducingbroker/dealers to include PAIBassets as allowable assets in theirnet capital computations, providedthe clearing broker/dealer adheres tothe provisions, procedures, andinterpretations set forth in the letterincluding the establishment of aseparate reserve account for PAIBassets in accordance with SEC Rule15c3-3 (Customer Protection Rule).The effective date of the No-ActionLetter is June 1, 1999.

The SEC has approved sixinterpretations and an allocationchart relative to PAIB which arecontained in this Notice to Members.Questions concerning this N o t i c emay be directed to Samuel Luque,Jr., Associate Director, MemberRegulation, NASD Regulation, Inc.(NASD Regulation®), (202) 728-8472;or Susan DeMando, RegionalCompliance Supervisor, MemberRegulation, NASD Regulation, (202) 728-8411.

SEC Interpretations On PAIB

• The PAIB letter applies to allbroker/dealers with cash and/orsecurities on deposit in aproprietary account at anotherb r o k e r / d e a l e r .

• Clearing deposits held byclearing brokers are to beincluded as credit items in thePAIB reserve formulac o m p u t a t i o n .

• If an introducing firm does nothave a proprietary tradingaccount, it still must enter into aPAIB agreement with its clearingfirm in order to treat its deposit atthe clearing firm as a good assetfor capital purposes.

• A U.S. broker/dealer’s depositheld by a foreign entity is notaffected by the PAIB letter.However, the deposit would besubject to the net capitaltreatment as is normallyaccorded to such deposits.

• A proprietary account of aforeign broker/dealer is notincluded in the PAIB calculation.

• If a clearing firm will not enterinto a PAIB agreement, theintroducing broker/dealer wouldneed to take a non-allowablecapital charge only on its netequity at the clearing fir m .


288

P RO P R I E TA RY ACCOUNTS OF INTRODUCING BROKERS (PA I B )A L L O C ATION CHART

This allocation chart shows the relationship between the various allocable items and may be used in conjunction withthe interpretations when an allocation is required to determine the debit and credit values includible in the PAIBreserve formula computation.

A. CREDITS

Short Location: Long Allocation Include Credit D e b i t

Customer Bank Loan vs:

Customer Long N o N o

Proprietary Long N o N o

Non-Customer Long No N o

PAIB Accounts Long N o Y e s

Stock Borrowed No N o

Fail to Deliver N o N o

Non-Customer Bank Loan vs:

Customer Long, Stock Borrowed, or Fail to Deliver N o N o

Non-Purpose Loan Accounts N o N o

Proprietary and Non-Customer Accounts N o N o

PAIB Accounts Long Y e s Yes (see Note 1)

Proprietary Bank Loan vs:

Customer Account Long No N o

Fail to Deliver or Stock Borrowed N o No

Proprietary, Subordinated, General Partners, Directors, and Principal Officers Accounts Long N o N o

PAIB Accounts Long N o Y e s

All Other Long Allocations N o N o

Any Bank or Custody Location with Cross Lien Provisions vs:

Customer Account Long N o N o

PAIB Accounts Long Y e s Y e s (see Note 2)

Collateral to Letter of Credit (LOC) or Collateral Pledged for OCC Customer Margin Requirement vs:

Customer Accounts Long No N o

Proprietary Qualified Sec. No N o

Non-Customer or Proprietary Accounts No N o

PAIB Accounts Long Y e s Y e s (see Notes 8 & 9)

Collateral to Letter of Credit or Collateral Pledged for OCC PAIB Margin Requirement vs.

Customer Accounts Long N o N o

Proprietary Qualified Sec. N o Y e s

Non-Customer or Proprietary Accounts N o N o

PAIB Accounts Y e s Y e s (see Notes 6,7,8,9)


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A. CREDITS (continued)

Short Location: Long Allocation Include Credit D e b i t

Collateral Pledged to Letter of Credit for Securities Borrowed vs:


Non-Customer or Non-Purpose Loan Accounts N o N o


Proprietary Accounts N o N o

Collateral Pledged for Securities Borrowed vs:


Non-Customer and Non-Purpose Loan Accounts N o N o


Proprietary Accounts No N o

Securities Loaned vs:


Fails to Deliver No N o

Securities Borrowed N o N o

Non-Customer and Proprietary Accounts Long No N o

PAIB Accounts Long Y e s Y e s

Fails to Receive vs:


Fails to Deliver N o N o

Non-Customer Accounts Long No N o

PAIB Accounts Long Y e s Y e s

Proprietary Accounts Long No N o

Securities Borrowed No N o

Proprietary and Non-Customer Shorts vs:


Non-Customer Accounts Long No N o


Customer Short Position vs:


Proprietary and Non-Customer Accounts Long No N o

PAIB Accounts Long Yes Y e s

PAIB Short Position vs:


Proprietary and Non-Customer Accounts Long N o N o

PAIB Accounts Long Yes Y e s


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B. OTHER CREDITS OR VALUES INCLUDIBLE- REGARDLESS OF ALLOCATION Include Credit

Securities Borrowed Secured by an Irrevocable Letter of Credit Secured by Customer Margin Securities N o

Securities Borrowed Secured by an Irrevocable Letter of Credit Secured by PAIB Securities Y e s (see Note 3)

Stock Dividends Receivable, Stock Splits, and Other Distributions Over 30 Calendar Days Old N o

Suspense Account Credits and Short Security Count, Unverified Short and Suspense Security Differences:

Over seven business days old N o

Over 30 calendar days old N o

Transfer over 40 calendar days old N o

Prepaid Fails to Receive N o

Unclaimed Dividends and Interest Payable N o

All outstanding drafts payable to customers which have been applied against free or other credit balances and checks drawn in excess of bank balances (per firm records) N o

Drafts Payable to PAIB Y e s

TEFRA Accounts Payable N o

Accrued Interest Payable on Customer Credit Balances N o

Accrued Interest Payable on PAIB Credit Balances Y e s


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C. DEBITS

Long Position: Short Allocation Include Debit C r e d i t

Securities Borrowed Collateralized By Cash, U.S. Treasury Bills, Notes, LOC’s Secured by Proprietary Qualified Securities, or any other Acceptable Collateral as per (b)(3) vs:

Customer Accounts Short No N o

Non-Customer or Proprietary Accounts Short No N o

PAIB Accounts Short Y e s Y e s

Fails to Receive N o N o

Customer Bank Loan No N o

Non-Customer or Proprietary Bank Loan No N o

Securities Loan No N o

Stock Dividend Receivable No N o

T r a n s f e r No N o

All Other Physical Control Locations No N o

Securities Borrowed Secured By an Unsecured Irrevocable Letter of Credit, Unacceptable Collateral as per (b)(3) or Unsecured Borrows N o

Fails to Deliver Not Over 30 Calendar Days Old vs:

Customer Accounts Short N o N o

Non-Customer and Proprietary Accounts Short N o N o

PAIB Accounts Short Yes Y e s

Fails to Receive N o N o

Customer Bank Loan N o N o

Proprietary and Non-Customer Bank Loan N o N o

Securities Loaned N o N o

T r a n s f e r N o N o

Other Physical Control Location for Not More Than Three Business Days No N o


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N OTES FOR PAIB ALLOCAT I O N

Note 1 Include market value of the collateral up to the amount borrowed as a credit.

Note 2 When a broker/dealer pledges PAIB securities to a non-customer loan and also has proprietary and/orcustomer loans with the same pledgee, it must assure itself that the pledgee does not have a lien uponnon-customer collateral for any loan other than for PAIB non-customers.

If a cross lien exists and could place PAIB securities at risk, there shall be included in the PAIB formulathe amount of the PAIB loan, plus the lower of the value of PAIB collateral in excess of the loan or theamount of loans for other than PAIB.

Note 3 Include the market value of the borrowed securities as a credit.

Note 4 Include the market value of the pledged securities.

Note 5 Include the market value of the short securities.

Note 6 Letters of Credit Secured by Customer and Non-Customer Securities

When a letter of credit, collateralized by both customer and non-customer securities, is deposited withOCC as margin, only the amount required for customers’ margin is included as a debit in the customerreserve formula. Therefore, the amount of margin required for Market-Maker accounts is included as adebit in the PAIB reserve formula to the extent it is collateralized by customer and PAIB securities. (Thecombined customer and non-customer margin requirement, up to the amount of the letter of credit, mustbe included as a credit in the customer’s reserve formula only.)

Note 7 OCC Margin Requirement Met by PAIB Securities

When PAIB collateral is deposited with OCC to satisfy Market-Maker margin requirements, the actualamount of margin required is included in the formula as a debit and a credit.

Note 8 Letters of Credit Secured by PAIB Securities

Include as a credit, the amount of letters of credit which are collateralized by PAIB securities anddeposited with OCC, to the extent of the margin requirement at OCC, which is covered by such letters ofcredit.

Note 9 Commingled Collateral as OCC Margin Deposit

When customer, non-customer, and qualified proprietary securities are commingled as margin on depositwith OCC, the customer margin requirement should be included in the customer reserve formulacomputation as a credit and the lesser of the customers’ margin required or the total of the collateral value,less the amount representing the non-customer should be included as a debit in that formula.

Any amount not allowed as a debit in the customer reserve formula because the margin requirement wass a t i s fied with PAIB securities should be included as a debit in the PAIB reserve formula and no creditneed be included to the extent the credit is included in the customer reserve formula.



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NASDNotice toMembers99-45NASD Provides GuidanceOn Superv i s o ryR e s p o n s i b i l i t i e s




Corporate Finance




I n s u r a n c e

Internal Audit

Legal & Compliance

M u n i c i p a l

Mutual Fund

O p e r a t i o n s

O p t i o n s



R e s e a r c h

S y n d i c a t e

S y s t e m s

T r a d i n g

T r a i n i n g

Variable Contracts

BackgroundThe National Association ofSecurities Dealers, Inc. (NASD®) isissuing this Notice to Members a spart of its continuing effort to providemembers, particularly smallermember firms, with guidance oncomplying with the rules that governtheir conduct. This N o t i c e will focuson those sections of NASD ConductRule 3010 (the Rule) that requiremembers to establish a supervisorysystem and develop and maintainwritten supervisory procedures. TheNASD recently published a relatedNotice to Members that providesguidance on supervisoryresponsibilities for trade reportingand market-making activities.1 I naddition, the NASD intends topublish subsequent N o t i c e s that willfocus on written supervisoryprocedures relating to a particulartopic area (e . g ., opening andmaintaining customer accounts).Members are encouraged to contactStephanie M. Dumont, AssistantGeneral Counsel, NASD Regulation,Inc. (NASD Regulation®) at (202)728-8176; or Daniel M. Sibears, VicePresident, Member Regulation,NASD Regulation, at (202) 728-6911with questions or comments on thisN o t i c e or to suggest topics for futureNotices to Members.

In order to assist members indeveloping their own supervisorysystems, this N o t i c e will provide anexplanation of the purposesunderlying the different sections ofRule 3010.2 It is important formembers to understand that whilethis N o t i c e provides an explanationof the Rule and guidelines on thebasic elements of supervisoryprocedures, it is not to be construedas a checklist of steps guaranteed toconstitute adequate writtensupervisory procedures or asubstitute for the development ofsupervisory procedures that aretailored to the needs andcircumstances of individual memberfirms. Members retain theresponsibility to design andimplement supervisoryprocedures that are appropriatefor their specific businesses ands t r u c t u r e s .

Compliance Procedures Ver-sus Supervisory Procedures

It is important that membersrecognize the distinction betweenwritten compliance guidelines andwritten supervisory procedures.Compliance guidelines generally setforth the applicable rules and policiesthat must be adhered to anddescribe specific practices that areprohibited. In contrast, writtensupervisory procedures documentthe supervisory system that hasbeen established to ensure thatcompliance guidelines are beingfollowed and to prevent and detectprohibited practices. For example, acompliance guideline might discussNASD Rule 2860(b)(19) regardingthe suitability of options transactionsfor customers by describing theelements of the rule and the types ofinformation the firm believes itsassociated persons must gatherabout the customer beforerecommending an optionstransaction. In comparison, thewritten supervisory procedureswould instruct the supervisor on thesteps necessary to determinewhether the associated persongathered the requisite informationbefore recommending the optionstransactions and whether thetransaction was suitable for thecustomer (e . g ., the supervisor shouldexamine the customer account formsthat describe the customer’s networth, annual income, optionstrading experience, etc.). In addition,the written supervisory procedureswould describe the activities thesupervisor will conduct, if he or shedetermines a transaction is notsuitable for a customer.

Supervisory System VersusWritten Supervisory Procedures

Another important concept formembers to understand is thedistinction between a supervisorysystem and written supervisoryprocedures. The Rule sets forthmembers’ obligations to establishboth a supervisory system and


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written supervisory procedures.Written supervisory procedures are acritical part of an overall supervisorysystem. The written supervisoryprocedures document thesupervisory system that the firm hasestablished. For example, asupervisory system may includeelements such as automatedexception reports and surveillanceprograms that monitor for unusualtrading activity in customer accounts.The written supervisory procedureswould instruct the supervisor onwhich reports produced by thesurveillance system the supervisor isto review as part of his or hersupervisory responsibilities, includinga description of how often thesereports should be reviewed, thesteps to be taken if suspiciousactivity is discovered, and how todocument the supervisor’s oversighta c t i v i t i e s .

Supervisory System And Written Procedures - Rule 3010(a) And (b)

Regardless of its size or complexity,each member must adopt andimplement a supervisory system thatis tailored specifically to themember’s business and mustaddress the activities of all itsregistered representatives andassociated persons. S u p e r v i s o r yprocedures must be in writing a n dmust be reasonably designed toachieve compliance with applicablesecurities laws and rules and therules of the NASD (hereinafter“securities laws”). U l t i m a t eresponsibility for supervisionrests with the member.

Tailored To The Member’sB u s i n e s s

To fulfill its obligations to establishand maintain a supervisory system, amember must determine the types ofbusiness it conducts, how the firm isorganized and operated, and thecurrent regulatory requirements. Thisanalysis will enable the member todesign a supervisory system that iscurrent and appropriately tailored to

its specific attributes and structure.Factors that should be considered inthis analysis include, among otherthings, a review of the member’s:

• product lines and customerbase (e . g ., institutional vs. retail);

• number and geographic locationof offices and personnel;

• existing reporting systems,operating units, andorganizational structures;

• experience of personnel,including whether the fir memploys persons who should besubject to heightened supervisoryprocedures due to a history ofcustomer complaints, disciplinaryactions, or arbitrationproceedings; and

• applicable regulatoryrequirements, including specificactivities required (e . g ., principalapproval of transactions) ands p e c i fic records required to becreated and maintained (e . g .,new account documentation) ineach product or operational area.

Once a thorough review and analysisof these factors has been conducted,the firm can then establish theframework of its supervisory system,taking into consideration, amongother things:

• the availability, location, andq u a l i fications of registeredprincipals and, whereappropriate, representatives to beassigned supervisoryr e s p o n s i b i l i t i e s ;

• the importance of clear lines ofauthority, accountability, andr e s p o n s i b i l i t y ;

• the maintenance of records andother documentation that willpermit both the firm andregulators to determine how andby whom supervisory obligationsare being discharged;

• the technological environment inwhich the firm operates; and

• the need to provide for theperiodic evaluation of the fir m ’ ssystem and procedures such thatboth will continue to accuratelyr e flect the firm’s business andcurrent regulatory requirements.

Written Procedures

Once a member has designed itssupervisory system, Rule 3010(b)requires the member to memorializethis system in writing and implementand enforce these writtenprocedures. It is important thatsupervisory procedures be set forthin writing for several reasons. Writtenprocedures provide the personnelsubject to the supervisory system, aswell as those responsible forimplementing it, a document thatexplains the supervisory system andtheir specific responsibilities. Writtenprocedures also provide stability andcontinuity as personnel take ondifferent responsibilities or leave thefirm. In addition, senior managementcan use the written procedures todetermine whether personnel arecomplying with the supervisorysystem by auditing compliance withthe written procedures. Accordingly,the Rule requires that a copy of themember’s written supervisoryprocedures, or the relevant parts, bemaintained at each office ofsupervisory jurisdiction and any otherlocation where supervision occurs.

It is equally important that the writtensupervisory procedures clearlyidentify who has supervisoryresponsibilities. A member mustkeep a record of each associatedperson who has supervisoryresponsibilities and the date eachperson was assigned thoseresponsibilities. This must include thetitles, registration status, andlocations of the supervisorypersonnel. The written proceduresalso must include the business lineand applicable securities laws forwhich each supervisor isresponsible. When developing itswritten procedures to include this


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information, a member should keepin mind that the purpose of this ruleis to allow for personnel at the fir m ,as well as regulators, to easilydetermine who is responsible forsupervising a particular area and thetime period for which the person wasassigned the supervisoryresponsibility.

Written supervisory procedures arenot static documents that can beused for an indefinite period of timewithout modification. A firm’s existingsupervisory system may becomeoutdated or ineffective as a result ofchanges in the firm’s business lines,products, practices, or new oramended securities laws. In suchinstances, the written supervisoryprocedures must be updated toproperly reflect any necessarychanges to the supervisory system.Rule 3010(b) does provide amember with a reasonable amountof time after changes occur to amendits written supervisory procedures.Reasonableness, however, isdetermined in light of the relevantfacts and circumstances. Forexample, an amendment to rulespertaining to a type of business thata member conducts daily (e . g .,market making) should beincorporated into the supervisorysystem and written procedures priorto the effective date of the rulechange. Changes in a title or otheradministrative matters, on the otherhand, may not warrant an immediatechange and could be updated on aperiodic basis.

It is crucial that all personsassociated with a member beinformed of any changes in thesupervisory system and applicablewritten procedures. The Rule,therefore, requires members toinform all associated persons of suchchanges. This can be accomplished,for example, by distributing updatesto the relevant sections of the writtensupervisory procedures.

Reasonably Designed To AchieveC o m p l i a n c e

The Rule requires that a member’ssupervisory system be reasonablydesigned to achieve compliance withapplicable laws and regulations. Thisstandard recognizes that asupervisory system cannotguarantee firm-wide compliance withall laws and regulations. However,this standard does require that thesystem be a product of soundthinking and within the bounds ofcommon sense, taking intoconsideration the factors that areunique to a member’s businessdescribed above.

Because reasonableness isdetermined in light of the particularfacts and circumstances surroundinga situation, it is difficult to articulatewith any specificity a standard thatwould be applicable in allcircumstances. As practical, theNASD will identify certain proceduresit believes are reasonable, as well asthose practices that it finds are notreasonable. For example, in N o t i c eto Members 98-96, the NASD notedthat written supervisory proceduresthat instruct a supervisor to initialorder tickets and blotters or to fill outreview logs to document a review arereasonable, while procedures thatmerely recite the applicable rules orfail to describe the steps the firm willtake when potential deficiencies arei d e n t i fied are not reasonable.3

Members Are Responsible ForS u p e r v i s i o n

The ultimate responsibility forsupervision lies with the member.This responsibility, however, doesnot preclude a member fromimplementing a supervisory systemdesigned by another party, whichcould include, for example, acomputer software program thatdetects excessive trading incustomers’ accounts. If a memberchooses to implement such asystem, though, it must make its owndetermination that the systemimplemented is current andreasonably designed to achieve

compliance with the securities laws.This may include, for example,monitoring the system to ensure thatit functions as designed.

Minimum Requirements Of ASupervisory System - Rule3010(a)

Although a supervisory system mustbe tailored to meet the member’ss p e c i fic structure, the NASD hasi d e n t i fied certain elements that mustbe included in every member’ssupervisory system. While eachelement will be discussedindividually, members should keep inmind that each of these elementsmust be incorporated into an overallsupervisory system that isreasonably designed to achievecompliance with the securities lawsand rules. Members must becognizant of how these elementsaffect and are affected by otherrequirements in the Rule and otherrules and statutory provisions.Furthermore, a member is notrelieved of its supervisoryobligations by merelyincorporating each of theseminimum elements into itssupervisory system.

Designating PrincipalsResponsible For Supervision -Rule 3010(a)(2)

Rule 3010(a)(2) requires that amember assign responsibility foreach type of business that themember conducts to one or moreprincipals. This requirement is limitedto those types of business thatrequire registration as abroker/dealer. If a member alsoconducts a type of business thatdoes not require broker/dealerregistration, this requirement wouldnot apply to that particular type ofbusiness, however, other regulatoryrequirements, including, for example,state insurance laws, may apply.

The Rule requires that principals beappropriately registered and vestedwith the authority to carry out thesupervision for which they are


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responsible. Persons responsible forsupervising a particular type ofbusiness, therefore, must beregistered as principals for that typeof business. They must also have theauthority to implement the writtensupervisory procedures and take anyother action necessary to fulfill theirr e s p o n s i b i l i t i e s .

This provision seeks to achieveseveral regulatory objectives:

• to ensure that there is ani d e n t i fiable individual who hasultimate responsibility forimplementing the member’ssupervisory system and writtenprocedures for each type ofbusiness the member conducts;

• to ensure that the individualresponsible for a particular type ofbusiness possesses theknowledge and experiencenecessary to supervise thebusiness; and

• to ensure that the personresponsible for supervisionactually has the authority tosupervise.

A member would not be incompliance with the Rule, forexample, if a person registeredsolely as a general securitiesprincipal was responsible forsupervising the preparation offinancial reports that are filed withregulators. In addition, a memberwould not be in compliance with theRule if a general securities principalwas responsible for supervisinggeneral securities activities, but wasnot given the requisite authority tof u l fill the supervisory obligations. Thiscould occur, for example, if theprincipal was not granted access tothose documents necessary todetermine whether a registeredrepresentative was complying withthe NASD’s suitability rules, or if theprincipal was not permitted to takeaction against or place under closersupervision a person that failed tofollow the firm’s complianceguidelines. Having the requisiteauthority to fulfill supervisory

responsibilities generally means thatthe person charged with theresponsibilities can exercise powerto affect the conduct of a personwhose behavior is at issue. This,however, does not necessarily meanthat the supervisor must have theability to terminate a person whoseconduct is at issue.4

Designating Offices OfSupervisory Jurisdiction - Rule3 0 1 0 ( a ) ( 3 )

Certain types of activities (e . g ., orderexecution) are sufficiently vestedwith regulatory significance that thelocations where members conductthese types of activities requirespecial recognition and attention.Such locations or offices are knownas offices of supervisory jurisdiction(OSJ). Paragraph (g)(1) of the Rulelists the types of activities that havebeen identified by the NASD asrequiring significant supervisoryattention and defines the term “offic eof supervisory jurisdiction” as anyo f fice of a member where one ormore of the delineated activitieso c c u r .

A member must designate as anOSJ any office that conducts any ofthe functions listed in that section. Amember also must designate anyother office as an OSJ, if suchdesignation is necessary to enablethe member to fulfill its supervisoryobligations. In making thisdetermination, members mustconsider several factors that arelisted in the Rule. These factorsinclude whether the activitiesconducted at the office involveregular contact with publiccustomers, the distance of the offic efrom another OSJ, and whether theactivities conducted at the office arediverse or complex.

In summary, in order to design asupervisory system that is incompliance with this paragraph ofthe Rule, a member must:

• review the types of activities thatoccur at each of its offic e s ;

• determine for each offic ewhether any of the activities listedin paragraph (g)(1) of Rule 3010are conducted at the office; if oneor more of the activities listed areconducted, then the membermust designate that office as anOSJ; and

• determine, after considering thefactors listed in paragraph (a)(3),if it is necessary, in order to fulfil lits supervisory obligations, todesignate any other offices asO S J .

