

[Federal Register: October 7, 2005 (Volume 70, Number 194)]
[Notices]               
[Page 58764-58770]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07oc05-145]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52544; File No. SR-NASD-2005-030]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Approving Proposed Rule Change and Amendment No. 1 
Thereto and Notice of Filing and Order Granting Accelerated Approval to 
Amendment No. 2 to the Proposed Rule Change Relating to the Proposed 
Uniform Branch Office Registration Form (``Form BR'') and Amendments to 
the Uniform Application for Securities Industry Registration or 
Transfer (``Form U4'') and the Uniform Termination Notice for 
Securities Industry Registration (``Form U5'')

September 30, 2005.

I. Introduction

    On March 11, 2005, the National Association of Securities Dealers, 
Inc. (``NASD'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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 adopt the Uniform Branch 
Office Registration Form (``Form BR'') \3\ and to make conforming 
changes to the Uniform Application for Securities Industry Registration 
or Transfer (``Form U4'') and the Uniform Termination Notice for 
Securities Industry Registration (``Form U5''). On May 12, 2005, NASD 
amended the proposed rule change (``Amendment No. 1'').
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ At the request of the NASD, the Commission staff has made 
corrections to the title of the Form BR, which was inadvertently 
shown in the initial filing and Amendment No. 2 to the filing, see 
infra note 7, as ``Uniform Branch Office Form.'' Telephone 
conversation between Richard Pullano, Associate Vice President/Chief 
Counsel, Registration and Disclosure, NASD, Elizabeth Badawy, 
Accountant, Division of Market Regulation (``Division''), 
Commission, and Kate Robbins, Attorney, Division, Commission, on 
September 20, 2005.
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    The proposed rule change, as amended by Amendment No. 1, was 
published for comment in the Federal Register on June 2, 2005.\4\ The 
Commission received six comment letters on the proposal, as amended.\5\ 
On August 17, 2005, NASD submitted a response to the comment 
letters.\6\ On August 18, 2005, NASD amended the proposed rule change 
(``Amendment No. 2'').\7\ This order approves the proposed rule change, 
as amended by Amendment No. 1; grants accelerated approval to Amendment 
No. 2; and solicits comments from interested persons on Amendment No. 
2.
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    \4\ See Securities Exchange Act Release No. 51742 (May 25, 
2005), 70 FR 32386. See also Correction, 70 FR 48802 (August 19, 
2005) (including language inadvertently omitted from the first 
sentence of footnote 3).
    \5\ See letters from Mario DiTrapani, President, Association of 
Registration Management, dated June 22, 2005 (``ARM Letter''); 
Michael Pagano, Chief Compliance Officer, 1st Global, dated June 23, 
2005 (``1st Global Letter''); Sandra T. Masek Ray, CRCP, Executive 
Vice President/Chief Compliance Officer, Rhodes Securities, Inc., 
dated June 23, 2005 (``Rhodes Letter''); Robert S. Rosenthal, Vice 
President & Chief Legal Officer, MML Investors Services, Inc., dated 
June 23, 2005 (``MML Letter''); Franklin L. Widmann, President and 
Chief, New Jersey Bureau of Securities, North American Securities 
Administrators Association, Inc., dated July 12, 2005 (``NASAA 
Letter''); and Carl B. Wilkerson, Vice President & Chief Counsel, 
Securities & Litigation, American Council of Life Insurers, dated 
June 23, 2005 (``ACLI Letter''). In addition, the Commission 
received a comment letter on SR-NASD-2005-012, a filing dealing with 
the same substance but that had been rejected by the Commission. The 
letter raised a number of technical concerns which have been 
addressed by the NASD or will be addressed during the implementation 
phase for Form BR.
    \6\ See letter from Shirley H. Weiss, Associate General Counsel, 
NASD, to Katherine A. England, Assistant Director, Division, 
Commission, dated August 17, 2005 (``NASD Response Letter'').
    \7\ See discussion of Amendment No. 2 in Section II, Description 
of Proposed Rule Change, infra.
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II. Description of Proposed Rule Change

    NASD proposes to establish Form BR, a uniform branch office 
registration form developed by a working group composed of 
representatives from NASD, the New York Stock Exchange, Inc. 
(``NYSE''), the North American Securities Administrators Association 
(``NASAA'') and various states (hereinafter referred to as the 
``Working Group'').\8\ The proposed Form BR would enable firms to 
register branch offices electronically with NASD, the NYSE, other self-
regulatory organizations (``SROs''), and states, as applicable, through 
a single filing with the Central Registration Depository 
(``CRD[supreg],'' the ``CRD system,'' or ``Web CRD''). In addition, the 
proposed Form BR eliminates the need for Schedule E of

