NASD By-Laws
Article III: QUALIFICATIONS OF MEMBERS AND ASSOCIATED PERSONS
Sec. 3: Ineligibility of Certain Persons for Membership or
Association
(a) No registered broker, dealer, municipal securities broker or
dealer, or government securities broker or dealer shall be admitted to
membership, and no member shall be continued in membership, if such
broker, dealer, municipal securities broker or dealer, government
securities broker or dealer, or member fails or ceases to satisfy the
qualification requirements established under Section 2, if applicable,
or if such broker, dealer, municipal securities broker or dealer,
government securities broker or
dealer, or member is or becomes subject to a disqualification under
Section 4, or if such member fails to comply with the requirement that
all forms filed pursuant to these By-Laws be filed via electronic
process or such other process as the Corporation may prescribe.
(b) No person shall become associated with a member, continue to be
associated with a member, or transfer association to another member, if
such person fails or ceases to satisfy the qualification requirements
established under Section 2, if applicable, or if such person
is or becomes subject to a disqualification under Section 4; and
no broker, dealer, municipal securities broker or dealer, or government
securities broker or dealer shall be admitted to membership, and no
member shall be continued in membership, if any person associated with
it is ineligible to be an associated person under this subsection.
(c) If it deems appropriate, the Board, upon notice and opportunity for
a hearing, may cancel the membership of a member if it becomes
ineligible for continuance in membership under subsection (a), may
suspend or bar a person from continuing to be associated with any member
if such person is or becomes ineligible for association under subsection
(b), and may cancel the membership of any member who continues to be
associated with any such ineligible person.
(d) Any member that is ineligible for continuance in membership may
file with the Board an application requesting relief from the
ineligibility pursuant to the Rules of the Corporation. A member
may file such application on its own behalf and on behalf of a current
or prospective associated person. The
Board may, in its discretion, approve the continuance in membership, and
may also approve the association or continuance of association of any
person, if the Board determines that such approval is consistent with
the public interest and the protection of investors. Any approval
hereunder may be granted unconditionally or on such terms and conditions
as the Board considers necessary or appropriate. In the exercise of the
authority granted hereunder, the Board may conduct such inquiry or
investigation into the relevant facts and circumstances as it, in its
discretion, considers necessary to its determination, which, in addition
to the background and circumstances giving rise to the failure to
qualify or disqualification, may include the proposed or present
business of a member and the conditions of association of any current or
prospective associated person.
(e) An application filed under subsection (d) shall not foreclose any
action which the Board is authorized to take under subsection (c) until
approval has been granted.
(f) Approval by the Board of an application made under subsection (d)
shall be subject to whatever further action the Commission may take
pursuant to authority granted to the Commission under the Act.
(g) The Board may delegate its authority under this Section in a manner
not inconsistent with the Delegation Plan.
NASD
By-Laws
Article III: QUALIFICATIONS OF MEMBERS AND ASSOCIATED PERSONS
Sec. 4.: Definition of Disqualification
A person is subject to a "disqualification" with respect to
membership, or association with a member, if such person is subject to any
“statutory disqualification” as such term is defined in Section
3(a)(39) of the Act.
NASD By-Laws
Schedule A: QUALIFICATIONS OF MEMBERS AND ASSOCIATED PERSONS
Section 12.:Application and Annual Fees for Member Firms with
Statutorily Disqualified Individuals
(a) Any member firm seeking to employ or continuing to employ as an
associated person any individual who is subject to a disqualification
from association with a member as set forth in Article III, Section 4 of
NASD's By-Laws shall, upon the filing of an application pursuant to
Article III, Section 3, paragraph (d) of NASD's By-Laws, pay to NASD a
fee of $1,500.00. Any
member firm whose application filed pursuant to Article III, Section 3,
paragraph (d) of NASD's By-Laws results in a full hearing for
eligibility in NASD pursuant to the Rule 9640 Series, shall pay to NASD
an additional fee of $2,500.00.
(b) Any member firm continuing to employ as an associated person any
individual subject to disqualification from association with a member as
set forth in Article III, Section 4 of NASD's By-Laws shall
pay annually to NASD a fee of $1,500.00 when such person or individual
is classified as a Tier 1 statutorily disqualified individual, and a fee
of $1,000.00 when such person or individual is classified as a Tier 2
statutorily disqualified individual.
Note
from Bill Singer:
Tier
I : Typically covers misconduct set forth in Section
15(b)(4) of the Exchange Act.
Tier II: Typically covers findings by certain foreign entities or
misconduct that does not involve securities/commodities-related
felonies.
Tier III: Individuals and members subject to disqualification that
were permitted to associate or remain as a member without any special
supervision.