Members’ obligations under thisparagraph of the Rule, as well astheir obligations under otherparagraphs of the Rule, are ongoing.Thus, as events occur that changethe structure of the firm, such aschanging the types of business thatare conducted in different locations,adding registered personnel, oropening, moving or closing offic e s ,members must consider the effectsthat these events will have on OSJdesignation requirements. In thisregard, members must have systemsand procedures in place to determinethe effects of such events orc h a n g e s .

Assigning Supervisors ForRegistered Representatives AndDesignating OSJ/Non-OSJ BranchSupervisors - Rule 3010(a)(5) And(a)(4)

Paragraph (a)(5) of the Rule requiresthat e a c h r e g i s t e r e d p e r s o n b eassigned to at least one supervisor.Thus, it is irrelevant whether theperson to be supervised is aregistered representative or aregistered principal, or that theregistered person is part of the seniormanagement of the member.

When designating supervisorypersonnel, it is important toremember that a supervisor can onlybe responsible for supervising thoseactivities for which they are qualifie d .For example, a supervisor with aq u a l i fication limited to investmentcompany products and variablecontracts cannot supervise a


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registered person conducting generalsecurities activities. In such asituation, the supervisor couldsupervise the registered person’sactivity in investment companyproducts and variable contracts, butan appropriately qualified supervisorwould have to supervise theregistered person’s other activities.

The requirement that everyregistered person be assigned atleast one supervisor serves severalfunctions. It provides the personbeing supervised with a clear line ofauthority and specifically identifies forthe supervisor the persons for whichhe or she has responsibility. Inaddition, this requirement recognizesthe obvious fact that a supervisorysystem reasonably designed toachieve compliance with thesecurities laws does not permitpersons to supervise themselves.


• determine the number ofregistered persons associatedwith it;

• determine the type(s) of activityeach registered person conducts;

• determine the qualifications ofeach person assignedsupervisory responsibility;

• assign each registered personto one or more supervisors thatare qualified to supervise theactivities of the registered person;a n d

• continue to monitor the activitiesof registered persons and theq u a l i fications of their assignedsupervisors to ensure that thesupervisors are properly qualifie d .

Paragraph (a)(4) of the Rule requiresmembers to assign each OSJ atleast one principal with the authorityto carry out the supervisoryresponsibilities conducted at the

OSJ. Each branch office that is notdesignated as an OSJ also musthave at least one supervisorassigned to it. In this situation,certain supervisory t a s k s may bedelegated to a registeredrepresentative. However, in allcases, ultimate supervisoryr e s p o n s i b i l i t y for every registeredand unregistered branch office mustbe assigned to one or moreappropriately registered principals.

Having one or more identifia b l eregistered principals assigned tosupervise each OSJ provides clarityas to who is responsible for all of thesupervisory obligations assigned toeach OSJ. For example, it providespersons working in an OSJ or beingsupervised from an OSJ with a clearline of authority and specific a l l yi d e n t i fies for the supervisor the areasand persons for which the supervisorhas responsibility.

Paragraph (a)(4) of the Rule alsorequires that the person or personsassigned responsibility forsupervising an OSJ or a brancho f fice be a p p r o p r i a t e l y registered tof u l fill the supervisory obligationsassigned to the office. Therefore,those individuals with ultimateresponsibility for supervising eachtype of business conducted at theo f fice or supervised from the offic emust be registered as a principal forthat type of business. Thus, amember must ensure that thesupervisor(s) assigned to an OSJ areappropriately qualified to supervisethe activities conducted orsupervised from that OSJ. Forexample, a principal with limitedq u a l i fications could not be assignedas the sole supervisor of an OSJ thatconducted activities for which theprincipal was not qualified. In such asituation, another principal, whoseq u a l i fications correspond to the othertypes activities, must be assigned tothe OSJ. In addition, these personsmust have the authority to implementthe written supervisory proceduresand take any other action required tof u l fill the supervisory obligationsassigned to the office.


• determine which of its offic e sare designated as OSJ;

• determine the type of activityconducted at or supervised fromeach OSJ;

• determine the qualifications ofthe person assigned supervisoryresponsibility;

• assign to each OSJ or non-OSJbranch one or more supervisorsthat are qualified to supervise theactivities of the office;

• provide supervisors with theauthority to fulfill the supervisoryobligations assigned to them; and

• continue to monitor the activitiesof registered persons and theq u a l i fications of their assignedsupervisors to ensure that thesupervisors are qualified tos u p e r v i s e .

Determining Qualifications OfSupervisory Personnel - Rule3 0 1 0 ( a ) ( 6 )

Paragraph (a)(6) of the Rule sets thestandard for determining theq u a l i fications of supervisors. TheRule requires that members makereasonable efforts to determine thatall supervisory personnel areq u a l i fied to fulfill their assignedresponsibilities. At a minimum, thesupervisor must be properly licensedto conduct the assignedresponsibilities. However, passingthe appropriate licensingexamination does not, in and of itself,qualify a supervisor. Membersshould determine that supervisorsunderstand and can effectivelyconduct their requisiteresponsibilities. In this regard,members should consider theexperience the supervisor possessesor the training the supervisor hasreceived.


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Determining whether reasonableefforts have been made by amember to ascertain a supervisor’sq u a l i fications depends on the factsand circumstances surrounding thesituation. For example, if a firm failedto determine whether a supervisor isproperly registered for the type ofactivity the supervisor is responsiblefor overseeing, the firm would not beconsidered to have made areasonable effort, given that aperson’s registration status is readilyavailable. In addition, merely relyingon the representations made by aperson about his or her qualific a t i o n smay not be sufficient if the membercan confirm the representationswithout having to undertake extremeor excessive efforts. A member cancontact the person’s current orformer supervisors, especially whenthe supervisors are associated withthe member.

A member’s obligation to determinewhether a supervisor is properlyq u a l i fied to fulfill his or hersupervisory duties is an ongoingobligation. Thus, a member thatreceives indications that a supervisoris having difficulty performing his orher supervisory functions would havean obligation to investigate todetermine whether such person cancontinue in a supervisory role.5

A member’s written supervisoryprocedures should identify thoseq u a l i fications it has deemedimportant in determining whether asupervisor can fulfill his or herassigned responsibilities, theprocedures for determining whetherthe supervisor possesses suchq u a l i fications and the methods formonitoring the supervisor’sp e r f o r m a n c e .

Annual Compliance Meeting -Rule 3010(a)(7)

Paragraph (a)(7) of the Rule requiresthat each registered representativeparticipate, at least once each year,in an interview or meeting at whichcompliance matters relevant to theparticular representative arediscussed. This requirement gives

registered representatives theopportunity to regularly discusscompliance issues and assists thefirm in ensuring that representativesremain current on changingcompliance requirements or changesin the firm. These meetings can beheld with representatives individuallyor with a group of representatives,and can be held at a central orregional location or at the member’splace of business. Matters other thancompliance may also be discussedat the meeting. The member candesignate other persons to conductthe meeting, however, m e m b e r sremain ultimately responsible forf u l filling the obligations under theRule. Thus, at a minimum, membersmust review the presentationprepared by a third party todetermine that all the necessarytopics will be discussed at them e e t i n g .

The Rule provides members withsubstantial flexibility in implementingthe compliance meeting. Dependingon the method chosen, however,certain precautions must be taken tocomply with the Rule. For example, ifa meeting is held with a group ofregistered representatives, themeeting must cover compliancematters that relate to the differenttypes of activities that each of therepresentatives attending themeeting conduct. Relevant mattersnot addressed at the group meetingmust be covered at an individualmeeting or at another group session.Whether the meeting is conductedwith each representative individuallyor through group meetings, eachindividual representative must beprovided the opportunity to discusscompliance matters that relate to thetypes of activities he or sheconducts.

With respect to delivery mediums,the meeting can be conducted byvideo conference, interactiveclassroom setting, telephone, orother electronic means, provided thatcertain safeguards are in place.Members choosing to conductcompliance conferences other thanin person must ensure that the

communication forum used allowsfor interactive communication withthe representative. This means, at aminimum, that attendees are able tohear presenters live and, in aninteractive environment, askquestions and engage in dialoguewith the presenters. This does permitpresenters to use supplementallearning and communications tools,such as video tapes or computerprograms that include informationalor instructional materials.

In addition to ensuring an interactiveenvironment for all complianceconferences, members conductingsuch conferences through electronicmeans or aids may bear aheightened responsibility associatedwith such electronic communications.As with all compliance conferences,members must ensure thatrepresentatives scheduled to appearat a particular location in fact arrive atand are in attendance for the entirec o n f e r e n c e .

A member’s written supervisoryprocedures should document theprocedures for developing a meetingthat discusses relevant compliancematters, determining when arepresentative must attend andc o n firming a representative’sattendance at a required compliancem e e t i n g .


• confirm that each registeredrepresentative attended acompliance meeting within oneyear from the last compliancemeeting attended;

• identify those representativesthat have not attended acompliance meeting at least oncein the last year;

• determine for each registeredrepresentative the types ofactivities that the representativec o n d u c t s ;


299

• develop a meeting, whetherheld on an individual basis or asa group, that discussescompliance matters relevant toeach type of activity conducted bythe representative orrepresentatives; and

• determine what, if any, specialsafeguards must be in placedepending on how the meeting isconducted (e . g ., videoconferencing or contracting with athird party to conduct them e e t i n g ) .

Review Of Supervisory System -Rule 3010(a)(8)

Rule 3010(a)(8) requires that at leastone principal be designated to reviewthe firm’s supervisory system,procedures, and internal inspections.If more than one principal is sodesignated, it must be clear whichareas of the supervisory systemeach has been assigned to review.The purpose of this review is todetermine the effects of changessuch as hiring additional registeredpersons, the departure of registeredpersons, commencing a new line ofbusiness (e . g ., market making), achange in ownership, or changes inthe securities laws, on the member’sexisting supervisory systems andprocedures. A supervisory systemand/or written procedures that arenot current with regulatoryrequirements or the structure andbusiness activities of the memberwould not be reasonably designed toachieve compliance with thesecurities laws.

The Rule requires that one or moreregistered principals be specific a l l yassigned this responsibility. In thisway, there is at least one person ateach member who is responsible forreviewing and analyzing the effect ofsuch changes on the member’ssupervisory system and proceduresas a whole. However, the utility ofsuch a review is undermined if theproblems or deficiencies discoveredas a result are not addressed andcorrected. The principal assigned toconduct the review, therefore, also

has the obligation to take actionreasonably designed to achievecompliance with the securities lawsor to recommend such action tosenior management. Thus, forexample, if a principal assigned thisresponsibility discovers that thewritten supervisory procedures donot address all the types ofbusinesses that the firm conducts,the principal must take action orrecommend such action to seniormanagement to correct thisd e fic i e n c y .

Internal Inspections - Rule3010(c)

It is important that members not onlyreview their supervisory systems andprocedures to ensure that they arecurrent and adequate, but alsoconduct inspections to determinewhether the systems and proceduresare being followed. Paragraph (c) ofthe Rule, therefore, requiresmembers to annually review thebusinesses they conduct, and setsforth the standard for this review.

The mandatory annual review mustbe reasonably designed to assistmembers in detecting and preventingviolations of the securities laws. The“reasonably” designed standardmeans, for example, that indicationsof problems, or “red flags,” must beinvestigated. When a memberreceives an indication of irregularitiesin a customer’s account (e . g ., acompliance program indicates or asupervisor discovers a frequency oftrading in a customer’s account thatexceeds the customer’s normal levelof trading), it must require that theaccount be examined to determinewhether churning or some otherviolative conduct has occurred. If itdoes not, then that member’sexamination procedures would notbe reasonably designed to detect orprevent irregularities or abuses.

The Rule also requires that eacho f fice of a member be reviewed. Thefrequency of this review will dependon several factors, including whetheran office is designated as an OSJ. At

a minimum, an OSJ must bereviewed every year, whereasbranch offices are required to bereviewed in accordance with a statedcycle. In determining the inspectioncycle for a branch office, a membermust consider the nature andcomplexity of the securities activityfor which the branch office isresponsible, as well as the volume ofbusiness conducted at the office andthe number of associated personsassigned to the office. Once amember determines its inspectioncycle, it must document the cycle inits written supervisory and inspectionp r o c e d u r e s .

Some NASD members employassociated persons at offices thatare not designated as OSJs and arenot registered as branch offices. Forpurposes of this N o t i c e, such offic e sare referred to as “unregisteredo f fices” and include any location atwhich a member is conducting asecurities business that does not fallwithin the definition of OSJ or brancho f fice. Some associated personsworking in these unregistered offic e smay be involved in other businessenterprises, such as insurance, realestate sales, accounting, taxplanning, or investment advisoryservices, and consequently may bec l a s s i fied for compensation purposesas part-time employees orindependent contractors. Someunregistered offices also operate asseparate business entities undernames other than those of themembers. While the NASD does notencourage or discourage sucharrangements, a large number ofgeographically diverse offic e spresents the potential that salespractice problems will not be asquickly identified as in larger,centralized branch offices. Thisincreased potential must be takeninto account when draftingsupervisory procedures.

Members employing associatedpersons in unregistered offices areresponsible for establishing andcarrying out procedures that willsubject these persons to effectivesupervision. To be effective, the


300

supervision must be designed tomonitor securities-related activitiesand to detect and prevent regulatoryand compliance problems ofassociated persons working atunregistered offices. In this regard, amember’s supervisory responsibilitywould include, but not be limited to:

• maintaining a record of thelocations of all unregisteredo f fices, which must be madeavailable to regulators uponr e q u e s t ;

• educating associated personsworking from an unregisteredo f fice as to their obligations to thefirm and to the public, includingprohibited sales practices;

• maintaining regular and frequentprofessional contact with suchindividuals; and

• implementing appropriatesupervisory practices, such asrecords inspections andcompliance audits at theassociated persons’ places ofemployment, to ensure that theirmethods of business and day-to-day operations comply withapplicable rules andr e q u i r e m e n t s .

To fulfill these obligations, a fir mshould consider whether the numberand location of its registeredprincipals are adequate to properlysupervise its unregistered offic epersonnel effectively.

The Rule does not specify thefrequency of inspections forunregistered offices, but in order tof u l fill the general obligation tosupervise, such inspections shouldbe conducted according to a regularschedule. The frequency and scopeof inspections should be determinedbased on factors such as the natureand volume of business conductedat the office and the nature andextent of contact with customers. Anon-OSJ office that supervises oneor more unregistered offices shouldbe inspected at least annually.

Inspections of unregistered offic e sshould include, among other things,a review of any on-site customeraccount documentation and otherbooks and records, meetings withindividual registered representativesto discuss the products they areselling and their sales methods, andan examination of correspondenceand sales literature.

Unannounced visits may beappropriate, particularly where thereare indications of misconduct orpotential misconduct, such as thereceipt of a significant number ofcustomer complaints, personnel withdisciplinary records, or excessivetrade corrections, extensions,liquidations, or variable contractreplacements. Each firm shoulddetermine the types of “red fla g s ”that would trigger an unannouncedinspection. Members should notethat in In re Royal AllianceAssociates, Inc.,6 the SEC statedthat it harbored grave doubts that apractice of conducting a pre-announced compliance examinationonly once a year would necessarilydischarge the supervisory obligationsof any firm that incorporates astructure in which smaller offices areoperated by only one or tworepresentatives. In addition, the SECrecently reaffirmed its belief in theimportance of unannouncedexaminations in In re NYLIFESecurities, Inc.7 In this case, the SECfound that NYLIFE Securities’ failureto conduct an unannouncedexamination of a registeredrepresentative during a seven-yearperiod was inadequate to satisfy itssupervisory obligations, especially inlight of the fact that approximatelyone-half of NYLIFE Securities’approximately 6,300 registeredrepresentatives work in off-siteo f fices with fewer than five people.

Royal Alliance and N Y L I F ESecurities emphasize the need forclose attention to supervision ofsmall, dispersed offices. Membersare encouraged to read both theRoyal Alliance and N Y L I F ESecurities decisions in their entirety,

as well as Notice to Members 98-38,NASD Reminds Members ofSupervisory and InspectionO b l i g a t i o n s.

Conclusion

With a better understanding of thereasons for some of therequirements contained in Rule3010, members can more effectivelydevelop a supervisory system that istailored to their specific structure.Supervisory systems and writtenprocedures must address changes inregulatory requirements, the types ofbusiness the member conducts, andthe structure of the member. Amember must determine the effectsfirm-wide of such changes. Forexample, the decision to beginmaintaining customers’ funds at abranch office would require that theo f fice be designated as an OSJ,which would in turn require that theo f fice be supervised by anappropriately registered principal andthat the office be inspected annually.One change can have multiplee f f e c t s .

To keep their supervisory systemsand written procedures current,members should regularly readNASD Notices to Members, NASDinterpretive letters, and N A S DRegulatory and Compliance Alerts,all of which are available on NASDRegulation’s Web Site(w w w . n a s d r . c o m). In addition, it isimportant that each member carefullyconsider any obligations orrequirements imposed by statesecurities laws, federal laws andrules, and other self-regulatoryorganization rules. Supervisoryobligations of firms and thestandards against which theirconduct will be measured, may beaffected by SEC decisions andinterpretations, as well as by judiciald e t e r m i n a t i o n s .


301

Endnotes1NASD Notice to Members 98-96 (Decem-

ber 1998).

2Members should read this Notice in con-

junction with Rule 3010. The NASD’s rules

are available on the NASD Regulation’s Web

Site at www.nasdr.com.

3Supra note 1. Notice to Member 98-96

describes additional types of practices the

NASD believes are reasonable and others

that it has cited as deficient.

4See In Re Christopher J. Benz, Securities

Exchange Act Release No. 38440.

5See In Re Charles L. Campbell, Securities

Exchange Act Release No. 26510, 42 SEC

Docket 1095.

6SEC Release No. 34-38174 (January 15,

1997)

7SEC Release No. 34-40459 (September

23, 1998)




303

NASDNotice toMembers 99-46Maximum SOES OrderSizes Set To Change July 1, 1999




Corporate Finance




I n s u r a n c e

Internal Audit

Legal & Compliance

M u n i c i p a l

Mutual Fund

O p e r a t i o n s

O p t i o n s



R e s e a r c h

S y n d i c a t e

S y s t e m s

T r a d i n g

T r a i n i n g

Variable Contracts

Executive SummaryEffective July 1, 1999, the maximumSmall Order Execution SystemS M

( S O E SS M) order sizes for 336 NasdaqNational Market® (NNM) securitieswill be revised in accordance withNational Association of SecuritiesDealers, Inc. (NASD®) Rule 4710(g).

For more information, please contactN a s d a q® Market Operations at (203) 378-0284.

DescriptionUnder Rule 4710, the maximumSOES order size for an NNM securityis 1,000, 500, or 200 shares,depending on the trading characteris-tics of the security. The NasdaqWorkstation II® (NWII) indicates themaximum SOES order size for eachNNM security. The indicator “NM10,”“NM5,” or “NM2” displayed in NWIIcorresponds to a maximum SOESorder size of 1,000, 500, or 200shares, respectively.1

The criteria for establishing maxi-mum SOES order sizes are as fol-l o w s :

(1) a 1,000-share maximum ordersize shall apply to NNM securitieson SOES with an average dailynon-block volume of 3,000 sharesor more a day, a bid price of lessthan or equal to $100, and three ormore Market Makers;

(2) a 500-share maximum order sizeshall apply to NNM securities onSOES with an average daily non-block volume of 1,000 shares ormore a day, a bid price of less thanor equal to $150, and two or moreMarket Makers; and

(3) a 200-share maximum order sizeshall apply to NNM securities withan average daily non-block volumeof less than 1,000 shares a day, abid price of less than or equal to

$250, and two or more MarketM a k e r s .

In accordance with Rule 4710, Nas-daq periodically reviews the maxi-mum SOES order size applicable toeach NNM security to determine ifthe trading characteristics of theissue have changed so as to warrantan adjustment. Such a review wasconducted using data as of March31, 1999, pursuant to the aforemen-tioned standards. The maximumSOES order-size changes called forby this review are being implementedwith three exceptions.

• First, issues were not permitted tomove more than one size level. Forexample, if an issue was previouslycategorized in the 1,000-sharelevel, it would not be permitted tomove to the 200-share level, even ifthe formula calculated that such amove was warranted. The issuecould move only one level to the500-share level as a result of anysingle review.

• Second, for securities priced below$1 where the reranking called for areduction in the level, the maximumSOES order size was not reduced.

• Third, for the top 50 Nasdaq securi-ties based on market capitalization,the maximum SOES order sizeswere not reduced, regardless ofwhether the reranking called for ar e d u c t i o n .

In addition, with respect to initial pub-lic offerings (IPOs), the SOES order-size reranking procedures providethat a security must first be traded onNasdaq for at least 45 days before itis eligible to be reclassifie d .

Thus, IPOs listed on Nasdaq withinthe 45 days prior to March 31, 1999,were not subject to SOES order-sizereranking procedures.