[[Page 58765]]

the Uniform Application for Broker-Dealer Registration (``Form BD''), 
the current NYSE Branch Office Application Form, and certain state 
branch office forms.\9\
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    \8\ The NYSE also filed a proposed rule change to adopt the Form 
BR, which is substantially similar to NASD's proposal. The 
Commission is simultaneously approving the NYSE's proposed rule 
change. See Securities Exchange Act Release No. 52543 (September 30, 
2005) (SR-NYSE-2005-13).
    \9\ Currently, broker-dealers register or report branch offices 
or other business locations on Schedule E of the Form BD. NYSE 
member firms 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. Moreover, more 
than 20 states require broker-dealers to submit a ``notice filing'' 
when a firm opens or closes a branch office.
    With the implementation of Form BR, the NYSE would retire the 
current NYSE Branch Office Application Form. Seven states, 
Connecticut, Florida, Maine, Nevada, Texas, Vermont and West 
Virginia, also have indicated that they plan to use the Form BR. 
Other jurisdictions that currently require ``notice filings'' for 
branch openings and closings, including Alabama, Alaska, Hawaii, 
Idaho, Indiana, Illinois, Kansas, Michigan, New Mexico, Ohio, Rhode 
Island, South Dakota, Tennessee and Wisconsin, have indicated that 
they also expect to use the Form BR. Telephone conversation between 
John Veator, Director, Regulatory User Liaison, NASD, Elizabeth 
Badawy, Accountant, Division, Commission and Kate Robbins, Attorney, 
Division, Commission, on September 20, 2005.
    The Division has granted no-action relief indicating that it 
will not recommend enforcement action to the Commission under Rules 
15b1-1, 15b3-1, 15Ba2-2, and 15Ca2-1 under the Act for broker-
dealers 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 the CRD[reg] no 
longer accepts Schedule E filings, which is currently anticipated to 
be October 15, 2005. See letter from Catherine McGuire, Chief 
Counsel, Division, Commission, to Patrice M. Gliniecki, Senior Vice 
President and Deputy General Counsel, NASD, dated September 30, 
2005.
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    The Working Group derived the majority of questions on the proposed 
Form BR from questions currently on one or more of the existing branch 
office forms and added questions to elicit additional information that 
it believed would be of regulatory value to SROs and states. To the 
extent possible, the proposed Form BR uses the same terms as those used 
in existing uniform forms.\10\
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    \10\ The ``Explanation of Terms'' section of proposed Form BR 
would include definitions of additional terms used in the context of 
branch office registration and reporting, such as ``closing,'' 
``person-in-charge,'' ``regular branch,'' ``small branch,'' 
``supervisor,'' and ``withdrawal.'' The NYSE made slight 
modifications to the definitions of ``small branch'' and ``regular 
branch'' that were published in NASD's Notice to Members 04-55 to 
conform to its interpretive materials.
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    The proposed Form BR is only one component of a broader project 
regarding the registration of branch offices through the CRD system. 
NASD is planning enhancements to the CRD system to coincide with the 
implementation of Form BR that would enable firms to designate, and 
users to identify, the branch office(s) in which a registered person 
works. These enhancements would enable registered persons to submit the 
name of the branch office(s) with which they are associated via the 
Form U4. Firms would be able to obtain a report via Web CRD that would 
list individuals who are currently associated with a branch or who were 
associated with a branch during a specific time period. Regulators also 
would be able to obtain reports that would list branch offices within a 
firm as well as registered individuals in those branches. NASD also 
proposes to make certain conforming and technical changes to the 
current Form U4 and Form U5.