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Securities
Exchange Act of 1934
Sec. 3: Definitions and Application
a. Definitions
When used in this title, unless the context otherwise requires--
39. A person is
subject to a "statutory disqualification" with
respect to membership or participation in, or association with a member
of, a self- regulatory organization, if such person--
- has been and is expelled or
suspended from membership or participation in, or barred or
suspended from being associated with a member of, any self- regulatory
organization, foreign equivalent of a self regulatory organization,
foreign or international securities exchange, contract market
designated pursuant to section 5 of the Commodity Exchange Act (7
U.S.C. 7), or any substantially equivalent foreign statute or
regulation, or futures association registered under section 17 of such
Act (7 U.S.C. 21), or any substantially equivalent foreign statute or
regulation, or has been and is denied trading privileges on any such
contract market or foreign equivalent;
- is subject to--
i. an order
of the
Commission, other appropriate regulatory agency, or foreign
financial regulatory authority--
I. denying, suspending for
a period not exceeding 12 months, or revoking his registration
as a broker, dealer, municipal securities dealer, government
securities broker, or government securities dealer or limiting his
activities as a foreign person performing a function substantially
equivalent to any of the above; or
II. barring or suspending
for a period not exceeding 12 months his being associated with
a broker, dealer, municipal securities dealer, government securities
broker, government securities dealer, or foreign person performing a
function substantially equivalent to any of the above;
ii. an order of the Commodity
Futures Trading Commission denying, suspending, or revoking his
registration under the Commodity Exchange Act (7 U.S.C. 1 et seq.); or
iii. an order by a foreign
financial regulatory authority denying, suspending, or revoking
the person's authority to engage in transactions in contracts of sale of
a commodity for future delivery or other instruments traded on or
subject to the rules of a contract market, board of trade, or foreign
equivalent thereof;
- by his conduct while associated with a broker, dealer, municipal
securities dealer, government securities broker, or government
securities dealer, or while associated with an entity or person
required to be registered under the Commodity Exchange Act [7 U.S.C.A.
§ 1 et seq.], has been found to be a cause
of any effective suspension, expulsion, or order of the character
described in subparagraph (A) or (B) of this paragraph, and in
entering such a suspension, expulsion, or order, the Commission, an
appropriate regulatory agency, or any such self-regulatory
organization shall have jurisdiction to find whether or not any person
was a cause thereof;
- by his conduct while associated with any broker, dealer, municipal
securities dealer, government securities broker, government securities
dealer, or any other entity engaged in transactions in securities, or
while associated with an entity engaged in transactions in contracts
of sale of a commodity for future delivery or other instruments traded
on or subject to the rules of a contract market, board of trade, or
foreign equivalent thereof, has been found
to be a cause of any effective suspension, expulsion, or order by a
foreign or international securities exchange or foreign financial
regulatory authority empowered by a foreign government to
administer or enforce its laws relating to financial transactions as
described in subparagraph (A) or (B) of this paragraph;
- has associated with him any
person who is known, or in the exercise of reasonable care should be
known, to him to be a person described by subparagraph (A), (B), (C),
or (D) of this paragraph; or
- has committed or omitted any act, or is subject to an order or
finding, enumerated in subparagraph
(D), (E), (H), or (G) of paragraph (4) of section 15(b),
has been convicted
of any offense specified in subparagraph (B) of
such paragraph (4) or any other felony
within ten years of the date of the filing of an application
for membership or participation in, or to become associated with a
member of, such self-regulatory organization, is enjoined from any
action, conduct, or practice specified in subparagraph (C) of such
paragraph (4), has willfully
made or caused to be made in any application for membership or
participation in, or to become associated with a member of, a self
regulatory organization, report required to be filed with a
self-regulatory organization, or proceeding before a self-regulatory
organization, any statement which was at the time, and in the light of
the circumstances under which it was made, false or misleading with
respect to any material fact, or has omitted to state in any such
application, report, or proceeding any material fact which is required
to be stated therein.
Securities
Exchange Act of 1934
Sec. 15: Registration and Regulation of Brokers and Dealers
b. Manner of registration of brokers and dealers
4. The Commission, by order, shall censure,
place limitations on the activities, functions, or operations of, suspend
for a period not exceeding twelve months, or revoke the
registration of any broker or dealer if it finds, on the record after
notice and opportunity for hearing, that such censure, placing of
limitations, suspension, or revocation is in the public interest and that
such broker or dealer, whether prior or subsequent to becoming such, or
any person associated with such broker or dealer, whether prior or
subsequent to becoming so associated--
- has willfully made or caused
to be made in any application for registration or report required to
be filed with the Commission or with any other appropriate regulatory
agency under this title, or in any proceeding before the
Commission with respect to registration, any statement which was at
the time and in the light of the circumstances under which it was made
false or misleading with
respect to any material fact, or has omitted to state in any such
application or report any material fact which is required to be stated
therein.