304

M a x i mum SOES Order Size Changes In NNM SecuritiesAll Issues In Alphabetical Order By Security Name

( E f fe c t i ve July 1, 1999)

T C H C 21ST CENTURY HLDG 5 0 0 1 0 0 0

A

A S B P A S B FINANCIAL CP 5 0 0 2 0 0A B A N P ABI CAP TRUST PFD 5 0 0 1 0 0 0A B O V ABOVENET COMMUNICTNS 2 0 0 5 0 0A A A B B ADMIRALTY BCP B 5 0 0 1 0 0 0D I N E W ADVANTICA WTS 1 0 0 0 5 0 0A M R I ALBANY MOLECULAR RES 2 0 0 5 0 0A O R G B ALLEN ORGAN CO B 2 0 0 5 0 0A L N C ALLIANCE FINL CP 2 0 0 5 0 0A L L N ALLIN COMMUNICATIO 5 0 0 2 0 0A I F C AMER INDEMNITY FIN 5 0 0 1 0 0 0A N F I AMERICAN NATL FINL 2 0 0 5 0 0A S C A AMERISTAR CASINO 1 0 0 0 5 0 0A F S C ANCHOR FIN CORP 1 0 0 0 5 0 0A N D R ANDERSEN GROUP INC 2 0 0 5 0 0A S I G F ANSALDO SIGNAL NV 1 0 0 0 5 0 0A R C A F ARCADIS NV 5 0 0 1 0 0 0A R I S ARI NETWORK 1 0 0 0 5 0 0A R M H Y ARM HLDGS ADS 1 0 0 0 5 0 0A T Y T ATI TECHNOLOGIES 2 0 0 5 0 0A T L P P ATLANTIC PFD CAP CP 2 0 0 5 0 0A I I I AUTOLOGIC INFO INT 1 0 0 0 5 0 0A X H M AXIOHM TRANS SOL 5 0 0 2 0 0

B

B E S I B E SEMICON ORD 2 0 0 5 0 0B F E N B F ENTERPRISES IN 5 0 0 2 0 0B N B C P B N B CAP TR PFD 2 0 0 5 0 0B T B T B T SHIP SP ADR 5 0 0 2 0 0B W I N B BALDWIN LYONS CL B 5 0 0 1 0 0 0B P A O BALDWIN PIANO ORGA 1 0 0 0 5 0 0B M C C P BANDO MCGLOC PFD A 5 0 0 2 0 0B N S C BANK OF SANTA CLAR 5 0 0 2 0 0B K F R BANKFIRST CORP 5 0 0 1 0 0 0

B B H F BARBERS HAIRSTYLIN 5 0 0 1 0 0 0B P F H BOSTON PVT FIN 5 0 0 1 0 0 0E P A Y BOTTOMLINE TECH INC 2 0 0 5 0 0B O Y D BOYD BROS TRANS IN 5 0 0 1 0 0 0B R A D BRADLEES INC 2 0 0 5 0 0B C S T B R O A D C A S T . C O M 1 0 0 0 5 0 0B R C M BROADCOM CORP CL 5 0 0 1 0 0 0B V R S BVR SYSTEMS LTD 5 0 0 1 0 0 0

C

C B B I C B BANCSHARES 5 0 0 1 0 0 0C E R B C E R B C O INC 5 0 0 2 0 0F L Y A F C H C HELICO CL A 2 0 0 5 0 0C S P I C S P INC 5 0 0 1 0 0 0C F F I C&F FINANCIAL CP 2 0 0 5 0 0C N E B F CALL-NET ENTRPR CL B 5 0 0 1 0 0 0C L Z R W CANDELA CP WTS 2 0 0 5 0 0C N T B Y CANTAB PHARM ADR 2 0 0 5 0 0C S W C CAPITAL SOUTHWEST 1 0 0 0 5 0 0C B C L CAPITOL BANCORP LT 1 0 0 0 5 0 0C B C L P CAPITOL TRUST I PF 5 0 0 1 0 0 0C P R K CAPROCK COMM 5 0 0 1 0 0 0C R R B CARROLLTON BANCORP 5 0 0 2 0 0C E C X CASTLE ENERGY CP 5 0 0 1 0 0 0C A T T CATAPULT COMM CP 2 0 0 5 0 0C L P A CELL PATHWAYS INC 5 0 0 1 0 0 0C C B N CENTRAL COAST BCP 5 0 0 1 0 0 0C F A C CENTRAL FIN ACCEPT 1 0 0 0 5 0 0C H N L CHANNELL COML CORP 1 0 0 0 5 0 0C H E R B CHERRY CP CL B 5 0 0 2 0 0C N R M F CINRAM INTL INC 2 0 0 5 0 0C I V C CIVIC BANCORP 5 0 0 1 0 0 0C L K B CLARK/BARDES HLDGS 5 0 0 1 0 0 0C N B B CNB INC 2 0 0 5 0 0C N Y F CNY FINANCIAL CP 5 0 0 1 0 0 0C T B P COAST BANCORP 2 0 0 5 0 0C O H B COHOES BANCORP 2 0 0 5 0 0

Old NewSymbol Security Name Level Level


Following is a listing of the 336 NNMissues that will have the maximumSOES order size changed on July 1,1999.

Endnote1Previously, Nasdaq Market Makers were

required to maintain a minimum quotation

size for an NNM security in an amount equal

to the maximum SOES order size for that

security. See generally, NASD Rule

4613(a)(1) - (2). On July 15, 1998, the Secu-

rities and Exchange Commission approved

an amendment to NASD Rule 4613(a)(1)(C),

which reduced the minimum quotation size

for all Nasdaq securities to one normal trad-

ing unit when a Market Maker is not display-

ing a limit order, and which thus eliminated

the requirement that Market Makers quote a

size equal to the maximum SOES order size.




305

C B A N COLONY BANKCORP 2 0 0 5 0 0C B B O COLUMBIA BANCORP 5 0 0 1 0 0 0C N A F COMMERCIAL NATL FI 2 0 0 5 0 0C F I C COMMUNITY FIN CP 1 0 0 0 5 0 0C M S V COMMUNITY SVGS 2 0 0 5 0 0C N Q R CONCUR TECHNOLOGIES 2 0 0 5 0 0C N X T CONEXANT SYSTMS 2 0 0 5 0 0C N R D CONRAD INDS INC 5 0 0 1 0 0 0C W C O CONS WATER CO INC 5 0 0 1 0 0 0C M E T S CONTL MORTGAGE EQUIT 5 0 0 1 0 0 0C O M M F CORECOMM LTD 5 0 0 1 0 0 0C O C O CORINTHIAN COLLEGES 2 0 0 5 0 0C S C Q W CORRECTIONAL SVCS 5 0 0 2 0 0C R T Q CORTECH INC 2 0 0 5 0 0C O V D COVAD COMMUN GROUP 2 0 0 5 0 0C Y O E COYOTE NETWORK SYS 5 0 0 1 0 0 0C M S T CREATIVE MASTER INTL 2 0 0 5 0 0C R N S CRONOS GROUP THE 1 0 0 0 5 0 0C N G R CROWN GROUP INC 5 0 0 1 0 0 0C T C I CT COMMUNICATIONS 2 0 0 5 0 0C U R T CURTIS INTL LTD 5 0 0 1 0 0 0

D

D R A I DATA RESEARCH ASSO 5 0 0 1 0 0 0H Y T D L DECS TRUST IV 2 0 0 5 0 0D S G X DESCARTES SYS GRP 2 0 0 5 0 0D C B K DESERT COMMUNITY B 2 0 0 5 0 0D C P I DICK CLARK PROD IN 2 0 0 5 0 0D T E K DISPLAY TECHS 5 0 0 1 0 0 0D O C D DOCDATA NV 1 0 0 0 5 0 0D H O M DOMINION HOMES INC 1 0 0 0 5 0 0D C L K DOUBLECLICK INC 1 0 0 0 5 0 0D R R A P DURA AUTO CAP TR 1 0 0 0 5 0 0D X P E DXP ENTERPRISE 2 0 0 5 0 0

E

E T E K E-TEK DYNAMICS INC 2 0 0 5 0 0E L X S E L X S I CP 1 0 0 0 5 0 0E G L B EAGLE BANCGROUP IN 1 0 0 0 5 0 0E W B X EARTH WEB INC 5 0 0 1 0 0 0E W B C EAST WEST BANCORP 2 0 0 5 0 0E B A Y EBAY INC 2 0 0 5 0 0D I S H P ECHOSTAR CV PFD C 5 0 0 2 0 0E D C O EDISON CONTROL CP 2 0 0 5 0 0E L E T ELLETT BROTHERS IN 1 0 0 0 5 0 0E N B R F ENBRIDGE INC 2 0 0 5 0 0E N G E F ENGEL GNRL DEV 1 0 0 0 5 0 0E N T U ENTRUST TECHS INC 5 0 0 1 0 0 0E Q S B EQUITABLE FED SAV 1 0 0 0 5 0 0

E X A P EXCHANGE APPLICATNS 2 0 0 5 0 0E X D S EXODUS COMMUN 1 0 0 0 5 0 0

F

F C B F F C B FINANCIAL CP 5 0 0 1 0 0 0F L A G F L A G FINANCIAL 5 0 0 1 0 0 0F R P P F R P PROPERTIES I 2 0 0 5 0 0F T M T F FANTOM TECHS INC 5 0 0 1 0 0 0F A T B FATBRAIN.COM INC 2 0 0 5 0 0F F L C FFLC BNCP INC 1 0 0 0 5 0 0F S B I FIDELITY BANCORP I 5 0 0 2 0 0F F F L P FIDELITY CAP TR I 1 0 0 0 5 0 0F A C T FIRST ALBANY COS 5 0 0 1 0 0 0F B N C FIRST BANCP TROY 2 0 0 5 0 0F B S I FIRST BANCSHARES 2 0 0 5 0 0F S T C FIRST CITIZENS COR 5 0 0 1 0 0 0F F E S FIRST FED S L E 1 0 0 0 5 0 0F M S B FIRST MUTUAL SVGS 5 0 0 1 0 0 0F P F C FIRST PLACE FINL 2 0 0 5 0 0F R G B FIRST REGIONAL BNC 2 0 0 5 0 0F S L B FIRST STERLING BKS 5 0 0 1 0 0 0F U N C FIRST UNITED CORP 5 0 0 1 0 0 0F E L E FRANKLIN ELEC INC 1 0 0 0 5 0 0F T B K FRONTIER FIN CORP 5 0 0 1 0 0 0F F H H FSF FINANCIAL CP 5 0 0 1 0 0 0F T N B FULTON BANCORP INC 1 0 0 0 5 0 0

G

G B N K GASTON FED BANCP 1 0 0 0 5 0 0G F L S P GCB CAP TRUST PFD 5 0 0 2 0 0G S L I GEN SCANNING INC 2 0 0 5 0 0G E N B B GENESEE CP B 1 0 0 0 5 0 0G Z M O GENZYME MOLEC 5 0 0 1 0 0 0G C T Y G E O C I T I E S 1 0 0 0 5 0 0G S C I GEOSCIENCE CP 5 0 0 1 0 0 0G A B C GERMAN AMER BANCOR 5 0 0 1 0 0 0G S P T GLOBAL SPORTS INC 5 0 0 1 0 0 0G B I X GLOBIX CORP 5 0 0 1 0 0 0G N E T GO2NET INC 1 0 0 0 5 0 0G U C O GRAND UNION CO 5 0 0 1 0 0 0

H

H P S C H P S C INC 5 0 0 1 0 0 0H A B C HABERSHAM BANCORP 2 0 0 5 0 0H A C H A HACH COMPANY CL A 1 0 0 0 5 0 0H A B K P HAMILTON CAP TR I 2 0 0 5 0 0H R B F HARBOR FED BNCP IN 5 0 0 1 0 0 0H A R L HARLEYSVILLE SAV B 2 0 0 5 0 0




306

H L T H HEALTHEON CORP 2 0 0 5 0 0H M L K HEMLOCK FED FIN CO 5 0 0 1 0 0 0H T B K HERITAGE COMMERCE 2 0 0 5 0 0H R L Y Z HERLEY INDS WTS 2 0 0 5 0 0H I F N HI/FN INC 2 0 0 5 0 0H B N K HIGHLAND FEDERAL B 2 0 0 5 0 0H O E N HOENIG GP INC 5 0 0 1 0 0 0H O M E F HOME CTRS (DIY) LTD 1 0 0 0 5 0 0H L F C HOME LOAN FINL CP 1 0 0 0 5 0 0H P B C HOME PORT BNCP INC 1 0 0 0 5 0 0H F B C HOPFED BANCORP INC 5 0 0 1 0 0 0

I

I N D B P INDEP CAP TR I PFD 5 0 0 2 0 0I N H O INDEPENDENCE HLDG 2 0 0 5 0 0I H I I Z INDUSTRIAL HLDG WT 5 0 0 1 0 0 0I S C X INDUSTRIAL SCI COR 5 0 0 1 0 0 0I N C X INFOCURE CP 2 0 0 5 0 0I N S P INFOSPACE.COM INC 2 0 0 5 0 0I N K T INKTOMI CORP 5 0 0 1 0 0 0I L A B Y INSTRUMENTATION ADR 1 0 0 0 5 0 0I N M G INSURANCE MGMT SOLUT 2 0 0 5 0 0G E E K INTERNET AMERICA INC 2 0 0 5 0 0I N T T INTEST CORPORATION 1 0 0 0 5 0 0I B H V F INTL BRIQUETTES 5 0 0 2 0 0I R O Q IROQUOIS BNCP 5 0 0 1 0 0 0

K

K N A P KNAPE AND VOGT MFG 5 0 0 1 0 0 0K O S S KOSS CP 5 0 0 1 0 0 0

L

L X B K L S B BANCSHARES 5 0 0 1 0 0 0L A B H LAB HOLDINGS INC 5 0 0 1 0 0 0L A C O LAKES GAMING INC 2 0 0 5 0 0L C C O LAMAR CAP CORP 2 0 0 5 0 0L A N D LANDAIR CORP 5 0 0 1 0 0 0L A R K LANDMARK BSCHS INC 2 0 0 5 0 0L W I N LEAP WIRELESS 5 0 0 1 0 0 0L G S A LGS GROUP CL A 2 0 0 5 0 0L I B H A LIBERTY HOMES INC 2 0 0 5 0 0L N C B LINCOLN BANCORP 2 0 0 5 0 0L I C B LONG ISLAND FIN 1 0 0 0 5 0 0

M

M L C H M L C HOLDINGS INC 1 0 0 0 5 0 0M A C C MACC PRIVATE EQU 5 0 0 2 0 0

M K F C F MACKENZIE FIN CP 2 0 0 5 0 0F M A R P MARINER CAP TR PFD 1 0 0 0 5 0 0M A R N MARION CAP HLDGS 5 0 0 1 0 0 0M K T W MARKETWATCH.COM INC 2 0 0 5 0 0M S D X MASON-DIXON BCSHS 5 0 0 1 0 0 0M A T E MATEWAN BCSHS INC 5 0 0 1 0 0 0M A X E MAX ERMAS RESTR IN 5 0 0 1 0 0 0M A X C MAXCO INC 1 0 0 0 5 0 0M D C A MDC COMMUN CORP 5 0 0 1 0 0 0M E D E MEDE AMERICA CORP 2 0 0 5 0 0M B F C MEGABANK FIN CORP 2 0 0 5 0 0M I G I MERIDIAN INS GP IN 5 0 0 1 0 0 0M R E T MERIT HOLDING CP 5 0 0 1 0 0 0M E R K MERKERT AMERICA CORP 2 0 0 5 0 0M C B I METROCORP BANCSHARES2 0 0 5 0 0M E T F P METROPOLITAN CAP 5 0 0 1 0 0 0M E T F METROPOLITAN FIN C 5 0 0 1 0 0 0M S I X MINING SVC INTL CP 1 0 0 0 5 0 0M M A N MINUTEMAN INTL INC 5 0 0 2 0 0M M P T MODEM MED POPPE 2 0 0 5 0 0M M T M MOMENTUM BUS APPLICA 2 0 0 5 0 0M B B C MONTEREY BAY BANCO 1 0 0 0 5 0 0M O R P MOORE PRODUCTS CO 1 0 0 0 5 0 0C R G O MOTOR CARGO INDS 1 0 0 0 5 0 0M O T R MOTOR CLUB OF AMER 5 0 0 1 0 0 0

N

N A R A NARA BANK N A 5 0 0 1 0 0 0N T B K NET.BANK INC 5 0 0 1 0 0 0N E C S NETCOM AB ADR 1 0 0 0 5 0 0N E T S NETWORK EVENT THEA 2 0 0 5 0 0N B S C NEW BRUNSWICK SCI 5 0 0 1 0 0 0N H T B NEW HAMPSHIRE THRI 5 0 0 1 0 0 0N S C F NORTHSTAR COMPUTER 1 0 0 0 5 0 0T O N S NOVAMERICAN STEEL 1 0 0 0 5 0 0N V D A NVIDIA CORP 2 0 0 5 0 0

O

O D F L OLD DOMINION FREIG 5 0 0 1 0 0 0O W O S OWOSSO CP 1 0 0 0 5 0 0

P

P F C B P.F. CHANG'S CHINA 2 0 0 5 0 0P C N T F PACIFIC INTERNET SE 2 0 0 5 0 0I C E D PACKAGED ICE INC 2 0 0 5 0 0P C C I P PCC CAPITAL I PFD 5 0 0 2 0 0P M F G PEERLESS MFG CO 1 0 0 0 5 0 0P E B K PEOPLES BANK 5 0 0 2 0 0




307

P E B O PEOPLES BNCP INC 5 0 0 1 0 0 0P B K B P PEOPLES CAP TR PFD 2 0 0 5 0 0P E R M PERMANENT BNCP INC 1 0 0 0 5 0 0P N T G F PETROMET RES LTD 5 0 0 1 0 0 0P H L Y L PHIL CONS GR PRIDE 2 0 0 5 0 0P I N G PINNACLE GLOBAL GRP 2 0 0 5 0 0P H F C P PITT HOME CAP TR 5 0 0 2 0 0P W C C POINT WEST CAP CP 5 0 0 1 0 0 0P L M D POLYMEDICA CORP 2 0 0 5 0 0B P O P P POPULAR INC PFD A 2 0 0 5 0 0P R B C PRESTIGE BNCP INC 5 0 0 2 0 0P R E N P PRICE ENTERPR PFD 5 0 0 1 0 0 0P S M T PRICESMART INC 5 0 0 1 0 0 0P R V T PRIVATE MEDIA GROUP 2 0 0 5 0 0P F A C P PRO-FAC COOP PFD A 5 0 0 1 0 0 0P R G Y PRODIGY COMM CORP 2 0 0 5 0 0P R S P PROSPERITY BNCSHS 5 0 0 1 0 0 0P A M C PROVIDENT AMER 5 0 0 1 0 0 0P B C P PROVIDENT BANCORP 2 0 0 5 0 0C A R D PUBLICARD INC 2 0 0 5 0 0P L F C PULASKI FURNITURE 1 0 0 0 5 0 0

Q

Q L G C QLOGIC CP 5 0 0 1 0 0 0

R

R N W K REALNETWORKS INC 1 0 0 0 5 0 0R E B C REDWOOD EMPIRE BCP 5 0 0 1 0 0 0R I M M RESEARCH IN MOTION 2 0 0 5 0 0R S B I RIDGEWOOD FINL INC 2 0 0 5 0 0R N I C ROBINSON NUGENT IN 1 0 0 0 5 0 0R M I I ROCKY MTN INTNET 5 0 0 1 0 0 0R U S M F RUSSELL METALS 2 0 0 5 0 0

S

S F E D S F S BANCORP INC 1 0 0 0 5 0 0S G V B S G V BANCORP INC 2 0 0 5 0 0S J N B S J N B FINANCIAL 5 0 0 1 0 0 0S T V I S T V GROUP INC 1 0 0 0 5 0 0S C H R SCHERER HEALTHCARE 5 0 0 1 0 0 0S C O P SCOOT.COM ADR 5 0 0 1 0 0 0S C O T SCOTTISH ANNUITY&LIF 2 0 0 5 0 0S C F S SEACOAST FIN SVC 2 0 0 5 0 0S E W Y SEAWAY FOOD TOWN I 5 0 0 1 0 0 0A I R B SELECT COMFORT CP 2 0 0 5 0 0S E N E A SENECA FOODS CP A 5 0 0 1 0 0 0S E P R SEPRACOR INC 1 0 0 0 5 0 0S R N A SERENA SOFTWARE INC 2 0 0 5 0 0

S A T H SHOP AT HOME INC 5 0 0 1 0 0 0S F N C A SIMMONS FIRST NATL A 5 0 0 1 0 0 0S I X R SIX RIVERS NAT BK 1 0 0 0 5 0 0S K A N SKANEATELES BANCP 5 0 0 1 0 0 0S G A I S M I T H - G A R D N E R & A S S O C 2 0 0 5 0 0S N B J SNB BANCSHARES INC 2 0 0 5 0 0S E C A Y SOCIETE EUR ADS A 2 0 0 5 0 0S F F S SOUND FED BANCORP 5 0 0 1 0 0 0S J F C SOUTH JERSEY FINL CP 2 0 0 5 0 0O K S B SOUTHWEST BNCP INC 5 0 0 1 0 0 0C T L G SPECIALTY CATALOG 1 0 0 0 5 0 0S P Z N SPEIZMAN INDS INC 5 0 0 1 0 0 0S N B C O SUN CAPITL TR II 5 0 0 1 0 0 0S I V B P SVB CAPITAL I PFD 1 0 0 0 5 0 0S V B F SVB FIN SVCS INC 2 0 0 5 0 0S W M A Y SWEDISH MATCH AB ADR 1 0 0 0 5 0 0

T

T B F C P TELEBANC CAP TR 5 0 0 1 0 0 0T E R N TERAYON COMMUN SYS 5 0 0 1 0 0 0T B N C THE BANC CORPORATION 2 0 0 5 0 0T G L O THEGLOBE.COM INC 5 0 0 1 0 0 0T M C S TICKETMASTER ONLINE 2 0 0 5 0 0T R K A TRAK AUTO CP 1 0 0 0 5 0 0T R N I TRANS INDS INC 1 0 0 0 5 0 0T R E V W TREEV INC WTS 2 0 0 5 0 0T R B O TURBOCHEF INC 2 0 0 5 0 0T U T S TUT SYSTEMS INC 2 0 0 5 0 0

U

U S L M U S LIME & MINERAL 5 0 0 1 0 0 0U S P H U S PHYSICAL THERA 1 0 0 0 5 0 0U B I D UBID INC 2 0 0 5 0 0U C B H UCBH HOLDINGS INC 5 0 0 1 0 0 0U L T D ULTRADATA CP 1 0 0 0 5 0 0U B S H UNION BANKSHARES 5 0 0 1 0 0 0U N P H UNIPHASE CORP 1 0 0 0 5 0 0U F C S UNITED FIRE CASUAL 5 0 0 1 0 0 0U N E W Y UNITED NEWS & MEDIA 2 0 0 5 0 0U P C O Y UNITED PAN-EUR ADS 2 0 0 5 0 0U N T Y UNITY BANCORP INC 5 0 0 1 0 0 0

V

V D R Y VACU DRY CO 5 0 0 1 0 0 0V A I L VAIL BANKS INC 2 0 0 5 0 0V A L N VALLEN CP 5 0 0 1 0 0 0V N G I VALLEY NATL GASES 5 0 0 1 0 0 0V E N T VENTURIAN CP 1 0 0 0 5 0 0




308

V R S N VERISIGN INC 1 0 0 0 5 0 0V E R T VERTICALNET INC 2 0 0 5 0 0V L O G VIALOG CORP 2 0 0 5 0 0V C A P VIRGINIA CAP BANCSHS 2 0 0 5 0 0V B N J VISTA BANCORP INC 5 0 0 1 0 0 0V I N F VISTA INFO SOL 5 0 0 1 0 0 0V I S X VISX INC 1 0 0 0 5 0 0

W

W V F C W V S FINANCIAL CP 5 0 0 1 0 0 0W A I N WAINWRIGHT BK TR C 1 0 0 0 5 0 0W B S T P WEBSTER PFD CAP B 5 0 0 2 0 0W E B K WEST ESSEX BANCORP 5 0 0 1 0 0 0W O F C WESTERN OHIO FIN 5 0 0 1 0 0 0W G B C WILLOW GROVE BANCORP 2 0 0 5 0 0W S B K WILSHIRE STATE BK 2 0 0 5 0 0

X

X M C M XOOM.COM INC 2 0 0 5 0 0

Y

Y D N T YOUNG INNOVATIONS 1 0 0 0 5 0 0

Z

Z V X I ZEVEX INTL INC 5 0 0 1 0 0 0




309

N A S DNotice toMembers 9 9 - 4 7F i xed Income Pri c i n gSystem Additions,C h a n g e s, And DeletionsAs Of April 22, 1999




Corporate Finance



I n s u r a n c e

Internal Audit

Legal & Compliance

M u n i c i p a l

Mutual Fund

O p e r a t i o n s

O p t i o n s



R e s e a r c h

S y n d i c a t e

S y s t e m s

T r a d i n g

T r a i n i n g

Variable Contracts

As of April 22, 1999, the following bonds were added to the Fixed IncomePricing SystemS M ( F I P S®) .


