Broker-Dealer Registration and Reporting — SEC — US

1 17 CFR 240.15b1–1; 17 CFR 249.501; 15 U.S.C. §§ 78a et seq. 2Securities Exchange Act Release No. 37431 (July 12, 1996), 61 FR 139 (July 18, 1996). 3For purposes of this release, the term ‘‘NASD’’ will be sued to encompass both the NASD and NASD Regulation, Inc. (‘‘NASDR’’) unless specified otherwise. The NASDR is the regulatory subsidiary of the NASD and is responsible for the operation of the CRD system. 4 In 1992, the Commission joined the CRD system and adopted amendments to the broker-dealer registration process. Those amendments required, among other things, that all broker-dealers file Form BD with the Commission through the CRD. These changes were made as part of the Commission’s ongoing effort to reduce the costs associated with broker-dealer registration. Securities Exchange Act Release No. 31660 (Dec. 28, 1992), 58 FR 11 (Jan. 4, 1993). 5Applicants seeking broker-dealer registration with the Commission, the NASD, the Chicago Board Options Exchange (‘‘CBOE’’), and the various states currently file a single Form BD with the NASD. The NASD manually enters the information into the CRD system, which then makes the information available (electronically) to the Commission and the appropriate states for review. Applicants may also seek registration with SROs other than the NASD and the CBOE through Form BD, but they may also be required to submit a copy of the paper Form BD to those SROs that do not participate in the CRD system. The NASD anticipates more SROs to become full participants in Web CRD after the system is operational. 6Securities Exchange Act Release No. 35224 (Jan. 12, 1995); 60 FR 4040 (Jan. 19, 1995). 7Forms BD and BDW are joint forms used by the Commission, SROs, and the states. The forms are used, respectively, to register, and to terminate the registration of, broker-dealers. SROs and the states use Forms U–4 and U–5 to register, and terminate the registration of, associated persons of brokerdealers. 8The direct link with the CRD would have been accomplished through several methods, including computer-to-computer interface, network access, and standard dial-up access. SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 240 and 249 [Release No. 34–41351; File No. S7–16–99] RIN 3235–AH73 Broker-Dealer Registration and Reporting AGENCY: Securities and Exchange Commission. ACTION: Proposed rule. SUMMARY: The Securities and Exchange Commission is proposing technical amendments to Form BD, the uniform broker-dealer registration form, and related rules under the Securities Exchange Act of 1934. The proposed amendments would modify the version of Form BD that was adopted in 1996 but never implemented. The primary purpose of the amendments is to aid the implementation of electronic filing in the new, Internet-based Central Registration Depository system. This computer system, which is operated by the National Association of Securities Dealers, Inc., maintains registration information regarding broker-dealers and their registered
personnel. The formatting and technical changes proposed today are needed to accommodate the shift from the network-based architecture and proprietary software approach anticipated in the 1996 Central Registration Depository system to the new, Internet-based system. DATES:omments must be submitted on or before June 9, 1999. ADDRESSES: All comments concerning the rule proposal should be submitted in triplicate to Jonathan G. Katz, Secretary, U.S. Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549–0609. Comments also may be submitted electronically at the following E-mail address: rule-comments@sec.gov. All comment letters should refer to File Number S7–16–99; this file number should be included on the subject line if E-mail is used. Comment letters will be available for inspection and copying in the public reference room at the same address. Electronically submitted comment letters will be posted on the Commission’s Internet Web site (http:// www.sec.gov). FOR FURTHER INFORMATION CONTACT:
Catherine McGuire, Chief Counsel or Barbara A. Stettner, Special Counsel, (202) 942–0073, Office of Chief Counsel, Division of Market Regulation, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549–1001. SUPPLEMENTARY INFORMATION:
I. Introduction
The Securities and Exchange Commission (‘‘Commission’’) is proposing technical amendments to Form BD, the uniform application for broker-dealer registration, and related rules under the Securities Exchange Act of 1934 (‘‘Exchange Act’’).1 The proposed amendments would modify the version of Form BD that was adopted in 1996 but never implemented (‘‘1996 Form BD’’).2 The amendments are necessary to accommodate the shift from the proposed network-based and proprietary software approach anticipated in the 1996 Central Registration Depository (‘‘CRD’’) system (‘‘Redesigned CRD’’) to ‘‘Web CRD,’’ the new, Internet-based CRD system. The CRD is operated and maintained by the National Association of Securities Dealers, Inc. (‘‘NASD’’)3 and is used by the Commission,4 self-regulatory organizations (‘‘SROs’’), and state securities regulators in connection with registering and licensing broker-dealers and their registered personnel. The 1996 Form BD amendments were based upon the electronic filing approach of the 1996 Redesigned CRD, which differs significantly from the electronic filing approach of Web CRD. Web CRD will replace the current CRD system (‘‘Legacy CRD’’), which was created in 1981 as a cooperative effort with the North American Securities Administrators Association (‘‘NASAA’’), in order to facilitate the ‘‘one-stop’’ filing process for broker-dealers and their associated persons.5 Web CRD’s Internet-based system is expected to further streamline and lower the costs associated with the onestop registration process for brokerdealers and their associated persons. It is also expected to provide the Commission, SROs, and state securities regulators with enhanced access to registrant disciplinary and disclosure information. Web CRD is scheduled to be operational beginning August 16, 1999. The proposed amendments are the result of discussions between the Commission staff, NASAA’s CRD Project Committee (formerly the CRD/ Forms Revision Committee), the NASD, the New York Stock Exchange, Inc., and representatives from the securities industry.
II. Background
On January 12, 1995, the Commission proposed amendments to Form BD in order to respond to anticipated design updates (i.e., Redesigned CRD) being developed for the Legacy CRD system.6 Redesigned CRD was a comprehensive project undertaken by the NASD involving the creation of proprietary software and a network-based architecture that would have allowed broker-dealers to electronically file with the CRD. This system would have required broker-dealers to obtain through a subscription agreement the software developed by the NASD as well as computer hardware that met minimum configuration requirements. Redesigned CRD was intended to enable broker-dealers and their associated persons to file Forms BD, BDW, U–4, and U–57 electronically through a direct link to the CRD.8 On July 18, 1996, the Commission adopted the amendments to 1996 Form BD that were necessary to fully implement the new system. These amendments, which elicited more precise disclosure from applicants and reorganized disclosure items into related categories, were intended to