- has been convicted
within ten years preceding the filing of any application for
registration or at any
time thereafter of any felony or misdemeanor or of a substantially
equivalent crime by a foreign court of competent
jurisdiction which the Commission finds--
i. involves
the purchase or sale of any security, the taking of a false oath, the
making of a false report, bribery, perjury, burglary, any
substantially equivalent activity however denominated by
the laws of the relevant foreign government, or conspiracy to commit
any such offense;
ii. arises out of the conduct of the business of a broker, dealer,
municipal securities dealer, government securities broker, government
securities dealer, investment adviser, bank, insurance company,
fiduciary, transfer agent, foreign person performing a function
substantially equivalent to any of the above, or entity or person
required to be registered under the Commodity Exchange Act (7 U.S.C. 1
et seq.) or any substantially equivalent foreign statute or
regulation;
iii. involves
the larceny, theft, robbery, extortion, forgery, counterfeiting,
fraudulent concealment, embezzlement, fraudulent conversion, or
misappropriation of funds, or securities, or substantially equivalent
activity however denominated by the laws of the relevant
foreign government; or
iv. involves the violation of section 152, 1341, 1342, or 1343 or
chapter 25 or 47 of Title 18, or a violation of a substantially
equivalent foreign statute.
- is permanently
or temporarily enjoined by order, judgment, or decree of
any court of competent jurisdiction from acting as an investment
adviser, underwriter, broker, dealer, municipal securities dealer,
government securities broker, government securities dealer, transfer
agent, foreign person performing a function substantially equivalent
to any of the above, or entity or person required to be registered
under the Commodity Exchange Act or any substantially equivalent
foreign statute or regulation, or as an affiliated person or employee
of any investment company, bank, insurance company, foreign entity
substantially equivalent to any of the above, or entity or person
required to be registered under the Commodity Exchange Act or any
substantially equivalent foreign statute or regulation or from
engaging in or continuing any conduct or practice in connection with
any such activity, or in connection with the purchase or sale of any
security.
- has willfully
violated any provision of the Securities Act of 1933, the Investment
Advisers Act of 1940, the Investment Company Act of 1940, the
Commodity Exchange Act, this title, the rules or regulations under any
of such statutes, or the rules of the Municipal Securities Rulemaking
Board, or is unable to comply with any such provision.
- has willfully aided,
abetted, counseled, commanded, induced, or procured the violation by
any other person of any provision of the Securities Act of
1933, the Investment Advisers Act of 1940, the Investment Company Act
of 1940, the Commodity Exchange Act, this title, the rules or
regulations under any of such statutes, or the rules of the Municipal
Securities Rulemaking Board, or has failed reasonably to supervise,
with a view to preventing violations of the provisions of such
statutes, rules, and regulations, another person who commits such a
violation, if such other person is subject to his supervision. For the
purposes of this subparagraph (E) no
person shall be deemed to have failed reasonably to supervise any
other person, if--
i. there have been established
procedures, and a system for applying such procedures,
which would reasonably
be expected to prevent and detect, insofar as
practicable, any such violation by such other person, and
ii. such person has reasonably
discharged the duties and obligations incumbent upon him
by reason of such procedures and system without reasonable cause to
believe that such procedures and system were not being complied with.
- is subject to any order
of the Commission barring or suspending the right of the
person to be associated with a broker or dealer;
- has been found by a foreign
financial regulatory authority to have--
i. made or caused to be made in any application for registration or
report required to be filed with a foreign financial regulatory
authority, or in any proceeding before a foreign financial regulatory
authority with respect to registration, any statement that was at the
time and in the light of the circumstances under which it was made
false or misleading with respect to any material fact, or has omitted
to state in any application or report to the foreign financial
regulatory authority any material fact that is required to be stated
therein;
ii. violated any foreign statute or regulation regarding transactions
in securities, or contracts of sale of a commodity for future
delivery, traded on or subject to the rules of a contract market or
any board of trade;
iii. aided, abetted, counseled, commanded, induced, or procured the
violation by any person of any provision of any statutory provisions
enacted by a foreign government, or rules or regulations thereunder,
empowering a foreign financial regulatory authority regarding
transactions in securities, or contracts of sale of a commodity for
future delivery, traded on or subject to the rules of a contract
market or any board of trade, or has been found, by a foreign
financial regulatory authority, to have failed reasonably to
supervise, with a view to preventing violations of such statutory
provisions, rules, and regulations, another person who commits such a
violation, if such other person is subject to his supervision; or
-
is subject to any final
order of a State securities commission (or any agency or
officer performing like functions), State authority that supervises or
examines banks, savings associations, or credit unions, State
insurance commission (or any agency or office performing like
functions), an appropriate Federal banking agency (as defined in
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813(q))),
or the National Credit Union Administration, that--
i. bars
such person from association with an entity regulated by
such commission, authority, agency, or officer, or from engaging in
the business of securities, insurance, banking, savings association
activities, or credit union activities; or
ii. constitutes a final order based on violations of any laws or
regulations that prohibit fraudulent, manipulative, or deceptive
conduct.