A C K P . G A Ackerley Group Inc. Series B 9 . 0 0 0 0 1 / 1 5 / 0 9A D L A . G O Adelphia Communications Corp. 7 . 8 7 5 0 5 / 0 1 / 0 9A G K F . G A Agrilink Food Inc. 1 1 . 8 7 5 1 1 / 0 1 / 0 8A M E S . G A Ames Dept. Stores Inc. 1 0 . 0 0 0 0 4 / 1 5 / 0 6A M P M . G A American Plumbing & Mech Inc. 1 1 . 6 2 5 1 0 / 1 5 / 0 8A N T . G A Anteon Corp. 1 2 . 0 0 0 0 5 / 1 5 / 0 9A O C H . G B Argo-Tech Corp. 8 . 6 2 5 1 0 / 0 1 / 0 7A T U C . G B Atrium Companies Inc. 1 0 . 5 0 0 0 5 / 0 1 / 0 9B D . G A Budget Group Inc. 9 . 1 2 5 0 4 / 0 1 / 0 6B R C H . G A Breed Technologies Inc. 9 . 2 5 0 0 4 / 1 5 / 0 8C F D U . G A California Steel Industry Inc. 8 . 5 0 0 0 4 / 0 1 / 0 9C G O . G C Atlas Air Inc. 9 . 3 7 5 1 1 / 1 5 / 0 6C K I F . G A Cherokee Intl. LLC/Fin. Inc. 1 0 . 5 0 0 0 5 / 0 1 / 0 9C O P . G C Capital One Financial Corp. 7 . 2 5 0 0 5 / 0 1 / 0 6C P R K . G B CapRock Communications 1 1 . 5 0 0 0 5 / 0 1 / 0 9C V X P . G N Cleveland Electric Illuminating Co. 6 . 8 6 0 1 0 / 0 1 / 0 8C W N I . G B Crown Castle Intl Corp. 9 . 0 0 0 0 5 / 1 5 / 1 1C W N I . G C Crown Castle Intl Corp. 1 0 . 3 7 5 0 5 / 1 5 / 1 1D C S . G A Doncaster Plc 8 . 1 2 5 0 5 / 0 1 / 0 9F A . G E Fairchild Group 1 0 . 7 5 0 0 4 / 1 5 / 0 9F F S M . G B Fairchild Semiconductor Corp. 1 0 . 3 7 5 1 0 / 0 1 / 0 7F T L . G E Fruit of the Loom Inc. 8 . 8 7 5 0 4 / 1 5 / 0 6G D G K . G A Great Lakes Dredge & Dock Corp. 1 1 . 2 5 0 0 8 / 1 5 / 0 8G H C I . G A Glove Holdings Inc. Series B 1 4 . 0 0 0 0 8 / 0 1 / 0 9H O V V . G C Hovnanian Enterprises Inc. 9 . 1 2 5 0 5 / 0 1 / 0 9I C T . G A International Game Technology 7 . 8 7 5 0 5 / 1 5 / 0 4I C T . G B International Game Technology 8 . 3 7 5 0 5 / 1 5 / 0 9I S L E . G A Isle of Capri Casinos Inc. 8 . 7 5 0 0 4 / 1 5 / 0 9J A S . G A Jo-Ann Stores Inc. 1 0 . 3 7 5 0 5 / 0 1 / 0 7K N U S . G A KN Capital Trust I 8 . 5 6 0 0 4 / 1 5 / 2 7M T N . G A Vail Resorts Inc. 8 . 7 5 0 0 5 / 1 5 / 0 9O C T U . G A Orion Capital Trust II 7 . 7 0 1 0 4 / 1 5 / 2 8O M . G B Outboard Marine Corp. Series B 1 0 . 7 5 0 0 6 / 0 1 / 0 8O S U S . G A Outsourcing Services Group 1 0 . 8 7 5 0 3 / 0 1 / 0 6P M K . G B Primark Corp. 9 . 2 5 0 1 2 / 1 5 / 0 8P S U P . G A Parker & Parsley Petroleum Co. 8 . 8 7 5 0 4 / 1 5 / 0 5P S U P . G B Parker & Parsley Petroleum Co. 8 . 2 5 0 0 8 / 1 5 / 0 7S C Y . G A Sports Club Inc. 1 1 . 3 7 5 0 3 / 1 5 / 0 6S K S . G C Saks Inc. 7 . 5 0 0 1 2 / 0 1 / 1 0S P M A . G A Sleepmaster LLC/Finl Corp. 1 1 . 0 0 0 0 5 / 1 5 / 0 9S U P I . G A Supreme International Corp. 1 2 . 2 5 0 0 4 / 0 1 / 0 6T R W P . G B Transwestern Publishing Co. LP 9 . 6 2 5 1 1 / 1 5 / 0 7V E Y I . G A Vista Eyecare Inc. Series B 1 2 . 7 5 0 1 0 / 1 5 / 0 5W R C . G A World Color Press Inc. 8 . 3 7 5 1 1 / 1 5 / 0 8


310

As of April 22, 1999, the following bonds were deleted from FIPS.


A M S D . G C American Standard Inc. 1 0 . 8 7 5 0 5 / 1 5 / 9 9B F U G . G A Blue Bell Funding Inc. 1 1 . 8 5 0 0 5 / 0 1 / 9 9C G F . G A Carr-Gottstein Foods Inc. 1 2 . 0 0 0 1 1 / 1 5 / 0 5I K . G B Interlake Corp. 1 2 . 0 0 0 1 1 / 1 5 / 0 1K N E . G A K N Energy Inc. 9 . 9 5 0 0 4 / 0 1 / 2 0K N E . G B K N Energy Inc. 9 . 6 2 5 0 8 / 0 1 / 2 1K N E . G C K N Energy Inc. 8 . 3 5 0 0 9 / 1 5 / 2 2K N E . G D K N Energy Inc. 7 . 8 5 0 0 9 / 0 1 / 2 2K N E . G E K N Energy Inc. 8 . 7 5 0 1 0 / 1 5 / 2 4K N E . G F K N Energy Inc. 6 . 5 0 0 0 9 / 0 1 / 1 3K N E . G G K N Energy Inc. 7 . 3 5 0 0 8 / 0 1 / 2 6K N E . G H K N Energy Inc. 6 . 6 7 0 1 1 / 0 1 / 2 7K N E . G I K N Energy Inc. 6 . 4 5 0 0 3 / 0 1 / 0 3K N E . G J K N Energy Inc. 6 . 6 5 0 0 3 / 0 1 / 0 5K N E . G K K N Energy Inc. 6 . 8 0 0 0 3 / 0 1 / 0 8K N E . G L K N Energy Inc. 7 . 2 5 0 0 3 / 0 1 / 2 8K N E . G M K N Energy Inc. 6 . 3 0 0 0 3 / 0 1 / 2 1K N E . G N K N Energy Inc. 6 . 4 5 0 1 1 / 3 0 / 0 1K R . G D Kroger Co. 1 0 . 0 0 0 0 5 / 0 1 / 9 9K W N D . G A Kenetech Corp. 1 2 . 7 5 0 1 2 / 1 5 / 0 2P I D M . J J Piedmont Aviation Inc. Series H 9 . 6 5 0 0 5 / 0 8 / 9 9P I D M . J K Piedmont Aviation Inc. Series I 9 . 6 5 0 0 5 / 0 8 / 9 9P I D M . K J Piedmont Aviation Series J 9 . 8 0 0 0 5 / 1 3 / 9 9P I D M . K K Piedmont Aviation Series K 9 . 8 0 0 0 5 / 1 3 / 9 9W B N . G A Wanban Inc. 1 1 . 0 0 0 0 5 / 1 5 / 0 4

As of April 22, 1999, changes were made to the symbols of the following FIPS bonds:

New Symbol Old Symbol N a m e C o u p o n M a t u r i t y

P H N T . G A P H N . G A PhoneTel Technologies Inc. 1 2 . 0 0 0 1 2 / 1 5 / 0 6R T H M . G A R H Y C . G A Rhythms Netconnections Inc. 1 3 . 5 0 0 0 5 / 1 5 / 0 8

All bonds listed above are subject to trade-reporting requirements. Questions pertaining to FIPS trade-reporting rulesshould be directed to Stephen Simmes, Market Regulation, NASD Regulation®, at (301) 590-6451.

Any questions regarding the FIPS master file should be directed to Cheryl Glowacki, Nasdaq® Market Operations, at(203) 385-6310.



311

N A S DNotice toMembers 9 9 - 4 8Independence Day: Tra d eDate–Settlement DateS c h e d u l e




Corporate Finance



I n s u r a n c e

Internal Audit

Legal & Compliance

M u n i c i p a l

Mutual Fund

O p e r a t i o n s

O p t i o n s



R e s e a r c h

S y n d i c a t e

S y s t e m s

T r a d i n g

T r a i n i n g

Variable Contracts

Independence Day: Trade Date-Settlement Date ScheduleThe Nasdaq Stock Market® and the securities exchanges will be closed onMonday, July 5, 1999, in observance of Independence Day. “Regular way”transactions made on the business days noted below will be subject to thefollowing schedule:

Trade Date Settlement Date Reg. T Date*

June 29 July 2 July 7

3 0 6 8

July 1 7 9

2 8 1 2

5 Markets Closed —

6 9 1 3

*Pursuant to Sections 220.8(b)(1) and (4) of Regulation T of the Federal Reserve Board, a

broker/dealer must promptly cancel or otherwise liquidate a customer purchase transaction in a

cash account if full payment is not received within five business days of the date of purchase or,

pursuant to Section 220.8(d)(1), make application to extend the time period specified. The date

by which members must take such action is shown in the column titled “Reg. T Date.”



313

NASDNotice toMembers99-49NASD RegulationP r ovides Interp r e t i veGuidance On Registra t i o nR e q u i r e m e n t s




Corporate Finance




I n s u r a n c e

Internal Audit

Legal & Compliance

M u n i c i p a l

Mutual Fund

O p e r a t i o n s

O p t i o n s



R e s e a r c h

S y n d i c a t e

S y s t e m s

T r a d i n g

T r a i n i n g

Variable Contracts

Executive SummaryNASD Regulation, Inc. (NASD Regu-l a t i o n®) receives numerous inquiriesregarding whether certain individualsare required to be registered with theNational Association of SecuritiesDealers, Inc. (NASD®) under NASDRules 1021 and 1031. The purposeof this Notice to Members is to pro-vide interpretive guidance to mem-bers on some of these issues.

Questions regarding this Notice toM e m b e r s may be directed to MaryM. Dunbar, Assistant General Counsel, NASD Regulation, at (202) 728-8252.

Background And DiscussionPrincipal Registration

NASD Rule 1021 (the Rule) requirespersons who are actively engaged inthe management of a member’sinvestment banking or securitiesbusiness — including supervision,solicitation, conduct of business, orthe training of associated persons forany of these functions — to beregistered as principals. Individualscovered by the Rule include soleproprietors, officers, partners,managers of Offices of SupervisoryJurisdiction, and directors ofc o r p o r a t i o n s .

Who is considered an outsidedirector of a member corporation?Are such outside directors requiredto be registered?

The NASD considers outsidedirectors to include directors who arenot officers or employees of themember. Outside directors are notrequired to be registered if they arenot actively engaged in themanagement of the member’sinvestment banking or securitiesbusiness. “Actively engaged inmanagement” means day-to-dayconduct of the member’s securitiesbusiness and the implementation ofcorporate policies related to such

business. An outside director’sregular participation in board andboard committee meetings, duringwhich corporate policies may bedeveloped or adopted, would not byitself rise to the level of being activelyengaged in a member’sm a n a g e m e n t .

Conversely, an inside director, i . e .,an employee of a member who sitson its board of directors, is presumedto be involved in the day-to-daymanagement of the member’sbusiness and therefore is required tobe registered as a principal.

Is an officer of the broker/dealer’sparent corporation who sits on theboard of directors of thebroker/dealer required to ber e g i s t e r e d ?

Generally, if the officer is not activelyengaged in the management of thebroker/dealer as described above,he or she is considered an outsidedirector and does not need to beregistered. However, if this parentcorporation officer, in addition to hisor her duties with the parentcorporation, is an employee of thebroker/dealer or otherwise isengaged in the day-to-daymanagement of the broker/dealer,then the officer must be registeredas a principal of the member.

Is a general counsel or corporatesecretary of a member required tobe registered?

He or she is required to be registeredif he or she sits on the member’sboard of directors or otherwiseparticipates in the management ofthe member’s securities orinvestment banking business. Asstated above, an employee of amember who sits on its board ofdirectors is presumed to be involvedin the day-to-day management of themember’s business and therefore isrequired to be registered as aprincipal. If the general counsel or


314

corporate secretary is not a directorbut has management-levelresponsibilities for supervising anyaspect of the member’s investmentbanking or securities business, thenhe or she would have to beregistered as a principal.Management responsibilities in thiscontext would include serving as avoting member of the fir m ’ sexecutive, management, oroperations committees. A generalcounsel may participate in suchcommittees’ activities withouttriggering a registration requirementif he or she only provides counsel tothe committee and does not vote.

Is a limited or nominal partnerrequired to be registered?

A limited or nominal partner who isnot involved in the day-to-daymanagement of the member’sbusiness is not required to ber e g i s t e r e d .

Is the chief compliance offic e rrequired to be registered as ap r i n c i p a l ?

NASD Regulation is proposing toclarify that such person be required

to be registered. See Notice toMembers 99-51.

Registration of Research Personnel

Do research personnel have to ber e g i s t e r e d ?

Any associated person who isengaged in an investment banking orsecurities business for a member isrequired to be registered. Theregistration determination does notdepend on the individual’s title, butrather on the functions that he or sheperforms. Functions performed byrepresentatives include, but are notlimited to, communicating withmembers of the public to determinetheir interest in making investments,discussing the nature or details ofparticular securities or investmentvehicles, recommending thepurchase or sale of securities, andaccepting or executing orders for thepurchase or sale of securities.

Research activity, by itself, does notrequire registration. However, to theextent that research personnel areinvolved in written or oral business

communications with the public,either alone or accompanied byregistered sales personnel, thensuch research personnel arerequired to be registered becausetheir conduct is part of the generalsales effort of the member fir m .Communicating with the publicincludes issuing and distributingresearch reports where the author isi d e n t i fied by name.

Another factor that should beconsidered in determining whetherresearch personnel should beregistered is the nature of theircompensation. Transaction-basedcompensation – e . g ., compensationthat depends upon the sale ofsecurities, the volume of sales, thesuccess of a solicitation or referral, orthe execution of a transaction — isan indicator that the recipient shouldregister with the NASD.




315

NASDNotice toMembers99-50SEC Approve sAmendments ToC o rp o rate Financing Rule Filing Fe e s




Corporate Finance




I n s u r a n c e

Internal Audit

Legal & Compliance

M u n i c i p a l

Mutual Fund

O p e r a t i o n s

O p t i o n s



R e s e a r c h

S y n d i c a t e

S y s t e m s

T r a d i n g

T r a i n i n g

Variable Contracts

Executive SummaryOn May 17, 1999, the Securities andExchange Commission (SEC)approved amendments to the fil i n gfee provisions of the NationalAssociation of Securities Dealers,Inc. (NASD®) applicable to publicofferings filed for review with theCorporate Financing Department(Department). The amendmentssimplify the filing fee provisions andclarify the manner in which theDepartment calculates filing fees.The amendments provide that fil i n gfees will be calculated based on theproposed maximum aggregateoffering price (or other applicablevalue) of all securities included on aregistration statement filed with theSEC or included on another type ofoffering document if the offering isnot registered with the SEC. Anadditional filing fee on anyamendments to the registrationstatement or offering document willbe imposed only when there is anincrease in the maximum aggregateoffering price or other applicablevalue of all securities included on theregistration statement or offeringdocument — regardless of anyincrease in the amount of securities.The amendments were effective May17, 1999.1 The text of theamendments follows this N o t i c e .

Questions about this N o t i c e s h o u l dbe directed to Carl Sperapani,Assistant Director, or SuzanneRothwell, Chief Counsel, CorporateFinancing Department, NASDRegulation, Inc. (NASD Regulation®) ,at (202) 974-2700.

BackgroundNASD Conduct Rule 2710 (theCorporate Financing Rule) requiresNASD members to file mostproposed public offerings with theCorporate Financing Department.The Department reviews these fil i n g sprior to the commencement of theoffering to determine whether theunderwriting terms andarrangements are fair and

reasonable under NASD rules. TheNASD imposes a fee on offeringsfiled with the Department equal to$500 plus .01 percent of the “grossdollar amount of the offering,” not toexceed $30,500.

Description Of AmendmentsThe amendments to Section 6 ofSchedule A to the NASD By-Lawssimplify the fee structure for publicofferings filed under the CorporateFinancing Rule and NASD ConductRules 2720 and 2810. Theamendments also delete the fil i n gfee provision in paragraph (b)(10) ofthe Corporate Financing Rulebecause it is duplicative of Section 6of Schedule A.

Application Of Fee To AllSecurities On Offering Document

The amendments delete thed e finition of “gross dollar amount ofthe offering” in paragraph (a)(1) ofthe Corporate Financing Rule andchange Section 6(a) of Schedule Ato provide that the filing fee will becalculated on the “proposedmaximum aggregate offering price orother applicable value of allsecurities registered on an SECregistration statement or included onany other type of offering document(where not filed with the SEC).”

The term “proposed maximumaggregate offering price” is the sameterm used in the fourth column of thefee table on the cover of SECregistration statement forms toidentify the total of the proposedpublic offering price of all securitiesto be registered on the registrationstatement. The inclusion of thewords “other applicable value” isintended to cover debt securities orofferings in which an issuer onlyregisters a dollar amount ofsecurities without specifying the typeof or number of securities beingoffered.


316

Calculation Of Fee On Amendments

Section 6(b) of Schedule A requiredthat the Department collect anadditional filing fee when anamendment to the offering documentincreased the number of securitiesbeing registered, regardless ofwhether there was any increase inthe aggregate value of the securitiesthat were included on the originaloffering document. This additionalfiling fee was calculated bymultiplying the number of additionalsecurities times their new offeringprice and charging a fee of .01percent of this product, but not morethan $30,500, for total filing fees forany offering fil e d .

The amendments to Section 6(b) ofSchedule A provide that anadditional fee will be imposed only ifthere is a net increase in themaximum aggregate offering price orother applicable value of allsecurities included on the offeringdocument, subject to the $30,500limit on total filing fees charged forany offering. NASD Regulation willnot refund fees when an amendmentdecreases the maximum aggregateoffering price or other applicablev a l u e .

Under Section 6(b) of Schedule A, asamended, the additional fee will beimposed to take into account any netincrease in the maximum aggregateoffering price or other applicablevalue that is reflected in an SECRule 430A prospectus2 or a relatedregistration statement filed pursuantto SEC Rule 462(b).3

Other Changes

The amendments delete theprovision in Section 6(c) of ScheduleA regarding the computation of fil i n gfees. Sections 6(a) and 6(b) of

Schedule A have been amended todelete the requirement that a fil i n gfee accompany an initial filing andamendments. NASD Regulationrecently deleted the provision inSchedule A that required filing feesto be paid in the form of a check ormoney order and permitted fees tobe paid by wire transfer.4 T h e s echanges will facilitate payment offiling fees and filing public offeringinformation electronically with theDepartment via COBRADesk, thenew automated systems that willpermit electronic filing of corporateoffering information with theCorporate Financing Department.COBRADesk will automaticallycalculate filing fees based on theproposed maximum aggregateoffering price or other applicablevalue. For more information on theelectronic filing and the COBRADeskSystem, see Notice to Members9 9 - 4 1.

Text Of Amendments(Note: New language is underlined; deletionsare bracketed.)

Schedule A To The NASD By-Laws

Assessments and fees pursuant tothe provisions of Article VI of the By-Laws of the Corporation, shall bedetermined on the following basis.

Section 1 - Section 5 No change

Section 6- Fees for FilingDocuments Pursuant to theCorporate Financing Rule

(a) [The] There shall be a feeimposed for the filing of i n i t i a ldocuments relating to any offeringfiled with the NASD pursuant to theCorporate Financing Rule [shall beaccompanied by a filing fee] equal to$500 plus .01% of the [gross dollaramount of the offering,] p r o p o s e d

maximum aggregate offering price orother applicable value of allsecurities registered on an SECregistration statement or included onany other type of offering document(where not filed with the SEC), buts h a l l not [to] exceed [a fee of]$30,500. The amount of filing feemay be rounded to the nearestd o l l a r .

(b) [Amendments] There shall be anadditional fee imposed for the filing ofany amendment or other change t othe [initially filed documents whichincrease the number of securitiesbeing offered] documents initiallyfiled with the NASD pursuant to theCorporate Financing Rule [shall beaccompanied by an additionalamount of filing fee] equal to .01% ofthe [per share offering price of thenew or additional securities,multiplied by the number of new oradditional securities being offered,]net increase in the maximumaggregate offering price or otherapplicable value of all securitiesregistered on an SEC registrationstatement, or any related Rule462(b) registration statement, orr e flected on any Rule 430Ap r o s p e c t u s , or included on any othertype of offering document. However,the aggregate of all filing fees paid inconnection with an SEC registrationstatement or other type of offeringdocument shall not [to] exceed$30,500 [when aggregated with allfees previously paid].

[(c) The provisions of Rule 457adopted under the Securities Act of1933, as amended, shall govern thecomputation of filing fees for allofferings filed pursuant to thisSection, including intrastateofferings, to the extent the terms ofRule 457 are not inconsistent withthis Section.]

Section 7 - Section 15 No change


317

2710. Corporate FinancingRule - Underwriting Termsand Arrangements

(a) Defin i t i o n s

For purposes of this Rule, thefollowing terms shall have themeanings stated below. Thed e finitions in Rule 2720 areincorporated herein by reference.

[(1) Gross Dollar Amount of theO f f e r i n g ]

[Public offering price of all securitiesoffered to the public and securitiesincluded in any overallotment option,the registration price of securities tobe paid to the underwriter andrelated persons, and the registrationprice of any securities underlyingother securities;]

(2) - (6) Renumbered (1) - (5)

(b) Filing Requirements

(1) - (9) No change

[(10) Filing Fees] Deleted entirely

(11) - (13) Renumbered (10) - (12)

(c) No change

Endnotes1SEC Release No. 34-41414 (May 17,

1999).

2SEC Rule 430A permits a registrant to

reflect in the prospectus filed pursuant to

SEC Rule 424(b) or SEC Rule 497(h) or in a

post-effective amendment to the registration

statement a change in the volume of securi-

ties offered (if the total value of securities

offered would not exceed that which was

registered) or a change in the bona fide esti-

mate of the maximum offering price range if

the changes, in the aggregate, represent no

more than a 20 percent change in the maxi-

mum aggregate offering price set forth in the

fee table in the effective registration state-

ment.

3SEC Rule 462(b) permits a registrant to file

a registration statement that is effective upon

filing if, among other things, the registration

statement registers “additional securities of

the same class(es) as were included in an

earlier registration statement for the same

offering and declared effective by the Com-

mission.”

4SEC Release No. 34-40706 (November 24,

1998); 63 FR 66618 (December 2, 1998).




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NASDNotice toMembers99-51NASD RegulationRequests Comment OnR e q u i ring ChiefCompliance Officers ToBe Registered; C o m m e n tPeriod Expires Ju ly 16,1 9 9 9




Corporate Finance




I n s u r a n c e

Internal Audit

Legal & Compliance

M u n i c i p a l

Mutual Fund

O p e r a t i o n s

O p t i o n s



R e s e a r c h

S y n d i c a t e

S y s t e m s

T r a d i n g

T r a i n i n g

Variable Contracts

Executive SummaryThe Board of Directors of NASDRegulation, Inc. (NASD Regulation®)is seeking comment on whether theNational Association of SecuritiesDealers, Inc. (NASD®) rules shouldbe amended to require theregistration of chief complianceo f ficers.

