Federal Register: NOTICES Self-regulatory organizations; proposed rule changes:: Self-Regulatory Organizations; Order Approving Proposed Rule Change and Notice of Filing and Order Granting Accelerated Approval to Amendments Nos. 6, 7, 8, 9, and 10 by the National Association of Securities Dealers, Inc. Relating to Its Corporate Financing Rule

SECURITIES AND EXCHANGE COMMISSION

Securities and Exchange Commission

DOCUMENT ID: [Release No. 34-48989; File No. SR-NASD-00-04]

NOTICE: NOTICES

ACTION: Self-regulatory organizations; proposed rule changes:

SUBJECT CATEGORY: Self-Regulatory Organizations; Order Approving Proposed Rule Change and Notice of Filing and Order Granting Accelerated Approval to Amendments Nos. 6, 7, 8, 9, and 10 by the National Association of Securities Dealers, Inc. Relating to Its Corporate Financing Rule

DOCUMENT SUMMARY: December 23, 2003.

I. Introduction

On January 21, 2000, the National Association of Securities Dealers, Inc. (``NASD'') filed with the Securities and Exchange Commission (``Commission'' or ``SEC''), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b4 thereunder,\2\ a proposed rule change amending NASD Conduct Rule 2710. NASD filed Amendments Nos. 1,\3\ 2,\4\ and 3 \5\ to the proposed rule change on March 6, 2000, March 21, 2000, and March 30, 2000, respectively. The proposed rule change was published for comment in the Federal Register on April 11, 2000.\6\ The Commission received 14 comments.\7\ NASD filed Amendment No. 4 on December 11, 2000.\8\ NASD filed Amendment No. 5 on February 4, 2001,\9\ which was published for comment in the Federal Register on March 14, 2001.\10\ The Commission received eight comments.\11\ NASD filed Amendment Nos. 6,\12\ 7,\13\ 8,\14\ 9,\15\ and 10 \16\ on November 19, 2001, and April
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3, 2002, April 14, 2003, April 29, 2003, and June 2, 2003, respectively. This order issues notice of, and grants accelerated approval to, the filing as modified by Amendment Nos. 6, 7, 8, 9, and 10.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b4.
\3\ Letter from Suzanne E. Rothwell, Chief Counsel, Corporate Financing, NASD Regulation, Inc. (``NASD Regulation''), to Katherine A. England, Assistant Director, Division of Market Regulation (``Division''), Commission, dated March 3, 2000 (``Amendment No. 1'').
\4\ Letter from Suzanne E. Rothwell, Chief Counsel, Corporate Financing, NASD Regulation, to Katherine A. England, Assistant Director, Division, Commission, dated March 20, 2000 (``Amendment No. 2'').
\5\ Letter from Suzanne E. Rothwell, Chief Counsel, Corporate Financing, NASD Regulation, to Katherine A. England, Assistant Director, Division, Commission, dated March 29, 2000 (``Amendment No. 3'').
\6\ See Securities Exchange Act Release No. 42619 (April 4, 2000), 65 FR 19409 (``initial notice'').
\7\ These comments, and NASD Regulation's response, are discussed in the release cited in footnote 9.
\8\ Amendment No. 4, filed December 11, 2000, amends the original filing as modified by Amendment Nos. 1, 2, and 3 in response to comments.
\9\ NASD submitted a new Form 19b4, which replaced and superseded all previous versions of the proposed rule change in their entirety.
\10\ See Securities Exchange Act Release No. 44044 (March 6, 2001), 66 FR 14949.
\11\ These comments, and the amendments proposed by NASD Regulation in response, are summarized in Section III. of this order.
\12\ NASD submitted a new Form 19b4, which replaced and superseded all previous versions of the proposed rule change in their entirety.
\13\ Letter from Gary L. Goldsholle, Associate General Counsel, NASD Regulation, to Katherine A. England, Assistant Director, Division, Commission, dated April 3, 2002 (``Amendment No. 7''). Amendment No. 7 makes certain technical corrections to the rule text as it appears in Amendment No. 6, such as correcting the numbering of certain paragraphs in the rule text. As such, it is not subject to notice and comment.
\14\ Letter from Gary L. Goldsholle, Associate General Counsel, NASD, to Katherine A. England, Assistant Director, Division, Commission, dated April 11, 2003 (``Amendment No. 8''). Among other things, Amendment No. 8: (i) Amends the definition of ``item of value'' in proposed Rule 2710(c)(3)(B) to exclude derivative instruments and certain other transactions; (ii) amends proposed NASD Rule 2710(a) to define ``fair price;'' (iii) modifies the requirement in proposed NASD Rule 2710(b)(6)(A)(iv) such that information initially filed in connection with debt securities and derivative instruments acquired or entered into for a ``fair price'' may be limited to a brief description of the transaction and a representation that the transaction was, or, if the pricing terms have not been set will, be entered into for a ``fair price;'' (iv) amends the lockup requirements in proposed Rule 2710(g)(2) to exempt certain debt securities and derivative instruments; and (v) changes references in the rules from ``the Association'' to ``NASD.''
\15\ Letter from Therese Woods, Deputy Director, Corporate Financing, NASD, to Katherine A. England, Assistant Director, Division, Commission, dated April 25, 2003 (``Amendment No. 9''). Amendment No. 9 makes technical corrections to the proposed rule text and amends proposed Rule 2710(b)(6)(A)(iv)(b) to state: ``information initially filed in connection with debt securities and derivative instruments acquired or entered into for ``fair price'' as defined in subsection (a)(9), but not excluded from items of value under subsection (c)(3)(B)(vi) or (vii), may be limited to a brief description of the transaction (additional information may be required in the review process) and a representation by the member that a registered principal or senior manager on behalf of the member has determined that the transaction was (or if the pricing terms have not been set) will be entered into at a fair price as defined in subsection (a)(9);''.
\16\ Letter from Therese Woods, Deputy Director, Corporate Financing, NASD, to Katherine A. England, Assistant Director, Division, Commission, dated May 28, 2003 (``Amendment No. 10''). First, Amendment No. 10 makes technical corrections to the proposed rule text and revises the definition of ``fair price'' in proposed Rule 2710(a)(9) to include a cross reference to subsection (e)(5) and to clarify that a derivative instrument or other security received for acting as a private placement agent for the issuer for providing or arranging a loan, credit facility, merger, acquisition, or any other service, is not included within the definition of ``fair price.'' Second, Amendment No. 10 adds subsection (a)(10) to Rule 2710, regarding required filing dates. Third, Amendment No. 10 adds the following language to proposed Rule 2710(b)(6)(A)(iv)(b): ``provided, however, that information filed in connection with debt securities and derivative instruments acquired or entered into for a ``fair price'' as defined in subsection (a)(9) may be limited as described in subsection (b)(6)(A)(iv)b.'' Fourth, Amendment No. 10 adds the following language to the beginning of the first sentence of proposed Rule 2710(g): ``In any public equity offering, other than a public equity offering by an issuer that can meet the requirements in subparagraphs (b)(7)(C)(i) or (ii), any * * *.'' Fifth, Amendment No. 10 adds new subparagraph (e)(5) to Rule 2710, regarding valuation of items of value acquired in connection with a fair price derivative or debt transaction.
II. SelfRegulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

