|
U.S. Code as of:
01/19/04
Section 78o-3. Registered securities associations
(a) Registration; application
An association of brokers and dealers may be registered as a
national securities association pursuant to subsection (b) of this
section, or as an affiliated securities association pursuant to
subsection (d) of this section, under the terms and conditions
hereinafter provided in this section and in accordance with the
provisions of section 78s(a) of this title, by filing with the
Commission an application for registration in such form as the
Commission, by rule, may prescribe containing the rules of the
association and such other information and documents as the
Commission, by rule, may prescribe as necessary or appropriate in
the public interest or for the protection of investors.
(b) Determinations by Commission requisite to registration of
applicant as national securities association
An association of brokers and dealers shall not be registered as
a national securities association unless the Commission determines
that -
(1) By reason of the number and geographical distribution of
its members and the scope of their transactions, such association
will be able to carry out the purposes of this section.
(2) Such association is so organized and has the capacity to be
able to carry out the purposes of this chapter and to comply, and
(subject to any rule or order of the Commission pursuant to
section 78q(d) or 78s(g)(2) of this title) to enforce compliance
by its members and persons associated with its members, with the
provisions of this chapter, the rules and regulations thereunder,
the rules of the Municipal Securities Rulemaking Board, and the
rules of the association.
(3) Subject to the provisions of subsection (g) of this
section, the rules of the association provide that any registered
broker or dealer may become a member of such association and any
person may become associated with a member thereof.
(4) The rules of the association assure a fair representation
of its members in the selection of its directors and
administration of its affairs and provide that one or more
directors shall be representative of issuers and investors and
not be associated with a member of the association, broker, or
dealer.
(5) The rules of the association provide for the equitable
allocation of reasonable dues, fees, and other charges among
members and issuers and other persons using any facility or
system which the association operates or controls.
(6) The rules of the association are designed to prevent
fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to
and perfect the mechanism of a free and open market and a
national market system, and, in general, to protect investors and
the public interest; and are not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers,
to fix minimum profits, to impose any schedule or fix rates of
commissions, allowances, discounts, or other fees to be charged
by its members, or to regulate by virtue of any authority
conferred by this chapter matters not related to the purposes of
this chapter or the administration of the association.
(7) The rules of the association provide that (subject to any
rule or order of the Commission pursuant to section 78q(d) or
78s(g)(2) of this title) its members and persons associated with
its members shall be appropriately disciplined for violation of
any provision of this chapter, the rules or regulations
thereunder, the rules of the Municipal Securities Rulemaking
Board, or the rules of the association, by expulsion, suspension,
limitation of activities, functions, and operations, fine,
censure, being suspended or barred from being associated with a
member, or any other fitting sanction.
(8) The rules of the association are in accordance with the
provisions of subsection (h) of this section, and, in general,
provide a fair procedure for the disciplining of members and
persons associated with members, the denial of membership to any
person seeking membership therein, the barring of any person from
becoming associated with a member thereof, and the prohibition or
limitation by the association of any person with respect to
access to services offered by the association or a member
thereof.
(9) The rules of the association do not impose any burden on
competition not necessary or appropriate in furtherance of the
purposes of this chapter.
(10) The requirements of subsection (c) of this section,
insofar as these may be applicable, are satisfied.
(11) The rules of the association include provisions governing
the form and content of quotations relating to securities sold
otherwise than on a national securities exchange which may be
distributed or published by any member or person associated with
a member, and the persons to whom such quotations may be
supplied. Such rules relating to quotations shall be designed to
produce fair and informative quotations, to prevent fictitious or
misleading quotations, and to promote orderly procedures for
collecting, distributing, and publishing quotations.
