September 30, 2005
Ms. Patrice M. Gliniecki
Re: Request for No-Action Relief under Rules 15b1-1, 15b3-1, 15Ba2-2, and 15Ca2-1
Dear Ms. Gliniecki:
In your letter dated September 13, 2005, as supplemented by telephone conversations with the staff, you request assurances that the staff will not recommend enforcement action to the Commission under the above-referenced rules under the Securities Exchange Act of 1934 (Exchange Act) if NASD members cease filing Schedule E of Form BD, as discussed in your letter.
As required by Section 15(a)(1) of the Exchange Act and Commission rules,1 brokers or dealers in securities apply for registration with the Commission by completing and filing the Form BD, the Uniform Application for Broker-Dealer Registration, with the Central Registration Depository system (CRD).2 Once registered, a broker-dealer must keep its Form BD current by amending it promptly if the information therein becomes inaccurate for any reason.
Currently, broker-dealers are required to report information relating to the status and operations of branch offices on Schedule E of Form BD. In addition, state laws may require broker-dealers to report information regarding their branch offices by filing separate forms with local securities regulators.3 Member firms of the New York Stock Exchange (NYSE) also are required to submit the NYSE Branch Office Application Form to register branch offices with the NYSE.
NASD has received Commission approval for a new Uniform Branch Office Registration Form (Form BR), which was developed by a working group of representatives from NASD, NYSE, the North American Securities Administrators Association (NASAA) and states.4 Form BR will allow firms to register branch offices with NASD, the NYSE, and states that require branch office registration through a single electronic filing with CRD. We understand that the majority of questions on the proposed Form BR are currently on one or more of the existing branch office forms, including Schedule E. We also understand that the working group has concluded that the Form BR will serve the branch office registration requirements of all of the participating regulators, and will provide broker-dealers with a more streamlined and efficient way to register branch offices. The working group recommended that Schedule E to the Form BD be retired when the proposed Form BR is implemented.
We understand that, as currently planned, the process of transition to Form BR will begin on October 15, 2005, and that CRD will not accept Schedule E filings after October 14, 2005. Form BR is scheduled to become effective on October 31, 2005. During the interim period, CRD programming will convert data elements from each Schedule E residing in the CRD system to the new Form BR format. At the same time, in order to implement the intended single registration system for branch offices, CRD will receive electronic records relating to branch offices that are currently maintained by seven states and by the NYSE, and will compare, verify and integrate the information from these records into the CRD database. During this time, brokers and dealers will be unable to update Schedule E information through CRD, although all other functions of CRD will remain unaffected.
On the basis of your representations and the facts presented, the staff will not recommend enforcement action to the Commission under Rules 15b1-1, 15b3-1, 15Ba2-2, or 15Ca2-1 under the Exchange Act5 if broker-dealers file the Form BR in lieu of Schedule E, as of the date on which the transition to the Form BR begins.
We note that the above-cited rules require broker-dealers to promptly amend their Forms BD when any information included in the Form becomes inaccurate. We recognize that during the transition period described above, broker-dealers will not be able to update their Schedule E information and will not be able to file Form BR. Consistent with past practice,6 the staff will not recommend enforcement action against a broker-dealer that would be required to update its Schedule E information during the transition period if it files the information on Form BR no later than 30 days after Form BR becomes effective.
These positions apply to all broker-dealers that are registered with the Commission. Moreover, these positions concern enforcement action only. They are based solely upon the representations you have made and are limited strictly to the facts and conditions described in your letter. Any different facts or circumstances may require a different response. Finally, we express no view with respect to the application of any other federal or state laws or self-regulatory organization rules.
|1||15 U.S.C. 78(o)(a)(1); Rules 15b1-1, 15b3-1, 15Ba2-2, and 15Ca2-1; 17 CFR 240.15b1-1, 15Ba2-2, and 15Ca2-1.|
|2||CRD was developed and is maintained jointly by the North American Securities Administrators Association, Inc., and NASD. CRD is an on-line registration data bank and application processing facility used by NASD, the other self-regulatory organizations, state regulators, and the Commission in connection with the registration and licensing of broker-dealers and broker-dealers’ personnel. CRD was created, in part, to centralize the registration process, allowing applicants to file in one place, rather than in multiple jurisdictions. Broker-Dealer Registration and Reporting, Exchange Act Rel. No. 41594 (July 2, 1999), 64 FR 37586 (July 12, 1999).|
|3||See Guide to Broker-Dealer Registration, Securities and Exchange Commission, Division of Market Regulation (http://www.sec.gov/divisions/marketreg/ bdguide.htm).|
|4||Exchange Act Rel. No. 52544 (September 30, 2005) (Order Approving Proposed Rule Change and Notice of Filing and Order Granting Accelerated Approval of Amendment No. 2 Thereto Relating to the proposed Form BR and amendments to the Form U4, and the Uniform Termination Notice for Securities Industry Registration (“Form U5”). See also Exchange Act Rel. No. 51742 (May 25, 2005), 70 FR 32386 (June 2, 2005) (Notice of Filing of Proposed Rule Change) (SR-NASD-2005-030).|
|5||17 CFR 240. 15b1-1, 15b3-1, 15Ba2-2, and 15Ca2-1.|
|6||See Broker Dealer Registration and Reporting, supra, n. 2.|
September 13, 2005
Ms. Catherine McGuire
Division of Market Regulation
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re: Schedule E of Form BD
Dear Ms. McGuire:
NASD, Inc. ("NASD"), on behalf of its members, respectfully requests that the staff of the Division of Market Regulation ("Division") of the Securities and Exchange Commission ("Commission" or "SEC") provide assurances that it will not recommend enforcement action to the Commission under Rules 15b1-1, 15b3-1, 15Ba2-2, and 15Ca2-1 under the Securities Exchange Act of 1934 ("Exchange Act") for NASD members that file the Uniform Branch Office Registration Form ("Form BR"),1 the proposed uniform registration form for registering or reporting branch offices, and do not complete Schedule E, or file amendments to Schedule E, of the Form BD, as of the date on which the transition to the Form BR begins, and the Central Registration Depository ("CRD®" or "Web CRD") no longer accepts Schedule E filings.2
A working group composed of NASD and New York Stock Exchange, Inc. ("NYSE") staff and representatives of the North American Securities Administrators Association ("NASAA") and states (hereinafter referred to as the "Working Group") developed the Form BR to enable firms to register branch offices electronically with NASD, the NYSE, and states that require branch office registration, through a single filing with CRD.3 The majority of questions on the proposed Form BR are currently on one or more of the existing branch office forms, including Schedule E of the Form BD.4 Accordingly, the Working Group concluded that the proposed Form BR serves the branch office registration requirements of all of the participating regulators.