In response to comments to Amendment No. 5, NASD is proposing additional amendments to Rules 2710 and 2720 of the NASD's Conduct Rules. Below is the text of the proposed rule change. Proposed new language is in italics; proposed deletions are in brackets. The text of the proposed rule change is marked to show additions and deletions from the NASD Corporate Financing Rule as it currently exists. The discussion section of this notice, however, focuses on the changes made in Amendment Nos. 6 through 10. For an explanation of the original filing, see the initial notice cited in footnote 6.
* * * * *
2710. Corporate Financing RuleUnderwriting Terms and Arrangements (a) Definitions

For purposes of this Rule, the following terms shall have the meanings stated below. The definitions in Rule 2720 are incorporated herein by reference.

(1) Issuer

The issuer of the securities offered to the public, any selling security holders offering securities to the public, any affiliate of the issuer or selling security holder, and the officers or general partners, directors, employees and security holders thereof[;]. (2) Net Offering Proceeds

Offering proceeds less all expenses of issuance and distribution[;].

(3) Offering Proceeds

Public offering price of all securities offered to the public, not including securities subject to any overallotment option, securities to be received by the underwriter and related persons, or securities underlying other securities[;].

(4) Participating Member(s)

Any NASD member that is participating in a public offering, any associated person of the member, any members of their immediate family, and any affiliate of the member.
[(4)](5) Participation or Participating in a Public Offering

Participation in the preparation of the offering or other documents, participation in the distribution of the offering on an underwritten, nonunderwritten, or any other basis, furnishing of customer and/or broker lists for solicitation, or participation in any advisory or consulting capacity to the issuer related to the offering, but not the preparation of an appraisal in a savings and loan conversion or a bank offering or the preparation of a fairness opinion pursuant to SEC Rule 13e3[; and].
[(5)](6) Underwriter and Related Persons
[Includes underwriters,] Consists of underwriter's counsel, financial consultants and advisors, finders, [members of the selling or distribution group,] any participating member [participating in the public offering], and any [and all] other persons [associated with or] related to any participating member [and members of the immediate family of any of the aforementioned persons].

(7) Listed Securities

Securities meeting the listing standards to trade on the national securities exchanges identified in SEC Rule 146, markets registered with the SEC under Section 6 of the Exchange Act, and any offshore market that is a ``designated offshore securities market'' under Rule 902(b) of SEC Regulation S.

(8) Derivative Instruments

A derivative instrument is any ``eligible OTC derivative instrument'' as defined in SEC Rule 3b13(a)(1), (2) and (3). (9) Fair Price

A derivative instrument or nonconvertible or nonexchangeable debt security has been acquired or entered into at a fair price for purposes of subparagraphs (b)(6)(A)(iv), (c)(3)(B)(vi) and (vii), and (e)(5) if the underwriters and related persons have priced the debt security or derivative instrument in good faith; on an arm's length, commercially reasonable basis; and in accordance with pricing methods and models and procedures used in the ordinary course of their business for pricing similar transactions. A derivative instrument or other security received for acting as a private placement agent for the issuer, for providing or arranging a loan, credit facility, merger, acquisition or any other service, including underwriting services, is not included within this ``fair price'' definition.

(10) Required Filing Date

The required filing date shall be the dates provided in subparagraph (b)(4), and for a public offering exempt from filing under subparagraph (b)(7), the required filing date for purposes of subparagraph (d) and (g) shall be the date the public offering would have been required to be filed with the NASD but for the exemption. (b) Filing Requirements
(1)(3) No change.
(4) Requirement for Filing
(A) Unless filed by the issuer, the managing underwriter, or another member, a member that anticipates participating in a public offering of securities subject to this Rule shall file with [the Association] NASD the documents and information with respect to the offering specified in subparagraphs (5) and (6) below:
(i) no later than one business day after [the filing of] any such documents are filed with or submitted to:
[(i)]a. [with] the Commission; or
[(ii)]b. [with the] any state securities commission or other regulatory authority; or
[(iii) with any other regulatory authority; or]
[(iv)](ii) if not filed with or submitted to any regulatory authority, at least fifteen [(15)] business days prior to the anticipated [offering] date on which offers will commence.
(B) No [offering] sales of securities subject to this Rule shall commence unless:
(i) the documents and information specified in subparagraphs (5) and (6) below have been filed with and reviewed by [the Association] NASD; and
(ii) No change.
(C) No change.
(5) No change.
(6) Information Required To Be Filed
(A) Any person filing documents with the NASD that are required to be filed
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under paragraph (b)(4) above shall provide the following information with respect to the offering through [the Association's] NASD's electronic filing system:
(i)(ii) No change.
(iii) a statement of the association or affiliation with any member of any officer[,] or director of the issuer, of any [or security holder] beneficial owner of [the issuer in an initial public offering of equity securities, and with respect to any other offering provide such information with respect to any officer, director or security holder of five percent] 5% or more of any class of the issuer's securities, and of any beneficial owner of the issuer's unregistered equity securities that were acquired during the 180day period immediately preceding the required filing date of the public offering, except for purchases described in subparagraph (c)(3)(B)(iv) below. This statement must identify [to include]:

a. [the identity of] the person;

b. [the identity of] the member and whether such member is participating in any capacity in the public offering; and