9Securities Exchange Act Release No. 37632 (September 4, 1996), 61 FR 47412 (September 9, 1996). 10Securities Exchange Act Release No. 39677 (February 18, 1998), 63 FR 9413 (February 25, 1998). 11One of the principal goals of Redesigned CRD, and the 1996 amendments to Form BD, was to make certain information regarding broker-dealers and their associated persons, that is required to be reported on the applicable registration forms, more readily available to the public. Accordingly, pending the implementation of Web CRD, Interim Form BD incorporated the enhanced disclosure elicited by 1996 Form BD Question 11 into the existing Form BD Question 7. Interim Form BD Question 7, therefore, requests information about the disciplinary history of the applicant and its control affiliates, including information relating to statutory disqualifications, other relevant history, and the applicant’s financial soundness. In order to make the disclosures more organized and complete, Question 7 is divided into broad categories:
criminal, civil, regulatory, and financial. 12Broker-dealers will submit filings through the NASDR’s Web site at <https://crd.nasdr.com/ crdmain>. 13A broker-dealer would also need access to an Internet browser (e.g., Netscape, Internet Explorer) in order to submit filings over the Internet. Internet browsers typically are provided by the ISP or can be downloaded free of charge from the Internet. 14 In contrast, Redesigned CRD would have required firms to obtain NASD-developed software under a subscription agreement as well as computer hardware that met certain minimum configuration requirements (which may have involved costly upgrades to existing hardware). Broker-dealers would also have incurred costs associated with online usage fees and reports derived from the Redesigned CRD system. 15Pull-down menus are used to select options that are not readily visible on the screen. Pull-down menus are used by clicking the mouse and holding it on the option selected. The other choices then appear in a menu (or list) format. 16Read only fields could not be altered by the applicants. 17See NASD Notice to Members 96–26. 18See discussion regarding Item 5 on Form BD in
Appendix A.
19See discussion regarding Civil Judicial Action DRP, Part II, Question 13.C (Sanction Detail). Specifically, the proposed amendments would change Question 13.C to ask, among other things, whether any portion of a penalty assessed against the applicant was waived. become effective with the implementation of Redesigned CRD. At that time, the NASD expected to implement Redesigned CRD in September 1996. However, a test of the system that began in May 1996 revealed that the NASD’s proprietary software needed additional changes. The NASD also determined that broker-dealers needed more time to prepare their internal operations and infrastructure to support electronic filings through Redesigned CRD. The NASD, therefore, delayed the implementation of Redesigned CRD. Because of this delay, on September 4, 1996, the Commission suspended the compliance date for the 1996 Form BD amendments.9 Applicants seeking broker-dealer registration were instructed to continue filing the 1993 version of Form BD until Redesigned CRD was fully operational. In February 1997, following a reassessment of the CRD technology, the NASD decided to abandon the networkbased, Redesigned CRD system and proceed instead with the Internet-based, Web CRD system. Because the implementation of 1996 Form BD was tied to the Redesigned CRD system, the use of the Form was further delayed. Moreover, because Web CRD would take additional time to fully develop, the substantive disclosure questions adopted in the 1996 Form BD could not be implemented immediately. As a result, the Commission adopted ‘‘Interim Form BD,’’ effective March 16,
1998.10 Interim Form BD requires
registrants to file the same disclosure information called for by the 1996 Form BD amendments in a format that is compatible with the Legacy CRD system.11 Thus, while Interim Form BD incorporated all of the substantive changes of the 1996 Form BD amendments relating to disclosure of disciplinary history, it did not incorporate the formatting changes adopted in connection with the electronic filing approach contemplated in Redesigned CRD. Interim Form BD remains in effect today. Today’s proposed amendments would adapt 1996 Form BD to Web CRD’s Internet-based environment. Web CRD will be a secure Web-based system that applicants will access through the NASD’s Web site 12 with significantly less difficulty and at lower costs than would have been possible under Redesigned CRD. Under Web CRD, a firm will need access to the Internet through an account with an Internet Service Provider (‘‘ISP’’) 13 (e.g., AmericaOnLine, MCI WorldCom, Microsoft Network) to submit filings electronically.14 Web CRD will streamline the registration process for broker-dealers, and help broker-dealers submit more complete and accurate filings. For example, Web CRD will employ completeness checks to alert firms when required information is missing. If a firm files a form containing incomplete information in a ‘‘Mandatory Field,’’ Web CRD will automatically reject the submission and prompt the firm to resubmit a completed form. Completeness checks should reduce costly registration delays resulting from deficient filings. Web CRD also categorizes disclosure information on the Disclosure Reporting Pages (‘‘DRPs’’) through the use of pulldown menus 15 that provide specific options (‘‘Pick Lists’’), as well as ‘‘Text Boxes.’’ Pick Lists are intended to elicit precise information about a registrant’s disclosure history and to capture standardized responses when possible. Text Boxes are intended to provide applicants with the opportunity to fully describe the details of a disclosable event in their own words. The use of Pick Lists and Text Boxes is also expected to benefit regulators by streamlining the capture and display of data, which should enhance regulators’ ability to use standardized and specialized computer searches. By giving regulators better access to information, Web CRD is expected to bolster the oversight of broker-dealers and their registered personnel. The amendments to Form BD proposed today consist mainly of technical changes necessary to accommodate Web CRD’s Internet environment. The proposed amendments are intended to elicit the same level of disclosure required by both the 1996 Form BD and the Interim Form BD, but require the information to be submitted in a different format than is required today. Other changes being proposed are intended to clarify the current Form, to update references, or to streamline the registration process. The amendments proposed to Exchange Act Rules 15b3–1, 15Ba2–2, and 15Ca2–2 are necessary to implement Web CRD.
III. Proposed Amendments to Form BD
The Commission is proposing to make technical and formatting amendments to 1996 Form BD, to its general filing instructions and terms, and to its Schedules DRP and E. These changes are necessary to accommodate Web CRD’s Internet-based environment. The proposed amendments would correct oversights, replace outdated information, and clarify instructions. They would also replace Legacy CRD references with Web CRD references, establish certain information fields as ‘‘read-only,’’ 16 and make conforming changes based on the reorganization of the NASD manual in 1996 17 throughout Form BD. One change proposed is intended to help eliminate incorrect succession filings by requiring brokerdealers to discuss these filings with CRD personnel prior to submission.18 Another proposed amendment would make questions in the DRPs pertaining to sanctions consistent.19 As mentioned above, the Commission is also proposing amendments to 1996 Form BD’s corresponding DRPs, which must be completed when an applicant answers ‘‘Yes’’ to one of the disclosure questions in Item 11 of proposed Form BD. The proposed DRPs are designed to correspond to DRPs that are proposed in