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| NASD
PROCEDURAL RULE 9520. Eligibility Proceedings
9521. Purpose and Definitions
(a) Purpose
The Rule 9520 Series sets forth procedures for a person to become or
remain associated with a member, notwithstanding the existence of a
statutory disqualification as defined in Article III, Section 4 of the
NASD By-Laws and for a current member or person associated with a member
to obtain relief from the eligibility or qualification requirements of the
NASD By-Laws and the Rules of the Association. Such actions hereinafter
are referred to as "eligibility proceedings."
(b) Definitions
(1) The term "Application" means NASD Regulation's Form MC-400
for individuals or Form MC-400A for members, filed with the Central
Registration Depository/Public Disclosure.
(2) The term "disqualified member" means a broker, dealer,
municipal securities broker or dealer, government securities broker or
dealer, or member that is or becomes subject to a disqualification or is
otherwise ineligible for membership under Article III, Section 3 of the
NASD's By-Laws.
(3) The term "disqualified person" means an associated person or
person seeking to become an associated person who is or becomes subject to
a disqualification or is otherwise ineligible for association under
Article III, Section 3 of the NASD's By-Laws.
(4) The term "sponsoring member" means the member or applicant
for membership pursuant to Rule 1013 that is sponsoring the association or
continued association of a disqualified person to be admitted, readmitted,
or permitted to continue in association.
9522. Initiation of Eligibility
Proceeding; Member Regulation Consideration
(a) Initiation by Association
(1) Issuance of Notice of Disqualification or Ineligibility
If Association staff has reason to believe that a disqualification exists
or that a member or person associated with a member otherwise fails to
meet the eligibility requirements of the Association, Association staff
shall issue a written notice to the member or applicant for membership
under Rule 1013. The notice shall specify the grounds for such
disqualification or ineligibility.
(2) Notice Regarding a Member
A notice issued to a disqualified member shall state that the disqualified
member may apply for relief by filing an application or, in the case of a
matter set forth in Rule 9522(e)(1), a written request for relief, within
ten business days after service of the notice. If the member fails to file
the application or, where appropriate, the written request for relief,
within the 10-day period, the membership of the member shall be canceled,
unless the Department of Member Regulation grants an extension for good
cause shown.
(3) Notice Regarding an Associated Person
A notice issued regarding a disqualified person to a member or applicant
for membership under Rule 1013 shall state that such
member or applicant for membership may file an application on behalf of
itself and such person or, in the case of a matter set forth in Rule
9522(e)(1), a written request for relief, within ten business days after
service of the notice. If the member fails to file the
application or, where appropriate, the written request for relief, within
the 10-day period, the registration of the disqualified person shall be
revoked, unless the Department of Member Regulation grants an extension
for good cause shown.
(4) Service
A notice issued under this section shall be served by facsimile or
pursuant to Rules 9131 and 9134.
(b) Obligation of Member to Initiate Proceeding
A member shall file an application or, in the case of a matter set
forth in Rule 9522(e)(1), a written request for relief, with the Central
Registration Depository/Public Disclosure, if the member determines prior
to receiving a notice under paragraph (a) that:
(1) it has become a disqualified member;
(2) a person associated with such member or whose association is proposed
by an applicant for membership under Rule 1013 has become a disqualified
person; or
(3) the member or applicant for membership under Rule 1013 wishes to
sponsor the association of a person who is a disqualified person.
(c) Withdrawal of Application
A member may withdraw its application or written request for relief
prior to a hearing by filing a written notice with the Central
Registration Depository/Public Disclosure pursuant to Rules 9135, 9136,
and 9137. A member may withdraw its application after the start of a
hearing but prior to the issuance of a decision by the National
Adjudicatory Council with prior written consent of the National
Adjudicatory Council.
(d) Ex Parte Communications
The prohibitions against ex parte communications set forth in Rule
9143 shall become effective under the Rule 9520 Series when Association
staff has initiated the eligibility proceeding and Association staff has
knowledge that a member intends to file an application or written request
for relief pursuant to the Rule 9520 Series.