Registration of branch offices through the CRD system will benefit both broker-dealers and regulators. New functionality being added to the CRD system will enhance the integrity of the data in the system and provide greater assurances that the CRD system is accurately reporting the locations from which registered representatives are conducting business. NASD is also planning enhancements to the CRD system to coincide with the implementation of Form BR that will enable firms to designate, and users to identify, the branch office(s) in which a registered person works.
NASD has filed a rule change with the Commission that establishes the proposed Form BR and is currently awaiting Commission approval of the proposed Form.5 The Working Group has recommended that Schedule E to the Form BD be retired at such time as the proposed Form BR is implemented.6 Given that Schedule E may continue to exist after the date on which the transition to the Form BR begins and CRD no longer accepts Schedule E filings, NASD respectfully requests that Division staff provide assurances that it will not recommend enforcement action to the Commission for NASD members that file the Form BR and do not complete Schedule E, or file amendments to Schedule E, of the Form BD as of the date on which the transition to the Form BR begins, and CRD no longer accepts Schedule E filings.
We appreciate the Division staff’s consideration of this request. If there are any questions, please contact me at (202) 728-8014 or Richard E. Pullano, Associate Vice President and Chief Counsel, Registration and Disclosure, at (240) 386-4821.
Patrice M. Gliniecki
Senior Vice President and
Deputy General Counsel
cc: Paula R. Jenson
|1||Rules 15b1-1, 15b3-1, 15Ba2-2, and 15Ca2-1 require broker-dealers to file the Uniform Application for Broker-Dealer Registration ("Form BD") in accordance with the instructions to the Form; those instructions currently direct broker-dealers to report branch offices on Schedule E.|
|2||As currently planned, the Form BR would become effective on October 31, 2005. However, the transition to the Form BR is scheduled to begin on October 15, 2005, insofar as the CRD system will not accept Schedule E filings after October 14, 2005. Moreover, any Schedule E filings created on the system but not filed as of October 14, 2005 will be invalidated. Accordingly, under this schedule, the no-action relief requested herein would commence on October 15, 2005. NASD will publish detailed information regarding the transition to the proposed Form BR and the filing protocols associated with the transition in a Notice to Members and on the NASD Web site.|
|3|| NYSE member firms currently are required to submit the NYSE Branch Office Application Form to register a branch office with the NYSE. In addition, Connecticut, Florida, Nevada, and Vermont have separate branch office forms that request similar information for firms seeking to register a branch office in those states. |
|4||Upon the implementation of the Form BR, information as to whether the branch office has a written agreement with the firm’s main office and whether five percent or more of its registered representatives are deemed to be "independent contractors" will be available to regulators via the CRD system through a combination of the answer to a question in Section 4 of the proposed Form BR (which asks whether the business location operates under a written agreement) and the answer to a new question on the Uniform Application for Securities Industry Registration or Transfer ("Form U4") (which asks all registered persons whether they are independent contractors).|
|5||See Exchange Act Release No. 51742 (May 25, 2005), 70 FR 32386 (June 2, 2005) (Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto Relating to the proposed Form BR and amendments to the Form U4, and the Uniform Termination Notice for Securities Industry Registration ("Form U5") (SR-NASD-2005-030). Amendment Nos. 1 and 2 were filed with the Commission on May 12, 2005 and August 18, 2005, respectively.|
|6|| The Working Group also has recommended that the NYSE Branch Office Application Form and any existing branch office forms used by States be discontinued. NASD understands that the NYSE and those States that have branch office registration forms plan to retire or discontinue those forms with the implementation of Form BR.
The retirement of Schedule E is also consistent with comments submitted by commenters endorsing the proposed Form BR. See, e.g., comment letters submitted by Mario DiTrapani, President, Association of Registration Management (June 22, 2005) and Franklin L. Widmann (Chief, New Jersey Bureau of Securities and President, NASAA (July 12, 2005).
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