c. the number of equity securities or the face value of debt securities owned by such person, the date such securities were acquired, and the price paid for such securities.
(iv) [a statement addressing the factors in subparagraphs (c)(4)(C) and (D), where applicable;]
[(v)] a detailed explanation of any other arrangement entered into during the [12month] 180day period immediately preceding the required filing date of the public offering, which arrangement provides for the receipt of any item of value [and/]or the transfer of any warrants, options, or other securities from the issuer to the underwriter and related persons, provided however: [; and]

a. information regarding debt securities and derivative instruments not considered an item of value under subsection (c)(3)(B)(vi) and (vii) is not required to be filed; and

b. information initially filed in connection with debt securities and derivative instruments acquired or entered into for a ``fair price'' as defined in subsection (a)(9), but not excluded from items of value under subsection (c)(3)(B)(vi) or (vii), may be limited to a brief description of the transaction (additional information may be required in the review process) and a representation by the member that a registered principal or senior manager on behalf of the member has determined that the transaction was or (if the pricing terms have not been set) will be entered into at a fair price as defined in subsection (a)(9).
(v) a statement demonstrating compliance with all of the criteria of an exception from underwriting compensation in subparagraph (d)(5) below, when applicable; and
(vi) a detailed explanation and any documents related to:

a. the modification of any information or representation previously provided to the NASD or of any item of underwriting compensation, including the information required in subparagraph (b)(6)(A)(iii) above with respect to any securities of the issuer acquired subsequent to the required filing date and prior to the effectiveness or commencement of the offering[,] ; or

b. any new arrangement that provides for the receipt of any additional item of value by any participating member subsequent to the [review and approval of such compensation] issuance of an opinion of no objections to the underwriting terms and arrangements by [the Association] NASD and within 90 days immediately following the date of effectiveness or commencement of sales of the public offering, provided, however, that information filed in connection with debt securities and derivative instruments acquired or entered into for a ``fair price'' as defined in subsection (a)(9) may be limited as described in subsection (b)(6)(A)(iv)b.
(vii) any other information required to be filed under this Rule. (B) No change.
(7)(11) No change.
(c) Underwriting Compensation and Arrangements

(1) General

No member or person associated with a member shall participate in any manner in any public offering of securities in which the underwriting or other terms or arrangements in connection with or relating to the distribution of the securities, or the terms and conditions related thereto, are unfair or unreasonable.
(2) Amount of Underwriting Compensation
(A) No member or person associated with a member shall receive an amount of underwriting compensation in connection with a public offering [which] that is unfair or unreasonable and no member or person associated with a member shall underwrite or participate in a public offering of securities if the underwriting compensation in connection with the public offering is unfair or unreasonable.
(B)(D) No change.
(E) The maximum amount of compensation (stated as a percentage of the dollar amount of the offering proceeds) [which] that is considered fair and reasonable generally will vary directly with the amount of risk to be assumed by [the underwriter and related persons] participating members and inversely with the dollar amount of the offering proceeds.
(3) Items of [Compensation] Value
(A) For purposes of determining the amount of underwriting compensation received or to be received by the underwriter and related persons pursuant to subparagraph (c)(2) above, the following items and all other items of value received or to be received by the underwriter and related persons in connection with or related to the distribution of the public offering, as determined pursuant to [sub]paragraph [(4)] (d) below shall be included:
(i)(iii) No change.
(iv) finder's fees, whether in the form of cash, securities or any other item of value;
(v) wholesaler's fees;
(vi) financial consulting and advisory fees, whether in the form of cash, securities, or any other item of value;
(vii) common or preferred stock, options, warrants, and other equity securities, including debt securities convertible to or exchangeable for equity securities, [including securities] received [as underwriting compensation, for example]:

a. [in connection with a] for acting as private placement agent [of securities] for the issuer;

b. for providing or arranging a loan, credit facility, [bridge financing] merger or acquisition services, or any other service for the issuer;
[c. as a finder's fee;]
[d. for consulting services to the issuer; and]
[e.]c. [securities purchased] as an investment in a private placement made by the issuer; or

d. at the time of the public offering.
(viii) special sales incentive items [in compliance with subparagraph (6)(B)(xi)];
(ix) any right of first refusal provided to [the underwriter and related persons] any participating member to underwrite or participate in future public offerings, private placements or other financings, which will have a compensation value of 1% of the offering proceeds or that dollar amount contractually agreed to by the issuer and underwriter to waive or terminate the right of first refusal; (x) No change.
(xi) commissions, expense reimbursements, or other compensation to be received by the underwriter and related persons as a result of the [[Page 75687]]
exercise or conversion, within twelve [(12)] months following the effective date of the offering, of warrants, options, convertible securities, or similar securities distributed as part of the public offering;
(xii) fees of a qualified independent underwriter; and
(xiii) compensation, including expense reimbursements, previously paid [in the six (6) months prior to the initial or amended filing of the prospectus or similar documents] to any member in connection with a [or person associated with a member for a] proposed public offering that was not completed[.], unless the member does not participate in the revised public offering.
(B) Notwithstanding subparagraph (c)(3)(A) above, the following shall not be considered an item of value:
(i) [E] expenses customarily borne by an issuer, such as printing costs; SEC, ``blue sky'' and other registration fees; [the Association] NASD filing fees; and accountant's fees, [shall be excluded from underwriter's compensation] whether or not paid through [an underwriter] a participating member;
(ii) cash compensation for acting as placement agent for a private placement or for providing a loan, credit facility, or for services in connection with a merger/acquisition;
(iii) listed securities purchased in public market transactions; (iv) securities acquired through any stock bonus, pension, or profitsharing plan that qualifies under Section 401 of the Internal Revenue Code;
(v) securities acquired by an investment company registered under the Investment Company Act of 1940;
(vi) nonconvertible or nonexchangeable debt securities acquired for a fair price in the ordinary course of business in transactions unrelated to the public offering; and
(vii) derivative instruments entered into for a fair price in the ordinary course of business in a transaction unrelated to the public offering.
[(4)](d) Determination of Whether [Compensation Is Received in Connection with the Offering] Items of Value Are Included in Underwriting Compensation

[(A)](1) PreOffering Compensation

All items of value received [or to be received] and all arrangements entered into for the future receipt of an item of value by the underwriter and related persons during the [twelve (12) month] period commencing 180 days immediately preceding the required filing date of the registration statement or similar document pursuant to subparagraph (b)(4) above[, and at the time of and subsequent to] until the date of effectiveness or commencement of sales of the public offering[,] will be [examined to determine whether such items of value are] considered to be underwriting compensation in connection with the public offering [and, if received during the six (6) month period immediately preceding the filing of the registration statement or similar document, will be presumed to be underwriting compensation received in connection with the offering, provided, however, that such presumption may be rebutted on the basis of information satisfactory to the Association to support a finding that the receipt of an item is not in connection with the offering and shall not include cash discounts or commissions received in connection with a prior distribution of the issuer's securities].