20Release No. 34–41326 (April 22, 1999); File No. SR–NASD–98–96. 21The 1996 DRP data structure was designed to provide regulators with the ability to sort information and create reports using all of the discrete data fields. As a practical matter, however, the NASD determined that the numerous data fields would have resulted in the retrieval of information that was separated from its context. 22 In addition, by providing for Internet access, Web CRD is expected to streamline the procedures to process and respond to requests from the public for information about particular broker-dealers and their associated persons. 23On the SEC Web site see ‘‘Current SEC Rulemaking; Proposed Rules; Release No. 34– 41351, File No. S7–16–99.’’ 24Appendix A will not be published in the Federal Register. 25The NASD expects, however, that all filings for both broker-dealers and their associated persons will eventually be submitted exclusively through electronic means. 26Since March 1998, the NASD has been converting the following broker-dealer information from Legacy CRD to Web CRD: Base information (i.e., the broker-dealer’s general CRD record information including the broker-dealer’s CRD number, name, Commission number, IRS number, NASD district assignment, CRD contact, and related telephone number), Registration Status, Current Address (main and mailing), Types of Business (e.g., municipal securities dealer, corporate debt securities broker), and Form U–6 Disclosure (e.g., Commission and NASD actions). This initial conversion was done to accommodate the NASD’s Public Disclosure Program on the Internet. During the System Transition Period, the NASD will transfer any remaining data described above. In addition, it will convert the following information:
Name Change History (i.e., old name, new name, effective date of change), Mass Transfer History (e.g., firm name and CRD number, pre- and postmerger, acquisition), and Branch Information (Schedule E). connection with Forms U–4 and U–5.20 While there are more technical and formatting amendments proposed for the DRPs than for the main part of Form BD, the proposed amendments primarily involve restructuring and reformatting to facilitate electronic filing in the Web CRD environment. They are not intended to make substantive changes to the information requested, with the exception of Question 13 in the Civil Judicial DRP which would now require the applicant to indicate whether any portion of a penalty assessed against it was waived. By way of background, the DRPs that accompanied the 1996 Form BD (‘‘1996 DRPs’’) elicited more detailed information about reportable events than previously elicited on DRPs. Regulators had indicated that they needed this additional detail in order to make informed licensing and registration decisions. Consistent with the overall approach taken in Redesigned CRD, the additional detail would have been entered into many discrete fields. While this approach was intended to provide all CRD users with maximum flexibility in making queries to and deriving customized reports from the system, it had unanticipated practical drawbacks. One significant drawback was the fragmentation of the information once it was retrieved from the system.21 Another drawback was that the numerous data fields and data tables demanded substantial time to process queries, which in turn resulted in delays in system response and other impediments to system performance. The DRPs proposed today would eliminate these practical problems through the use of improved formatting. For example, the proposed DRPs would reduce the number of data fields and add Text Boxes. These Text Boxes would not only accommodate Web CRD, but would also allow applicants to describe events in context. The proposed DRPs would also contain Pick Lists in certain discrete fields. Pick Lists should create more consistency in the data entered in those fields. In response to concerns that the categories enumerated in the Pick Lists might not completely or accurately describe an event, the category of ‘‘Other’’ would be included where applicable. Therefore, while the Pick Lists would elicit more precise information, in a large percentage of questions the availability of ‘‘Other’’ would continue to provide for flexibility in response to DRP questions. In sum, regulators should be able to use Web CRD to more efficiently gather the information needed to make informed registration and licensing decisions. Web CRD should also help regulators to process registration-related filings more efficiently and effectively and significantly enhance their ability to use the system for regulatory purposes. Finally, Web CRD should make it easier for registrants to comply with their filing obligations.22 A
detailed textual description of the proposed amendments to Form BD, its instructions and terms, Schedule E, and the DRPs (collectively, ‘‘Appendix A’’) is available on the Commission’s Web site at http://www.sec.gov 23 or may be obtained from Barbara A. Stettner, Special Counsel, Office of Chief Counsel, Division of Market Regulation, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549–1001; (202) 942–0073.24 Form BD as proposed to be amended is attached as Appendix B to this document.
IV. Electronic Filing and Re-Filing
Web CRD is intended to expedite the electronic filing of registration and licensing information for broker-dealers and their associated persons. While initial applications for broker-dealer registration on Form BD would continue to be filed on paper, the proposed amendments provide that all subsequent amendments to the Form would be made electronically through Web CRD.25 The proposed amendments would also require registered brokerdealers to electronically re-file certain information in Web CRD that is already filed in Legacy CRD. The key dates and events associated with the transition from Legacy CRD to Web CRD, including the proposed Web CRD filing and re-filing requirements for brokerdealer applicants and registered brokerdealers, are described below. A. Key Dates July 31, 1999 Through August 15, 1999 As the NASD transitions from Legacy CRD to Web CRD, there will be a twoweek period beginning July 31, 1999 and ending August 15, 1999 (‘‘System Transition Period’’), during which neither system will process Form BD filings and amendments, or Form BDW filings. Initial filings of Form BD received during this period will be held until August 16, 1999 and then input into Web CRD by the NASD. Amendments to Form BD received by the CRD during this period will be returned with instructions to re-submit the amendments electronically after August 16, 1999. Forms BDW seeking withdrawal from registration with all jurisdictions that are received during this period would be held by the CRD until August 16, 1999, then input into Web CRD by the NASD. Forms BDW seeking withdrawal from registration with only some jurisdictions that are received by the CRD during this period will be returned with instructions to resubmit the filing electronically after August 16, 1999. During the System Transition Period, the NASD will also transfer certain information from Legacy CRD to Web CRD.26 August 1, 1999 It is anticipated that the proposed amendments to Form BD will become effective on August 1, 1999. Any filings submitted on Interim Form BD after July 31, 1999 will be returned by CRD. August 16, 1999 It is anticipated that Web CRD will be operational on August 16, 1999. The requirements for broker-dealer applicants filing initial Form BD, for registered broker-dealers filing amendments to Form BD, or for currently registered broker-dealers refiling certain information in Web CRD