Highlights of the Proposed Form BR

    There are nine sections of the proposed Form BR, as described 
below. The Form BR would permit applicants (i.e., firms) to: (1) Apply 
for approval of or report a branch office (an ``initial'' filing); (2) 
amend information previously reported (an ``amendment'' filing); (3) 
terminate a branch office registration (a ``closing'' filing); or (4) 
withdraw an initial filing before approval by a jurisdiction or SRO (a 
``withdrawal'' filing).
Section 1--General Information
    Section 1 would report the applicant's CRD number, name, address, 
billing code, branch address, and telephone number. NASD would pre-
populate the applicant's CRD number, name, and address.
Section 2--Registration/Notice Filing/Type of Office
    Section 2 would ask the applicant to state where the branch would 
be registered (or notice filed), the type of branch office 
registration, and whether it would be an NASD Office of Supervisory 
Jurisdiction (``OSJ''). If it is not an OSJ, the applicant would be 
required to provide the CRD branch number, or firm billing code, for 
the OSJ that has supervisory responsibility over the branch and the CRD 
number of the supervisor in charge of that OSJ. Consistent with the 
concept of a uniform form, Section 2 of the proposed Form BR would give 
applicants the opportunity to designate whether the branch office 
filing is being made on behalf of a broker-dealer (``BD''), an 
investment adviser (``IA''), or both. This feature would enable firms 
to register or report IA branches in states that require such 
registration and reporting. Section 2 also would ask for NYSE Small 
Branch information.
Section 3--Types of Activities/Other Business Names/Websites
    Section 3 would collect information with respect to the types of 
financial industry activities conducted by the applicant and any 
investment-related activities conducted by associated persons at the 
branch location. Section 3 also would ask for the names being used by 
any associated person to conduct investment-related activities at the 
branch office other than those names disclosed on the applicant's Form 
BD or Uniform Application for Investment Adviser Registration (``Form 
ADV''). Section 3 also would ask for the website addresses used by the 
branch office other than the applicant's primary Web site address.
Section 4--Branch Office Arrangements
    Consistent with questions currently asked on Schedule E of the Form 
BD, Section 4 of the proposed Form BR would elicit information on 
branch office arrangements, including space sharing arrangements and 
liability for expenses. Section 4 would not require applicants to 
report insurance agency agreements with the main office pursuant to 
which the branch operates.
Section 5--Associated Individuals \11\
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    \11\ NASD notes that the title of Section 5--``Associated 
Individuals''--refers to registered individuals who are associated 
with the particular branch office. Applicants would not be required 
to report the names of associated persons who are not registered.
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    Section 5, which would have to be completed only for initial branch 
office registration filings, would ask for the names and CRD numbers of 
registered persons associated with a branch.\12\ Individuals identified 
by the firm in this section would populate a dynamic ``branch roster'' 
of registered persons in Web CRD, which would be made available to 
firms. Once the branch has been established, changes to the branch 
roster would automatically be made through Web CRD when: (1) The 
``Office of Employment Address'' question on the Form U4 is amended 
when an individual leaves a branch for another branch; or (2) the Form 
U5 is filed when an individual leaves a firm. Firms would be able to 
print a report, among other reports, that would list registered 
individuals who are currently associated with a branch, or who were 
associated with the branch during a specific time period. This 
functionality should facilitate firms' compliance with

[[Page 58766]]

one of the requirements contained in SEC Rule 17a-4(l).\13\
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    \12\ Firms would be required to enter the CRD number, and then 
the name would populate in the field.
    \13\ 17 CFR 240.17a-4(l). SEC Rule 17a-4(l) requires certain 
records for the most recent two-year period to be maintained at the 
office to which they relate.
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Section 6--NYSE Branch Information
    Only firms registered with the NYSE would be able to view and would 
be required to complete Section 6. The proposed Form BR would 
incorporate the information elicited on the NYSE's current Branch 
Office Application Form and Office Space-Sharing Form. The CRD system 
would interact with the NYSE's branch office system on NYSE branch 
office registration filings.
    The NYSE's current protocol for requesting approval for new branch 
offices would continue with the proposed Form BR. NYSE members would 
use Form BR to request such approvals, and the information provided by 
NYSE members would be transmitted to the NYSE, which, in turn, would 
communicate its determinations (e.g., approvals) to the requesting NYSE 
firms through the CRD system.
Section 7--Branch Closing
    Section 7 would be completed by a firm only upon the closing of a 
branch office registered with a jurisdiction or an SRO. Information in 
Section 7 would include the date operations ceased, or will cease, the 
location of the branch's books and records, and the name and telephone 
number of the contact person.
    Because branch offices located close to state borders often move 
from one state to another, the proposed Form BR and the CRD system have 
been designed to accommodate such moves through amendment filings. 
Specifically, a firm would be able to file a single Form BR amendment 
that would both close the branch in one state and register or notice 
file the branch in another state that also has a registration or notice 
filing requirement. The Specific Instructions and notifications (the 
latter triggered by the state address change) in Section 1 (General 
Information) and Section 2 (Registration/Notice Filing/Type of Office) 
would advise applicants that the amendment has both changed the branch 
address to another state and closed the branch in the first state. In 
addition, the amendment would serve as a request to open a branch in 
the state to which the branch has moved if it is a state that requires 
registration or notice filing of branches.\14\
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    \14\ NASD states that it would view a change in location simply 
as an amendment filing, not a request to open a new branch.
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Section 8--Branch Withdrawal
    Firms would be required to complete Section 8 only upon withdrawal 
of a pending application. Information in this section would include the 
date of withdrawal, the reason for withdrawal, and the name and 
telephone number of the contact person.
Section 9--Signature
    Section 9 would be the signature page. The language on the 
signature page would be consistent with the current attestations on the 
Form U4 and the Form BD.