(2) Undisclosed and PostOffering Compensation

All items of value received and all arrangements entered into for the future receipt of an item of value by any participating member that are not disclosed to the NASD prior to the date of effectiveness or commencement of sales of a public offering, including items of value received subsequent to the public offering, are subject to post offering review to determine whether such items of value are, in fact, underwriting compensation for the public offering.
[(B) Items of value received by an underwriter and related person more than twelve (12) months immediately preceding the date of filing of the registration statement or similar document will be presumed not to be underwriting compensation. However, items received prior to such twelve (12) month period may be included as underwriting compensation on the basis of information to support a finding that receipt of the item is in connection with the offering.]
[(C) For purposes of determining whether any item of value received or to be received by the underwriter and related persons is in connection with or related to the distribution of the public offering, the following factors, as well as any other relevant factors and circumstances, shall be considered:]
[(i) the length of time between the date of filing of the registration statement or similar document and:]
[a. the date of the receipt of the item of value;]
[b. the date of any contractual agreement for services for which the item of value was or is to be received; and]
[c. the date the performance of the service commenced, with a shorter period of time tending to indicate that the item is received in connection with the offering;]
[(ii) the details of the services provided or to be provided for which the item of value was or is to be received;]
[(iii) the relationship between the services provided or to be provided for which the item of value was or is to be received and:] [a. the nature of the item of value;]
[b. the compensation value of the item; and]
[c. the proposed public offering;]
[(iv) the presence or absence of arm's length bargaining or the existence of any affiliate relationship between the issuer and the recipient of the item of value, with the absence of arm's length bargaining or the presence of any affiliation tending to indicate that the item of value is received in connection with the offering.] [(D) For purposes of determining whether securities received or to be received by the underwriter and related persons are in connection with or related to the distribution of the public offering, the factors in subparagraph (C) above and the following factors shall be considered:]
[(i) any disparity between the price paid and the offering price or the market price, if a bona fide independent market exists at the time of acquisition, with a greater disparity tending to indicate that the securities constitute compensation;]
[(ii) the amount of risk assumed by the recipient of the securities, as determined by:]
[a. the restrictions on exercise and resale;]
[b. the nature of the securities (e.g., warrant, stock, or debt); and]
[c. the amount of securities, with a larger amount of readily marketable securities without restrictions on resale or a warrant for securities tending to indicate that the securities constitute compensation; and]
[(iii) the relationship of the receipt of the securities to purchases by unrelated purchasers on similar terms at approximately the same time, with an absence of similar purchases tending to indicate that the securities constitute compensation.]
[(E) Notwithstanding the provisions of subparagraph (3)(A)(vi) above, financial consulting and advisory fees may be excluded from underwriting compensation upon a finding by the Association, on the basis of information satisfactory to it, that an ongoing
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relationship between the issuer and the underwriter and related person has been established at least twelve (12) months prior to the filing of the registration statement or similar document or that the relationship, if established subsequent to that time, was not entered into in connection with the offering, and that actual services have been or will be rendered which were not or will not be in connection with or related to the offering.]

(3) Date of Receipt of Securities

Securities of the issuer acquired by the underwriter and related persons will be considered to be received for purposes of subparagraphs (d)(1) and (d)(5) as of the date of the:
(A) closing of a private placement, if the securities were purchased in or received for arranging a private placement; or (B) execution of a written contract with detailed provisions for the receipt of securities as compensation for a loan, credit facility, or put option; or
(C) transfer of beneficial ownership of the securities, if the securities were received as compensation for consulting or advisory services, merger or acquisition services, acting as a finder, or for any other service.

(4) Definitions

For purposes of subparagraph (d)(5) below, the following terms will have the meanings stated below.
(A) An entity:

(i) includes a group of legal persons that either:

a. are contractually obligated to make coinvestments and have previously made at least one such investment; or

b. have filed a Schedule 13D or 13G with the SEC that identifies the legal persons as members of a group that have agreed to act together for the purpose of acquiring, holding, voting or disposing of equity securities of an issuer in connection with a previous investment; and
(ii) may make its investment or loan through a wholly owned subsidiary (except when the entity is a group of legal persons). (B) An institutional investor is any individual or legal person that has at least $50 million invested in securities in the aggregate in its portfolio or under management, including investments held by its wholly owned subsidiaries; provided that no participating members direct or otherwise manage the institutional investor's investments or have an equity interest in the institutional investor, either individually or in the aggregate, that exceeds 5% for a publicly owned entity or 1% for a nonpublic entity.
(C) A bank or insurance company is only the regulated entity, not its subsidiaries or other affiliates.
(D) A right of preemption means the right of a shareholder to acquire additional securities in the same company in order to avoid dilution when additional securities are issued, pursuant to: (i) any option, shareholder agreement, or other contractual right entered into at the time of a purchase of securities;
(ii) the terms of the security purchased;
(iii) the issuer's charter or bylaws; or
(iv) the domestic law of a foreign jurisdiction that regulates the issuance of the securities.
(E) ``Total equity securities'' means the aggregate of the total shares of:
(i) common stock outstanding of the issuer; and
(ii) common stock of the issuer underlying all convertible securities outstanding that convert without the payment of any additional consideration.