(e) Member Regulation Consideration
(1) Matters that may be Approved by the
Department of Member Regulation without the Filing of an Application
The Department of Member Regulation, as it deems
consistent with the public interest and the protection of investors, may
grant a written request for relief from the eligibility
requirements by a disqualified member or a sponsoring member without the
filing of an application by such disqualified member or sponsoring member
if a disqualified member or disqualified person is subject to one or more
of the following conditions but is not otherwise subject to
disqualification:
(A) a disqualified member or disqualified person is subject to a
disqualification based on an injunction that was
entered ten or more years prior to the proposed admission or
continuance by order, judgment, or decree of any court of competent
jurisdiction from acting as an investment adviser, underwriter, broker,
dealer, municipal securities dealer, government securities broker,
government securities dealer, transfer agent, foreign person performing a
function substantially equivalent to any of the above, entity or person
required to be registered under the Commodity Exchange Act, or any
substantially equivalent foreign statute or regulation, or as an
affiliated person or employee of any investment company, bank, insurance
company, foreign entity substantially equivalent to any of the above, or
entity or person required to be registered under the Commodity Exchange
Act or any substantially equivalent foreign statute or regulation, or from
engaging in or continuing any conduct or practice in connection with any
such activity, or in connection with the purchase or sale of any security.
(B) a sponsoring member makes a request to change
the supervisor of a disqualified person; or
(C) a disqualified member or sponsoring member is a member of both the
Association and another self-regulatory organization; and:
(i) the other self-regulatory organization intends to file a Notice under
SEC Rule 19h-1 approving the membership continuance of the disqualified
member or, in the case of a sponsoring member, the proposed association or
continued association of the disqualified person; and
(ii) Member Regulation concurs with that determination.
(2) Matters that may be Approved by the
Department of Member Regulation after the Filing of an Application
The Department of Member Regulation, as it deems consistent with the
public interest and the protection of investors, may approve an
application filed by a disqualified member or sponsoring member if a
disqualified member or disqualified person is subject to one or more of
the following conditions but is not otherwise subject to disqualification
(other than a matter set forth in subparagraph (e)(1)):
(A) The disqualified
person is already a participant in, a member of, or a person associated
with a member of, a self-regulatory organization (other than
the Association), and the terms and conditions of the proposed admission
to the Association are the same in all material respects as those imposed
or not disapproved in connection with such person's prior admission or
continuance pursuant to an order of the Commission under SEC Rule 19h-1 or
other substantially equivalent written communication;
(B) The Department of Member Regulation finds, after reasonable inquiry,
that except for the identity of the employer concerned, the terms and
conditions of the proposed admission or continuance are the same in all
material respects as those imposed or not disapproved in connection with a
prior
admission or continuance of the disqualified person pursuant
to an order of the Commission under SEC Rule 19h-1 or other substantially
equivalent written communication, and that there is no intervening conduct
or other circumstance that would cause the employment to be inconsistent
with the public interest or the protection of investors;
(C) The disqualification previously was a basis for the institution of an
administrative proceeding pursuant to a provision of the federal
securities laws, and was considered by the Commission in determining a
sanction against such disqualified person in the proceeding; and the Commission
concluded in such proceeding that it would not restrict or limit the
future securities activities of such disqualified person in the capacity
now proposed, or, if it imposed any such restrictions or
limitations for a specified time period, such time period has elapsed; or
(D) The disqualification consists of a court order or judgment of
injunction or conviction, and such order or judgment:
(i) expressly includes a provision that, on the basis of such order or
judgment, the Commission will not institute a proceeding against such
person pursuant to Section 15(b) or 15B of the Act or that the future
securities activities of such persons in the capacity now proposed will
not be restricted or limited; or
(ii) includes such restrictions or limitations for a specified time period
and such time period has elapsed; or
(E) The disqualified
person's functions are purely clerical and/or ministerial in
nature.
(3) Rights of Disqualified Member, Sponsoring Member, Disqualified Person,
and Department of Member Regulation
(A) In the event the Department of Member Regulation does not approve a
written request for relief from the eligibility requirements pursuant to
subparagraph (e)(1), the disqualified member or sponsoring member may file
an application, and such member shall have the right to proceed under Rule
9523 or 9524, as applicable. The Department of Member Regulation may
require a disqualified member or sponsoring member to file an application
with the Central Registration Depository/Public Disclosure,
notwithstanding the provisions of subparagraph (e)(1).
(B) In the event the Department of Member Regulation does not approve an
application pursuant to subparagraph (e)(2), the disqualified member or
sponsoring member shall have the right to proceed under Rule 9523 or 9524,
as applicable.