Questions concerning this N o t i c emay be directed to Mary M. Dunbar,Assistant General Counsel, Office ofGeneral Counsel, NASD Regulation,at (202) 728-8252.

Request For CommentNASD Regulation encourages allinterested parties to comment on theproposal.

Comments should be mailed to:

Joan C. ConleyO f fice of the Corporate SecretaryNASD Regulation, Inc.1735 K Street, NWWashington, DC 20006-1500

or e-mailed to:p u b c o m @ n a s d . c o mImportant Note: The onlycomments that will be consideredare those submitted in writing or viae - m a i l .

Comments must be received by July16, 1999. Before becoming effective,any rule change developed as aresult of comments received must beadopted by the NASD RegulationBoard of Directors, may be reviewedby the NASD Board of Governors,and must be approved by theSecurities and ExchangeCommission (SEC).

Background And DiscussionNASD Regulation frequentlyreceives questions about whethervarious broker/dealer personnelshould be registered. One frequentlyasked question involves whether thechief compliance officer for a

member firm should be registered asa principal.

Rule 3010(a)(8) requires eachmember to designate and specific a l l yidentify to the NASD one or moreprincipals who are required to reviewthe member’s supervisory system,procedures, and inspectionsimplemented by the member andtake or recommend to the member’ssenior management appropriateaction reasonably designed toachieve the member’s compliancewith applicable securities laws andregulations, including NASD rules.For some member firms, theindividual who is the chiefcompliance officer listed onSchedule A of Form BD is one ofthese designated principals. Forother members, the chief complianceo f ficer also may already beregistered as a principal because heor she is an officer of the member orotherwise engaged in the member’sinvestment banking or securitiesbusiness in a manner that requiresprincipal registration under the Rule1 0 2 1 .

Rule 1021(a), which sets forth therequirements for principalregistration, states that a member“may” make or maintain anapplication for principal registrationfor certain personnel, includingcompliance personnel. The negativeimplication of this provision is thatcompliance personnel are notr e q u i r e d to be registered, but ratherthat a member, at its election, mayregister an individual withcompliance responsibilities.

NASD Regulation believes that thechief compliance officer for amember firm (as identified onSchedule A of the Form BD) shouldbe registered. This position generallyentails directing the advice that isprovided to both registeredrepresentatives and principals aboutcompliance issues and devisingcompliance systems and proceduresfor the firm as a whole. As such, theindividual performing this function


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should be able to demonstrate his orher knowledge through aq u a l i fications examination and besubject to continuing educationr e q u i r e m e n t s .

There are at least two ways that aregistration requirement could beimposed. NASD Regulation couldrequire the chief compliance offic e rto be registered as a principal. Theindividual would be required toregister as a General SecuritiesPrincipal, unless the activities of hisor her member firm are so limitedthat it is appropriate for the individualto apply for a more limited principalregistration category as described inRule 1022(a)(1). For example, if amember firm only sells mutual funds,it would be appropriate for the chiefcompliance officer to apply forregistration as a Limited Principal—Investment Company and VariableContracts Products. NASDRegulation also would issue aninterpretation clarifying that a chiefcompliance officer would not bedeemed to be supervising a

member’s securities or investmentbanking business by virtue of beingregistered as a principal. NASDRegulation staff recommends thisa p p r o a c h .

Alternatively, NASD Regulation couldcreate a new examination andregistration category for chiefcompliance officers. The rulelanguage itself could be drafted insuch a way that the chief complianceo f ficer would not be deemed to be asupervisor by virtue of registration.However, this approach could bemore burdensome for chiefcompliance officers who are alreadyregistered as principals and wouldhave to take another examination.This problem could be mitigated byaccepting either a Series 24 or thenewly created examination.

NASD Regulation also invitesmembers to comment on whetherthe New York Stock Exchange’sSeries 14 examination should beaccepted in lieu of either of thesee x a m i n a t i o n s .

Finally, NASD Regulation would likecomment from members on aninterpretive issue that may arise if aregistration requirement is imposedfor chief compliance officers. InNotice to Members 99-49, NASDRegulation stated that a generalcounsel of a member is not requiredto be registered. NASD Regulationwould like comment as to whetherthis interpretation should change ifthe general counsel is directlysupervising a registered chiefcompliance officer, i . e ., has thepower to hire and fire and direct theactivities of the chief complianceo f fic e r .

Any proposed rule will include agrandfather provision for any personserving as a chief compliance offic e ron the effective date of the rule.



NASD Notices to Members—Disciplinary Actions June 1999

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D i s c i p l i n a ryActions D i s c i p l i n a ry ActionsR e p o rted For Ju n e

NASD Regulation, Inc. (NASD R e g u l a t i o n®) has taken disciplinaryactions against the following firms andindividuals for violations of NationalAssociation of Securities Dealers, Inc.( N A S D®) rules; federal securities laws,rules, and regulations; and the rulesof the Municipal Securities Rulemak-ing Board (MSRB). Unless otherwiseindicated, suspensions will begin withthe opening of business on Monday,June 21, 1999. The information relat-ing to matters contained in this N o t i c eis current as of the end of May 20,1 9 9 9 .

Firm Expelled, IndividualS a n c t i o n e dTAJ Global Equities, Inc. (CRD#31768, Tampa, Florida) a n dWilber Glen Jurdine (CRD#1773721, Registered Principal,South Florida, Florida) were cen-sured and fined $100,000, jointly andseverally. In addition, the firm wasexpelled from NASD membershipand Jurdine was barred from associ-ation with any NASD member in anycapacity. The sanctions were basedon findings that the firm, actingthrough Jurdine, engaged in optionstransactions and failed to register anoptions principal, conducted a securi-ties business while maintaining insuf-ficient net capital, and failed to givetelegraphic notice of its net capitald e ficiency. In addition, the firm, act-ing through Jurdine, filed inaccurateFOCUS reports, kept inaccuratebooks and records, engaged in inac-curate trade reporting activities, andfailed to report certain customerc o m p l a i n t s .

Furthermore, the firm, acting throughJurdine, failed to develop and imple-ment a continuing education pro-gram, breached its restrictiveagreement with the NASD by servic-ing discretionary accounts, and Jur-dine failed to respond to NASDrequests for information. ( N A S DCase #C07980041)

Firms Fined, IndividualsSanctioned C h a t field Dean & Company, Inc.(CRD #14714, Greenwood Village,C o l o r a d o ) and Scott Carothers(CRD #1899247, Registered Princi-pal, Greenwood Village, Colorado)submitted a Letter of Acceptance,Waiver, and Consent pursuant towhich they were censured and fin e d$5,000, jointly and severally, and thefirm was fined an additional $6,000.Carothers was suspended fromassociation with any NASD memberin any capacity for one day andordered to requalify as a fin a n c i a land operations principal. Withoutadmitting or denying the allegations,the firm and Carothers consented tothe described sanctions and to theentry of findings that the firm, actingthrough Carothers, conducted asecurities business while failing tomaintain its minimum required netcapital. The findings also stated thatthe firm failed to report customercomplaints to the NASD on a timelybasis and failed to have adequatewritten supervisory procedures toaddress compliance with NASDreporting requirements. (NASD Case#C3A990024)

Russell Investment Corporationn.k.a. Lakeside Trading (CRD#39418, Metairie, Louisiana) a n dThomas Griswold Russell (CRD#2669033, Registered Principal,Metairie, Louisiana) submitted aLetter of Acceptance, Waiver, andConsent pursuant to which they werecensured and fined $26,500, jointlyand severally. In addition, Russellwas suspended from association withany NASD member in any capacityfor 10 days. Without admitting ordenying the allegations, the respon-dents consented to the describedsanctions and to the entry of fin d i n g sthat the firm, acting through Russell,conducted a securities businesswhile failing to maintain the minimumrequired net capital, and preparedand maintained an inaccurate trial


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balance, general ledger, and compu-tation of net capital. The findings alsostated that the firm, acting throughRussell, failed to timely file an amend-ed Form BD with the NASD listing thefirm’s current address and all directowners, executed proprietary transac-tions using the Small Order ExecutionS y s t e mS M ( S O E SS M), executed twoorders within five minutes of eachother on the same side of the marketin the same security through SOESthat, when aggregated, exceededSOES maximum order sizes in thesecurity. In addition, the NASD foundthat the firm, acting through Russell,failed to prepare, maintain, andenforce adequate supervisory proce-dures addressing the execution oftransactions using SOES. The fir malso failed to timely file its quarterlyFOCUS Part IIA Report, and failed torespond fully, accurately, and timelyto NASD requests for documentation,and in some instances, provided falseand/or misleading information.(NASD Case #C0599008)

Firms And Individuals Fined Cantella & Co., Inc. (CRD #13905,Boston, Massachusetts) and V i n-cent Michele Cantella (CRD#39796, Registered Principal,Boston, Massachusetts) s u b m i t t e da Letter of Acceptance, Waiver, andConsent pursuant to which they werecensured and fined $50,000, jointlyand severally. Without admitting ordenying the allegations, the respon-dents consented to the describedsanctions and to the entry of fin d i n g sthat the firm, acting through Cantella,failed to establish, maintain, andenforce procedures reasonablydesigned to achieve compliance withsecurities laws and applicable NASDrules in that the firm was unable tomeet its required reserve deposit forits reserve computation. The fin d i n g salso stated that Cantella failed toexercise, adequately or reasonably,his supervisory responsibilities withthe firm. (NASD Case #C11970039)

Financial Advantage BrokerageServices, Inc. n.k.a. CorporateFunding Ltd. (CRD #37027, Minot,North Dakota), Roger WilliamDomres (CRD #2190341, Regis-tered Principal, Minot, North Dako-ta), Mark Steven Guttormson (CRD#1966356, Registered Principal,Minot, North Dakota), Bruce AllanHager (CRD #1358936, RegisteredPrincipal, Fargo, North Dakota),and Bradley Paul Wells (CRD#1257278, Registered Principal,Minot, North Dakota) submitted aLetter of Acceptance, Waiver, andConsent pursuant to which they werecensured and fined $25,000, jointlyand severally. In addition, the fir mwas ordered to provide the followinginformation to the NASD: (a) docu-mentation that the firm has estab-lished an audit committee; (b)documentation that the firm hasappointed an independent director toits board of directors and the auditcommittee; and (c) documentationthat the firm has put in place a sys-tem for periodic reports to the fir m ’ sshareholders. If the firm does notprovide this documentation to theNASD within the required time frame,it shall be suspended from member-ship with the NASD until it providesthe requested information. Withoutadmitting or denying the allegations,the respondents consented to thedescribed sanctions and to the entryof findings that the firm, actingthrough Wells, Domres, Hager, andGuttormson, failed to file offeringdocuments for intrastate offeringswith the NASD, failed to submit to theNASD an estimate of the maximumunderwriting discount or commissionthat the firm anticipated receiving asa result of its participation in the offer-ings and any documents and infor-mation pertaining to the terms,conditions, and arrangements relat-ing to the underwriting or distributionof such shares. The findings alsostated that the firm, acting throughWells, Domres, Hager, and Guttorm-son, sold these offerings without the

submissions and proceeded withoutobtaining “no objection” letters to theunderwriting terms and arrange-ments of the offerings; participated inthe underwriting and/or distribution ofthe firm’s stock without retaining aq u a l i fied independent underwriter toconduct due diligence and provide apricing opinion; failed to have theq u a l i fied independent underwriter actas manager of the offerings, whichwas required since the firm had notbeen engaged in the investmentbanking or securities business for thefive-year period immediately preced-ing the offering; failed to establish anaudit committee for the firm within 12months after its initial offering; andfailed to appoint to its board of direc-tors and the audit committee a publicdirector to serve as a committeemember to protect the interests ofthe investors. The firm, actingthrough Wells, Domres, Hager, andGuttormson, also failed to provideongoing periodic reports to the fir m ’ sshareholders which would informshareholders of the current conditionof the firm. (NASD Case# C 0 4 9 9 0 0 1 9 )

Marquis Financial Services of Indi-ana, Inc. (CRD #20733, Valparaiso,Indiana) and Timothy Martin Scan-nell (CRD #1552763, RegisteredPrincipal, Valparaiso, Indiana) s u b-mitted a Letter of Acceptance, Waiv-er, and Consent pursuant to whichthey were censured and fin e d$18,000, jointly and severally. With-out admitting or denying the allega-tions, the respondents consented tothe described sanctions and to theentry of findings that the firm, actingthrough Scannell, effected optionstransactions while no partner or offi-cer of the firm was registered as aregistered options principal or desig-nated to serve as the firm’s seniorregistered options principal, andfailed to identify specifically a seniorregistered options principal who wasresponsible for the diligent supervi-sion of all of its customer accounts


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and all orders in these accounts. Thefindings also stated that the firm, act-ing through Scannell, failed to complywith the terms of its membershipagreement when it effected optionstransactions while agreeing to con-duct only certain types of securitiesbusiness that did not include suchtransactions. (NASD Case# C 8 A 9 9 0 0 3 3 )

Firms FinedBarington Capital Group, L.P.(CRD #29383, New York, NewYork) submitted a Letter of Accep-tance, Waiver, and Consent pursuantto which the firm was censured andfined $23,500, and fined $2,000,jointly and severally with an individu-al. In addition, the firm was requiredto pay $3,815 in restitution to publiccustomers. Without admitting ordenying the allegations, the firm con-sented to the described sanctionsand to the entry of findings that itfailed to implement and enforce ade-quate written supervisory proceduresreasonably designed to achieve com-pliance with applicable securitieslaws and regulations, and submittedinaccurate free-riding questionnairesto the NASD for several offerings. Inaddition, the firm failed to obtainrequired documentation on a timelybasis in connection with “hot issue”purchases by customer accounts.The findings also stated that the fir mparticipated in contingency offerings,failed to deposit investor funds in anindependent escrow account, andfailed to include in the private place-ment memoranda a statement thatpersons associated with the fir mwould be purchasing a portion of theoffering. In addition, the NASD deter-mined that the firm failed to executecustomer limit orders in someinstances and to timely execute othercustomer limit orders in others.(NASD Case #C04990018)

I n t e r first Capital Corporation (CRD#7659, Los Angeles, California)

submitted a Letter of Acceptance,Waiver, and Consent pursuant towhich the firm was censured, fin e d$10,000, ordered to offer rescissionor early redemption to all investors ina contingent offering, and to theextent the offer of rescission isaccepted by any investors, the fir mwas ordered to exchange eachinvestor’s interest in the investmentfor full and complete restitution andto provide proof of the requiredrescission or early redemption offersto the NASD. Without admitting ordenying the allegations, the firm con-sented to the described sanctionsand to the entry of findings that itoffered and sold investments in acontingent offering of securities andfailed to deposit and retain customerfunds in a separate escrow accountuntil the minimum number of unitshad been sold. (NASD Case# C 0 2 9 9 0 0 2 3 )

NationsBanc Montgomery Securi-ties LLC (CRD #4357, San Francis-co, California) submitted a Letter ofAcceptance, Waiver, and Consentpursuant to which the firm was cen-sured, fined $15,000, and required topay $968.75, plus interest, in restitu-tion to public customers. Withoutadmitting or denying the allegations,the firm consented to the describedsanctions and to the entry of fin d i n g sthat it reported transactions to theAutomated Confirmation TransactionS e r v i c eS M ( A C TS M) in violation of appli-cable securities laws and regulationsregarding limit orders. In the execu-tion of customer orders, the fir mfailed to use reasonable diligence toascertain the best inter-dealer mar-kets for securities and sell in suchmarkets so that the resultant pricesto customers were as favorable aspossible under prevailing marketconditions. The findings also statedthat the firm failed to immediately dis-play customer limit orders in the firm’s public quote where each suchorder was at a better price than thefirm’s public quote or at a price equal

to the firm’s public quote when suchquote was priced equal to the nation-al best bid or offer in such securityand that order represented morethan a de minimus change in relationto the size associated with the fir m ’ sbid or offer. In addition, the firm failedto provide documentary evidencethat it performed the supervisoryreviews set forth in its written super-visory procedures with respect to:ACT compliance, trade reporting, theSecurities and Exchange Commis-sion’s (SEC) Order Handling Rules,the Limit Order Protection Interpreta-tion, best execution, anti-competitivepractices, the use of SOES, and theannual review of the firm’s OTCTrading Department. (NASD Case#CMS990039)

Paradise Valley Securities, Inc.(CRD #18501, Phoenix, Arizona)submitted a Letter of Acceptance,Waiver, and Consent pursuant towhich the firm was censured andfined $12,500, jointly and severally,with two individuals. Without admit-ting or denying the allegations, thefirm consented to the describedsanctions and to the entry of fin d i n g sthat the firm, in connection with a pri-vate offering of securities, extendedthe date by which the minimum num-ber of units was required to be soldwithout making a reconfirmation offerto the persons who had purchasedunits prior to the termination datestated in the offering materials. Thefindings also stated that the fir mfailed to conduct a needs analysis,prioritize its training needs, or devel-op a training plan to comply with theFirm Element Continuing Educationrequirement. (NASD Case# C 3 A 9 9 0 0 1 9 )

RBC Dominion Securities Corpo-ration (CRD #6579, New York, NewYork) submitted a Letter of Accep-tance, Waiver, and Consent pursuantto which the firm was censured andfined $15,000. Without admitting ordenying the allegations, the firm con-


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sented to the described sanctionsand to the entry of findings that thefirm permitted individuals to act in thecapacity of general securities princi-pals prior to their properly qualifyingand becoming registered in thatcapacity. (NASD Case #C10990055)

Securities America, Inc. (CRD#10205, Omaha, Nebraska) s u b m i t-ted a Letter of Acceptance, Waiver,and Consent pursuant to which thefirm was censured, fined $50,000,and required to retain an indepen-dent consulting firm for one year toreview the firm’s compliance andwritten supervisory procedures relat-ing to the review and approval of newaccounts and daily trading activityeffected in the firm’s branch offices todetermine their adequacy and con-sistency with applicable laws andregulations. Without admitting ordenying the allegations, the firm con-sented to the described sanctionsand to the entry of findings that itfailed to establish adequate writtensupervisory procedures designed todetect and prevent unsuitable tradingactivity. The firm also failed to super-vise an individual adequately in thatthe actions taken by the firm werei n s u f ficient to detect or prevent hisunsuitable trading activity. ( N A S DCase #C07990026)

Sherwood Securities Corp. (CRD#7172, Jersey City, New Jersey)submitted an Offer of Settlement pur-suant to which the firm was censuredand fined $10,000. Without admittingor denying the allegations, the fir mconsented to the described sanctionsand to the entry of findings that itfailed to execute purchase or sellorders at the firm’s published bid oroffer and failed to honor its bid oroffer quotations. (NASD Case#CMS970018)

Individuals Barred OrS u s p e n d e dLarry Jon Ames (CRD #1295093,Registered Principal, Miami, Flori-d a ) submitted a Letter of Accep-tance, Waiver, and Consent pursuantto which he was censured, fin e d$5,000, suspended from associationwith any NASD member in anycapacity for 10 business days, andrequired to pay $4,242.66, plus inter-est, in restitution to a member fir m .Without admitting or denying the alle-gations, Ames consented to thedescribed sanctions and to the entryof findings that he diverted customertransactions to his personal brokernumber at his member firm and as aresult, received $4,242.66 in netcommissions, without receiving priorexplicit approval from his memberfirm. (NASD Case #C07990021)

Brian Douglas Angiuli (CRD#1867364, Registered Representa-tive, Port Washington, New York)was censured, fined $15,000, sus-pended from association with anyNASD member in any capacity forone year, and ordered to requalify asa general securities representative.The National Adjudicatory Council(NAC) imposed the sanctions follow-ing appeal of a Philadelphia DistrictBusiness Conduct Committee(DBCC) decision. The sanctionswere based on findings that Angiuliexecuted unauthorized transactionsin the account of a public customer.(NASD Case #C9B960032)

Everette Ward Artist (CRD#864926, Registered Representa-tive, Phoenix, Arizona) was cen-sured, fined $25,000, and barredfrom association with any NASDmember in any capacity. The sanc-tions were based on findings thatArtist failed to respond to NASDrequests for information. ( N A S DCase #C3A980036)

Arthur Bruce Bahlav (CRD#1191483, Registered Principal,

New York, New York) submitted anOffer of Settlement pursuant to whichhe was censured and suspendedfrom association with any NASDmember in any capacity for 30 days.Without admitting or denying the alle-gations, Bahlav consented to thedescribed sanctions and to the entryof findings that he executed apromissory note in the amount of$21,906 with public customers, andafter making an initial payment of$7,326, failed to make either of thetwo subsequent monthly paymentstotaling $14,580. (NASD Case#C05970036)

Marcos Beltran Barcelo (CRD#2355671, Registered Principal,Santa Fe Springs, California) s u b-mitted a Letter of Acceptance, Waiv-er, and Consent pursuant to whichhe was censured, fined $81,614.80,and barred from association with anyNASD member in any capacity. With-out admitting or denying the allega-tions, Barcelo consented to thedescribed sanctions and to the entryof findings that he received commis-sion checks in the total amount of$322.96 issued by his member fir mand payable to an employee underhis supervision. According to thefindings, rather than giving thechecks to the employee, Barceloconverted the checks to his own useand benefit by endorsing anddepositing the checks in his wife’spersonal bank account without theemployee’s knowledge or consent.(NASD Case #C02990021)

Anthony Vito Biondo (CRD#2432635, Registered Representa-tive, Valley Stream, New York) s u b-mitted an Offer of Settlementpursuant to which he was censured,fined $15,000, and suspended fromassociation with any NASD memberin any capacity for six months. With-out admitting or denying the allega-tions, Biondo consented to thedescribed sanctions and to the entryof findings that he failed to respond


325

to NASD requests for information.(NASD Case #C10980106)

Angelo John Bosco (CRD#2184908, Registered Representa-tive, Huntington, New York) w a scensured, fined $25,000, and barredfrom association with any NASDmember in any capacity. The sanc-tions were based on findings thatBosco failed to respond to NASDrequests for information regarding acustomer complaint. (NASD Case# C 1 0 9 8 0 0 6 1 )

Lilia Frianeza Cayabyab (CRD#2911603, Registered Representa-tive, Sherman Oaks, California)submitted a Letter of Acceptance,Waiver, and Consent pursuant towhich she was censured, fin e d$10,000, and suspended from asso-ciation with any NASD member inany capacity for 30 business days.Without admitting or denying the alle-gations, Cayabyab consented to thedescribed sanctions and to the entryof findings that she submitted a FormU-4 to her member firm that failed todisclose that she was the subject ofan embezzlement conviction. ( N A S DCase #C02990018)

Jeffrey John Chaimowitz (CRD#2589437, Registered Principal,Rock Point, New York) submitted aLetter of Acceptance, Waiver, andConsent pursuant to which he wascensured and suspended from asso-ciation with any NASD member inany capacity for two years. Withoutadmitting or denying the allegations,Chaimowitz consented to thedescribed sanctions and to the entryof findings that he effected transac-tions in public customer accountswithout the prior authorization of thecustomers. The findings also statedthat Chaimowitz made material mis-representations, omitted to disclosematerial facts, and predicted thefuture prices of securities to publiccustomers in connection with solicita-tions to sell securities. Furthermore,

the NASD determined thatChaimowitz received instructionsfrom public customers to sell securi-ties from their accounts and failed tosell the securities. (NASD Case# C 3 A 9 9 0 0 1 8 )

