SEC Issues Letter to NYSE Regulation, Inc. Regarding Statutory Disqualifications: No-Action Letter and Interpretive Guidance
On August 1, 2006, the SEC’s Division of Market Regulation (Staff) issued a letter to NYSE Regulation, Inc. (NYSE) providing interpretive guidance and no-action relief on the filing of statutory disqualification notices. Section 6(c)(2) of the Exchange Act and Rule 19h-1 thereunder generally require NYSE to file a notice with the SEC regarding any person subject to a statutory disqualification that NYSE proposes to admit to or continue in membership or association with a member organization. Rule 19h-1 provides exceptions to the notice filing requirements in certain circumstances.
The Staff provided interpretive guidance and no-action relief in the following areas:
Time-Limited Bars or License Revocations. The Staff indicated that a person is no longer subject to a statutory disqualification when the time limitation of a bar or license revocation has expired, provided that (1) the person is not required to reapply for reentry, or reentry has been granted; (2) the bar or revocation has no continuing effect; and (3) the bar was not issued in connection with a final order based on violations of laws or regulations prohibiting fraudulent, manipulative, or deceptive conduct.
Bars or Suspensions Based on Disciplinary Action Taken by an SRO. The Staff indicated that a person is not subject to a statutory disqualification by reason of being subject to a bar or suspension by a State securities commission based solely upon a disciplinary action taken by an SRO that does not otherwise result in a statutory disqualification. However, the Staff noted that actions based on disciplinary actions of other entities, or in other circumstances, would require further analysis on a case-by-case basis.
Willful Violations of the MSRB Rules. The Staff indicated that the exceptions from the notice filing requirement apply to findings of willful violations of the MSRB rules provided that the sanctions are no longer in effect.
Aiding and Abetting. The Staff indicated that a notice filing is not required for aiding and abetting a violation of the federal securities laws (including the MSRB rules) if notice would not be required for a direct violation, provided that the related sanctions are no longer in effect.
Findings of Willful Violations or Failure to Supervise in the Context of New Admissions, Readmissions, or Continuances. The Staff granted no-action relief to NYSE to not file a 19h-1 notice with the SEC when: (1) the statutory disqualification is due to a finding of willful violation, or willful aiding and abetting of a violation, of the Commodity Exchange Act or the rules and regulations thereunder, provided that the sanctions are no longer in effect; or (2) the statutory disqualification is due to a finding that the person failed to reasonably supervise another person who committed a violation, provided that the sanctions related to the findings are no longer in effect with respect to that person.
Statutory Disqualifications Arising from Sarbanes-Oxley Amendments. The Staff granted no-action relief to permit NYSE to not file a 19h-1 notice with the SEC for any person who is already a member, member organization, or associated person of a member organization of the NYSE or other SRO, provided that the person is subject to enumerated conditions relating to the effectiveness of the bar, the basis of the order, and the sanctions in effect or no longer in effect. The Staff noted that this position permits the NYSE to integrate certain notice filings mandated by the expansion of the statutory disqualification definition under the Sarbanes-Oxley Act into established programs that monitor persons subject to statutory disqualifications as they reenter the securities business, move from one firm to another, or take on supervisory responsibilities.
View the No-Action Letter and Request for No-Action Relief
Securities Industry FYI is a service of the Broker-Dealer Practice of Morgan Lewis. If you have any questions concerning these important legal developments, please contact any member of Morgan Lewis’s Broker-Dealer Practice, including:
Washington, D.C.
John V. Ayanian
202.739.5946
jayanian@morganlewis.com
Shauna Sappington
202.739.5573
ssappington@morganlewis.com