Conforming and Technical Changes to Forms U4 and U5

    NASD is proposing conforming changes to the Forms U4 and U5 to 
fully integrate the branch office registration and reporting process 
through the CRD system. First, NASD is proposing changes to the 
``Office of Employment Address'' to parallel the information reported 
on the Form BR, and to ensure the accuracy and integrity of the link 
between registered representatives and their branches. When completing 
the Form U4, the firm/individual would be asked to select the branch 
office(s) from which the registered person will work based on the list 
of branch offices identified by the firm (through the filing of Forms 
BR). Once the registered locations are selected, CRD[supreg] would 
populate the ``Office of Employment Address'' on the General 
Information screen on the Form U4 for each registered person with the 
following data elements based on information reported on the Form BR: 
CRD Branch Number, NYSE Branch Code Number, address, and start and end 
dates. The Form U5 would display the same information.\15\ If the 
individual is not located at a registered branch office, the firm must 
enter the business address of the location at which the individual is 
employed and the location from which the individual is supervised.
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    \15\ NASD states that it would remove from the Forms U4 and U5 
the Specific Instructions and form fields that currently require 
reporting of information that would be provided via Form BR and 
would pre-populate the appropriate fields on the Forms U4 and U5.
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    NASD is also proposing to add a question to the Form U4 to elicit 
whether the individual has an independent contractor relationship with 
the firm. Information regarding independent contractors currently is 
elicited on Schedule E of Form BD. The Working Group initially proposed 
to include this question on the Form BR but subsequently decided that 
the independent contractor question would be more appropriately placed 
on the Form U4.
    In addition, NASD is proposing changes to the Specific Instructions 
on the Forms U4 and U5 to reflect the proposed changes to the forms. 
NASD is proposing other technical changes to the Forms U4 and U5 as 
well. Specifically, NASD proposes to: (1) Add to the Forms U4 and U5 
registration categories that the Commission has previously approved; 
\16\ (2) reorganize the electronic filing representations on the Form 
U4, Section 6 (Regulatory Requests with Affiliated Firms) for 
submitting a fingerprint for registration with an affiliated firm, so 
that the representations would follow a more logical order (the content 
of the representations would not change) and modify the Specific 
Instructions regarding the same; (3) amend the Forms U4 and U5 to 
reflect the change in name of the Cincinnati Stock Exchange (CSE) to 
the National Stock Exchange (NSX); \17\ and (4) add new instructions on 
the Form U5 explaining the circumstances under which the ``Office of 
Employment Address'' would be pre-populated.
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    \16\ See Securities Exchange Act Release Nos. 50162 (August 6, 
2004), 69 FR 50406 (August 16, 2004) (SR-NASD-2004-078) (Research 
Analyst (RS) and Research Principal (RP)) and 49922 (June 28, 2004), 
69 FR 40701 (July 6, 2004) (SR-PCX-2003-51) (Pacific Exchange 
positions Market Maker (44), Floor Broker (45), and Market Maker 
acting as a Floor Broker (46)).
    \17\ See Securities Exchange Act Release No. 48774 (November 12, 
2003), 68 FR 65332 (November 19, 2003) (SR-CSE-2003-12).
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Making the Transition to Form BR

    NASD expects that the effective date of the proposed rule change 
will be October 31, 2005. NASD plans to announce the effective date of 
the proposed rule change, along with a timetable for the transition to 
the Form BR, in a Notice to Members to be published no later than 30 
days following Commission approval.
    NASD has designated October 15, 2005 through October 30, 2005 as a 
``lock-out'' period for the CRD system, during which time NASD would 
help firms with branch offices in existence as of the close of business 
on October 14, 2005 to register these offices. During the ``lock-out'' 
period, NASD would create a ``conversion'' Form BR on the CRD system 
for all branch offices in existence as of the close of business on 
October 14, 2005. NASD would assign a unique branch CRD number to each 
of these branches and pre-populate the ``conversion'' Forms BR with 
limited information for each of these

[[Page 58767]]