Maria Magdalena Coats (CRD#2785906, Associated Person,Moreno Valley, California) s u b m i t-ted an Offer of Settlement pursuantto which she was censured, fin e d$10,000, and suspended from asso-ciation with any NASD member inany capacity for 30 business days.Without admitting or denying the alle-gations, Coats consented to thedescribed sanctions and to the entryof findings that she submitted to hermember firm a Form U-4 that con-tained false responses to disciplinaryquestions, when in fact, she was thesubject of a welfare fraud convictionand a state action. Furthermore, theNASD found that Coats failed toamend the Form U-4 to disclose theconviction and state action. ( N A S DCase #C02990008)

Adebayo Bankole Cole (CRD#2430939, Registered Representa-tive, Staten Island, New York) w a scensured, fined $75,000, and barredfrom association with any NASDmember in any capacity. The sanc-tions were based on findings thatCole submitted Form U-4 applica-tions that failed to disclose informa-tion or provided inaccurate andmisleading information concerning,among other things, his criminalrecord. Cole also failed to respond toNASD requests to provide testimony.(NASD Case #C10980013)

Philip Edward Colgan (CRD#2286018, Registered Representa-tive, Redmond, Washington) s u b-mitted a Letter of Acceptance,Waiver, and Consent pursuant towhich he was censured, fin e d$25,000, and barred from associationwith any NASD member in anycapacity. Without admitting or deny-

ing the allegations, Colgan consent-ed to the described sanctions and tothe entry of findings that he partici-pated in private securities transac-tions and failed to provide priorwritten notice to his member fir mdescribing in detail the proposedtransactions, his proposed role there-in, and stating whether he hadreceived, or would receive, sellingcompensation in connection with thetransactions. (NASD Case# C 3 B 9 9 0 0 1 1 )

Ronald Ernest Collins (CRD#2071112, Registered Representa-tive, Redlands, California) s u b m i t-ted a Letter of Acceptance, Waiver,and Consent pursuant to which hewas censured, fined $25,000, andbarred from association with anyNASD member in any capacity. With-out admitting or denying the allega-tions, Collins consented to thedescribed sanctions and to the entryof findings that he failed to respondto NASD requests to provide docu-ments and testimony. (NASD Case# C 0 2 9 9 0 0 2 5 )

Joseph Gaspare Coluccio (CRD#2439259, Registered Representa-tive, West Hampton Beach, NewY o r k ) submitted a Letter of Accep-tance, Waiver, and Consent pursuantto which he was censured, fin e d$20,000, suspended from associa-tion with any NASD member in anycapacity for nine months, andrequired to demonstrate that he hasmade restitution to a public customerin the amount of $180,650. Withoutadmitting or denying the allegations,Coluccio consented to the describedsanctions and to the entry of fin d i n g sthat he solicited public customers topurchase securities by means of mis-representations of material fact andomissions to disclose material fact.The findings also stated that Coluc-cio solicited a customer to purchasea security by predicting the futureprice of the security to the customerwithout a reasonable basis, and with


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knowledge that the security wasspeculative. Furthermore, the NASDdetermined that Coluccio solicited acustomer to purchase securities byguaranteeing the customer againstloss in the investment and failed totake the promised actions to preventloss. (NASD Case #C3A990023)

Thomas John Connell (CRD#52082, Registered Representa-tive, Melville, New York) s u b m i t t e da Letter of Acceptance, Waiver, andConsent pursuant to which he wascensured, fined $10,000, and sus-pended from association with anyNASD member in any capacity forfive business days. Without admittingor denying the allegations, Connellconsented to the described sanctionsand to the entry of findings that, inresponse to a telephone call hereceived from an individual from theNASD asking why his member fir mwas not answering its telephones,Connell responded to the questionby stating the firm was experiencingtelephone problems. The NASDfound that the firm was not experi-encing telephone problems, butrather, Connell had been directed notto answer the telephones in the trad-ing room. (NASD Case# C 1 0 9 9 0 0 4 3 )

Nicholas Joseph Cosmo (CRD#2452953, Registered Principal,Wantagh, New York) submitted aLetter of Acceptance, Waiver, andConsent pursuant to which he wascensured, fined $68,209, and barredfrom association with any NASDmember in any capacity. Withoutadmitting or denying the allegations,Cosmo consented to the describedsanctions and to the entry of fin d i n g sthat he replaced a public customer’sname on an account transfer formwith the name of an account at amember firm over which he had solecontrol, and attached to the transferform a letter authorizing the transferof the customer’s account to the fir maccount he controlled, without the

customer’s knowledge or consent.The findings also stated that Cosmoprovided the customer with anaccount statement and trade confir-mation, purportedly reflecting thecustomer’s account at the firm when,in fact, no such account existed.(NASD Case #C10990053)

John Michael Doughty (CRD#2649919, Registered Representa-tive, Farmington, Maine) s u b m i t t e da Letter of Acceptance, Waiver, andConsent pursuant to which he wascensured, fined $157,500, andbarred from association with anyNASD member in any capacity.Without admitting or denying the alle-gations, Doughty consented to thedescribed sanctions and to the entryof findings that he obtained blankchecks from a public customer’ssecurities account that he forged andnegotiated, without the customer’sknowledge or consent. The NASDfound that Doughty converted theproceeds totaling approximately$29,500 to his own use and benefit .(NASD Case #C11990012)

James Alvis Elkins, Jr. (CRD#1970235, Registered Principal,Marietta, Georgia) submitted a Let-ter of Acceptance, Waiver, and Con-sent pursuant to which he wascensured, fined $50,000, and barredfrom association with any NASDmember in any capacity. Withoutadmitting or denying the allegations,Elkins consented to the describedsanctions and to the entry of fin d i n g sthat he participated in private securi-ties transactions totaling $1,013,787in promissory notes and failed to pro-vide his member firm written noticedescribing in detail the proposedtransactions, his proposed role there-in, and stating whether he wouldreceive selling compensation in con-nection with the transactions. ( N A S DCase #C3B990013)

Jon Douglas Erickson (CRD#403437, Registered Principal,

Nashville, Tennessee) submitted aLetter of Acceptance, Waiver, andConsent pursuant to which he wascensured, fined $1,000,000, barredfrom association with any NASDmember in any capacity, andordered to pay $943,000 in restitu-tion to appropriate parties. Withoutadmitting or denying the allegations,Erickson consented to the describedsanctions and to the entry of fin d i n g sthat he engaged in outside businessactivities in that he acted as a trusteefor trusts established for public cus-tomers without providing prompt writ-ten notice to his member firm. Thefindings also stated that Ericksonconverted approximately $943,000 intrust property to his own use andb e n e fit, without the knowledge orconsent of the donors. (NASD Case# C 1 1 9 9 0 0 1 8 )

Charles Allen Eskew, Jr. (CRD#2027735, Registered Representa-tive, Bastrop, Texas) submitted aLetter of Acceptance, Waiver, andConsent pursuant to which he wascensured, fined $50,000, and barredfrom association with any NASDmember in any capacity. Withoutadmitting or denying the allegations,Eskew consented to the describedsanctions and to the entry of fin d i n g sthat he received a check in theamount of $102,779.61 from a publiccustomer; deposited $74,779.61 intoa bank account he controlled, withoutthe customer’s knowledge or con-sent; and failed to return the funds tothe affected customer until a laterdate. (NASD Case #C06990001)

Donald Howard Estey, Jr. (CRD#2020550, Registered Representa-tive, Bozeman, Montana) s u b m i t t e da Letter of Acceptance, Waiver, andConsent pursuant to which he wascensured and barred from associa-tion with any NASD member in anycapacity. Without admitting or deny-ing the allegations, Estey consentedto the described sanctions and to theentry of findings that he participated


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in private securities transactionstotaling $1,567,883.39 in promissorynotes without providing his memberfirm written notice describing in detailthe proposed transactions, his pro-posed role therein, and statingwhether he would receive sellingcompensation in connection with thetransactions. (NASD Case#C3B990012)

Albert Joseph Ford (CRD#1835821, Registered Representa-tive, Oakton, Virginia) and D o u g l a sFrancis Andrews (CRD #1793108,Registered Representative, Ash-burn, Virginia) submitted an Offer ofSettlement pursuant to which Fordwas censured, fined $95,000, andbarred from association with anyNASD member in any capacity, andAndrews was censured, fin e d$75,000, and barred from associa-tion with any NASD member in anycapacity. Without admitting or deny-ing the allegations, the respondentsconsented to the described sanctionsand to the entry of findings that Fordand Andrews assisted in the “boilerroom” operations of their memberfirm, and recruited and trained inex-perienced registered representativesto telemarket aggressively low-priced, speculative securities recom-mended by their member firm to thepublic. According to the fin d i n g s ,Ford and Andrews directed, fostered,or induced the registered representa-tives to engage in the following abu-sive sales practices: makingbaseless price predictions about thestock recommended by their mem-ber firm, making material misrepre-sentations and omitting materialnegative information during salespresentations to customers, discour-aging or prohibiting registered repre-sentatives from independentlyresearching the firm’s stocks, anddiscouraging or prohibiting registeredrepresentatives from processingunsolicited customer sell orders. Fur-thermore, the NASD found that Fordand Andrews engaged in these abu-

sive sales practices in their individualcapacities during presentations totheir customers. Ford, acting throughother registered representatives,directed, encouraged, caused,and/or facilitated the purchase ofstock by other registered representa-tives for their customers’ accountswithout the customers’ prior autho-rization or consent, and Ford pur-chased stocks for his owncustomers’ accounts, without thecustomers’ prior authorization or con-sent. Ford and Andrews also failed toestablish, implement, and enforcereasonable procedures to deter orprevent the above violations. ( N A S DCase #C9B960013)

Merlin Richard Gackle (CRD#1024847, Registered Principal,Odessa, Florida) submitted a Letterof Acceptance, Waiver, and Consentpursuant to which he was censured,fined $20,000, and suspended fromassociation with any NASD memberin any capacity for 15 business daysin a supervisory capacity. Withoutadmitting or denying the allegations,Gackle consented to the describedsanctions and to the entry of fin d i n g sthat, as the president of a memberfirm, Gackle failed to address, orfailed adequately to address, the firm’s written supervisory proceduresregarding, among other things, insid-er trading, receipt of customer fundsand securities, mutual fund break-points, variable annuities and vari-able life insurance, options,municipal securities, customer com-plaint reporting, cold calling, salessupervision, and discretionaryaccounts. Furthermore, the fin d i n g sstated that Gackle, as president ofthe firm, failed to inspect eachbranch office according to the cycleset in its written supervisory proce-dures, and failed to supervise and/orenforce the firm’s written supervisoryprocedures adequately as they relateto the review of daily transactions,mutual fund switches, branch offic einspections and examinations, and

advertising and correspondence.Moreover, the NASD found that thefirm failed to have each registeredrepresentative participate in an annu-al compliance meeting, failed to con-duct a periodic examination of allcustomer accounts to detect and pre-vent irregularities or abuses, failed toreport customer complaints, andallowed an individual to serve as thefirm’s acting chief administrative offi-cer when the individual was neverregistered properly with the NASD inany capacity. (NASD Case# C 0 7 9 9 0 0 2 7 )

Paul Joseph Garceau, Jr. (CRD#1716125, Registered Representa-tive, Clinton Township, Michigan)submitted a Letter of Acceptance,Waiver, and Consent pursuant towhich he was censured, fin e d$5,000, and suspended from associ-ation with any NASD member in anycapacity for five days. Without admit-ting or denying the allegations,Garceau consented to the describedsanctions and to the entry of fin d i n g sthat he engaged in outside businessactivities by receiving approximately$19,000 in compensation for sellingfixed annuities through a non-mem-ber insurance brokerage company,and in connection therewith, failed togive prompt written notice of hisengagement in such activities to hismember firm. (NASD Case# C 8 A 9 9 0 0 3 5 )

Theodore Scott Geller (CRD#3035282, Registered Representa-tive, Rome, New York) submitted aLetter of Acceptance, Waiver, andConsent pursuant to which he wascensured, fined $5,000, and barredfrom association with any NASDmember in any capacity. Withoutadmitting or denying the allegations,Geller consented to the describedsanctions and to the entry of fin d i n g sthat he took the Series 7 exam,obtained a failing score, and alteredhis copy of the test report to reflect apassing grade. The findings also


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stated that Geller then sent copies ofthe falsified test report to the NASDand his member firm usingenvelopes with the testing centerindicated as the return address in anattempt to convince them that he hadq u a l i fied as a general securities rep-r e s e n t a t i v e . (NASD Case# C 1 1 9 9 0 0 1 0 )

Frank Albert Ghergurovich (CRD#1398577, Registered Representa-tive, Scituate, Massachusetts) s u b-mitted a Letter of Acceptance,Waiver, and Consent pursuant towhich he was censured, fin e d$50,000, and barred from associa-tion with any NASD member in anycapacity. Without admitting or deny-ing the allegations, Ghergurovichconsented to the described sanctionsand to the entry of findings that heengaged in private securities trans-actions without prior written notice to,and approval from, his member fir m .The findings also stated that, in con-nection with the above private securi-ties transactions, Ghergurovichrecommended to customers the pur-chase of securities without havingreasonable grounds for believing thatthese recommendations and resul-tant transactions were suitable forthe customers on the basis of theirfinancial situation, investment objec-tives, and needs. (NASD Case# C 1 1 9 9 0 0 1 3 )

Mark Edwin Gort (CRD #1398585,Registered Principal, Wyoming,Michigan) submitted an Offer of Set-tlement pursuant to which he wascensured, fined $35,000, and barredfrom association with any NASDmember in any capacity. Withoutadmitting or denying the allegations,Gort consented to the describedsanctions and to the entry of fin d i n g sthat he executed securities transac-tions for the account of a public cus-tomer, without the knowledge orconsent of the customer, and in theabsence of written or oral authoriza-tion to exercise discretion in said

account. Gort also failed to respondto NASD requests for documentsand information. (NASD Case# C 8 A 9 9 0 0 2 4 )

Jeffrey Harold Hamsher (CRD#1187004, Registered Representa-tive, Wyomissing, Pennsylvania)submitted an Offer of Settlement pur-suant to which he was censured,fined $125,000, and barred fromassociation with any NASD memberin any capacity. Without admitting ordenying the allegations, Hamsherconsented to the described sanctionsand to the entry of findings that hemade material misrepresentationsand omitted to disclose material factsin connection with his solicitation ofpublic customers’ funds in that hemisrepresented to the investors thattheir funds would be invested in U.S.Treasury bonds when, in fact, thefunds were used to trade U.S. Trea-sury bond/Treasury note options andfutures; misrepresented that monieswould be deposited with an NASDsecurities firm; misrepresented thatthe investments were “risk-free” andthat the investors would receive anannual return of 44 percent althoughthere was no reasonable basis forsuch a representation. The fin d i n g salso state that Hamsher failed totimely disclose the terms of the “Prof-it Participation Agreement” or that hehad entered into a separate agree-ment with an unregulated third partywhich assumed discretionary authori-ty over the customer funds. Further-more, the NASD determined thatHamsher transferred approximately$80,000 of the investors’ funds to thethird party without their consent orauthority. Hamsher engaged in pri-vate securities transactions withoutprior written notice to, and approvalfrom, his member firm in that heoffered and sold securities which herepresented to be U.S. Treasurybonds to the investors, and failed torespond to NASD requests to pro-vide complete bank records. ( N A S DCase #C9A980037)

Patrice Roberto Harris (CRD#2062802, Registered Representa-tive, Brooklyn, New York) s u b m i t-ted an Offer of Settlement pursuantto which he was censured, fin e d$10,000, barred from associationwith any NASD member in anycapacity, and required to pay$16,036.21 in restitution to publiccustomers. Without admitting ordenying the allegations, Harris con-sented to the described sanctionsand to the entry of findings that heexecuted transactions in theaccounts of public customers withouttheir knowledge or consent and inthe absence of written or oral autho-rization to Harris to exercise discre-tion in these accounts. (NASD Case#C10980104)

Michael Wayne Hawkins (CRD#2297934, Registered Representa-tive, Atlanta, Georgia) was cen-sured, fined $65,000, andsuspended from association with anyNASD member in any capacity fortwo years. The sanctions werebased on findings that Hawkins guar-anteed a customer against loss inconnection with securities transac-tions. Hawkins also participated inprivate securities transactions andfailed to provide his member fir mwith written notice of these transac-tions or to obtain approval oracknowledgment from the fir m .(NASD Case #C07980047)

Keith Allen Heichel (CRD#2058597, Registered Representa-tive, Berea, Ohio) submitted a Letterof Acceptance, Waiver, and Consentpursuant to which he was censured,fined $33,142.25, and suspendedfrom association with any NASDmember in any capacity for twoyears. Without admitting or denyingthe allegations, Heichel consented tothe described sanctions and to theentry of findings that he received a$1,000 check for financial planningservices. The NASD found thatHeichel deposited the check in his


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personal bank account and did notmake restitution to his member fir muntil a later date. Heichel also partici-pated in outside business activitiesand failed to give prompt writtennotice to his member firm of suchactivities. (NASD Case# C 8 B 9 9 0 0 1 3 )

James Salvadore Heitzer (CRD#1187636, Registered Principal,Atlanta, Georgia) and C h r i s t i n eAnn Heitzer (CRD #1099089, Reg-istered Principal, Atlanta, Georgia)were each censured, fined $25,000,and barred from association with anyNASD member in any capacity. Thesanctions were based on fin d i n g sthat James and Christine Heitzerfailed to respond to NASD requestsfor information concerning the inves-tigation of various customer com-plaints and the Form U-5 filed onbehalf of the Heitzers by a memberfirm. (NASD Case #C07980015)

John Vernon Hiers (CRD#1998818, Registered Representa-tive, Canyon Lake, California) w a scensured, fined $137,500, barredfrom association with any NASDmember in any capacity, andordered to pay $6,106.77, plus inter-est, in restitution to a public cus-tomer. The sanctions were based onfindings that Hiers received a $7,500check from a public customer intend-ed for investment purposes, andwithout the customer’s knowledge orconsent, deposited the check in hispersonal brokerage account, usedthe funds to cover a day trade previ-ously made in his account, and dissi-pated all but $1,393.23 of the fundsthrough trading in his personalaccount. Furthermore, Hiers falselyrepresented to the customer onnumerous occasions that theaccount statements reflecting thetrade that the customer had autho-rized in his account would be forth-coming. Contrary to theserepresentations, however, no suchstatements were ever provided to the

customer because no account wasever established in the customer’sname. Hiers later paid the customer$1,393.23 but failed to return anyportion of the remaining $6,106.77.(NASD Case #C02980029)

Meredith Ivan Horowitz (CRD#250404, Registered Principal,Brooklyn, New York) was cen-sured, fined $1,000, and barred fromassociation with any NASD memberas a financial and operations princi-pal. The sanctions were based onfindings that a former member fir m ,acting through Horowitz, conducted asecurities business while failing tomaintain its minimum required netcapital and effected a withdrawal ofequity capital while its net capital wasunder the minimum requirement.(NASD Case #C10960032)

William Terrill Hundley (CRD#2291524, Registered Representa-tive, Moore, Oklahoma) submitted aLetter of Acceptance, Waiver, andConsent pursuant to which he wascensured and suspended from asso-ciation with any NASD member inany capacity for two years. Withoutadmitting or denying the allegations,Hundley consented to the describedsanctions and to the entry of fin d i n g sthat he shared in the losses in theaccount of public customers by reim-bursing the customers with acashier’s check in the amount of$4,112.70 and issuing a promissorynote for $6,000 as repayment forlosses incurred in the customers’account. The findings also statedthat Hundley failed to timely andcompletely respond to NASDrequests for information. ( N A S DCase #C05990002)

Mark Jude Iacono (CRD #1154923,Registered Principal, Smithtown,New York) submitted an Offer ofSettlement pursuant to which he wascensured, fined $20,000, and sus-pended from association with anyNASD member in any capacity for 30

days. Without admitting or denyingthe allegations, Iacono consented tothe described sanctions and to theentry of findings that he repeatedlyfailed to make the required “affir m a-tive determination” that certain secu-rities he sold short would bedelivered or were available and couldbe borrowed. The findings also stat-ed that Iacono failed to comply withthe rule requiring that all order ticketsbe marked either as a “long” or“short” transaction. (NASD Case# C A F 9 8 0 0 0 2 )

Timothy Jones (CRD #1901591,Registered Representative, Talla-hassee, Florida) was censured,fined $65,000, suspended fromassociation with any NASD memberin any capacity for two years, andbarred from association with anyNASD member in any capacity. Thesanctions were based on fin d i n g sthat Jones participated in outsidebusiness activities without providingprompt written notice to his memberfirm of such activities. Jones alsofailed to respond to NASD requestsfor information. (NASD Case#C07980020)

Jonathan Ki Jung (CRD #2763865,Registered Representative,Boston, Massachusetts) s u b m i t t e da Letter of Acceptance, Waiver, andConsent pursuant to which he wascensured, fined $5,000, suspendedfrom association with any NASDmember in any capacity for one year,and required to requalify by exam asa general securities representativeby taking the Series 7 exam prior toacting again in any registered capac-ity with the NASD. Without admittingor denying the allegations, Jung con-sented to the described sanctionsand to the entry of findings that hef a l s i fied documents and sent thesedocuments to customers to createthe erroneous impression that theexecution price on options purchasetransactions was lower than the actu-al price that had been previously


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reported to the customers. ( N A S DCase #C11990011)

Christopher S. Knight (CRD#1710581, Registered Principal,Forest Hills, New York) submitted aLetter of Acceptance, Waiver, andConsent pursuant to which he wascensured, fined $25,000, and barredfrom association with any NASDmember in any capacity. Withoutadmitting or denying the allegations,Knight consented to the describedsanctions and to the entry of fin d i n g sthat he failed to respond to NASDrequests for documents and/or infor-mation. (NASD Case #C10990051)

Harriet Jacqueline Kozyn (CRD#2724496, Registered Representa-tive, Ann Arbor, Michigan) w a scensured, fined $25,000, and barredfrom association with any NASDmember in any capacity. The sanc-tions were based on findings thatKozyn failed to respond to NASDrequests for information. ( N A S DCase #C8A980067)

Brian Joseph Lichtlin (CRD#2647463, Registered Representa-tive, Secaucus, New Jersey) w a scensured, fined $65,000, and barredfrom association with any NASDmember in any capacity. The sanc-tions were based on findings thatLichtlin effected unauthorized tradesin the accounts of public customersand forged the signatures of publiccustomers on documents stating thatcertain of the unauthorized purchas-es were unsolicited. Lichtlin alsofailed to respond to NASD requestsfor information. (NASD Case# C 1 0 9 8 0 1 1 2 )

Mario J. Liriano (CRD #2538442,Registered Principal, Bronx, NewYork) submitted an Offer of Settle-ment pursuant to which he was cen-sured, fined $40,000, and barredfrom association with any NASDmember in any capacity. Withoutadmitting or denying the allegations,