27Applicants can, and will continue to be able to, request Form BD from the Commission’s Publications Office at (202) 942–4040 or from any of the Commission’s Regional or District Offices listed at http://www.sec.gov/asec/secaddr.htm. In addition, Form BD will be available from the Commission’s Web site at http://www.sec.gov (under ‘‘Current SEC Rulemaking; Proposed Rules; Release No. 34–41351, File No. S7–16–99’’). 28Form BD will also be available from the NASD’s Publications Office at (301) 590–6201 or can be downloaded from NASD’s Web site at http://www.nasdr.com. 29Broker-dealers would have the option to designate a third party (e.g., a service bureau or clearing firm) as its account administrator. However, if a broker-dealer opts for a third-party account administrator, it must acknowledge that the broker-dealer is responsible for filings made by those designated persons on behalf of the firm. 30The NASD anticipates that information packages on how to establish a Web CRD user account would be made available concurrently with Form BD. 31The account administrator would be responsible for determining who would have access to Web CRD and could limit such access in any manner. For example, a person responsible for Form U–4 filings might not have access to Form BD on Web CRD. In addition, the account administrator could choose to allow read-only access to many individuals within the broker-dealer. 32Large portions of Form BD data are currently stored as text fields in Legacy CRD. It is not technology possible for the NASD to convert this data to the counterpart text fields of Web CRD. 33The December 15, 1999 date was chosen to ensure that re-filing would take place prior to the annual shutdown of CRD for renewals and to have the re-filing complete before the Year 2000. 34As already described in Section IV.A., Forms BDW seeking withdrawal from registration with all jurisdictions that are received during this period would be held by the CRD until August 16, 1999, then input into Web CRD by the NASD. Forms BDW seeking withdrawal from registration with only some jurisdictions that are received by the CRD during this period would be returned with instructions to re-submit the filing electronically after August 16, 1999. In addition, the NASD also would accept a paper-filed Form BDW seeking withdrawal from registration in all jurisdictions after August 16, 1999 if it was the first filing made by broker-dealer in the Web CRD system. 35The Commission has not defined with constitutes ‘‘prompt’’ filing for purposes of Rule 15B3–1 because whether a filing is deemed ‘‘promptly filed’’ needs to be determined on a factsand-circumstances basis. Moreover, the concept of ‘‘promptness’’ changes with the evolution of technology. However, in no event would filing an amendment after 30 days be considered ‘‘prompt’’ at a time other than during the System Transition Period. on or after August 16, 1999, are described below. B. Filings on or After August 16, 1999
1. Initial Filings of Form BD by BrokerDealer Applicants
Under the proposed amendments, broker-dealer applicants would continue to obtain the paper version of Form BD from the Commission 27 or from the NASD.28 They would also continue to mail the completed initial Form BD to the CRD, which would manually input the information into the Web CRD system. This manual process would allow the NASD to establish a base record of information on brokerdealer applicants as well as begin the process of establishing a unique Web CRD user account for each brokerdealer. Before a broker-dealer could access Web CRD, it would first need to designate an ‘‘account administrator.’’ This person, who may be someone within the firm or a third-party,29 would serve as the point-of-contact between the broker-dealer and Web CRD.30 The NASD would establish a user account for the broker-dealer’s account administrator and send a letter of confirmation to the broker-dealer containing the account administrator’s user name and initial password. Among other things, the account administrator would be responsible for identifying any additional persons who would need access to Web CRD 31 to submit filings on the firm’s behalf . Designated persons would then be given passwords and the authorization to use Web CRD as determined by the account administrator. Each broker-dealer would have a separate, unique account with the NASD that would enable it to access its own records and file subsequent amendments to its Form BD in Web CRD. Once the CRD has established an account for a broker-dealer, it would manually input the information from the broker-dealer into Web CRD, and it would then disseminate the information to the Commission, SROs, and state securities regulators with which the broker-dealer is requesting registration. Thus, except for the establishment of an account and account administrator, the processing of the initial Form BD would not significantly differ from the filing procedures currently in place under Legacy CRD.
2. Re-Filing and Amendments to Form
BD by Registered Broker-Dealers The proposed amendments would also require registered broker-dealers to establish Web CRD accounts to accommodate both the transfer of existing Form BD information from Legacy CRD to Web CRD and the electronic filing of Form BD amendments in Web CRD. Beginning August 16, 1999, all Form BD amendments and re-filings would be submitted electronically through the NASD’s Web site at https:// crd.nasdr.com/crdmain. Due to technical issues identified by the NASD, certain broker-dealer information currently contained in Legacy CRD will not be transferred by the NASD to Web CRD.32 Therefore, beginning on August 16, 1999, brokerdealers would be required to re-file the following information: Item 11 Disclosure (Schedule DRP), Direct/ Indirect Owners (Schedules A and B), Control/Financial Information (i.e., direct owners, executive officers, and indirect owners), Industry Arrangements (e.g., custodial arrangements, holding company status), and Affiliated Firms. The proposed amendments would require a registered broker-dealer to re-file this information when it files its first amendment in Web CRD but, in any event, no later than December 15, 1999.33
V. Other Proposed Amendments
The Commission is also proposing to amend Rules 15b3–1, 15Ba2–2, and 15Ca2–1 under the Exchange Act. Rules 15b3–1 and 15Ca2–1 both contain ‘‘Temporary Filing Instructions’’ for Form BD that are now outdated. The proposed amendments would delete the outdated instructions and add ‘‘Temporary Re-Filing Instructions’’ for Form BD to all three rules.
VI. Effective Date
The Commission anticipates that the proposed amendments to Form BD would become effective on August 1,
1999. Initial Forms BD that are
completed and submitted to CRD during the System Transition Period would be accepted by the CRD and entered into Web CRD by the NASD beginning on August 16, 1999.34 Any Form BD amendments submitted to Web CRD during the System Transition Period, however, would be returned with instructions to re-submit on or after August 16, 1999. Broker-dealers may have difficulty complying with the requirement in Exchange Act Rule 15b3–1 to promptly file amendments because (1) they will not be able to file amendments to their Form BDs during the System Transition Period, and (2) they must re-file certain information from their Forms BD in Web CRD at the same time they are required to file their first amendment in Web CRD. Therefore, the proposed amendments would provide that broker-dealers will be considered to have met this requirement if they file an amendment that should have been filed during the System Transition Period no later than September 14, 1999 (i.e., 30 days from August 16, 1999).35 In addition, during the period from August 16 to December 15, 1999, the staff of the Division of Market Regulation will not recommend