branches.\18\ During this ``lock-out'' period, the CRD system would not 
accept any branch office forms or amendments via any of the current 
forms or Form BR.
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    \18\ NASD noted that the conversion process would download the 
following data in CRD[supreg] or the Investment Adviser Registration 
Depository (IARDSM), as well as data provided from the 
NYSE and participating states: Branch Address, CRD Branch Number, 
NYSE Branch Code Number, NASD/NYSE Supervisor/Person-In-Charge Name 
and CRD Number, Operational Status, and NYSE/Jurisdiction 
Registration Status.
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    Starting on October 31, 2005, the new branch office functionality 
would be available in the CRD system. Beginning on that date, firms 
with branch offices in existence before the close of business on 
October 14, 2005 could: (1) Complete the data fields for each 
``conversion'' Form BR created by NASD during the ``lock-out'' period; 
and (2) file through CRD[supreg] the completed Forms BR.
    In addition, firms would be able to amend Forms U4 to assign each 
registered person to a registered branch office. Firms could assign 
registered persons to branches by means of either individual Form U4 
filings or an electronic file transfer (i.e., a ``batch'' filing) 
established exclusively for this purpose.
    Firms with branch offices in existence before the close of business 
on October 14, 2005 would have until May 1, 2006 to comply with the 
Form BR and Form U4 filing requirements for those branch offices. 
Therefore, by May 1, 2006, these firms would have to have: (1) 
Completed and filed the ``conversion'' Form BR for each such branch; 
and (2) with respect to the registered persons employed by such 
branches, amended all applicable Forms U4 to assign these registered 
persons to the branch office(s) (or other locations) from which they 
work.
    Starting on October 31, 2005, firms would have to file a Form BR to 
register any new branch office opened on or after October 15, 2005.\19\ 
Once a firm has filed a Form BR, the new branch would be established on 
the CRD system, and CRD[reg] would automatically populate the ``Office 
of Employment Address'' of the Form U4 for each person identified in 
Section 5 (Associated Individuals) of the Form BR. Individuals 
identified in this section would populate a dynamic ``branch roster'' 
of registered persons in CRD[reg]. Thereafter, firms would be required 
to submit amended Forms U4 to assign additional registered persons to 
the branch, and CRD[reg] would automatically update the ``branch 
roster'' of registered persons in Web CRD.\20\ The ``branch roster'' 
would be made available to firms.
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    \19\ Article IV, Section 8 of the NASD By-Laws requires firms to 
report the opening of a branch office not later than 30 days after 
the branch is opened.
    \20\ Article V, Section 2 of the NASD By-Laws requires 
amendments to the Form U4 to be filed within 30 days after learning 
of the facts or circumstances giving rise to the amendment. The 
``Specific Instructions'' for completing the Form U4, as amended, 
address procedures for updating the Form U4 to include all branch 
office addresses at which the individual is employed.
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Amendment No. 2

    In Amendment No. 2, NASD: (1) Indicated that it expects that 
October 31, 2005 will be the effective date of the proposed rule 
change, and that the Notice to Members announcing the effective date 
(to be published no later than 30 days following Commission approval) 
will provide the timetable for the transition to the Form BR; (2) 
replaced the ``Making the Transition to Form BR'' subsection of the 
``Purpose'' section in its entirety; (3) modified the ``Conforming 
Changes to Forms U4 and U5'' discussion in the ``Purpose'' section with 
respect to (i) Changes to the ``Office of Employment Address'' section 
of the Form U4, (ii) reporting independent contractor relationships on 
the Form U4, (iii) the procedures to be followed if an individual is 
not located at a registered branch office, and (iv) the effective date 
of the proposed rule change; (4) clarified in footnote 10 that the 
referenced report concerns registered individuals; and (5) made other 
minor edits to the proposal, including technical, non-substantive 
changes to the proposed Form BR, modifications to Sections 1 and 6 and 
related Specific Instructions on the Form U4 and modifications to 
Sections 1 and 6 and related Specific Instructions and other technical, 
non-substantive changes to the Form U5.

III. Comment Summary and NASD Response Letter

    As noted above, the Commission received 6 comment letters with 
respect to the proposed rule change.\21\ NASD filed a response letter 
to address concerns raised by the commenters.\22\
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    \21\ See supra note 5.
    \22\ See NASD Response Letter, supra note 6.
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    Most of the commenters generally supported uniform electronic 
registration of branch offices through the CRD system.\23\ The 
commenters discussed many of the benefits of Form BR. Three commenters 
indicated that the Form BR would eliminate duplicative or redundant 
filings; \24\ one of these commenters noted that Form BR would still 
provide regulators with pertinent information,\25\ and another noted 
that it would promote efficiency.\26\ Another commenter also praised 
the efficiencies that would result from Form BR, including 
``registration of both state and NASD branch offices through CRD, 
centralized fee collection and on-line work queues.'' \27\ Two 
commenters indicated that the Form BR would improve data accuracy.\28\ 
One of these commenters felt that a single filing would reduce the 
number of clerical oversights,\29\ while the other thought that the 
cross-checks of filings in the CRD system would serve to improve the 
accuracy of the data.\30\ The latter commenter also stated that Form BR 
will assist regulators by allowing them to generate reports about 
branch offices and, since it will link registered persons to branches, 
will allow regulators to better track complaints to branches.\31\
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    \23\ One commenter stated that it ``strongly supports the 
efforts of NASD and other working group members to integrate branch 
office registration into the CRD in order to create efficiencies for 
member firms,'' however, the commenter later stated that it ``cannot 
support the Form BR as it is currently proposed.'' See MML Letter, 
supra note 5. Another commenter noted that ``[w]e see no viable 
explanation for how this initiative will result in any enhancement 
to any objective related to customer protection,'' and indicated 
that ``two things are necessary before this initiative becomes one 
that it can support.'' See 1st Global Letter, supra note 5.
    \24\ See ARM Letter, Rhodes Letter and NASAA Letter, supra note 
5.
    \25\ See ARM Letter, supra note 5.
    \26\ See NASAA Letter, supra note 5.
    \27\ See MML Letter, supra note 5.
    \28\ See ARM Letter and NASAA Letter, supra note 5.
    \29\ See ARM Letter, supra note 5.
    \30\ See NASAA Letter, supra note 5.
    \31\ Id.
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    Of the commenters who voiced support for the proposal, two of the 
commenters supported the proposed rule change without 
qualification.\32\ As discussed below, the other four commenters 
expressed concerns about the proposed form.\33\
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    \32\ See Rhodes Letter and NASAA Letter, supra note 5.
    \33\ See ARM Letter, 1st Global Letter, MML Letter and ACLI 
Letter, supra note 5.
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    One of the commenters' main concerns was the potential increase in 
costs and administrative burden.\34\ A commenter stated that ``a more 
reasonable amount of information should be included on the Form BR that 
would result in less of an administrative burden for broker-dealers.'' 
\35\ Another commenter stated that ``the complexity of the proposed 
Form BR is extremely burdensome and solicits information beyond that 
necessary to register a branch office,'' and requested that