9523. Acceptance of Member Regulation
Recommendations and Supervisory Plans by Consent Pursuant to SEC Rule
19h-1
(a) After
an application is filed, the Department of Member Regulation may recommend
the membership or continued membership of a disqualified
member or sponsoring member or the association or continuing association
of a disqualified person pursuant to a supervisory plan where the
disqualified member, sponsoring member, and/or disqualified person, as the
case may be, consent to the recommendation and the imposition of the
supervisory plan. The disqualified member, sponsoring member, and/or
disqualified person, as the case may be, shall execute a letter consenting
to the imposition of the supervisory plan.
(b)(1) If a disqualified member, sponsoring member, and/or disqualified
person submitted an executed letter consenting to a supervisory plan, by
the submission of such letter, the disqualified member, sponsoring member
and/or disqualified person waive:
(A) the right to a hearing before a Hearing Panel and any right of appeal
to the National Adjudicatory Council, the Commission, and the courts, or
otherwise challenge the validity of the supervisory plan, if the
supervisory plan is accepted.
(B) any right of the disqualified member, sponsoring member, and/or
disqualified person to claim bias or prejudgment by the Department of
Member Regulation, the General Counsel, the National Adjudicatory Council,
or any member of the National Adjudicatory Council, in connection with
such person's or body's participation in discussions regarding the terms
and conditions of the Department of Member Regulation's recommendation or
the supervisory plan, or other consideration of the recommendation or
supervisory plan, including acceptance or rejection of such recommendation
or supervisory plan; and
(C) any right of the disqualified member, sponsoring member, and/or
disqualified person to claim that a person violated the ex parte
prohibitions of Rule 9143 or the separation of functions prohibitions of
Rule 9144, in connection with such person's or body's participation in
discussions regarding the terms and conditions of the recommendation or
supervisory plan, or other consideration of the recommendation or
supervisory plan, including acceptance or rejection of such recommendation
or supervisory plan.
(2) If a recommendation or supervisory plan is rejected, the disqualified
member, sponsoring member, and/or disqualified person shall be bound by
the waivers made under subparagraph (b)(1) for conduct by persons or
bodies occurring during the period beginning on the date the supervisory
plan was submitted and ending upon the rejection of the supervisory plan
and shall have the right to proceed under this rule and Rule 9524, as
applicable.
(c) If the disqualified member, sponsoring member, and/or disqualified
person execute the letter consenting to the supervisory plan, it shall be
submitted to the Office of General Counsel by the Department of Member
Regulation with a proposed Notice under SEC Rule 19h-1, where required.
The Office of General Counsel shall forward the supervisory plan and
proposed Notice under SEC Rule 19h-1, if any, to the Chairman of the
Statutory Disqualification Committee, acting on behalf of the National
Adjudicatory Council. The Chairman of the Statutory Disqualification
Committee may accept or reject the recommendation of the Department of
Member Regulation and the supervisory plan or refer them to the National
Adjudicatory Council for acceptance or rejection by the National
Adjudicatory Council.
(d) If the recommendation and supervisory plan is accepted by the National
Adjudicatory Council or the Chairman of the Statutory Disqualification
Committee, it shall be deemed final and, where required, the proposed
Notice under SEC Rule 19h-1 will be filed by the Association. If the
recommendation and supervisory plan are rejected by the Chairman of the
Statutory Disqualification Committee or the National Adjudicatory Council,
NASD Regulation may take any other appropriate action with respect to the
disqualified member, sponsoring member, and/or disqualified person. If the
recommendation and supervisory plan are rejected, the disqualified member,
sponsoring member, and/or disqualified person shall not be prejudiced by
the execution of the letter consenting to the supervisory plan under
subparagraph (a) and the letter may not be introduced into evidence in any
proceeding.
9524. National Adjudicatory Council
Consideration
(a) Hearing Panel Consideration
(1) Appointment of Hearing Panel
When the disqualified member, sponsoring firm, or applicant requests a
hearing, the National Adjudicatory Council or the Review Subcommittee
shall appoint a Hearing
Panel composed of two or more members, who shall be current or former
members of the National Adjudicatory Council or the Statutory
Disqualification Committee or former Directors or Governors.
The Hearing Panel shall conduct a hearing and recommend a decision on the
request for relief.
(2) Notice of Hearing
The disqualified member or sponsoring member, as the case may be, and the
Department of Member Regulation shall be notified via mail, facsimile, or
overnight courier of the location, time, and date of the hearing not less
than fourteen business days before the hearing, unless the parties agree
to shorten the time period.