36See ‘‘Temporary’’ and ‘‘Continuing’’ Hardship Exemptions at 17 CFR 232.201 and 17 CFR 232.202, respectively. 37See discussion in Section XI (Paperwork Reduction Analysis) regarding the burden hours for the one-time re-filing of certain information on Form BD. 38Broker-dealers that employ third-party filers account for approximately 3,009 (See Footnote No. 44 infra) of the Form BD amendments (i.e., an approximate cost burden of $34,754). See discussion in Section XI (Paperwork Reduction Act Analysis) regarding the cost burdens on these broker-dealers. 39The NASD receives approximately 525,000 inquiries each year from the public requesting information about broker-dealers or their associated persons. 40 15 U.S.C. 78w(a)(2). enforcement action for filings of any amendment to Form BD that would also trigger the re-filing obligation, if the amendment was filed within 30 days from when the disclosable event occurred. In any event, however, all refilings would have to be completed on or before December 15, 1999.
VII. Request for Comment
The Commission is soliciting comment on whether the changes to Form BD and the related rules described above will provide more meaningful information to the Commission and other securities regulators without increasing the regulatory burden on broker-dealers. In particular, the Commission requests comment on whether the restructuring of Form BD to accommodate Web CRD would create additional burdens on broker-dealers and whether the restructuring will result in ultimate cost savings to brokerdealers. The Commission is preliminarily of the view that the costs associated with filing in Web CRD are minimal and will ultimately decrease. The Commission is also preliminarily of the view that most broker-dealers either already have Internet access or would be able to obtain Internet access at a minimal cost. However, the Commission requests comment as to whether ‘‘hardship exemptions,’’ such as is provided for the Commission’s EDGAR system would be appropriate for Web CRD.36
VIII. Cost Benefit Analysis
No statutory mandate directs the Commission to undertake a specific cost-benefit analysis of a rule. Instead, pursuant to Section 23(a)(2) of the Exchange Act, the Commission is directed to consider, among other matters, the impact any rule would have on competition. The Commission may not adopt a rule which would impose a burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act. The Commission preliminarily believes that the benefits of Web CRD to the industry outweigh the costs associated with the one-time re-filing requirement 37 for registered brokerdealers. Based on discussions with industry representatives, the Commission expects that when Web CRD is fully implemented, it will minimize future regulatory burdens on broker-dealers for filing Form BD and related amendments. Specifically, postage, duplication costs, and staff time would be reduced by using the Internet to file Form BD amendments. The Commission estimates that brokerdealers filed approximately 15,350 Form BD amendments in Legacy CRD for fiscal year 1998. Industry representatives estimate that each amendment in Legacy CRD typically requires $.60 for duplication costs (i.e., $.05 per page at approximately 12 pages), $180 for postage (i.e., $12 × approximately 15 next-day mailings to the CRD, SROs, and relevant states), and $140 of staff time required to fill out the amendment to Form BD and submit it to the appropriate regulators (i.e., 4 hours of staff time per amendment × an average compensation rate of $35 per hour). Thus, the total annual cost burden to the industry to amend Form BD in Legacy CRD is approximately $4,921,210 (i.e., [$.60 + $180 + $140] × a yearly average of 15,350 amendments). In contrast, industry representatives estimate that the average time necessary to complete an amendment on Web CRD will be approximately 20 minutes (i.e., 5 minutes for simple amendments and up to 30 minutes for more complicated amendments). Therefore, the Commission estimates that the annual cost burden to the industry to amend Form BD under Web CRD will be approximately $177,293 (i.e., .33 hours × a yearly average of 15,350 amendments × an average compensation rate of $35 per hour).38 This would result in a total annual cost savings of over $4.5 million for all broker-dealers amending Form BD. Because the Form would still be filed initially on paper, the proposed amendments do not alter the current burden on initial filers of Form BD. In addition, the proposed amendments requiring broker-dealers to designate an account administrator and establish an ISP account are not expected to significantly alter the current burden on broker-dealers. As described above, the account administrator will be the pointof-contact between the broker-dealer and the CRD. According to industry representatives, the account administrator will most likely be the person who already performs filing and reporting functions for the firm (either internally or as a
third-party filer). It is anticipated, therefore, that this person will continue to be the point-of-contact with the CRD and continue to perform similar reporting and administrative tasks for the firm. The Commission seeks comment, however, on any additional burden that will be placed on broker-dealers due to the requirement of designating an account administrator. With respect to ISP accounts, the Commission is preliminarily of the view that the requirement that broker-dealers have Internet access (either internally or through a third-party filer) would not significantly alter the current burden on broker-dealers. Most broker-dealers already have Internet access and, for those that do not, the cost of obtaining an ISP account averages approximately $20 per month. In addition, many broker-dealers use the Internet for other business purposes such as sending and receiving e-mail, maintaining a Web site, or delivering documents. For these broker-dealers, the additional burden to file amendments to Form BD through the Internet would be only a fraction of their total costs associated with their use of the Internet. The Commission requests comment, however, on the percentage of brokers who do not currently have Internet access as well as the marginal costs associated with filing amendments to Form BD through an existing ISP account. The Commission also preliminarily believes that Web CRD will benefit regulators and the public by streamlining the capture of relevant information pertaining to broker-dealers and their associated persons. Precise information regarding a broker-dealer’s activities and disciplinary history is needed for investigations and examinations by regulators. It also is a valuable informational resource for investors in deciding whether to entrust their financial assets to a particular broker-dealer.39 While it is impossible to quantify these benefits, the Commission believes that these benefits exceed the recordkeeping and reporting burden imposed on broker-dealers.
IX. Effects on Competition, Efficiency,
and Capital Formation
Section 23(a)(2) of the Exchange
Act 40 requires the Commission, in adopting rules under the Exchange Act, to consider the anticompetitive effects of such rules, if any, and to refrain from adopting a rule that would impose a burden on competition not necessarily