(5) Exceptions From Underwriting Compensation

Notwithstanding subparagraph (d)(1) above, the following items of value are excluded from underwriting compensation (but are subject to the lockup restriction in subparagraph (g)(1) below), provided that the member does not condition its participation in the public offering on an acquisition of securities under an exception and any securities purchased are purchased at the same price and with the same terms as the securities purchased by all other investors.
(A) Purchases and Loans by Certain EntitiesSecurities of the issuer purchased in a private placement or received as compensation for a loan or credit facility before the required filing date of the public offering pursuant to subparagraph (b)(4) above by certain entities if: (i) each entity:

a. either:

1. manages capital contributions or commitments of $100 million or more, at least $75 million of which has been contributed or committed by persons that are not participating members;

2. manages capital contributions or commitments of $25 million or more, at least 75% of which has been contributed or committed by persons that are not participating members;

3. is an insurance company as defined in Section 2(a)(13) of the Securities Act or is a foreign insurance company that has been granted an exemption under this Rule; or

4. is a bank as defined in Section 3(a)(6) of the Act or is a foreign bank that has been granted an exemption under this Rule; and

b. is a separate and distinct legal person from any member and is not registered as a broker/dealer;

c. makes investments or loans subject to the evaluation of individuals who have a contractual or fiduciary duty to select investments and loans based on the risks and rewards to the entity and not based on opportunities for the member to earn investment banking revenues;

d. does not participate directly in investment banking fees received by any participating member for underwriting public offerings; and

e. has been primarily engaged in the business of making investments in or loans to other companies; and
(ii) all entities related to each member in acquisitions that qualify for this exception do not acquire more than 25% of the issuer's total equity securities during the review period in subparagraph (d)(1), calculated immediately following the transaction.
(B) Investments In and Loans to Certain IssuersSecurities of the issuer purchased in a private placement or received as compensation for a loan or credit facility before the required filing date of the public offering pursuant to subparagraph (b)(4) above by certain entities if: (i) each entity:

a. manages capital contributions or commitments of at least $50 million;

b. is a separate and distinct legal person from any member and is not registered as a broker/dealer;

c. does not participate directly in investment banking fees received by the member for underwriting public offerings; and

d. has been primarily engaged in the business of making investments in or loans to other companies; and
(ii) institutional investors beneficially own at least 33% of the issuer's total equity securities, calculated immediately prior to the transaction;
(iii) the transaction was approved by a majority of the issuer's board of directors and a majority of any institutional investors, or the designees of institutional investors, that are board members; and (iv) all entities related to each member in acquisitions that qualify for this exception do not acquire more than 25% of the issuer's total equity securities, calculated immediately following the transaction.
(C) Private Placements With Institutional InvestorsSecurities of the issuer purchased in, or received as
[[Page 75689]]
placement agent compensation for, a private placement before the required filing date of the public offering pursuant to subparagraph (b)(4) above if:
(i) institutional investors purchase at least 51% of the ``total offering'' (comprised of the total number of securities sold in the private placement and received or to be received as placement agent compensation by any member);
(ii) an institutional investor was the lead negotiator or, if the terms were not negotiated, was the lead investor with the issuer to establish or approve the terms of the private placement; and (iii) underwriters and related persons did not, in the aggregate, purchase or receive as placement agent compensation more than 20% of the ``total offering'' (excluding purchases by any entity qualified under subparagraph (d)(5)(A) above).
(D) Acquisitions and Conversions to Prevent DilutionSecurities of the issuer if:

(i) the securities were acquired as the result of:

a. a right of preemption that was granted in connection with securities that were purchased either:
1. in a private placement and the securities are not deemed by the NASD to be underwriting compensation; or

2. from a public offering or the public market; or

b. a stocksplit or a prorata rights or similar offering; or

c. the conversion of securities that have not been deemed by the NASD to be underwriting compensation; and
(ii) the only terms of the purchased securities that are different from the terms of securities purchased by other investors are pre existing contractual rights that were granted in connection with a prior purchase;
(iii) the opportunity to purchase in a rights offering or pursuant to a right of preemption, or to receive additional securities as the result of a stocksplit or conversion was provided to all similarly situated securityholders; and
(iv) the amount of securities purchased or received did not increase the recipient's percentage ownership of the same generic class of securities of the issuer or of the class of securities underlying a convertible security calculated immediately prior to the investment, except in the case of conversions and passive increases that result from another investor's failure to exercise its own rights. (E) Purchases Based On a Prior Investment HistoryPurchases of securities of the issuer if:
(i) the amount of securities purchased did not increase the purchaser's percentage ownership of the same generic class of securities of the issuer or of the class of securities underlying a convertible security calculated immediately prior to the investment; and
(ii) an initial purchase of securities of the issuer was made at least two years and a second purchase was made more than 180 days before the required filing date of the public offering pursuant to subparagraph (b)(4) above.

[(5)](e) Valuation of NonCash Compensation

For purposes of determining the value to be assigned to securities received as underwriting compensation, the following criteria and procedures shall be applied[:].
[(A) No underwriter and related person may receive a security or a warrant for a security as compensation in connection with the distribution of a public offering that is different than the security to be offered to the public unless the security received as compensation has a bona fide independent market, provided, however, that: (i) in exceptional and unusual circumstances, upon good cause shown, such arrangement may be permitted by the Association; and (ii) in an offering of units, the underwriter and related persons may only receive a warrant for the unit offered to the public where the unit is the same as the public unit and the terms are no more favorable than the terms of the public unit.]
(1) Limitation on Securities Received Upon Exercise or Conversion of Another Security

An underwriter and related person may not receive a security (including securities in a unit), a warrant for a security, or a security convertible into another security as underwriting compensation in connection with a public offering unless:
(A) the security received or the security underlying the warrant or convertible security received is identical to the security offered to the public or to a security with a bona fide independent market; or (B) the security can be accurately valued, as required by subparagraph (f)(2)(I) below.
[(B)](2) Valuation of Securities That Do Not Have an Exercise or Conversion Price
[s] Securities that [are not options, warrants or convertible securities] do not have an exercise or conversion price shall have a compensation value [be valued on the basis of] based on:
[(i)] (A) the difference between [the per security cost and]: (i) either the market price per security on the date of acquisition, [where a] or, if no bona fide independent market exists for the security, [or] the [proposed (and actual)] public offering price per security; and
(ii) the per security cost;
[(ii)] (B) multiplied by the number of securities received or to be received as underwriting compensation;
[(iii)] (C) divided by the offering proceeds; and
[(iv)] (D) multiplied by one hundred [(100)].
(3) Valuation of Securities That Have an Exercise or Conversion Price [(C) o] Options, warrants or convertible securities that have an exercise or conversion price (``warrants'') shall [be valued on the basis of] have a compensation value based on the following formula: [(i)] (A) the [proposed (and actual)] public offering price per security multiplied by .65 [(65%)];
[(ii)] (B) minus the [difference between] resultant of the exercise or conversion price per [security] warrant [and] less either: (i) the market price per security on the date of acquisition, where a bona fide independent market exists for the security, or
(ii) the [proposed (and actual)] public offering price per security;
[(iii)] (C) divided by two [(2)];
[(iv)] (D) multiplied by the number of securities underlying the warrants[, options, and convertible securities received or to be received as underwriting compensation];
[(v)] (E) less the total price paid for the [securities] warrants; [(vi)] (F) divided by the offering proceeds; and
[(vii)] (G) multiplied by one hundred [(100).];
(H) provided, however, that, notwithstanding subparagraph (e)(4) below, such warrants shall have a compensation value of at least .2% of the offering proceeds for each amount of securities that is up to 1% of the securities being offered to the public (excluding securities subject to an overallotment option).
(4) Valuation Discount for Securities With a Longer Resale Restriction
[(D) a lower value equal to 80% and 60% of the calculated value shall be assigned if securities, and where relevant, underlying securities, are or will be restricted from sale, transfer, assignment or other disposition for a
[[Page 75690]]
period of one and two years, respectively, beyond the oneyear period of restriction required by subparagraph (7)(A)(i) below.]

