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Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Order Granting Approval to a Proposed Rule Change and Amendment No. 1 Thereto Amending NASD Rule 3070 Concerning the Reporting of Criminal Offenses by Members and Persons Associated With a Member to the NASD

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Start Preamble May 15, 2002.

On February 21, 2002, the National Association of Securities Dealers, Inc. (“NASD” or “Association”), through its wholly owned subsidiary NASD Regulation, Inc. (“NASD Regulation”), filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),[1] and Rule 19b-4 thereunder,[2] a proposed rule change to amend NASD Conduct Rule 3070 to limit reporting under this category to any felony, certain types of misdemeanors, and substantially equivalent activity in a domestic, foreign or military court. According to NASD Regulation, this proposed rule change would conform NASD Rule 3070(a)(5) to a proposed rule change by the New York Stock Exchange, Inc. (“NYSE”) to amend NYSE Rule 351(a)(5).[3] The proposed rule change was published for comment in the Federal Register on March 8, 2002.[4] The Commission received one comment letter on the proposal,[5] which supports the proposed rule change. On May 14, 2002, NASD Regulation filed Amendment No. 1 to the proposed rule change with the Commission.[6] This order approves the proposed rule change, as amended.

The Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange [7] and, in particular, the requirements of Section 15A of the Act [8] and the rules and regulations thereunder. The Commission finds specifically that the proposed rule change is consistent with Section 15A(b)(6) of the Act [9] because narrowing the scope of reportable criminal offenses that members and member organizations would be required to report to the NASD is designed to foster cooperation and coordination with persons engaged in regulating, clearing, settling and facilitating transactions in securities. In particular, by continuing to require that every felony be reported, but only the proposed misdemeanors, would in effect, minimize the number of immaterial filings and maximize the effective use of resources committed to fulfilling self-regulatory responsibilities at the Association. Moreover, the proposed rule change would continue to capture the reporting of arrests for which any subsequent conviction would subject the individual to a statutory disqualification under Section 3(a)(39) of the Act.[10]

It is therefore ordered, pursuant to Section 19(b)(2) of the Act,[11] that the proposed rule change and Amendment No. 1 thereto (File No. SR-NASD-2002-27) are approved.

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For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[12]

Margaret H. McFarland,

Deputy Secretary.

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3.  See Securities Exchange Act Release No. 45869 (May 3, 2002), 67 FR 31398 (May 9, 2002) (approving SR-NYSE-2002-06).

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4.  See Securities Exchange Act Release No. 45493 (March 1, 2002), 67 FR 10783.

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5.  See letter to Jill M. Peterson, Assistant Secretary, Commission, from Selwyn J. Notelovitz, Senior Vice President, Global Compliance, Charles Schwab & Co., Inc., dated March 21, 2002 (“Schwab Letter”).

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6.  See letter to Katherine England, Assistant Director, Division of Market Regulation, Commission, from Shirley Weiss, Associate General Counsel, NASD Regulation, dated May 14, 2002 (“Amendment No. 1”). In Amendment No. 1, NASD Regulation amended the proposed rule change to require that an arrest, arraignment, or conviction before a military court of any of the enumerated crimes be reported to the NASD. In addition, NASD Regulation added the conspiracy to commit any one of the enumerated misdemeanors under NASD Conduct Rule 3070(a)(5) to the list of crimes that must be reported to the NASD. This is a technical amendment and is not subject to notice and comment.

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7.  In approving this proposed rule change, the Commission notes that it has considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

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[FR Doc. 02-12983 Filed 5-22-02; 8:45 am]