[[Page 58768]]

``more information be made available regarding the workflow and data 
maintenance that would be required of firms before the Form BR is 
finalized.'' \36\ One of the commenters stated that the proposed Form 
BR is duplicative of Schedule E of Form BD and, ``[w]ithout a formal 
SEC action eliminating Schedule E,'' the Form BR, ``would exacerbate 
administrative burdens.'' \37\ NASD responded to comments regarding the 
burdensome nature of the proposed Form BR by reiterating the benefits 
of the Form BR and the enhancements to the CRD system, including making 
the registration process more efficient and allowing regulators and 
firms to obtain reports showing branch offices within a firm and the 
registered individuals in each branch office.\38\
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    \34\ See 1st Global Letter, MML Letter and ACLI Letter, supra 
note 5.
    \35\ See 1st Global Letter, supra note 5.
    \36\ See MML Letter, supra note 5. NASD indicated that this 
commenter is an insurance-affiliated broker-dealer. See NASD 
Response Letter, supra note 6.
    \37\ See ACLI Letter, supra notes 5 and 9.
    \38\ See NASD Response Letter, supra note 6.
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    Two of the commenters were concerned about the effect of the 
adoption of the proposed ``branch office'' definition \39\ on the 
instant proposal, indicating that the new definition would greatly 
increase the number of branch offices that had to be registered on Form 
BR.\40\ One of these commenters indicated that NASD's proposed branch 
office definition would have a ``significantly disproportionate impact 
on broker-dealers affiliated with life insurers.'' \41\ The same 
commenter also expressed concern that the NASD proposal ``does not 
evaluate the burdensome economic impact'' of the proposed 30-day time 
frame for amendments to the Form BR, and stated that, ``[t]he sheer 
number of offices and filings that would need updates on a very short 
time horizon is daunting * * *'' \42\ NASD responded to comments 
regarding the proposed branch office definition by stating that ``the 
proposed Form BR is not linked to NASD's proposed rule change regarding 
the definition of branch office.'' \43\ However, the Commission notes 
that, in fact, the Form BR is predicated upon a uniform branch office 
definition and views the two rule filings to operate in concert. 
Additionally, the NASD has delayed the effective date of the branch 
office definition until early 2006 to allow firms a smooth transition 
to the Form BR and associated filing protocols before making the new 
definition effective.\44\
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    \39\ The Commission recently approved the NASD's and the NYSE's 
proposed definition of ``branch office.'' See Securities Exchange 
Act Release Nos. 52403 (September 9, 2005), 70 FR 54782 (September 
16, 2005) (SR-NASD-2003-104) and 52402 (September 9, 2005), 70 FR 
54788 (September 16, 2005) (SR-NYSE-2002-34).
    \40\ See 1st Global Letter and ACLI Letter, supra note 5. One of 
these commenters also stated that it was ``premature'' to publish 
Form BR for comment given the uncertainty surrounding the definition 
of branch office. See ACLI Letter, supra note 5.
    \41\ See ACLI Letter, supra note 5. NASD indicated in its 
response letter that both of these commenters were concerned about 
the effect of the proposed Form BR on the insurance industry. The 
Commission notes that, according to its review, only the ACLI Letter 
specifically addressed the impact on the insurance industry.
    \42\ Id.
    \43\ See NASD Response Letter, supra note 6. NASD also indicated 
that it was addressing the impact of the proposed branch office 
definition in a separate rule filing, SR-NASD-2003-104. As noted 
above, NASD's proposed branch office definition has been approved by 
the Commission. See supra note 39.
    \44\ See Securities Exchange Act Release No. 52403 (September 9, 
2005), 70 FR 54782 (September 16, 2005) (SR-NASD-2003-104).
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    Furthermore, some of the commenters voiced concerns about the 
specific sections of the form. One of the commenters requested that the 
fields requiring the branch telephone number and facsimile number be 
removed because ``they are unnecessarily burdensome to enter and 
maintain.'' \45\ Another commenter indicated a need for multiple firm 
billing code fields to allow the entry of more than one billing code 
per branch, noting that ``different supervisors (those running 
different businesses in a single location) would likely possess 
different `billing codes','' and that ``a scenario could exist wherein 
a single office being managed by a single individual will have more 
than one billing code.'' \46\ The commenter suggested that, if 
necessary, this change be made as an enhancement after the Form BR is 
initially implemented so that NASD can maintain its planned rollout 
schedule. One of the commenters recommended that ``supervisor 
information be limited to one person who would be the primary 
supervisor * * *,'' \47\ while another commenter applauded the NASD for 
allowing for multiple supervisors at a single office location.\48\ NASD 
responded by indicating that it plans to maintain the current 
implementation schedule but that it would ask the Working Group ``to 
consider modifying the Form BR to permit a single branch office to 
report multiple billing codes.'' \49\
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    \45\ See MML Letter, supra note 5.
    \46\ See ARM Letter, supra note 5.
    \47\ See MML Letter, supra note 5. This commenter further noted 
that, once the supervisor's CRD number is entered, the field for the 
supervisor's name could be populated from the supervisor's Form U4. 
Id.
    \48\ See ARM Letter, supra note 5.
    \49\ See NASD Response Letter, supra note 6.
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    One commenter suggested that Section 3 be eliminated in its 
entirety ``since the information is beyond that needed to register a 
branch office and because business activities at a branch location, use 
of DBA names and websites are already subject to regulatory 
compliance.'' \50\ Additionally, the commenter recommended that Section 
4 be eliminated or changed to apply only to OSJs since ``requiring this 
information for all locations where a registered representative is 
located will cause an undue burden on firms to provide complete, 
accurate information and to monitor any type of change to such 
operations.'' \51\ NASD responded to these comments by indicating that 
it believes that the information being elicited by these questions has 
significant regulatory value and that the questions should be 
retained.\52\
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    \50\ See MML Letter, supra note 5.
    \51\ Id.
    \52\ Telephone conversation between Shirley Weiss, Associate 
General Counsel, NASD, Elizabeth Badawy, Accountant, Division, 
Commission, and Kate Robbins, Attorney, Division, Commission, on 
September 22, 2005.
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    One commenter firmly disagreed with the requirement that the Form 
BR be signed, and noted that ``neither the current NYSE Branch Office 
Application nor the amendment of Schedule E of Form BD require 
signature. * * *'' \53\ The commenter stated that ``[r]equiring a 
signature on Form BR is taking a step backwards and is tantamount to 
suggesting that the person submitting the filing is not accountable for 
the accuracy of the data contained in that filing.'' \54\
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    \53\ See ARM Letter, supra note 5.
    \54\ Id.
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    NASD responded that the Working Group ``believes that the integrity 
of the data to be reported on the proposed Form BR requires an 
attestation that the statements are `current, true and complete.' '' 
\55\ NASD further indicated that the signature requirement on Form BR 
is consistent with the signature requirements on the Forms U4 and 
U5.\56\
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    \55\ See NASD Response Letter, supra note 6.
    \56\ Id.
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    One commenter discussed the placement of a question regarding an 
individual's status as an independent contractor, which was added to 
the Form U4 and removed from the originally proposed Form BR in 
response to comments received in response to NASD's Notice to Members 
04-55 published in August 2004.\57\ The commenter urged that ``the 
independent contractor question be placed in a section of Form U4 that 
does not require