A lower value equal to 10% of the calculated value shall be deducted for each 180day period that the securities or underlying securities are restricted from sale or other disposition beyond the 180day period of the lockup restriction required by subparagraph (g)(1) below. The transfers permitted during the lockup restriction by subparagraphs (g)(2)(A)(iii)(iv) are not available for such securities.
(5) Valuation of Items of Value Acquired in Connection with a Fair Price Derivative or Debt Transaction

Any debt or derivative transaction acquired or entered into at a ``fair price'' as defined in subsection (a)(9) and item of value received in or receivable in the settlement, exercise or other terms of such debt or derivative transaction shall not have a compensation value for purposes of determining underwriting compensation. If the actual price for the debt or derivative security is not a fair price, compensation will be calculated pursuant to this subsection (e) or based on the difference between the fair price and the actual price. [(6)] (f) Unreasonable Terms and Arrangements

[(A)] (1) General

No member or person associated with a member shall participate in any manner in a public offering of securities after any arrangement proposed in connection with the public offering, or the terms and conditions relating thereto, has been determined to be unfair or unreasonable pursuant to this Rule or inconsistent with any ByLaw or any Rule or regulation of [the Association] NASD.

[(B)] (2) Prohibited Arrangements

Without limiting the foregoing, the following terms and arrangements, when proposed in connection with [the distribution of] a public offering of securities, shall be unfair and unreasonable[:]. [(i)] (A) [a]Any accountable expense allowance granted by an issuer to the underwriter and related persons [which] that includes payment for general overhead, salaries, supplies, or similar expenses of the underwriter incurred in the normal conduct of business[;].
[(ii)] (B) [a]Any nonaccountable expense allowance in excess of [three (3) percent;] 3% of offering proceeds.
[(iii)] (C) [a]Any payment of commissions or reimbursement of expenses directly or indirectly to the underwriter and related persons prior to commencement of the public sale of the securities being offered, except a reasonable advance against outofpocket accountable expenses actually anticipated to be incurred by the underwriter and related persons, which advance is reimbursed to the issuer to the extent not actually incurred[;].
[(iv)] (D) [t]The payment of any compensation by an issuer to a member or person associated with a member in connection with an offering of securities [which] that is not completed according to the terms of agreement between the issuer and underwriter, except those negotiated and paid in connection with a transaction that occurs in lieu of the proposed offering as a result of the efforts of the underwriter and related persons and provided, however, that the reimbursement of outofpocket accountable expenses actually incurred by the member or person associated with a member shall not be presumed to be unfair or unreasonable under normal circumstances[;]. [(v)] (E) [a]Any ``tail fee'' arrangement granted to the underwriter and related persons that has a duration of more than two [(2)] years from the date the member's services are terminated, in the event that the offering is not completed in accordance with the agreement between the issuer and the underwriter and the issuer subsequently consummates a similar transaction, except that a member may demonstrate on the basis of information satisfactory to [the Association] NASD that an arrangement of more than two [(2)] years is not unfair or unreasonable under the circumstances.
[(vi)] (F) [a]Any right of first refusal provided to the underwriter or related persons to underwrite or participate in future public offerings, private placements or other financings [which] that: [a.] (i) has a duration of more than three [(3)] years from the [effective] date of effectiveness or commencement of sales of the public offering; or
[b.] (ii) has more than one opportunity to waive or terminate the right of first refusal in consideration of any payment or fee[;]. [(vii)] (G) [a]Any payment or fee to waive or terminate a right of first refusal regarding future public offerings, private placements or other financings provided to the underwriter and related persons [which] that:
[a.](i) has a value in excess of the greater of [one percent (] 1% [)] of the offering proceeds in the public offering where the right of first refusal was granted (or an amount in excess of [one percent] 1% if additional compensation is available under the compensation guideline of the original offering) or [five percent (] 5% [)] of the underwriting discount or commission paid in connection with the future financing (including any overallotment option that may be exercised), regardless of whether the payment or fee is negotiated at the time of or subsequent to the original public offering; or
[b.](ii) is not paid in cash[;].
[(viii)](H) The terms or the exercise of the terms of an agreement for the receipt by the underwriter and related persons of underwriting compensation consisting of any option, warrant or convertible security [which] that:
[a.](i) is exercisable or convertible more than five [(5)] years from the effective date of the offering;
[b. is exerciseable or convertible at a price below either the public offering price of the underlying security or, if a bona fide independent market exists for the security or the underlying security, the market price at the time of receipt;]
[c.](ii) is not in compliance with subparagraph [(5)(A)] (e)(1) above;
[d.](iii) has more than one demand registration right at the issuer's expense;
[e.](iv) has a demand registration right with a duration of more than five [(5)] years from the [effective] date of effectiveness or the commencement of sales of the public offering;
[f.](v) has a piggyback registration right with a duration of more than seven [(7)] years from the [effective] date of effectiveness or the commencement of sales of the public offering;
[g.](vi) has antidilution terms [designed to provide] that allow the underwriter and related persons [with disproportionate rights, privileges and economic benefits which are not provided to the purchasers of the securities offered to the public (or the public shareholders, if in compliance with subparagraph (5)(A) above)] to receive more shares or to exercise at a lower price than originally agreed upon at the time of the public offering, when the public shareholders have not been proportionally affected by a stock split, stock dividend, or other similar event; or
[h.](vii) has antidilution terms [designed to provide for the receipt or accrual of] that allow the underwriter and related persons to receive or accrue cash dividends prior to the exercise or conversion of the security[; or].
