STATUTORY DISQUALIFICATIONS
 

Information Memo  06-76  is available for viewing or printing with Adobe Acrobat
 
Number 06-76 10/26/2006
 
ATTENTION:   REGISTRATION, HUMAN RESOURCES, LEGAL AND COMPLIANCE DEPARTMENTS
 
TO:   ALL MEMBER ORGANIZATIONS
 
SUBJECT:   STATUTORY DISQUALIFICATIONS THIS MEMORANDUM MAY REQUIRE ACTION BY MEMBER ORGANIZATIONS
 



Background

The scope of persons subject to “statutory disqualification,” as such term is defined in Section 3(a)(39)1 of the Securities Exchange Act of 1934 (the “Exchange Act”),2 was expanded as a result of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”). Specifically, Sarbanes-Oxley incorporated by reference Section 15(b)(4)(H)3 of the Exchange Act to include any person who is subject to the final order of: a state securities commission (or any agency or officer performing like functions); a state authority that supervises or examines banks, savings associations, or credit unions; a state insurance commission (or any agency or office performing like functions); an appropriate Federal banking agency (as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813(q)); or the National Credit Union Administration that:

i. bars such person from association with an entity regulated by such commission, authority, agency, or officer, or from engaging in the business of securities, insurance, banking, savings association activities, or credit union activities; or

    ii. constitutes a final order based on violations of any laws or regulations that prohibit fraudulent, manipulative, or deceptive conduct.

      NYSE Rule 346(f)

      NYSE Rule 346(f) requires Exchange approval for association of any person (e.g., a natural person or a corporation) subject to a statutory disqualification with a member organization, allied member, approved person, employee or any person in a control relationship with the organization. Further, if a member organization itself becomes subject to a statutory disqualification, it must also obtain approval pursuant to Rule 346(f). In the absence of such approval, persons subject to Exchange jurisdiction are prohibited from being associated with the member organization. This approval requirement includes persons subject to a statutory disqualification pursuant to Sections 15(b)(4)(D), (E), (G) and (H), even if there is no sanction currently in effect (e.g., a suspension or bar).

      Federal Requirements

      Generally speaking, Rule 19h-14 under the Exchange Act requires the Exchange to notify and obtain approval from the Securities and Exchange Commission (the “Commission”) for the association with a member organization of any person who is subject to a statutory disqualification.

      By letter (dated August 1, 2006) to NYSE Regulation (see Exhibit A), the Commission provided specific relief from this Rule 19h-1 filing requirement for persons who became subject to a statutory disqualification resulting from the Sarbanes-Oxley amendments as of the date of the Commission’s letter.

      Therefore, all member organizations are urged to carefully conduct a thorough review of disciplinary actions taken against it, or against any allied member, approved person, employee or person otherwise in a control relationship with it (i.e., any person directly or indirectly controlling, controlled by or under common control with the member organization) to ascertain whether any such actions resulted in a statutory disqualification pursuant to the expanded definition.

      Requests for Exchange approval, pursuant to Rule 346(f), of any statutorily disqualified person should be addressed to the attention of Peggy L. Germino, Supervisor, Qualifications and Registrations, 20 Broad Street (22nd Floor), New York, NY 10005.

      Ms. Germino may also be contacted at (212) 656-8450 with any general questions regarding statutory disqualifications.
      _______________________________________
      Grace B. Vogel
      Executive Vice President
      Member Firm Regulation

      Attachments

      _______________________________________
      1 15 U.S.C. 78c(a)(39).
      2 15 U.S.C. 78a et seq.
      3 15 U.S.C. 78o(b)(4)(H).
      4 17 CFR 240.19h-1.


      August 1, 2006 SEC Letter.pdf