41 5 U.S.C. 603 (1990).
42The Commission uses the information disclosed by applicants in Form BD to: (i) Determine whether broker-dealer applicants meet the standards for registration set forth in the provisions of the Exchange Act; (ii) develop and maintain a central information resource where members of the public may obtain relevant, current information about broker-dealers, municipal securities dealers, and government securities brokers or government securities dealers, and where the Commission and other securities regulators may obtain information for investigatory purposes; and (iii) develop statistical information concerning broker-dealers, municipal securities dealers, and government securities brokers or government securities dealers. 43 17 CFR 240.15b1–1. 44 17 CFR 240.15b3–1(b). or appropriate in furthering the purpose of the Exchange Act. Moreover, Section 3 of the Exchange Act as amended by the National Securities Markets Improvement Act of 1996, provides that whenever the Commission is engaged in rulemaking and is required to consider or determine whether an action is necessary or appropriate in the public interest, the Commission shall consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation. The Commission is preliminarily of the view that the proposed amendments to Form BD and the related rules under the Exchange Act would not result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act. As noted above, the form revisions proposed today will reduce the regulatory burden on broker-dealers by facilitating electronic filing over the Internet, a more efficient and costeffective means for broker-dealers to meet their regulatory and reporting obligations. The Commission requests comment, however, on any competitive burdens that might result from adoption of the form revisions described in this release. In addition, for purposes of the Small Business Regulatory Enforcement Fairness Act of 1996, the Commission is also requesting information regarding the potential impact of the proposed rules on the economy an annual basis. Commentators should provide empirical data to support their views.
X. Regulatory Flexibility Analysis
The Commission has prepared an Initial Regulatory Flexibility Analysis (‘‘IRFA’’), pursuant to the requirements of the Regulatory Flexibility Act,41 regarding the proposed amendments to Form BD. The IRFA indicates that the proposed revisions are intended to respond to the shift from the networkbased architecture and proprietary software approach anticipated in the 1996 CRD system to the Internet-based Web CRD. The adoption of the proposed revisions to Form BD not only will provide benefits to securities regulators in the retrieval of information, but will also ease the burden of registration by future registrants. The IRFA also indicates that, except for the one-time re-filing requirement on registered broker-dealers, the proposed revisions to Form BD will reduce aggregate cost and time burdens on broker-dealers who are required to file, or make amendments to, Form BD. The IRFA further indicates that because the proposed amendments generally are intended to lessen the burden of registration, small broker-dealers will be affected in the same manner as other registrants. Thus, exempting small broker-dealers from Form BD disclosures would be unwarranted. The Commission requests comment, however, on whether there would be a significant economic impact on a substantial number of small entities that might result from adoption of the Form BD revisions described in this release. A copy of the IRFA may be obtained from Barbara A. Stettner, Special Counsel, Office of Chief Counsel, Division of Market Regulation, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549–1001; (202) 942–0073.
XI. Paperwork Reduction Act Analysis
Certain provisions of the proposal to amend Form BD contain ‘‘collection of information’’ requirements within the meaning of the Paperwork Reduction Act of 1995 (44 U.S.C. Section 3501 et seq.). The Commission has submitted the proposal to the Office of Management and Budget (‘‘OMB’’) for review in accordance with PRA requirements in effect at this time. The title for this collection of information:
‘‘Application for Registration as a Broker or Dealer,’’ which the Commission is proposing to amend, contains a currently approved collection of information under OMB control number 3235–0012. The information received by Form BD is mandatory and the responses are not kept confidential. An agency may not sponsor, conduct, or require response to an information collection unless a currently valid OMB control number is displayed. The proposed amendments to Form BD are expected to provide securities regulators with better information about a registrant’s disciplinary history by grouping disciplinary information into related categories and by customizing the corresponding DRPs used to disclose details of the registrant’s disciplinary history. The proposed amendments also are intended to elicit more precise information about the business activities of broker-dealer applicants.42 As discussed above, the proposed amendments to Form BD respond to certain recommended changes to the CRD system that have led to its redesign as an Internet-based system. Web CRD is expected to be more useful to securities regulators. It will also allow brokerdealers to file amendments to Form BD and other uniform registration forms electronically. Because Web CRD is intended to operate in an electronic environment, paper amendments to Form BD will no longer be submitted by broker-dealers. Rather, broker-dealers will be able to access and update their respective Forms BD through the NASD’s Web site. This should result in cost-savings related to copying, postage, and staff time. Under Web CRD, broker-dealers will not have to obtain dedicated computer systems or proprietary software as would have been required under Redesigned CRD. Rather, a firm only needs access to the Internet and an Internet browser through an account with an ISP to submit filings electronically. Broker-dealers already are required pursuant to Rule 15b1–1[ 43 under the Exchange Act to file for registration on Form BD and, pursuant to Rule 15b3– 1(b),44 to promptly file an amendment to Form BD if any information contained therein becomes inaccurate. The proposed amendments are intended to adapt Form BD to Web CRD’s Internetbased environment. Therefore, except for the one-time re-filing requirement, the proposed amendments to Form BD will not impose any significant additional recordkeeping, reporting or other compliance requirement on broker-dealers. Initial filings of Form BD will continue to be made on paper and the electronic filing of Form BD amendments is expected to reduce time and cost burdens on broker-dealers. With respect to the one-time re-filing requirement, the Commission staff estimates (based on discussions with industry representatives) that the average time necessary to complete a refiling will be as follows: (1) approximately 30 large firms (total capital of more than $500 billion) will require approximately 40 hours each to re-file, (2) approximately 170 medium firms (total capital between
$499 billion and $20 million) will require approximately 24 hours each to re-file, and (3) approximately 6,640 small