(3) Transmission of Documents
(A) Upon receipt of an application, the Central Registration Depository
shall gather all of the information necessary to process the application,
including (i) the Central Registration Depository records for the
disqualified member, sponsoring member, and/or disqualified person, as the
case may be, and the proposed supervisor; and (ii) all of the information
submitted by the disqualified member or sponsoring member in support of
the application. The Central Registration Depository will prepare an index
of these documents, and simultaneously provide this index and copies of
the documents to the disqualified member or sponsoring member, as the case
may be, the Office of the General Counsel, and the Department of Member
Regulation. Such documents shall be served on the disqualified member or
sponsoring member, as the case may be, by mail, facsimile, or overnight
courier as soon as practicable. The Department of Member Regulation shall
serve its recommendation and its supporting documents on the Office of
General Counsel and the disqualified member or sponsoring member, as the
case may be, within ten business days of the hearing, unless the Parties
agree otherwise. The disqualified member or sponsoring member, as the case
may be, shall serve its documents on the Office of General Counsel and the
Department of Member Regulation within ten business days of the hearing,
unless the Parties agree otherwise. The Office of General Counsel shall
forward all documents transmitted to it pursuant to this subparagraph
(a)(3) to the Hearing Panel.
(B) Not less than ten business days before the hearing, the Department of
Member Regulation, which shall act as a Party in the eligibility
proceeding, and the disqualified member or sponsoring member, as the case
may be, shall serve proposed exhibit and witness lists on each other and
the Office of General Counsel. The exhibit and witness lists shall be
served by facsimile or overnight courier.
(C) At any time prior to the issuance of its recommendation, the Hearing
Panel may order the Parties to supplement the record with any additional
information that the Hearing Panel deems necessary.
(4) Rights of Disqualified Member, Sponsoring Member, Disqualified Person,
and Department of Member Regulation
The disqualified member, sponsoring member, and/or disqualified person, as
the case may be, and, the Department of Member Regulation, shall be
entitled to be heard in person, to be represented by an attorney, and to
submit any relevant evidence.
(5) Extensions of Time, Postponements, and Adjournments
At any time prior to the issuance of the decision of the Hearing Panel,
after obtaining consent of all the Parties, the Hearing Panel may extend
or shorten any time limits prescribed by the Code for the filing of any
papers and may postpone or adjourn any hearing.
(6) Recordation of Hearing
The hearing shall be recorded and a transcript prepared by a court
reporter. The disqualified member, sponsoring member, and/or disqualified
person, as the case may be, may purchase a copy of the transcript from the
court reporter at prescribed rates. A witness may purchase a copy of the
transcript of his or her own testimony from the court reporter at
prescribed rates. Proposed corrections to the transcript may be submitted
by affidavit to the Hearing Panel within a reasonable time determined by
the Hearing Panel. Upon notice to the participants in the hearing, the
Hearing Panel may order corrections to the transcript as requested or sua
sponte.
(7) Record
The record shall consist of:
(A) the notice issued pursuant to Rule 9522(a), if applicable;
(B) all documents relied upon in issuing the notice under Rule 9522(a), if
applicable;
(C) the application for relief filed pursuant to Rule 9522(b);
(D) any other submissions by the disqualified member, sponsoring member,
and/or disqualified person, as the case may be, and the Department of
Member Regulation;
(E) any evidence considered at the hearing; and
(F) the transcript of the hearing and any corrections thereto.
(8) Custodian of the Record
The custodian of the record shall be the Office of General Counsel of NASD
Regulation.
(9) Evidence Not Admitted
Evidence that is proffered but not admitted during the hearing shall not
be part of the record, but shall be retained by the custodian of the
record until the date when the Association's decision becomes final or, if
applicable, upon the conclusion of any review by the Commission or the
federal courts.
(10) Recommendation
On the basis of the record, the Hearing Panel shall present a recommended
decision in writing on the request for relief to the Statutory
Disqualification Committee. After considering the record and
recommendation of the Hearing Panel, the Statutory Disqualification
Committee shall present its recommended decision in writing to the
National Adjudicatory Council.
(b) Decision
(1) Decision of the National Adjudicatory Council
After considering all matters presented in the request for relief, the
Statutory Disqualification Committee's recommended decision, the public
interest, and the protection of investors, the National Adjudicatory
Council may grant or deny the request for relief, and, if relief is
granted, impose conditions on the disqualified member, sponsoring member,
and/or disqualified person, as the case may be. At any time prior to the
issuance of its recommendation, the National Adjudicatory Council may
order the Parties to supplement the record with any additional information
that the National Adjudicatory Council deems necessary. Alternatively, the
National Adjudicatory Council may remand the eligibility proceeding. The
National Adjudicatory Council shall prepare a proposed written decision
pursuant to subparagraph (2).