(12) The rules of the association to promote just and equitable
principles of trade, as required by paragraph (6), include rules
to prevent members of the association from participating in any
limited partnership rollup transaction (as such term is defined
in paragraphs (4) and (5) of section 78n(h) of this title) unless
such transaction was conducted in accordance with procedures
designed to protect the rights of limited partners, including -
(A) the right of dissenting limited partners to one of the
following:
(i) an appraisal and compensation;
(ii) retention of a security under substantially the same
terms and conditions as the original issue;
(iii) approval of the limited partnership rollup
transaction by not less than 75 percent of the outstanding
securities of each of the participating limited partnerships;
(iv) the use of a committee that is independent, as
determined in accordance with rules prescribed by the
association, of the general partner or sponsor, that has been
approved by a majority of the outstanding securities of each
of the participating partnerships, and that has such
authority as is necessary to protect the interest of limited
partners, including the authority to hire independent
advisors, to negotiate with the general partner or sponsor on
behalf of the limited partners, and to make a recommendation
to the limited partners with respect to the proposed
transaction; or
(v) other comparable rights that are prescribed by rule by
the association and that are designed to protect dissenting
limited partners;
(B) the right not to have their voting power unfairly reduced
or abridged;
(C) the right not to bear an unfair portion of the costs of a
proposed limited partnership rollup transaction that is
rejected; and
(D) restrictions on the conversion of contingent interests or
fees into non-contingent interests or fees and restrictions on
the receipt of a non-contingent equity interest in exchange for
fees for services which have not yet been provided.
As used in this paragraph, the term "dissenting limited partner"
means a person who, on the date on which soliciting material is
mailed to investors, is a holder of a beneficial interest in a
limited partnership that is the subject of a limited partnership
rollup transaction, and who casts a vote against the transaction
and complies with procedures established by the association,
except that for purposes of an exchange or tender offer, such
person shall file an objection in writing under the rules of the
association during the period in which the offer is outstanding.
(13) The rules of the association prohibit the authorization
for quotation on an automated interdealer quotation system
sponsored by the association of any security designated by the
Commission as a national market system security resulting from a
limited partnership rollup transaction (as such term is defined
in paragraphs (4) and (5) of section 78n(h) of this title),
unless such transaction was conducted in accordance with
procedures designed to protect the rights of limited partners,
including -
(A) the right of dissenting limited partners to one of the
following:
(i) an appraisal and compensation;
(ii) retention of a security under substantially the same
terms and conditions as the original issue;
(iii) approval of the limited partnership rollup
transaction by not less than 75 percent of the outstanding
securities of each of the participating limited partnerships;
(iv) the use of a committee that is independent, as
determined in accordance with rules prescribed by the
association, of the general partner or sponsor, that has been
approved by a majority of the outstanding securities of each
of the participating partnerships, and that has such
authority as is necessary to protect the interest of limited
partners, including the authority to hire independent
advisors, to negotiate with the general partner or sponsor on
behalf of the limited partners, and to make a recommendation
to the limited partners with respect to the proposed
transaction; or
(v) other comparable rights that are prescribed by rule by
the association and that are designed to protect dissenting
limited partners;
(B) the right not to have their voting power unfairly reduced
or abridged;
(C) the right not to bear an unfair portion of the costs of a
proposed limited partnership rollup transaction that is
rejected; and
(D) restrictions on the conversion of contingent interests or
fees into non-contingent interests or fees and restrictions on
the receipt of a non-contingent equity interest in exchange for
fees for services which have not yet been provided.
As used in this paragraph, the term "dissenting limited partner"
means a person who, on the date on which soliciting material is
mailed to investors, is a holder of a beneficial interest in a
limited partnership that is the subject of a limited partnership
rollup transaction, and who casts a vote against the transaction
and complies with procedures established by the association,
except that for purposes of an exchange or tender offer, such
person shall file an objection in writing under the rules of the
association during the period during which the offer is
outstanding.
(c) National association rules; provision for registration of
affiliated securities association
The Commission may permit or require the rules of an association
applying for registration pursuant to subsection (b) of this
section, to provide for the admission of an association registered
as an affiliated securities association pursuant to subsection (d)
of this section, to participation in said applicant association as
an affiliate thereof, under terms permitting such powers and
responsibilities to such affiliate, and under such other
appropriate terms and conditions, as may be provided by the rules
of said applicant association, if such rules appear to the
Commission to be necessary or appropriate in the public interest or
for the protection of investors and to carry out the purposes of
this section. The duties and powers of the Commission with respect
to any national securities association or any affiliated securities
association shall in no way be limited by reason of any such
affiliation.