45The Commission estimate that approximately 20% of the small broker-dealer population (i.e., 1,660 [.20 × 8,300 small broker-dealer]) employ third parties to file information related to their respective Forms BD with the CRD. These brokerdealers would not incur an hour burden and, therefore, for purposes of the Paperwork Reduction Act, are removed from the hour-burden calculation for small broker-dealers (i.e., 8,300 total small broker-dealers—1,660 small broker-dealers that employ third party filers = 6,640 small brokerdealers that would incur hour burdens). As discussed below, however, the 1,660 broker-dealers would incur a cost burden with respect to re-filing and Form BD amendments. 46Out of the approximate 15,350 amendments filed each year, approximately 15,043 are filed by small broker-dealer (i.e., 8,300 small broker-dealers = 98% of the broker-dealer community; 15,350 × .98 = 15,043). As discussed in footnote 43, supra, approximately 1,660 (20%) of small broker-dealers employ third-party filers and, therefore, would be responsible for approximately 3,009 of the total annual amendments to Form BD (i.e., 15,043 amendments by small broker-dealer community × .20 = 3,009 amendments). firms 45 (total capital below $20 million) will require approximately 2 hours each to re-file. Thus, the total burden hours for the re-filing of certain disclosure information into Web CRD is estimated as 18,560 hours [30 large firms × 40 (1,200) + 170 medium firms × 24 (4,080)

6,640 small firms × 2 (13,280) =
18,560].
Broker-dealer applicants are also subject to Form BD’s initial reporting obligation. Form BD is only submitted once and is updated by amendment (see discussion on Form BD amendments below). For fiscal year 1998, the Commission received approximately 790 Form BDs for an initial or successor application for registration as a brokerdealer, non-bank municipal securities dealer, or non-bank government securities broker-dealer (pursuant to Rules 15b1–1, 15b1–3, 15b1–4, 15Ba2– 2(a), 15Ba2–4, 15Ba2–5, 15Ca2–1, 15Ca2–3, and 15Ca2–4). Although the time necessary to complete Form BD will vary depending on the nature and complexity of the applicant’s securities business, Commission staff estimates that the average time necessary to complete the initial form is approximately 2.75 hours. Thus, the Commission estimates that total annual burden hours required for the initial filing of a Form BD is 2,173 hours (2.75 × 790). It is important to note that the proposed amendments do not alter the current burden on initial filers of Form BD because a Form BD filed for the first time is still required to be filed on paper. Under Web CRD, all amendments to Form BD would be filed electronically. For fiscal year 1998, the Commission received approximately 15,350 amendments. Of these 15,350 amendments, approximately 3,009 were from broker-dealers that employ thirdparty filers.46 Because these brokerdealers would incur cost burdens rather than hour burdens, they will be removed from the total annual hour burden calculation (see discussion regarding cost burdens on brokerdealers that employ third-party filers below). Therefore, for purposes of the annual hour burden calculation, the total annual number of amendments to Form BD would be 12,341 (i.e., 15,350 total amendments—3,009 amendments filed by third-party filers). The staff estimates that the average time necessary to complete an amendment on Web CRD will be approximately 20 minutes (i.e., 5 minutes for simple amendments and up to 30 minutes for more complicated amendments). Thus, the total annual burden hours for the filing of Form BD amendments is 4,073 hours (.33 hours × approximately 12,341 [15,350¥3009] amendments per year). The staff estimates that the total annual filing burden for Form BD and Form BD amendments is 6,246 hours (2,173 for initial filings of Form BD + 4,073 for amendments to Form BD). This is a reduction of approximately 1,030 total burden hours from the annual regulatory burden anticipated in Redesigned CRD. However, the total one-time re-filing burden would be approximately 18,560 hours. Accordingly, for the year when Web CRD is first implemented, the total hour burden will be approximately 24,806 hours. The Commission also anticipates that the burden hours discussed above would apply similarly to broker-dealers who rely on third-party filers. Instead of incurring the cost of staff time, however, these broker-dealers would be billed by third-party filers at an average compensation rate of $35
per hour. Therefore, a small broker-dealer would pay a third-party filer $70 (2 hours for re-filing × $35 per hour) to comply with its one-time re-filing obligation. This would amount to a total, one-time cost burden of $58,100 ($70 × 1,660 small broker-dealers that employ third-party filers). Broker-dealers that employ thirdparty filers to file amendments to Form BD would also incur a cost burden. As discussed above in Section VIII (Cost Benefit Analysis), the Commission estimates that approximately 15,350 amendments to Form BD are filed each year by broker-dealers. Of these 15,350 amendments, approximately 3,009 are from broker-dealers that employ thirdparty filers. The average time necessary to complete an amendment on Web CRD is estimated to be approximately 20 minutes. Therefore, the total annual cost burden to broker-dealers that employ third-party filers to file amendments to Form BD would be approximately $34,754 (i.e., .33 hours × 3,009 amendments × an average compensation rate of $35 per hour). The staff estimates that the total annual cost burden to these broker-dealers for re-filing and amending Form BD is approximately $92,854 (i.e., $58,100 + $34,754). With respect to ISP accounts, the Commission is preliminarily of the view that most broker-dealers already have Internet access (either internally or through a third-party filer), which they currently use to send and receive e-mail, to maintain a Web site, or to deliver documents. Therefore, the use of their existing Internet accounts for filing in Web CRD would be incremental and would not significantly alter their current burden. As discussed above in
Section VIII (Cost Benefit Analysis), for
those broker-dealers that do not currently have access to the Internet, the cost burden of obtaining an ISP account is approximately $20 per month. The Commission preliminarily estimates that approximately 5% of all brokerdealers (approximately 425 brokerdealers) do not currently have access to the Internet either directly or through the use of a third-party filer. Therefore, the total annual cost burden for obtaining and maintaining an Internet account would be approximately $102,000 [$20 × 12 months × (.05 × 8500)]. Accordingly, for the year when Web CRD is first implemented, the total cost burden would be $194,854 (i.e., $102,000 for ISP accounts + $92,854 for broker-dealers employing third-party filers to amend and re-file Form BD). It is important to note that regardless of whether a broker-dealer employs a person internally or hires a third-party to file information in CRD, ultimately the same costs would apply. The Commission seeks comment, however, on the costs associated with third-party filers, and in particular, whether brokerdealers employing third-party filers would bear different cost burdens than their counterparts who file with CRD internally. In addition, the Commission requests comment on the total number of broker-dealers who employ thirdparty filers. Pursuant to 44 USC 3506(c)(2)(B), the Commission solicits comments to — (i) Evaluate whether the proposed collections of information are necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility;