[[Page 58769]]

a registered representative signature so as to avoid triggering a 
[NASD] Rule 3080 notification,'' \58\ and that NASD should ``set a `no' 
default to the response to that question'' so that, when the 
independent contractor question is added to the Form U4, every 
registered person will not immediately have an incomplete Form U4.\59\
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    \57\ See ARM Letter, supra note 5.
    \58\ Id. NASD notes that ``NASD Rule 3080 requires certain 
disclosures regarding the predispute arbitration clause contained in 
the Form U4 to be made whenever an associated person is asked to 
sign a new or amended Form U4.'' See NASD Response Letter, supra 
note 6.
    \59\ See ARM Letter, supra note 5.
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    NASD responded by confirming that the independent contractor 
question will be located in a section of the Form U4 that does not 
require a registered person's signature if amended.\60\ With regard to 
the request for a ``no'' default response to the independent contractor 
question, NASD indicated that it would not set a default response but 
that it would allow member firms to provide the answers to the 
independent contractor question as part of a ``batch'' data file that 
firms will be able to submit to assign registered persons to 
established branch offices.\61\
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    \60\ See NASD Response Letter, supra note 6.
    \61\ Id.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 2, including whether Amendment No. 2 
is consistent with the Act. Comments may be submitted by any of the 
following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-NASD-2005-030 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-NASD-2005-030. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments, 

all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room. Copies of the 
filing also will be available for inspection and copying at the 
principal office of the NASD. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NASD-2005-030 and should be submitted on or before 
October 28, 2005.