(d) Registration as affiliated association; prerequisites;
association rules
An applicant association shall not be registered as an affiliated
securities association unless it appears to the Commission that -
(1) such association, notwithstanding that it does not satisfy
the requirements set forth in paragraph (1) of subsection (b) of
this section, will, forthwith upon the registration thereof, be
admitted to affiliation with an association registered as a
national securities association pursuant to subsection (b) of
this section, in the manner and under the terms and conditions
provided by the rules of said national securities association in
accordance with subsection (c) of this section; and
(2) such association and its rules satisfy the requirements set
forth in paragraphs (2) to (10), inclusive, and paragraph
(12),(!1) of subsection (b) of this section; except that in the
case of any such association any restrictions upon membership
therein of the type authorized by paragraph (3) of subsection (b)
of this section shall not be less stringent than in the case of
the national securities association with which such association
is to be affiliated.
(e) Dealings with nonmember professionals
(1) The rules of a registered securities association may provide
that no member thereof shall deal with any nonmember professional
(as defined in paragraph (2) of this subsection) except at the same
prices, for the same commissions or fees, and on the same terms and
conditions as are by such member accorded to the general public.
(2) For the purposes of this subsection, the term "nonmember
professional" shall include (A) with respect to transactions in
securities other than municipal securities, any registered broker
or dealer who is not a member of any registered securities
association, except such a broker or dealer who deals exclusively
in commercial paper, bankers' acceptances, and commercial bills,
and (B) with respect to transactions in municipal securities, any
municipal securities dealer (other than a bank or division or
department of a bank) who is not a member of any registered
securities association and any municipal securities broker who is
not a member of any such association.
(3) Nothing in this subsection shall be so construed or applied
as to prevent (A) any member of a registered securities association
from granting to any other member of any registered securities
association any dealer's discount, allowance, commission, or
special terms, in connection with the purchase or sale of
securities, or (B) any member of a registered securities
association or any municipal securities dealer which is a bank or a
division or department of a bank from granting to any member of any
registered securities association or any such municipal securities
dealer any dealer's discount, allowance, commission, or special
terms in connection with the purchase or sale of municipal
securities: Provided, however, That the granting of any such
discount, allowance, commission, or special terms in connection
with the purchase or sale of municipal securities shall be subject
to rules of the Municipal Securities Rulemaking Board adopted
pursuant to section 78o-4(b)(2)(K) of this title.
(f) Transactions in municipal securities
Nothing in subsection (b)(6) or (b)(11) of this section shall be
construed to permit a registered securities association to make
rules concerning any transaction by a registered broker or dealer
in a municipal security.
(g) Denial of membership
(1) A registered securities association shall deny membership to
any person who is not a registered broker or dealer.
(2) A registered securities association may, and in cases in
which the Commission, by order, directs as necessary or appropriate
in the public interest or for the protection of investors shall,
deny membership to any registered broker or dealer, and bar from
becoming associated with a member any person, who is subject to a
statutory disqualification. A registered securities association
shall file notice with the Commission not less than thirty days
prior to admitting any registered broker or dealer to membership or
permitting any person to become associated with a member, if the
association knew, or in the exercise of reasonable care should have
known, that such broker or dealer or person was subject to a
statutory disqualification. The notice shall be in such form and
contain such information as the Commission, by rule, may prescribe
as necessary or appropriate in the public interest or for the
protection of investors.
(3)(A) A registered securities association may deny membership
to, or condition the membership of, a registered broker or dealer
if (i) such broker or dealer does not meet such standards of
financial responsibility or operational capability or such broker
or dealer or any natural person associated with such broker or
dealer does not meet such standards of training, experience, and
competence as are prescribed by the rules of the association or
(ii) such broker or dealer or person associated with such broker or
dealer has engaged and there is a reasonable likelihood he will
again engage in acts or practices inconsistent with just and
equitable principles of trade. A registered securities association
may examine and verify the qualifications of an applicant to become
a member and the natural persons associated with such an applicant
in accordance with procedures established by the rules of the
association.
(B) A registered securities association may bar a natural person
from becoming associated with a member or condition the association
of a natural person with a member if such natural person (i) does
not meet such standards of training, experience, and competence as
are prescribed by the rules of the association or (ii) has engaged
and there is a reasonable likelihood he will again engage in acts
or practices inconsistent with just and equitable principles of
trade. A registered securities association may examine and verify
the qualifications of an applicant to become a person associated
with a member in accordance with procedures established by the
rules of the association and require a natural person associated
with a member, or any class of such natural persons, to be
registered with the association in accordance with procedures so
established.