47 15 U.S.C. 78o(a), 78o(b), 78o–4(a)(2), 78o– 5(a)(2), and 78w(a). (ii) Evaluate the accuracy of the agency’s estimate of the burden of the proposed collections of information; (iii) Enhance the quality, utility, and clarity of the information to be collected; (iv) Minimize the burden of the collections of information on those who are to respond, including through the use of automated collection techniques or other forms of information technology. Persons desiring to submit comments on the collection of information requirements should direct them to the Office of Management and Budget, Attention: Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Washington, DC 20503, and should also send a copy of their comments to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549–0609 with reference to File No. S7–16–99. OMB is required to make a decision concerning the collections of information between 30 and 60 days after publication, so a comment to OMB is best assured of having its full affect if OMB receives it within 30 days of publication.
XII. Statutory Basis
The foregoing amendments are being proposed pursuant to the Exchange Act and particularly to Sections 15(a), 15(b), 15B, 15C, and 23(a) therein.47 List of Subjects in 17 CFR Parts 240 and 249 Broker-dealers, Reporting and recordkeeping requirements, Securities. Text of Proposed Amendments In accordance with the foregoing, Title 17, Chapter II of the Code of Federal Regulations is proposed to be amended as follows:
PART 240—GENERAL RULES AND
REGULATIONS, SECURITIES
EXCHANGE ACT OF 1934

The authority citation for part 240
continues to read in part as follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z–2, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78f, 78i, 78j, 78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u–5, 78w, 78x, 78ll(d), 78mm, 79q, 79t, 80a–20, 80a–23, 80a–29, 80a–37, 80b–3, 80b–4 and 80b–11, unless otherwise noted.

By amending § 240.15b3–1 by
removing paragraph (b), redesignating paragraph (c) as paragraph (b), and adding paragraph (c) to read as follows:
§ 240.15b3–1 Amendments to application.

(c) Temporary re-filing instructions. (1) Every registered broker-dealer shall re-file with the Central Registration Depository, at the time the broker-dealer submits its first amendment on or after August 16, 1999 but, in any event, no later than December 15, 1999, the following information from its current Form BD:
(i) Question 8 (if answered ‘‘Yes,’’ the broker-dealer must also complete relevant items in Section IV of Schedule D); (ii) Question 9 (if answered ‘‘Yes,’’ the broker-dealer must also complete relevant items in Section IV of Schedule D); (iii) Question 10(a) (if answered ‘‘Yes,’’ the broker-dealer must also complete relevant items in Section V of
Schedule D);
(iv) Question 10(b) (if answered ‘‘Yes,’’ the broker-dealer must also complete relevant items in Section VI of
Schedule D);
(v) Question 11 (if any item in Question 11 is answered ‘‘Yes,’’ the broker-dealer must also complete the relevant DRP(s)); and (vi) Schedules A and B. (2) Every registered broker-dealer, at the time it re-files the information required by paragraph (c)(1) of this
section, shall review, and amend as
necessary, the information in Form BD that was transferred by the National Association of Securities Dealers to the Central Registration Depository prior to August 16, 1999.
3. By amending § 240.15Ba2–2 by
adding paragraph (e) to read as follows:
§ 240.15Ba2–2. Application for registration of non-bank municipal securities dealers whose business is exclusively intrastate.

(e) Temporary re-filing instructions. (1) Every registered broker-dealer shall re-file with the Central Registration Depository, at the time the broker-dealer submits its first amendment on or after August 16, 1999 but, in any event, no later than December 15, 1999, the following information from its current Form BD:
(i) Question 8 (if answered ‘‘Yes,’’ the broker-dealer must also complete relevant items in Section IV of Schedule D); (ii) Question 9 (if answered ‘‘Yes,’’ the broker-dealer must also complete relevant items in Section IV of Schedule D); (iii) Question 10(a) (if answered ‘‘Yes,’’ the broker-dealer must also complete relevant items in Section V of
Schedule D);
(iv) Question 10(b) (if answered ‘‘Yes,’’ the broker-dealer must also complete relevant items in Section VI of
Schedule D);
(v) Question 11 (if any item in Question 11 is answered ‘‘Yes,’’ the broker-dealer must also complete the relevant DRP(s)); and (vi) Schedules A and B. (2) Every registered broker-dealer, at the time it re-files the information required by paragraph (e)(1) of this
section, shall review, and amend as
necessary, the information in Form BD that was transferred by the National Association of Securities Dealers to the Central Registration Depository prior to August 16, 1999.
4. By amending § 240.15Ca2–1 by
removing paragraph (b), redesignating paragraph (c) as paragraph (b), and adding a new paragraph (c) to read as follows:
§ 240.15Ca2–1 Application for registration as a government securities broker or government securities dealer.

PART 249—FORMS, SECURITIES
EXCHANGE ACT OF 1934
10. The authority citation for part 249
continues to read in part as follows:
Authority: 15 U.S.C. 78a, et seq., unless otherwise noted;

By revising Form BD (referenced
in § 249.501) to read as set forth in
Appendix B below:
Note: Form BD does not and the revisions will not appear in the Code of Federal Regulations. Revised Form BD is attached as
Appendix B to this document.
Dated: April 30, 1999.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
Note: Appendices A and B to this document are available in the Commission’s Public Reference Room and will be available on the Commission’s Web site at www.sec.gov. BILLING CODE 8010–01–P

Appendix B

[FR Doc. 99–11358 Filed 5–7–99; 8:45 am] BILLING CODE 8010–01–C