V. Discussion and Commission's Findings

    After careful consideration of the proposed rule change, the 
comment letters, and NASD's responses to the comment letters, 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 
association.\62\ The Commission believes that the proposed rule change 
is consistent with Section 15A(b) of the Act,\63\ in general, and 
furthers the objectives of Section 15A(b)(6),\64\ in particular, in 
that it is 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.
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    \62\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \63\ 15 U.S.C. 78o-3(b).
    \64\ 15 U.S.C. 78o-3(b)(6).
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    The Commission supports NASD, the NYSE, and state securities 
regulators' joint regulatory effort to develop a uniform branch office 
registration form that will enable firms to register branch offices 
electronically with NASD, the NYSE, other SROs and states. The 
Commission believes that utilizing a single form, Form BR, will make 
the branch office registration process more efficient by eliminating 
duplicative forms and questions and reconciling inconsistencies among 
existing forms, while retaining or adding questions that elicit 
information that will be of regulatory value to SROs and states, as 
well as the Commission. The conforming and technical changes to the 
Form U4 and the Form U5 will also ensure that the information elicited 
by such forms is of regulatory value to SROs and states. In this 
regard, the Commission believes that, by significantly streamlining the 
branch office registration process, such regulatory coordination and 
cooperation should result in an effective and efficient regulation that 
will serve the entire broker-dealer community.
    The Commission also supports NASD's planned enhancements to the CRD 
system, which will coincide with the implementation of the Form BR, 
that will enable registered persons to submit via the Form U4 the name 
of the branch office(s) with which they are associated. From this 
information, firms and regulators will be able to generate reports 
showing, for example, the individuals who are currently associated with 
a branch, or were associated with a branch during a specific time 
period. The Commission believes that this is an important improvement 
to the CRD[supreg] database and will allow regulators to gather 
information and deploy examination resources more efficiently. The 
enhancements to the CRD system also will serve to reconcile 
inconsistencies in the CRD[supreg] database, thereby improving data 
integrity, via cross-checks between the Form BR and the corresponding 
sections of the Form U4.
    Finally, the Commission believes it is reasonable for NASD to 
implement the proposed Form BR pursuant to the schedule set forth by 
NASD. The creation of ``conversion'' Forms BR for branch offices 
already in existence before the launch of the branch office 
functionality in CRD[supreg] should allow for a smooth transition to 
the new branch office registration system. In addition, the transition 
will be facilitated by NASD's allowing firms to make ``batch'' filings 
to assign registered persons to branch offices, thereby amending 
multiple registered persons' Forms U4 with one filing. Furthermore, the 
six-month period for firms to complete the Forms BR for such branch 
offices and amend the Form U4 for each registered person should give 
firms ample time to comply with their filing requirements.

[[Page 58770]]

Accelerated Approval of Amendment No. 2

    The Commission finds good cause for approving Amendment No. 2 to 
the proposed rule change prior to the thirtieth day after the amendment 
is published for comment in the Federal Register pursuant to Section 
19(b)(2) of the Act.\65\ Amendment No. 2 clarified: (1) The effective 
date of the proposed rule change and the process for transitioning to 
Form BR; (2) the description of conforming changes to be made to Forms 
U4 and U5; and (3) the description of the reports that will be able to 
be generated in the CRD system. Amendment No. 2 also included other 
minor edits, including technical, non-substantive changes to the 
proposed Form BR, modifications to Sections 1 and 6 and related 
Specific Instructions on the Form U4, and modifications to Sections 1 
and 6 and related Specific Instructions and other technical, non-
substantive changes to the Form U5. The Commission believes that 
Amendment No. 2 provides for a clearer understanding of the 
implementation schedule of the proposed Form BR, the proposed changes 
to Forms U4 and U5, and the new functionality in the CRD system and 
notes that the technical and clarifying changes made to the Form BR and 
Forms U4 and U5 raise no new issues of regulatory concern.
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    \65\ 15 U.S.C. 78s(b)(2).
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    Accordingly, the Commission believes that accelerated approval of 
Amendment No. 2 is appropriate.

VI. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as amended, is consistent with the requirements of the Act 
and rules and regulations thereunder applicable to a national 
securities association, and, in particular, Section 15A(b)(6) of the 
Act.\66\
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    \66\ 15 U.S.C. 78o-3(b)(6).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\67\ that the proposed rule change (SR-NASD-2005-030), as amended 
by Amendment No. 1, is hereby approved and that Amendment No. 2 thereto 
is hereby approved on an accelerated basis.
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    \67\ 15 U.S.C. 78s(b)(2).

 For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\68\
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    \68\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
 [FR Doc. E5-5534 Filed 10-6-05; 8:45 am]

BILLING CODE 8010-01-P