[i. is convertible or exercisable or otherwise is on terms more favorable than the terms of the securities being offered to the public;]
[(ix)](I) [t]The receipt by the underwriter and related persons of any item of compensation for which a value
[[Page 75691]]
cannot be determined at the time of the offering[;].
[(x)](J) [w]When proposed in connection with the distribution of a public offering of securities on a ``firm commitment'' basis, any over allotment option providing for the over allotment of more than [fifteen (15) percent] 15% of the amount of securities being offered, computed excluding any securities offered pursuant to the over allotment option[;].
[(xi) stock numerical limitation. The receipt by the underwriter and related persons of securities which constitute underwriting compensation in an aggregate amount greater than ten (10) percent of the number or dollar amount of securities being offered to the public, which is calculated to exclude:]
[a. any securities deemed to constitute underwriting compensation;] [b. any securities issued pursuant to an overallotment option;] [c. in the case of a ``best efforts'' offering, any securities not actually sold; and]
[d. any securities underlying warrants, options, or convertible securities which are part of the proposed offering, except where acquired as part of a unit;]
[(xii)](K) [t]The receipt by a member or person associated with a member, pursuant to an agreement entered into at any time before or after the effective date of a public offering of warrants, options, convertible securities or units containing such securities, of any compensation or expense reimbursement in connection with the exercise or conversion of any such warrant, option, or convertible security in any of the following circumstances:
[a.](i) the market price of the security into which the warrant, option, or convertible security is exercisable or convertible is lower than the exercise or conversion price;
[b.](ii) the warrant, option, or convertible security is held in a discretionary account at the time of exercise or conversion, except where prior specific written approval for exercise or conversion is received from the customer;
[c.](iii) the arrangements whereby compensation is to be paid are not disclosed:
[1.]a. in the prospectus or offering circular by which the warrants, options, or convertible securities are offered to the public, if such arrangements are contemplated or any agreement exists as to such arrangements at that time, and
[2.]b. in the prospectus or offering circular provided to security holders at the time of exercise or conversion; or
[d.](iv) the exercise or conversion of the warrants, options or convertible securities is not solicited by the underwriter or related person, provided however, that any request for exercise or conversion will be presumed to be unsolicited unless the customer states in writing that the transaction was solicited and designates in writing the broker/dealer to receive compensation for the exercise or conversion[;].
[(xiii)](L) [f]For a member to participate with an issuer in the public distribution of a nonunderwritten issue of securities if the issuer hires persons primarily for the purpose of distributing or assisting in the distribution of the issue, or for the purpose of assisting in any way in connection with the underwriting, except to the extent in compliance with 17 C.F.R. 240.3a41 and applicable state law. [(xiv)](M) [f]For a member or person associated with a member to participate in a public offering of real estate investment trust securities, as defined in Rule 2340(c)(4), unless the trustee will disclose in each annual report distributed to investors pursuant Section 13(a) of the Act a per share estimated value of the trust securities, the method by which it was developed, and the date of the data used to develop the estimated value.
[(C) In the event that the underwriter and related persons receive securities deemed to be underwriting compensation in an amount constituting unfair and unreasonable compensation pursuant to the stock numerical limitation in subparagraph (B)(ix) above, the recipient shall return any excess securities to the issuer or the source from which received at cost and without recourse, except that in exceptional and unusual circumstances, upon good cause shown, a different arrangement may be permitted.]
[(7)](g) LockUp Restriction[s] on Securities
[(A) No member or person associated with a member shall participate in any public offering which does not comply with the following requirements:]
[(i) securities deemed to be underwriting compensation shall not be sold, transferred, assigned, pledged or hypothecated by any person, except as provided in subparagraph (B) below, for a period of (a) one year following the effective date of the offering. However, securities deemed to be underwriting compensation may be transferred to any member participating in the offering and the bona fide officers or partners thereof and securities which are convertible into other types of securities or which may be exercised for the purchase of other securities may be so transferred, converted or exercised if all securities so transferred or received remain subject to the restrictions specified herein for the remainder of the initially applicable time period;]
[(ii) certificates or similar instruments representing securities restricted pursuant to subparagraph (i) above shall bear an appropriate legend describing the restriction and stating the time period for which the restriction is operative; and]
[(iii) securities to be received by a member as underwriting compensation shall only be issued to a member participating in the offering and the bona fide officers or partners thereof.]

(1) LockUp Restriction

In any public equity offering, other than a public equity offering by an issuer that can meet the requirements in subparagraphs (b)(7)(C)(i) or (ii) any common or preferred stock, options, warrants, and other equity securities of the issuer, including debt securities convertible to or exchangeable for equity securities of the issuer, that are unregistered and acquired by an underwriter and related person during 180 days prior to the required filing date, or acquired after the filing of the registration statement and deemed to be underwriting compensation by the NASD, and securities excluded from underwriting compensation pursuant to subparagraph (d)(5) above, shall not be sold during the offering, or sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days immediately following the date of effectiveness or commencement of sales of the public offering, except as provided in subparagraph (g)(2) below.
(2) Exceptions to LockUp Restriction
[(B) The provisions of subparagraph (A) notwithstanding:]