Liriano consented to the describedsanctions and to the entry of fin d i n g sin that he received a check from pub-lic customers in the amount of$5,000 to invest in several mutualfunds, failed to submit the check tohis member firm, presented thecheck to a third party for payment,and converted the funds to his per-sonal use. Liriano attempted to con-ceal his conversion by sending hismember firm the customers’ applica-tion and his own personal check thatwas dated the same day he receivedthe funds from the customers in anattempt to mislead his employer intobelieving that the customers’ fundswere submitted contemporaneouslywith the investment application andnot improperly used by Liriano. Thefindings also stated that Liriano pre-sented his member firm with a per-sonal check that was rejected fori n s u f ficient funds. (NASD Case#C10990027)

Robert Charles Madrid (CRD#2474262, Registered Representa-tive, Blue Island, Illinois) was cen-sured, fined $35,000, and barredfrom association with any NASDmember in any capacity. The sanc-tions were based on findings thatMadrid engaged in unauthorizedtrading and failed to respond toNASD requests for information.(NASD Case #C8A980069)

Kevin Michael Mahon (CRD#1933710, Registered Representa-tive, Manalapan, New Jersey) w a scensured, fined $25,000, and barredfrom association with any NASDmember in any capacity. The sanc-tions were based on findings thatMahon failed to respond to NASDrequests for information concerningcustomer complaints, private securi-ties transactions, and dual registra-tion with member firms. (NASD Case#C10980079)

Wayne Charles Maier (CRD#317449, Registered Representa-

tive, Bay City, Michigan) s u b m i t t e da Letter of Acceptance, Waiver, andConsent pursuant to which he wascensured, fined $5,000, and sus-pended from association with anyNASD member in any capacity forfive days. Without admitting or deny-ing the allegations, Maier consentedto the described sanctions and to theentry of findings that he participatedin a private securities transaction inthe form of a promissory note in theamount of $50,000, and failed andneglected to provide written notice to,or to receive written authorizationfrom, his member firm of his partici-pation. (NASD Case #CA8990037)

Joseph Edward Mattera (CRD#2560300, Registered Representa-tive, Medford, New York) s u b m i t t e dan Offer of Settlement pursuant towhich he was censured, suspendedfrom association with any NASDmember in any capacity for ninemonths, and required to pay $58,200in restitution to public customers.Without admitting or denying the alle-gations, Mattera consented to thedescribed sanctions and to the entryof findings that he solicited publiccustomers to purchase securitiesand omitted to disclose materialinformation concerning the nature ofthe transaction recommended andthe issuer of the securities. The fin d-ings also stated that Mattera predict-ed the future price of a security tomembers of the public, and effecteda purchase of a security in theaccounts of public customers withouttheir prior authorization. Furthermore,the NASD found that Mattera repre-sented to a customer that the cus-tomer’s failure to pay for anunauthorized transaction would havea negative effect on the customer’scredit rating. (NASD Case# C 3 A 9 8 0 0 6 5 )

Christopher Thomas McNamara(CRD #2451397, Registered Repre-sentative, Dix Hills, New York) w a scensured, fined $100,000, barred


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from association with any NASDmember in any capacity, andordered to pay $140,101.72, plusinterest, in restitution to public cus-tomers. The sanctions were basedon findings that McNamara inducedpublic customers to purchase securi-ties by making numerous materialmisrepresentations, false and mis-leading statements, and omissions offact about the companies and thesecurities. The findings also statedthat McNamara misrepresented theamount of the commissions he wouldearn on these transactions. In addi-tion, McNamara effected unautho-rized transactions in customeraccounts and made fraudulent pricepredictions. McNamara also failed tofollow, or follow promptly, a publiccustomer’s instructions to sell securi-ties. (NASD Case #C3A980045)

Andrew Means (CRD #2729697,Associated Person, Brooklyn,New York) was censured, fin e d$65,000, and barred from associa-tion with any NASD member in anycapacity. The sanctions were basedon findings that Means failed torespond to NASD requests for infor-mation. Means also filed an inaccu-rate Form U-4 and failed to disclosethat he had been convicted or pleadguilty to felony charges on severaloccasions. (NASD Case# C 1 0 9 8 0 0 6 0 )

George Jerry Merges (CRD#1610239, Registered Principal,Boca Raton, Florida) submitted anOffer of Settlement pursuant to whichhe was censured, fined $5,000, andsuspended from association with anyNASD member in a supervisorycapacity for 10 business days. With-out admitting or denying the allega-tions, Merges consented to thedescribed sanctions and to the entryof findings that he failed to superviseadequately an individual so as to beable to detect unsuitable recommen-dations made to a public customer.(NASD Case #C07980045)

Jeffrey David Miller (CRD #733159,Registered Representative,Moody, Alabama) was censured,fined $50,000, suspended fromassociation with any NASD memberin any capacity for one year, andbarred from association with anyNASD member in any capacity. Thesanctions were based on fin d i n g sthat Miller received a check in theamount of $2,558 from a public cus-tomer for the purchase of insurancepolicies, failed and neglected to exe-cute the purchases of these insur-ance policies, and instead, madeimproper use of the customer’sfunds. Miller also failed to amend hisForm U-4 to disclose a civil judgmentand the filing of a federal tax lienagainst him. Furthermore, Millerfailed to respond to NASD requestsfor information. (NASD Case# C 0 5 9 8 0 0 3 9 )

James Scott Morrill (CRD#2489543, Registered Representa-tive, Staten Island, New York) s u b-mitted an Offer of Settlementpursuant to which he was censured,fined $50,000, and barred from asso-ciation with any NASD member inany capacity. Without admitting ordenying the allegations, Morrill con-sented to the described sanctionsand to the entry of findings that, inconnection with an initial public offer-ing (IPO), Morrill solicited public cus-tomers to purchase units of theoffering by telling the customers thatthey could only purchase units in theIPO if they agreed to commit to after-market purchases. The findings alsostated that Morrill effected an unau-thorized purchase of shares of theIPO for a public customer when thecustomer agreed only to purchaseaftermarket units, effected an unau-thorized cancellation of the cus-tomer’s authorized IPO purchasebecause the customer refused to payfor the unauthorized shares, andcanceled a public customer’s pur-chase of units because the customerwas unable to timely remit funds to

purchase aftermarket units. In advis-ing customers that their rights to pur-chase units in the IPO werecontingent upon their committing topurchase aftermarket shares, theNASD found that Morrill misrepre-sented to the customers certainmaterial facts relating to the termsand conditions of the IPO and mis-represented the customers’ actualrights under the federal securitieslaws, and failed to advise them ofcertain material facts, such as theextensive risks associated with theproposed investment, including butnot limited to the history of operatinglosses. Furthermore, the NASDdetermined that Morrill attempted toinduce, and did in fact induce, per-sons to purchase units, shares, andwarrants prior to the completion ofthe IPO. (NASD Case #C10970143)

William Nunziato (CRD #727864,Registered Principal, Whitestone,New York) submitted an Offer ofSettlement pursuant to which he wascensured, fined $50,000, and barredfrom association with any NASDmember in any capacity. Withoutadmitting or denying the allegations,Nunziato consented to the describedsanctions and to the entry of fin d i n g sthat, acting with others, Nunziatoarranged to purchase approximately1.3 million shares of common stockfrom former affiliates of an offeringand, acting alone and with others,engaged in a secondary distributionusing special selling efforts and sell-ing methods at a time when his fir macted as a Market Maker; bid for andpurchased securities which were thesubject of the distribution; andinduced other persons to purchasesuch securities before the distributionwas completed. Moreover, the fin d-ings stated that Nunziato failed toinform his firm’s customers that theIPO was not a bona fide public distri-bution nor were they informed of thesecondary distribution that diluted theshareholders’ interests in the after-market. The findings also stated that


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a member firm, acting through Nun-ziato, failed to supervise adequatelyand properly an individual withrespect to “flipping” IPO shares toensure compliance with applicablerules and regulations, and failed totake any steps to discharge hissupervisory responsibilities with thefirm. Nunziato also failed to respondto an NASD request to appear for anon-the-record interview. ( N A S DCase #CAF980098)

David Charles Olson (CRD#1007413, Registered Principal,Aurora, Colorado) submitted a Let-ter of Acceptance, Waiver, and Con-sent pursuant to which he wascensured, fined $10,000, and sus-pended from association with anyNASD member in any capacity for 30days. Without admitting or denyingthe allegations, Olson consented tothe described sanctions and to theentry of findings that he made amaterial misrepresentation to a pub-lic customer regarding the cus-tomer’s investment. The NASDfound that, based on Olson’s falserepresentation, the customer contin-ued to hold his position of the stockand purchased additional sharesthrough another broker/dealer.(NASD Case #C3A990026)

Huang Huei Ong (CRD #2670892,Registered Representative, Singa-pore) was censured, fined $5,000,and suspended from association withany NASD member in any capacityfor 10 days. The sanctions werebased on findings that Ong providedfalse information on a Form U-4.(NASD Case #C10980006)

Michael Anthony Petrucci (CRD#2152102, Registered Representa-tive, New Haven, Connecticut)submitted a Letter of Acceptance,Waiver, and Consent pursuant towhich he was censured, fin e d$32,500, and barred from associa-tion with any NASD member in anycapacity. Without admitting or deny-

ing the allegations, Petrucci consent-ed to the described sanctions and tothe entry of findings that he engagedin outside business activities andengaged in a private securities trans-action without prior written notice to,or approval from, his member fir m .The findings also stated that Petruccimade untrue statements of materialfacts, and omitted to state materialfacts necessary to make the state-ments not misleading, in connectionwith his offer and sale of a promisso-ry note to a public customer. Further-more, the NASD found that Petrucciguaranteed the customer that hewould not lose any money as aninducement for the customer toinvest in the promissory note. ( N A S DCase #C11990016)

Robert Louis Plomgren (CRD#1240476, Registered Principal,Solana Beach, California) s u b m i t-ted a Letter of Acceptance, Waiver,and Consent pursuant to which hewas censured, fined $10,000, andsuspended from association with anyNASD member in any capacity forsix months. Without admitting ordenying the allegations, Plomgrenconsented to the described sanctionsand to the entry of findings that heparticipated in private securitiestransactions without providing priorwritten notice to his member fir mdescribing the proposed transactionsand his proposed role therein.(NASD Case #C02990031)

Thomas James Quesnel (CRD#1556028, Registered Representa-tive, South Hadley, Mas-sachusetts) submitted a Letter ofAcceptance, Waiver, and Consentpursuant to which he was censured,fined $50,000, barred from associa-tion with any NASD member in anycapacity, and ordered to pay$7,558.52, plus interest, in restitutionto a member firm. Without admittingor denying the allegations, Quesnelconsented to the described sanctionsand to the entry of findings that he

misappropriated $7,558.52 in cashsurrender proceeds from the lifeinsurance policies of his customers.According to the findings, the cus-tomers had endorsed cash surrenderchecks and requested that Quesneluse the funds to pay the premium ontheir new insurance policies. TheNASD found that, instead, Quesneldouble-endorsed the checks andimproperly converted the funds forhis own use and benefit. ( N A S DCase #C11990015)

Christopher Johnalbert Richard-son (CRD #2041338, RegisteredRepresentative, New York, NewYork) submitted an Offer of Settle-ment pursuant to which he was cen-sured and suspended fromassociation with any NASD memberin any capacity for 18 months. With-out admitting or denying the allega-tions, Richardson consented to thedescribed sanctions and to the entryof findings that he submitted materi-ally inaccurate Forms U-4, and failedto amend his Form U-4 to disclosestate actions taken against him. Thefindings also stated that Richardsonfailed to respond timely to NASDrequests for information. ( N A S DCase #C10980137)

Matthew Joseph Samul (CRD#2708526, Registered Representa-tive, Henderson, Nevada) was cen-sured, fined $2,500, and suspendedfrom association with any NASDmember in any capacity for five busi-ness days. The sanctions werebased on findings that Samul usedindecorous language during a con-versation with a potential customer.(NASD Case #C10980111)

Richard San Miguel, Jr. (CRD#1884910, Registered Representa-tive, Oceanside, California) s u b m i t-ted a Letter of Acceptance, Waiver,and Consent pursuant to which hewas censured, fined $10,000, andsuspended from association with anyNASD member in any capacity for 30


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business days. Without admitting ordenying the allegations, San Miguelconsented to the described sanctionsand to the entry of findings that hesubmitted Forms U-4 to his memberfirms and failed to notify his firms thathe was convicted of petty theft andwas disciplined by the state of Cali-fornia for failing to disclose the con-viction on a registration application.(NASD Case #C02990019)

Thomas Robert Sanford (CRD#2384344, Registered Principal,Dana Point, California) s u b m i t t e dan Offer of Settlement pursuant towhich he was censured, fin e d$30,000, barred from associationwith any NASD member in anycapacity with the right to reapply afterfive years, required to show proof ofrestitution to public customers, andrequired to reimburse his memberfirm $21,800. Without admitting ordenying the allegations, Sanford con-sented to the described sanctionsand to the entry of findings that heeffected transactions in the accountsof public customers without the cus-tomers’ knowledge, authorization, orconsent and initiated unauthorizedwire transfers totaling $21,800 fromthe joint account of public customers.The findings also stated that, in orderto facilitate this unauthorized wiretransfer, Sanford forged the cus-tomers’ signatures on wire transferinstruction forms, and as a result,$21,800 belonging to the customerswas transferred from their jointaccount to bank accounts of whichthe customers had no beneficial norother interest. (NASD Case#C02980090)

Mark Anthony Savage (CRD#1907412, Registered Representa-tive, Morristown, New Jersey) w a scensured, fined $25,000, and barredfrom association with any NASDmember in any capacity. The sanc-tions were based on findings thatSavage failed to respond to NASDrequests for information. ( N A S DCase #C10980101)

Andrew Daniel Schiff (CRD#2273198, Registered Representa-tive, West Long Branch, New Jer-sey) was censured, fined $14,000,and barred from association with anyNASD member in any capacity. TheNAC imposed the sanctions follow-ing appeal of a New York DBCCdecision. The sanctions were basedon findings that Schiff executedtransactions in the accounts of publiccustomers without the customers’knowledge, authorization, or con-sent. (NASD Case #C10970156)

Rex Dale Schilling (CRD #2120285,Registered Principal, Portland,Oregon) submitted a Letter ofAcceptance, Waiver, and Consentpursuant to which he was censured,fined $25,000, and barred from asso-ciation with any NASD member inany capacity. Without admitting ordenying the allegations, Schillingconsented to the described sanctionsand to the entry of findings that hefailed to respond to NASD requestsfor documents and information.(NASD Case #C3B990010)

David Jordan Smith (CRD#2139062, Registered Representa-tive, Kailua, Hawaii) was censured,fined $25,000, and barred from asso-ciation with any NASD member inany capacity. The sanctions werebased on findings that Smith failed torespond to NASD requests for infor-mation. (NASD Case #C3B980024)

Frank John Spinelli, Jr. (CRD#2712773, Registered Representa-tive, New York, New York) s u b m i t-ted a Letter of Acceptance, Waiver,and Consent pursuant to which hewas censured, fined $15,000, sus-pended from association with anyNASD member in any capacity for 60days, and required to requalify byexam in all capacities. Without admit-ting or denying the allegations,Spinelli consented to the describedsanctions and to the entry of fin d i n g sthat he solicited public customers,took customer orders to open new

accounts, and executed securitiestransactions while he was unregis-tered. According to the fin d i n g s ,Spinelli forwarded the customerinformation to a co-worker whoopened the accounts and executedthe securities transactions under hisname and internal account executivenumber. Spinelli failed to inform thecustomer or his member firm of thismatter. The NASD found that uponcompletion of his registration with theNASD, these accounts were trans-ferred back to Spinelli’s name andinternal account executive number.Furthermore, the NASD determinedthat Spinelli solicited customerssecurities without first knowing thecustomers and the customers’ suit-ability for the securities. ( N A S DCase #C10990048)

Richard Kent Steele, Jr. (CRD#2195547, Registered Representa-tive, Los Angeles, California) w a scensured, fined $25,000, and barredfrom association with any NASDmember in any capacity. The sanc-tions were based on findings thatSteele failed to respond to NASDrequests for information and an on-the-record interview. (NASD Case# C 1 0 9 8 0 0 8 3 )

Gerald James Stoiber (CRD#871482, Registered Representa-tive, Mokena, Illinois) was fin e d$450,000, suspended from associa-tion with any NASD member in anycapacity for six months, and requiredto pay $450,000 in restitution to pub-lic customers. However, the fine maybe reduced by any amounts Stoiberpays in restitution to public cus-tomers. The United States Court ofAppeals for the District of Columbiadismissed Stoiber’s appeal of anSEC decision rendered September1997 sustaining NASD disciplinaryaction, and the Supreme Court of theUnited States denied a writ of certio-rari in April 1999. The sanctions werebased on findings that Stoiberengaged in private securities trans-actions while failing to give prior writ-


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ten notice to, and obtain prior writtenapproval from, his member firm toengage in such activities.

Stoiber’s suspension began on May31, 1999, and will conclude at theclose of business on November 29,1999. (NASD Case #C8A940013)

Jennifer Marie Tew (CRD#2704798, Registered Representa-tive, North Glenn, Colorado) s u b-mitted a Letter of Acceptance,Waiver, and Consent pursuant towhich she was censured, fin e d$11,250, suspended from associa-tion with any NASD member in anycapacity for one year, and requiredto repay $250 to a bank. Withoutadmitting or denying the allegations,Tew consented to the describedsanctions and to the entry of fin d i n g sthat she used the computer account-ing function of a bank associatedwith her member firm to cause herchecking account at the bank to becredited in the aggregate amount of$250. The NASD found that thisamount was credited to offsetcharges that had been debited to theaccount. (NASD Case #C3A990003)

Vincent Gerard Vaccaro (CRD#2200443, Registered Principal,Lyndenhurst, New York). V a c c a r owas censured, fined $100,000,barred from association with anyNASD member in any capacity, andrequired to disgorge commissionstotaling $135,982.50 to his cus-tomers. The sanctions were basedon findings that Vaccaro participatedin a “boiler room” at his member fir mand made material misrepresenta-tions and omissions to public cus-tomers while recommending thatthey purchase interests in an IPOand aftermarket stock underwrittenby his member firm. In addition, Vac-caro made an unauthorized pur-chase for a public customer andfailed to execute sell orders hereceived from customers. ( N A S DCase #CMS960174)

Alejandro Vargas (CRD #2843561,Associated Person, Inglewood,California) submitted a Letter ofAcceptance, Waiver, and Consentpursuant to which he was censured,fined $10,000, and suspended fromassociation with any NASD memberin any capacity for 30 business days.Without admitting or denying the alle-gations, Vargas consented to thedescribed sanctions and to the entryof findings that he submitted a FormU-4 to his member firm that failed todisclose a petty theft conviction.(NASD Case #C02990020)

Greg Todd Vittor (CRD #1864219,Registered Principal, Boca Raton,Florida) submitted an Offer of Settle-ment pursuant to which he was cen-sured, fined $20,000, andsuspended from association with anyNASD member in any capacity for 30business days. Without admitting ordenying the allegations, Vittor con-sented to the described sanctionsand to the entry of findings that herepeatedly failed to make therequired “affirmative determination”that certain securities he sold shortwould be delivered or were availableand could be borrowed. ( N A S DCase #CAF980002)

Daniel Phillip Whaley (CRD#1161113, Registered Principal,Bay City, Michigan) submitted aLetter of Acceptance, Waiver, andConsent pursuant to which he wascensured, fined $7,500, suspendedfrom association with any NASDmember in any capacity for five busi-ness days, and required to requalifyby exam as a general securities prin-cipal. Without admitting or denyingthe allegations, Whaley consented tothe described sanctions and to theentry of findings that a member fir m ,acting through Whaley, failed toensure that an individual was quali-fied and/or registered in the appropri-ate capacity with the firm prior topermitting the individual to engage insecurities transactions. (NASD Case# C 8 A 9 8 0 0 0 8 )

Individuals FinedBrad Ralph Miles (CRD #2468765,Registered Representative, Hoop-er, Utah) submitted an Offer of Set-tlement pursuant to which he wascensured and fined $10,000. Withoutadmitting or denying the allegations,Miles consented to the describedsanctions and to the entry of fin d i n g sthat he participated in private securi-ties transactions and failed to givehis member firm prior written notific a-tion of his participation in the transac-tions. (NASD Case #C3A990009)

Greg Steven Sklar (CRD #1694379,Registered Representative, LosAngeles, California) submitted anOffer of Settlement pursuant to whichhe was censured, fined $30,000, andordered to requalify by exam as ageneral securities representative.Without admitting or denying the alle-gations, Sklar consented to thedescribed sanctions and to the entryof findings that he knew, or shouldhave known, that the recommenda-tions in the account of a public cus-tomer were unsuitable for thecustomer and that the account wasexcessively traded. Sklar failed totake appropriate action to preventthe violative activity in the accountand substantially benefited from theviolative trading activity. ( N A S DCase #C02980024)

Randy James Wishinsky (CRD#1461972, Registered Principal,Clinton, Tennessee) submitted aLetter of Acceptance, Waiver, andConsent pursuant to which he wascensured and fined $20,000. Withoutadmitting or denying the allegations,Wishinsky consented to thedescribed sanctions and to the entryof findings that he improperly paidcommissions to a registered repre-sentative of another firm for transac-tions with public customers he nevermet. According to the fin d i n g s ,Wishinsky had no involvement inthese transactions except to theextent that each of the accounts wasopened and the transactions accom-


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plished with his registered represen-tative number through his memberfirm. (NASD Case #C11980012)

Decisions IssuedThe following decisions have beenissued by the DBCC or the Office ofHearing Officers and have beenappealed to or called for review bythe NAC as of May 14, 1999. Thefindings and sanctions imposed inthe decision may be increased,decreased, modified, or reversed bythe NAC. Initial decisions whose timefor appeal has not yet expired will bereported in the next Notices to Mem-b e r s.

Sylvester Cannon, Jr. (CRD#2766126, Registered Representa-tive, Detroit, Michigan) was cen-sured, fined $25,000, and barredfrom association with any NASDmember in any capacity. The sanc-tions were based on findings thatCannon failed to respond to NASDrequests for information regardingalleged forgeries.

Cannon has appealed this action tothe NAC and the sanctions are not ineffect pending consideration of theappeal. (NASD Case #C8A980054)

Vincent Michael Carrella (CRD#2321148, Registered Principal,East Islip, New York) was cen-sured, fined $100,000, barred fromassociation with any NASD memberin any capacity, and required to dis-gorge commissions totaling$161,623.75 to his customers. Thesanctions were based on fin d i n g sthat Carrella made fraudulent mis-representations to public customerswhile recommending that they pur-chase interests in an IPO and after-market stock underwritten by hismember firm. Carrella failed to dis-close to customers material informa-tion concerning the risks attendant toinvesting in the offering.

Carrella has appealed this action tothe NAC and the sanctions are not ineffect pending consideration of theappeal. (NASD Case #CMS960174)

Steven Fishman (CRD #2428781,Registered Principal, Brooklyn,New York) was censured and barredfrom association with any NASDmember in any capacity. The sanc-tions were based on findings that aformer member firm, acting throughFishman, operated a securities busi-ness without a financial and opera-tions principal and conducted asecurities business while failing tomaintain its minimum required netcapital. In addition, the firm, actingthrough Fishman, failed to establish,maintain, and enforce written super-visory procedures that addressed thereceipt of customer checks madepayable to the firm.