(C) A registered securities association may bar any person from
becoming associated with a member if such person does not agree (i)
to supply the association with such information with respect to its
relationship and dealings with the member as may be specified in
the rules of the association and (ii) to permit examination of its
books and records to verify the accuracy of any information so
supplied.
(D) Nothing in subparagraph (A), (B), or (C) of this paragraph
shall be construed to permit a registered securities association to
deny membership to or condition the membership of, or bar any
person from becoming associated with or condition the association
of any person with, a broker or dealer that engages exclusively in
transactions in municipal securities.
(4) A registered securities association may deny membership to a
registered broker or dealer not engaged in a type of business in
which the rules of the association require members to be engaged:
Provided, however, That no registered securities association may
deny membership to a registered broker or dealer by reason of the
amount of such type of business done by such broker or dealer or
the other types of business in which he is engaged.
(h) Discipline of registered securities association members and
persons associated with members; summary proceedings
(1) In any proceeding by a registered securities association to
determine whether a member or person associated with a member
should be disciplined (other than a summary proceeding pursuant to
paragraph (3) of this subsection) the association shall bring
specific charges, notify such member or person of, and give him an
opportunity to defend against, such charges, and keep a record. A
determination by the association to impose a disciplinary sanction
shall be supported by a statement setting forth -
(A) any act or practice in which such member or person
associated with a member has been found to have engaged, or which
such member or person has been found to have omitted;
(B) the specific provision of this chapter, the rules or
regulations thereunder, the rules of the Municipal Securities
Rulemaking Board, or the rules of the association which any such
act or practice, or omission to act, is deemed to violate; and
(C) the sanction imposed and the reason therefor.
(2) In any proceeding by a registered securities association to
determine whether a person shall be denied membership, barred from
becoming associated with a member, or prohibited or limited with
respect to access to services offered by the association or a
member thereof (other than a summary proceeding pursuant to
paragraph (3) of this subsection), the association shall notify
such person of and give him an opportunity to be heard upon, the
specific grounds for denial, bar, or prohibition or limitation
under consideration and keep a record. A determination by the
association to deny membership, bar a person from becoming
associated with a member, or prohibit or limit a person with
respect to access to services offered by the association or a
member thereof shall be supported by a statement setting forth the
specific grounds on which the denial, bar, or prohibition or
limitation is based.
(3) A registered securities association may summarily (A) suspend
a member or person associated with a member who has been and is
expelled or suspended from any self-regulatory organization or
barred or suspended from being associated with a member of any
self-regulatory organization, (B) suspend a member who is in such
financial or operating difficulty that the association determines
and so notifies the Commission that the member cannot be permitted
to continue to do business as a member with safety to investors,
creditors, other members, or the association, or (C) limit or
prohibit any person with respect to access to services offered by
the association if subparagraph (A) or (B) of this paragraph is
applicable to such person or, in the case of a person who is not a
member, if the association determines that such person does not
meet the qualification requirements or other prerequisites for such
access and such person cannot be permitted to continue to have such
access with safety to investors, creditors, members, or the
association. Any person aggrieved by any such summary action shall
be promptly afforded an opportunity for a hearing by the
association in accordance with the provisions of paragraph (1) or
(2) of this subsection. The Commission, by order, may stay any such
summary action on its own motion or upon application by any person
aggrieved thereby, if the Commission determines summarily or after
notice and opportunity for hearing (which hearing may consist
solely of the submission of affidavits or presentation of oral
arguments) that such stay is consistent with the public interest
and the protection of investors.
(i) Broker-dealer disciplinary history
A registered securities association shall, within one year from
October 15, 1990, (1) establish and maintain a toll-free telephone
listing to receive inquiries regarding disciplinary actions
involving its members and their associated persons, and (2)
promptly respond to such inquiries in writing. Such association may
charge persons, other than individual investors, reasonable fees
for written responses to such inquiries. Such an association shall
not have any liability to any person for any actions taken or
omitted in good faith under this paragraph.
(j) Registration for sales of private securities offerings
A registered securities association shall create a limited
qualification category for any associated person of a member who
effects sales as part of a primary offering of securities not
involving a public offering, pursuant to section 77c(b), 77d(2), or
77d(6) of this title and the rules and regulations thereunder, and
shall deem qualified in such limited qualification category,
without testing, any bank employee who, in the six month period
preceding November 12, 1999, engaged in effecting such sales.