Notwithstanding subparagraph (g)(1) above, the following shall not be prohibited:
(A) the transfer of any security:
(i) by operation of law or by reason of reorganization of the issuer [shall not be prohibited.];
(ii) to any member participating in the offering and the officers or partners thereof, if all securities so transferred remain subject to the lockup restriction in subparagraph (g)(1) above for the remainder of the time period;
[(C) Venture capital restrictions. When a member participates in the initial public offering of an issuer's securities, such member or any officer,
[[Page 75692]]
director, general partner, controlling shareholder or subsidiary of the member or subsidiary of such controlling shareholder or a member of the immediate family of such persons, who beneficially owns any securities of said issuer at the time of filing of the offering, shall not sell such securities during the offering or sell, transfer, assign or hypothecate such securities for ninety (90) days following the effective date of the offering unless:]
[(i) the price at which the issue is to be distributed to the public is established at a price no higher than that recommended by a qualified independent underwriter who does not beneficially own 5% or more of the outstanding voting securities of the issuer, who shall also participate in the preparation of the registration statement and the prospectus, offering circular, or similar document and who shall exercise the usual standards of ``due diligence'' in respect thereto; or]
[(ii)] (iii) if the aggregate amount of [such] securities of the issuer held by [such a member and its related persons enumerated above would] the underwriter or related person do not exceed 1% of the securities being offered[.];
(iv) that is beneficially owned on a prorata basis by all equity owners of an investment fund, provided that no participating member manages or otherwise directs investments by the fund, and participating members in the aggregate do not own more than 10% of the equity in the fund;
(v) that is not an item of value under subparagraphs (c)(3)(B)(iv) (vii) above;
(vi) that is eligible for the limited filing requirement in subparagraph (b)(6)(A)(iv)b and has not been deemed to be underwriting compensation under the Rule;
(vii) that was previously but is no longer subject to the lockup restriction in subparagraph (g)(1) above in connection with a prior public offering (or a lockup restriction in the predecessor rule), provided that if the prior restricted period has not been completed, the security will continue to be subject to such prior restriction until it is completed; or
(viii) that was acquired subsequent to the issuer's initial public offering in a transaction exempt from registration under SEC Rule 144A; or
(B) the exercise or conversion of any security, if all securities received remain subject to the lockup restriction in subparagraph (g)(1) above for the remainder of the time period.
[(8)] (h) [Conflicts of Interest] Proceeds Directed to a Member[:] (1) Compliance With Rule 2720

No member shall participate in a public offering of an issuer's securities where more than [ten (10) percent] 10% of the net offering proceeds, not including underwriting compensation, are intended to be paid to [members participating in the distribution of the offering or associated or affiliated persons of such members, or members of the immediate family of such persons] participating members, unless the price at which an equity issue or the yield at which a debt issue is to be distributed to the public is established pursuant to Rule 2720(c)(3).

[(A)] (2) Disclosure

All offerings included within the scope of [this] subparagraph [(8)] (h)(1) shall disclose in the underwriting or plan of distribution section of the registration statement, offering circular or other similar document that the offering is being made pursuant to the provisions of this subparagraph and, where applicable, the name of the member acting as qualified independent underwriter, and that such member is assuming the responsibilities of acting as a qualified independent underwriter in pricing the offering and conducting due diligence.

[(B)] (3) Exception From Compliance

The provisions of [this] subparagraphs [(8)] (h)(1) and (2) shall not apply to:
[(i)] (A) an offering otherwise subject to the provisions of Rule 2720;
[(ii)] (B) an offering of securities exempt from registration with the Commission under Section 3(a)(4) of the Securities Act of 1933; [(iii)] (C) an offering of a real estate investment trust as defined in Section 856 of the Internal Revenue Code; or
[(iv)] (D) an offering of securities subject to Rule 2810, unless the net offering proceeds are intended to be paid to the above persons for the purpose of repaying loans, advances or other types of financing utilized to acquire an interest in a preexisting company.
[(d)] (i) NonCash Compensation

(1) Definitions

The terms ``compensation,'' ``noncash compensation'' and ``offeror'' as used in this Section (d) of this Rule shall have the following meanings:
(A) ``Compensation'' shall mean cash compensation and noncash compensation.
(B) ``Noncash compensation'' shall mean any form of compensation received in connection with the sale and distribution of securities that is not cash compensation, including but not limited to merchandise, gifts and prizes, travel expenses, meals and lodging. (C) ``Offeror'' shall mean an issuer, an adviser to an issuer, an underwriter and any affiliated person of such entities.

(2) Restrictions on NonCash Compensation

In connection with the sale and distribution of a public offering of securities, no member or person associated with a member shall directly or indirectly accept or make payments or offers of payments of any noncash compensation, except as provided in this provision. Non cash compensation arrangements are limited to the following: (A) Gifts that do not exceed an annual amount per person fixed periodically by the Board of Governors \17\ and are not preconditioned on achievement of a sales target.
\17\ The current annual amount fixed by the Board of Governors is $100.
(B) An occasional meal, a ticket to a sporting event or the theater, or comparable entertainment which is neither so frequent nor so extensive as to raise any question of propriety and is not preconditioned on achievement of a sales target.
(C) Payment or reimbursement by offerors in connection with meetings held by an offeror or by a member for the purpose of training or education of associated persons of a member, provided that: (i) associated persons obtain the member's prior approval to attend the meeting and attendance by a member's associated persons is not conditioned by the member on the achievement of a sales target or any other incentives pursuant to a noncash compensation arrangement permitted by subparagraph (d)(2)(D);
(ii) the location is appropriate to the purpose of the meeting, which shall mean an office of the issuer or affiliate thereof, the office of the member, or a facility located in the vicinity of such office, or a regional location with respect to regional meetings; (iii) the payment or reimbursement is not applied to the expenses of guests of the associated person; and
(iv) the payment or reimbursement by the issuer or affiliate of the issuer is not conditioned by the issuer or an affiliate of the issuer on the achievement of a sales target or any other noncash compensation arrangement permitted by subparagraph (d)(2)(D).
(D) Noncash compensation arrangements between a member and its [[Page 75693]]
associated persons or a company that controls a member company and the member's associated persons, provided that no unaffiliated nonmember company or other unaffiliated member directly or indirectly participates in the member's or nonmember's organization of a permissible noncash compensation arrangement; and
(E) Contributions by a nonmember company or other member to a non cash compensation arrangement between a member and its associated persons, provided that the arrangement meets the criteria in subparagraph (d)(2)(D).

A member shall maintain records of all noncash compensation received by the member or its associated persons in arrangements permitted by subparagraphs (d)(2)(C)(E). The records shall include: the names of the offerors, nonmembers or other members making the non cash compensation contributions; the names of the associated persons participating in the arrangements; the nature and value of noncash compensation received; the location of training and education meetings; and any other information that proves compliance by the member and its associated persons with subparagraph (d)(2)(C)(E).

[e] (j) Exemptions

Pursuant to the Rule 9600 Series, the [Association may exempt a member or person associated with a member from the provisions of this Rule] appropriate NASD staff, for good cause shown after taking into consideration all relevant factors, may conditionally or
unconditionally grant an exemption from any provision of this Rule to the extent that such exemption is consistent with the purposes of the Rule, the protection of investors, and the public interest. 2720. Distribution of Securities of Members and AffiliatesConflicts of Interest

(a) General

No Change

SUMMARY: National Association of Securities Dealers, Inc.,

DOCUMENT BODY 2: December 23, 2003.