(2) Contents of Decision
The decision shall include:
(A) a description of the origin of the eligibility proceeding and the
nature of the disqualification;
(B) a description of the prospective business or employment requested to
be engaged in; and
(C) a statement in support of the disposition of the request for relief,
which, if granted, includes any of the applicable elements under SEC Rule
19h-1(e) and a description of any conditions that are imposed on the
disqualified member, sponsoring member, or disqualified person, as the
case may be.
(3) Issuance of Decision After Expiration of Call for Review Period
The National Adjudicatory Council shall provide its proposed written
decision to the NASD Board. The NASD Board may call
the eligibility proceeding for review pursuant to Rule 9525. If the NASD
Board does not call the eligibility proceeding for review, the proposed
written decision of the National Adjudicatory Council shall become final, and
the National Adjudicatory Council shall serve its written decision on the
disqualified member, sponsoring member, and/or disqualified person, as the
case may be, and the Department of Member Regulation pursuant to Rules
9132 and 9134. The decision shall constitute final action of the
Association, unless the National Adjudicatory Council remands the
eligibility proceeding. A decision to deny re-entry or continued
association shall be effective immediately. A decision to approve shall be
effective after the Commission issues an acknowledgment letter or, in
cases involving Commission ordered sanctions, an order.
9525. Discretionary Review by the
NASD Board
(a) Call for Review by Governor
A Governor may call an eligibility proceeding for review by the NASD
Board if the call for review is made within the period prescribed in
paragraph (b).
(b) 15 Day Period; Waiver
A Governor shall make his or her call for review
not later than the next meeting of the NASD Board that is at least 15 days
after the date on which the NASD Board receives the proposed written
decision of the National Adjudicatory Council. By a unanimous vote
of the NASD Board, the NASD Board may shorten the period to less than 15
days. By an affirmative vote of the majority of the NASD Board then in
office, the NASD Board may, during the 15 day period, vote to extend the
period to more than 15 days.
(c) Review at Next Meeting
If a Governor calls an eligibility proceeding for review within the
period prescribed in paragraph (b), the NASD Board shall review the
eligibility proceeding not later than the next meeting of the NASD Board.
The NASD Board may order the filing of briefs in connection with its
review proceedings pursuant to this Rule.
(d) Decision of NASD Board, Including Remand
After review, the NASD Board may affirm, modify, or reverse the
proposed written decision of the National Adjudicatory Council.
Alternatively, the NASD Board may remand the eligibility proceeding with
instructions. The NASD Board shall prepare a written decision that
includes all of the elements described in Rule 9524(b)(2).
(e) Issuance of Decision
The NASD Board shall issue and serve its written decision on the
disqualified member, sponsoring member, and/or disqualified person, as the
case may be, and the Department of Member Regulation pursuant to Rules
9132 and 9134. The decision shall constitute the final action of the
Association, unless the NASD Board remands the proceeding. A decision to
deny re-entry or continued association shall be effective immediately. A
decision to approve shall be effective after the Commission issues an
acknowledgment letter or, in cases involving Commission-ordered sanctions,
an order.
9526. Expedited Review
(a) Direction by Executive Committee
Notwithstanding Rules 9524 and 9525, the NASD
Board Executive Committee, upon request of the Statutory Disqualification
Committee, may direct an expedited review of a recommended written
decision of the Statutory Disqualification Committee if the NASD
Board Executive Committee determines that expedited review is necessary
for the protection of investors.
(b) Call for Review Period
If a recommended decision is subject to expedited review, a Governor
may call the eligibility proceeding for review within seven days after
receipt of the recommended written decision.
(c) No Call for Review
If no Governor calls the proceeding for review within the time
prescribed, the decision shall become final, and the Statutory
Disqualification Committee shall serve the decision on the disqualified
member, sponsoring member, and/or disqualified person, as the case may be,
and the Department of Member Regulation pursuant to Rules 9132 and 9134.
The decision shall constitute final action of the Association. The
decision shall be effective upon approval by the Commission.
(d) Call for Review
If a Governor calls the eligibility proceeding for review within the
prescribed time, a review panel shall meet and conduct a review not later
than 14 days after the call for review. The review panel shall be composed
of the NASD Board Executive Committee, except that the Governor who calls
the proceeding for review shall serve on the review panel in lieu of a
member of the Executive Committee who has the same classification
(Industry, Non-Industry, or Public) as such Governor. The review panel may
affirm, modify, or reverse the recommended written decision of the
Statutory Disqualification Committee or remand the eligibility proceeding
with instructions. The review panel shall prepare, issue, and serve its
decision pursuant to Rule 9525(d) and (e).
9527. Application to Commission for
Review
The right to have any action taken pursuant to this Rule Series
reviewed by the Commission is governed by Section 19 of the Act. The
filing of an application for review shall not stay the effectiveness of
final action by the Association, unless the Commission otherwise orders.
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