(k) Limited purpose national securities association
(1) Regulation of members with respect to security futures
products
A futures association registered under section 21 of title 7
shall be a registered national securities association for the
limited purpose of regulating the activities of members who are
registered as brokers or dealers in security futures products
pursuant to section 78o(b)(11) of this title.
(2) Requirements for registration
Such a securities association shall -
(A) be so organized and have the capacity to carry out the
purposes of the securities laws applicable to security futures
products and to comply, and (subject to any rule or order of
the Commission pursuant to section 78s(g)(2) of this title) to
enforce compliance by its members and persons associated with
its members, with the provisions of the securities laws
applicable to security futures products, the rules and
regulations thereunder, and its rules;
(B) have rules that -
(i) are designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles
of trade, and, in general, to protect investors and the
public interest, including rules governing sales practices
and the advertising of security futures products reasonably
comparable to those of other national securities associations
registered pursuant to subsection (a) of this section that
are applicable to security futures products; and
(ii) are not designed to regulate by virtue of any
authority conferred by this chapter matters not related to
the purposes of this chapter or the administration of the
association;
(C) have rules that provide that (subject to any rule or
order of the Commission pursuant to section 78s(g)(2) of this
title) its members and persons associated with its members
shall be appropriately disciplined for violation of any
provision of the securities laws applicable to security futures
products, the rules or regulations thereunder, or the rules of
the association, by expulsion, suspension, limitation of
activities, functions, and operations, fine, censure, being
suspended or barred from being associated with a member, or any
other fitting sanction; and
(D) have rules that ensure that members and natural persons
associated with members meet such standards of training,
experience, and competence necessary to effect transactions in
security futures products and are tested for their knowledge of
securities and security futures products.
(3) Exemption from rule change submission
Such a securities association shall be exempt from submitting
proposed rule changes pursuant to section 78s(b) of this title,
except that -
(A) the association shall file proposed rule changes related
to higher margin levels, fraud or manipulation, recordkeeping,
reporting, listing standards, or decimal pricing for security
futures products, sales practices for, advertising of, or
standards of training, experience, competence, or other
qualifications for security futures products for persons who
effect transactions in security futures products, or rules
effectuating the association's obligation to enforce the
securities laws pursuant to section 78s(b)(7) of this title;
(B) the association shall file pursuant to sections 78s(b)(1)
and 78s(b)(2) of this title proposed rule changes related to
margin, except for changes resulting in higher margin levels;
and
(C) the association shall file pursuant to section 78s(b)(1)
of this title proposed rule changes that have been abrogated by
the Commission pursuant to section 78s(b)(7)(C) of this title.
(4) Other exemptions
Such a securities association shall be exempt from and shall
not be required to enforce compliance by its members, and its
members shall not, solely with respect to their transactions
effected in security futures products, be required to comply,
with the following provisions of this chapter and the rules
thereunder:
(A) Section 78h of this title.
(B) Subsections (b)(1), (b)(3), (b)(4), (b)(5), (b)(8),
(b)(10), (b)(11), (b)(12), (b)(13), (c), (d), (e), (f), (g),
(h), and (i) of this section.
(C) Subsections (d), (f), and (k) of section 78q of this
title.
(D) Subsections (a), (f), and (h) of section 78s of this
title.
(l) Rules to avoid duplicative regulation of dual registrants
Consistent with this chapter, each national securities
association registered pursuant to subsection (a) of this section
shall issue such rules as are necessary to avoid duplicative or
conflicting rules applicable to any broker or dealer registered
with the Commission pursuant to section 78o(b) of this title
(except paragraph (11) thereof), that is also registered with the
Commodity Futures Trading Commission pursuant to section 6f(a) of
title 7 (except paragraph (2) thereof), with respect to the
application of -
(1) rules of such national securities association of the type
specified in section 78o(c)(3)(B) of this title involving
security futures products; and
(2) similar rules of national securities associations
registered pursuant to subsection (k) of this section and
national securities exchanges registered pursuant to section
78f(g) of this title involving security futures products.
(m) Procedures and rules for security future products
A national securities association registered pursuant to
subsection (a) of this section shall, not later than 8 months after
December 21, 2000, implement the procedures specified in section
78f(h)(5)(A) of this title and adopt the rules specified in
subparagraphs (B) and (C) of section 78f(h)(5) of this title.
|
|