Fishman has appealed this action tothe NAC and the sanctions are not ineffect pending consideration of thea p p e a l . (NASD Case #C10960032)

Harry Gliksman (CRD #223138,Registered Principal, Beverly Hills,California) was censured, fin e d$25,000, suspended from associa-tion with any NASD member in anycapacity for six months, and requiredto requalify as a general securitiesrepresentative. The NAC affir m e dthe sanctions following appeal of aLos Angeles DBCC decision. Thesanctions were based on fin d i n g sthat Gliksman made unsuitable rec-ommendations to a public customer.

Gliksman has appealed this action tothe SEC and the sanctions are not ineffect pending consideration of theappeal. (NASD Case #C02960039)

Robin Bruce McNabb (CRD#1016598, Registered Principal,San Jose, California) was cen-sured, fined $50,000, and barredfrom association with any NASDmember in any capacity. The NAC

imposed the sanctions followingappeal of a San Francisco DBCCdecision. The sanctions were basedon findings that McNabb participatedin private securities transactionswithout giving prior written notific a-tion to his member firm. In addition,McNabb recommended to publiccustomers the purchase of securitieswithout having reasonable groundsfor believing that the investmentswere suitable for the customers inlight of the facts disclosed by thecustomers as to their other securityholdings and as to their financial situ-ation and needs.

McNabb has appealed this action tothe SEC and the sanctions, otherthan the bar, are not in effect pend-ing consideration of the appeal.(NASD Case #C01970021)

Complaints FiledThe following complaints wereissued by the NASD. Issuance of adisciplinary complaint represents theinitiation of a formal proceeding bythe NASD in which findings as to theallegations in the complaint have notbeen made, and does not representa decision as to any of the allega-tions contained in the complaint.Because these complaints are unad-judicated, you may wish to contactthe respondents before drawing anyconclusions regarding the allegationsin the complaint.

William Thomas Breese (CRD#2542710, Registered Representa-tive, Midlothian, Illinois) w a snamed as a respondent in an NASDcomplaint alleging that he received$141,793.19 in checks and cashfrom public customers to purchasesecurities, failed to apply the funds,except for $1,000, as they directed,and without their knowledge andauthorization, used the funds for hisown benefit or for some purposeother than for the benefit of the cus-tomers. The complaint alleges that


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Breese obtained a total of$151,376.88 from accounts belong-ing to a public customer, without theknowledge or authorization of thecustomer, and used the funds for theb e n e fit of himself or individuals otherthan the customer. The complaintalso alleges that Breese failed torespond to NASD requests for infor-mation. (NASD Case #C8A990039)

Robert Steven Calavetta (CRD#2399753, Registered Representa-tive, Staten Island, New York) w a snamed as a respondent in an NASDcomplaint alleging that he purchasedsecurities for the account of a publiccustomer, without the knowledge orconsent of the customer, and in theabsence of written or oral authoriza-tion to exercise discretion in theaccount. The complaint also allegesthat Calavetta failed to appear for anon-the-record interview requested bythe NASD. (NASD Case# 1 0 9 9 0 0 5 4 )

Michael Daniel Cleary (CRD#2692653, Registered Representa-tive, New York, New York) w a snamed as a respondent in an NASDcomplaint alleging that he effected apurchase in the account of a publiccustomer without the knowledge orconsent of the customer, and failedto execute other customers’ sellorders. The complaint also allegesthat Cleary made false or misleadingstatements to a public customerwhen he knew, or was reckless innot knowing, that they were false ormisleading. The complaint allegesthat Cleary allowed an unregisteredperson to use his account executivenumber to effect securities transac-tions when he knew or should haveknown that the individual was notregistered with the NASD. Further-more, the complaint alleges thatCleary knowingly entered false andmisleading information on his FormU-4, and failed to respond in a timelymanner to NASD requests for infor-mation or to appear for an on-the-

record interview. (NASD Case# 1 0 9 9 0 0 5 6 )

Oscar Conrad Dotson (CRD#2585430, Registered Representa-tive, Providence, Rhode Island)was named as a respondent in anNASD complaint alleging that hereceived a check in the amount of$556.70 from a public customer inorder to pay the premium to reinstateher husband’s insurance policy,failed to apply the $556.70 to theinsurance policy as intended by thecustomer, and instead, improperlyconverted the funds for his own useand benefit. The complaint alsoalleges that Dotson failed to respondto NASD requests for information.(NASD Case #C11990020)

John Edwin Evans (CRD#1649451, Registered Principal,Dunwoody, Georgia) was namedas a respondent in an NASD com-plaint alleging that he made repre-sentations to public customersregarding the purchase of warrantsthat constituted a guarantee againstloss and a manipulative, deceptive,and fraudulent inducement to effectthe purchase of a security. The com-plaint also alleges that Evans failedto respond to NASD requests forinformation. (NASD Case# C 0 7 9 9 0 0 3 5 )

Christopher Gordon Fike (CRD#2493817, Registered Principal,Bayshore, New York) was namedas a respondent in an NASD com-plaint alleging that he made materialmisrepresentations and omitted todisclose material information to pub-lic customers in connection with hissolicitations and recommendations oftransactions. The complaint allegesthat Fike made price projections ofsecurities to public customers with-out having a reasonable basis for hispredictions. The complaint alsoalleges that Fike made unsuitablerecommendations to a public cus-tomer, in light of the customer’s

financial circumstances and needs.(NASD Case #C3A990021)

Len Kenneth Furman (CRD#1964317, Registered Principal,Bradenton, Florida) was named asa respondent in an NASD complaintalleging that he made omissions ofmaterial fact in connection with thesale of promissory notes to publiccustomers. The complaint alsoalleges that Furman solicited andsold promissory notes to public cus-tomers, outside of the scope of hisregular employment with his memberfirm, without giving prior writtennotice to, or receiving approval from,his firm of his proposed participationin such transactions. The complaintalso alleges that Furman signedfalse and misleading affidavits inconnection with arbitration proceed-ings filed by public customers.(NASD Case #C07990033)

Hanna Grzedzicakawalek (CRD#2610590, Registered Representa-tive, Glen Cove, New York) w a snamed as a respondent in an NASDcomplaint alleging that she receiveda $1,479 cash payment from a publiccustomer to pay the annual premiumfor a life insurance policy, failed totransmit this payment to the insur-ance company, and instead, deposit-ed the money in her personal bankaccount, and began making monthlypremium payments of $135 on thecustomer’s policy. The complaintalleges that Grzedzicakawalek madea total of $810 of such payments andconverted the remaining $669 to herown use and benefit without the cus-tomer’s knowledge or consent. Thecomplaint also alleges that Grzedzi-cakawalek received insurancechecks totaling $1,115.39 payable topublic customers, representing pre-mium refunds from canceled lifeinsurance policies, and rather thantransmitting these payments to thecustomers, endorsed the checks,deposited them in her personal bankaccount, and converted the resulting


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funds to her own use and benefitwithout the customers’ consent orauthority. The complaint also allegesthat Grzedzicakawalek failed torespond to NASD requests for infor-mation. (NASD Case #C9B990002)

James Mirven Hinderliter, III (CRD#2573867, Registered Representa-tive, Shirley, New York) was namedas a respondent in an NASD com-plaint alleging that he received$182.63 in cash premium paymentsfor life insurance policies, failed toforward these payments to his mem-ber firm, and instead, convertedthese funds to his own use and ben-e fit without the customer’s knowl-edge or consent. The complaint alsoalleges that Hinderliter failed torespond to NASD requests for infor-mation. (NASD Case #C9B990003)

Mark Allen McGee (CRD #2422551,Registered Representative, New-castle, Washington) was named asa respondent in an NASD complaintalleging that he received a check inthe amount of $5,079 from a publiccustomer for investment purposes,and the customer did not receiveeither the shares of stock he intend-ed to purchase, nor did McGeereturn the funds to the customer. Thecomplaint also alleges that McGeereceived a total of $26,000 from pub-lic customers for investment in the“Equity Committee Portfolio,” a fundthey were told by McGee was man-aged by a group of financial advisorsin his firm’s Seattle office, when infact, there was no such product pro-vided by the firm, and the customers’funds were not placed in a bona fid einvestment, nor did McGee return thefunds to them. Furthermore, thecomplaint alleges that McGee failedto respond to NASD requests fori n f o r m a t i o n . (NASD Case# C 3 B 9 9 0 0 1 7 )

Patrick John McVicar (CRD#2182305, Registered Representa-tive, Jersey City, New Jersey) w a s

named as a respondent in an NASDcomplaint alleging that he executedunauthorized purchase transactionsin the account of a public customerwithout the customer’s knowledge orconsent. The complaint alleges thatMcVicar sent correspondence to apublic customer without the priorapproval or review by his supervisor.The complaint also alleges thatMcVicar failed to respond to NASDrequests for information. ( N A S DCase #C05990011)

Keith Malvin Peters (CRD#2247575, Registered Principal,Copiague, New York) was namedas a respondent in an NASD com-plaint alleging that he made materialmisrepresentations and omitted todisclose material information to pub-lic customers in connection with hissolicitations and recommendations oftransactions. The complaint allegesthat Peters predicted the future priceof securities to public customerswithout having a reasonable basis.The complaint also alleges thatPeters effected a transaction in theaccount of a public customer thatexceeded the customer’s authoriza-tion. The complaint also alleges thatPeters failed to sell securities asinstructed by a public customer.(NASD Case #C3A990022)

Fernando Patricio Rodriguez (CRD#1587712, Registered Principal,Cudahy, California) was named asa respondent in an NASD complaintalleging that he received cash pay-ments totaling $800 from a publiccustomer for the purpose of payingthe customer’s individual retirementaccount fixed annuity premiums, andinstead of making the payments forthe customer, converted the $800 tohis own personal use. (NASD Case# C 0 2 9 9 0 0 3 2 )

Wei John Wang (CRD #2549111,Registered Representative,Nashville, Tennessee) was namedas a respondent in an NASD com-

plaint alleging that he forged the sig-nature of a public customer to a formtitled “Authorization to Change Bro-ker/Dealer,” which effected a changeof the broker/dealer of record for thecustomer’s account from one mem-ber firm to another, without the cus-tomer’s knowledge or consent. Thecomplaint also alleges that Wangexercised discretion in the account ofa public customer by effecting atransfer of funds held in the cus-tomer’s variable annuity from anindex equity fund to a high yield bondfund, without having obtained priorwritten authorization from the cus-tomer and prior written acceptance ofthe account as discretionary by hismember firm. The complaint alsoalleges that Wang provided theNASD with a copy of a letter purport-edly written and signed by a publiccustomer, which represented that thecustomer was satisfied with the man-ner in which his account had beenhandled by Wang when Wang knew,or should have known, that the letterwas not written by the customer andthe purported signature was aforgery. The complaint also allegesthat Wang provided the NASD with acopy of a letter purportedly writtenand signed by another customerwhich represented that the customerwas retracting a complaint previouslymade against Wang when Wangknew, or should have known, that theletter was not written by the cus-tomer and the purported signaturewas a forgery. (NASD Case# C 0 5 9 9 0 0 1 4 )

Individuals WhoseRegistrations Were Revo k e dFor Failure To Pay Fines, CostsAnd/Or Provide Proof OfRestitution In Connection WithV i o l a t i o n sConlon, John J. III, Wallingford,Connecticut (April 28, 1999)

Melville, Andrew B., AltamonteSprings, Florida (April 28, 1999)


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Priolo, Antonio Eugene, Brooklyn,New York (April 28, 1999)

N A S D ’s National AdjudicatoryCouncil Fines A.S. Goldmen &Co. $150,000; Ord e rsRestitution To Customers ;Sanctions And Fines FirmE xecs NASD Regulation’s National Adjudi-catory Council (NAC) ordered Iselin,N.J.-based A.S. Goldmen & Co.,Inc., to pay a $150,000 fine andmore than $500,000 in restitutionand interest to customers involved insecurities transactions relating totoday’s decision.

A.S. Goldmen President and ownerAnthony J. Marchiano has beenfined, together with the fir m ,$150,000; required to requalify as aprincipal; and censured for failing tosupervise. Vice President Stuart E.Winkler has been suspended for twoyears, fined $36,000, and censuredfor engaging in manipulative con-duct, charging excessive markups,and failing to supervise. Head TraderStacy Meyers was censured, fin e d$5,000, and required to requalify asa general securities representative.

Following an independent review ofthe entire record in this matter, theNAC affirmed in part and reversed in

part the findings of New York’sDBCC. The NAC found that A.S.Goldmen and Winkler engaged inmanipulative and fraudulent tradingpractices, and that Meyers wasresponsible for the firm’s excessivemarkups. Finally, the NAC upheldthe determination that A.S. Goldmen,Winkler, and Marchiano failed toadequately establish, maintain, andenforce a supervisory system at thefirm. During the appeal the staff fil e da motion to reverse and dismiss theDBCC's finding of excessive under-writing compensation because thestaff determined that the calculationof the compensation was erroneous.Based upon the staff’s motion, theNAC dismissed the finding andreduced the sanctions accordingly.

The NAC concluded that during afour-day period in July 1994, A.S.Goldmen, through Winkler and Mey-ers, charged retail customers fraudu-lently excessive markups in 500sales of Innovative Tech Systems,Inc. (ITSY) warrants, that the fir mdominated and controlled the ITSYwarrant market, and that A.S. Gold-men manipulated the market by bid-ding for and purchasing ITSYwarrants while engaged in a distribu-tion of the warrants. The manipula-tion and the overcharging, resulted inmore than $500,000 in illicit profits.

NASD Regulation found that eventhough A.S. Goldmen was only oneof 12 Market Makers in InnovativeTech, it accounted for approximately97 percent of all the warrants tradedduring the four-day period. By domi-nating the market to this extent, A.S.Goldmen controlled the supply ofInnovative Tech’s warrants, throughits own accounts and its customers’accounts, immediately following thecompany’s IPO on July 26, 1994.

A.S. Goldmen artificially increasedthe warrant’s price to almost $2 pershare, more than a 700 percentincrease over the offering price. As aresult, customers were chargedmarkups of five to 140 percent.NASD Regulation considersmarkups greater than five percent tobe excessive and greater than 10percent to be fraudulent.

NASD Regulation found no evidencethat Innovative Tech Systems, whichwas (and still is) listed on The Nas-daq SmallCap MarketS M at the time,knew that the price of its warrantswas being manipulated.



NASD Notice to Members—For Your Info rm a t i o n June 1999

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Market Regulation ComplianceReport CardsOn September 24, 1998, staff of theMarket Regulation Department (Mar-ket Regulation) of NASD Regulationbegan making available quantitativereports for each NASD member fir mconcerning its compliance with tradereporting, firm quote, and best exe-cution. The reports are being provid-ed to firms as a compliance aid toassist them in ensuring that they aresubmitting transaction reports in atimely manner, handling SelectNetS M

liability orders in compliance with thefirm quote rule, providing best execu-tion to their customers, and, if neces-sary, taking appropriate measures toimprove their performance in theseareas. Each report contains informa-tion for the previous calendar monthand is available on the 24th of eachmonth or the first business day afterthe 24th if that day falls on a week-end or holiday.

The reports are available to view atw w w . n a s d a q t r a d e r . c o m, however,given the proprietary nature of thefir m - s p e c i fic reports, a firm must sub-scribe to the Proprietary TradingData section of the Web Site toaccess any of the reports. For adetailed description of each of thereports and subscription information,please call Nasdaq Subscriber Ser-vices at (800) 777-5606.

Although these reports are designedand intended to be a preventivecompliance tool, the information con-tained in these reports may indicatethe existence of rule violations thatmay be pursued by Market Regula-tion staff depending on the circum-stances. If you have any questionsconcerning the trade reporting reportcard, call Patricia Casimates at (301)590-6447. If you have any questionsconcerning the firm quote compli-ance or best execution report cards,call Joe McDonald at (301) 212-3835.

Exemptive Letter IssuedOn April 26, 1999, NASD Regulationstaff issued an exemptive letterunder the NASD Rule 9600 Seriesconcerning the application of theFree-Riding and Withholding Inter-pretation, IM-2110-1 (Interpretation),to purchases of hot issues by stategovernment employee pension, ben-e fit, or retirement plans. Specific a l l y ,the letter exempts from the Interpre-tation purchases by governmentemployee pension, benefit, andretirement plans to the same extentthat plans qualified under theEmployee Retirement Income Secu-rity Act (ERISA) are exempted byparagraph (f)(3) of the Interpretation.The letter explains that althoughstate government employee benefitplans are not “qualified underERISA,” they are subject to separatestate and municipal regulation, theyare not sponsored by entities typical-ly engaged in financial services, andthey often include thousands or hun-dreds of thousands of participants.

The exemptive letter may be foundon the NASD Regulation Web Site(w w w . n a s d r . c o m) in the section list-ing Interpretive Letters.

Announcement - UpcomingDistrict 4 And District 7Compliance Seminars

District 4 Membership Preven-tive Compliance Program

The 1999 District 4 Membership Pre-ventive Compliance Program will beheld on Wednesday, September 29,1999. Members of the NASD Regu-lation staff, as well as selected indus-try speakers, will discuss currentindustry issues and offer insights andbest practices on regulatory andcompliance matters. Some of thetopics to be discussed include theCentral Registration Depository( C R DS M) system, communicationswith the public, continuing education,

For Yo u rI n f o rm a t i o n

NASD Notice to Members—For Your Info rm a t i o n June 1999

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on-line trading, written supervisoryprocedures, and more. CLE creditswill be offered for this program.

The program will be held at theRadisson Plaza Hotel in Minneapolis,Minnesota and the registration fee is$150. For more information on theprogram, contact Cheryl Hackathorn,NASD Regulation, District 4 Offic e ,at (816) 421-5700.

District 7 Compliance Seminar

On August 26 to 27, 1999, the 1999District 7 Compliance Seminar will beheld in Atlanta. Members of theNASD Regulation staff from Atlantaand Washington, as well as selectedindustry speakers, will discuss cur-rent industry issues and offer insightsand best practices on regulatory andcompliance matters.

The seminar will be held at the Ritz-Carlton Buckhead Hotel in Atlanta;the registration fee is $225. For moreinformation, contact the District 7O f fice at (404) 239-6117.



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SpecialNASDNotice toMembers99-52Mail Vo t e—NASD SolicitsVote On Amendments ToNASD By-Laws To TheAssociated Pe r s o nD e finition; Last Vo t i n gDate: Ju ly 16, 1999




Corporate Finance




I n s u r a n c e

Internal Audit

Legal & Compliance

M u n i c i p a l

Mutual Fund

O p e r a t i o n s

O p t i o n s



R e s e a r c h

S y n d i c a t e

S y s t e m s

T r a d i n g

T r a i n i n g

Variable Contracts

Executive SummaryThe National Association ofSecurities Dealers, Inc. (NASD®)invites members to vote to approvethe following amendments to theNASD By-Laws: amend thed e finition of “person associated witha member” to include persons whohave applied for registration and, forpurposes of Rule 8210, certainpersons who have ownershipinterests in NASD members. The lastvoting date is July 16, 1999. The textof the proposed amendments followsthis N o t i c e.

Questions concerning this N o t i c emay be directed to Mary M. Dunbar,Assistant General Counsel, Office ofGeneral Counsel, NASD Regulation,Inc. (NASD Regulation®), at (202) 728-8252.

Background And DiscussionThe NASD Board of Governors (theBoard) recommends two minoramendments to the definition of theterm “person associated with amember” in Article I of the NASD By-Laws. The term is currently defin e dto include:

(1) a natural person registeredunder the Rules of theAssociation; or

(2) a sole proprietor, partner,o f ficer, director, or branchmanager of a member, or anatural person occupying asimilar status or performingsimilar functions, or a naturalperson engaged in theinvestment banking or securitiesbusiness who is directly orindirectly controlling or controlledby a member, whether or not anysuch person is registered orexempt from registration with theNASD under these By-Laws orthe Rules of the Association.

At least two issues have arisen withrespect to the definition. The fir s tissue is whether the definition should

be expanded modestly to apply tocertain owners of members.Currently, the definition only includesowners who are natural personsengaged in the member’s investmentbanking or securities business a n dwho have a direct or indirect controlrelationship with the member. TheBy-Laws do not define the term“ c o n t r o l . ”1

While the Board does not believethat the definition of associatedperson should include all owners andthereby subject them to all NASDrules, the Board would like to expandthe definition minimally to give thestaff authority to direct a request forinformation under Rule 8210 (theRule) to any person – including anatural person or corporate or otherentity – who holds a five percent orgreater interest in a member fir m ,regardless of whether they “control”the member firm or are activelyengaged in its securities orinvestment banking business. Suchpersons are easily identified becausemembers must list them in ScheduleA of Form BD, which is filed with theNASD and the Securities andExchange Commission. Forexample, if the member is acorporation, the member generallymust list each shareholder thatdirectly owns five percent or more ofa class of a voting security of thebroker/dealer. If the member is apartnership, the member must list allgeneral partners and those limitedand special partners that havecontributed, or have the right toreceive upon dissolution, five percentor more of the partnership’s capital.Members have a continuingobligation to update Schedule A.

The Board is not recommending anychange to the Rule itself, which isone of the staff’s primary tools forcarrying out its regulatoryresponsibilities. The Rule authorizesthe staff, for the purpose of aninvestigation, complaint,examination, or proceedingauthorized by the NASD By-Laws or

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rules, to require a member orassociated person to provideinformation or testimony. The Rulealso authorizes the staff to inspectand copy the books, records, andaccounts of such member or personwith respect to any matter involved inthe investigation, complaint,examination, or proceeding. Theproposed amendment to thed e finition of associated personrepresents an incremental changethat would permit the staff to direct aRule 8210 request to any owner –individual, corporate, partnership,trust, or otherwise – listed inSchedule A of Form BD, whether ornot such owner controls the memberfirm. The Board does not believe thatit is necessary at this time to applyany other NASD rules to this groupof owners or to amend Rule 8210.

The second issue involves ananomaly between the By-Lawd e finition of the term “associatedperson” and the Form U-4, which isthe application form for registrationthat must be signed by theprospective registered person. TheForm U-4 states that by signing theForm, the applicant is subject to thejurisdiction of the NASD and anystate in which he/she is applying forregistration. However, the current

By-Law does not expressly addressapplicants for registration. The Boardrecommends that the By-Law shouldbe made expressly consistent withthe Form U-4 in this respect.

Text Of The ProposedAmendments(Note: New language is underlined; deletionsare bracketed.)

By-Laws Of The NASD, Article 1

(a) – (dd) No Change

(ee) “person associated with amember” or “associated person of amember” means:

(1) a natural person who isregistered or has applied forr e g i s t r a t i o n under the Rules of theAssociation; [or]

(2) a sole proprietor, partner, offic e r ,director, or branch manager of amember, or [a] o t h e r natural personoccupying a similar status orperforming similar functions, or anatural person engaged in theinvestment banking or securitiesbusiness who is directly or indirectly

controlling or controlled by amember, whether or not any suchperson is registered or exempt fromregistration with the NASD underthese By-Laws or the Rules of theAssociation; a n d

(3) for purposes of Rule 8210, anyother person listed in Schedule A ofForm BD of a member;

(ff) – (mm) No Change

Endnote1The Form BD defines “control” as the

“power, directly or indirectly, to direct the

management or policies of a company,

whether through ownership of securities, by

contract, or otherwise. Any person that …

directly or indirectly has the right to vote 25%

or more of a class of a voting securities or

has the power to sell or direct the sale of

25% or more of a class of voting securities;

or … in the case of a partnership, has the

right to receive upon dissolution, or has con-

tributed 25% or more of the capital, is pre-

sumed to control that company.”







