Section 39Sec./Art. 39

Associations of Securities Brokers, and Dealers, and Other Securities Related Organizations. 39.1.

The Commission shall have the power to register as a self-regulatory organization, or otherwise grant licenses, and to regulate, supervise, examine, suspend or otherwise discontinue, as a condition for the operation of organizations whose operations are related to or connected with the securities market such as but not limited to associations of brokers and dealers, transfer agents, custodians, fiscal and paying agents, computer services, news disseminating services, proxy solicitors, statistical agencies, securities rating agencies, and securities information processor which are engaged in business of: (a) Collecting, processing, or preparing for distribution or publication, or assisting, participating in, or coordinating the distribution or publication of, information with respect to transactions in or quotations for any security; or (b) Distributing or publishing, whether by means of a ticker tape, a communications network, a terminal display device, or otherwise, on a current and continuing basis, information with respect to such transactions or quotations.

The Commission may prescribe rules and regulations which are necessary or appropriate in the public interest or for the protection of investors to govern self-regulatory organizations and other organizations licensed or regulated pursuant to the authority granted in Subsection 39.1 including the requirement of cooperation within and among, and electronic integration of the records of, all participants in the securities market to ensure transparency and facilitate exchange of information.

39.2. An association of brokers and dealers may be registered as a securities association pursuant to Subsection 39.3 by filing with the Commission an application for registration in such form as the Commission, by rule, may prescribe containing the rules of the association and such other information and documents as the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors.

39.3. An association of brokers and dealers shall not be registered as a securities association unless the Commission determines that:

(a) The association is so organized and has the capacity to be able to carry out the purposes of this Code and to comply with, and to enforce compliance by its members and persons associated with its members, with the provisions of this Code, the rules and regulations thereunder, and the rules of the association.

(b) The rules of the association, notwithstanding anything in the Corporation Code to the contrary, provide that:

(i) Any registered broker or dealer may become a member of the association;

(ii) There exist a fair representation of its members to serve on the Board of Directors of the association and in the administration of its affairs, and that may any natural person associated with a juridical entity that is a member shall himself be deemed to be a member for this purpose;

(iii) The Board of Directors of the association includes in its composition:

(a) The president of the association and

(b) Person who represent the interests of the issuer and public investors and are not associated with any broker or dealer or member of the association; that the president and other management of the association not be a member or associated with any broker, dealer or member of the association;

(iv) For the equitable allocation of reasonable dues, fees, and other charges among member and issuers and other persons using any facility or system which the association operates or controls;

(v) For the prevention of fraudulent and manipulative acts and practices, the promotion of just and equitable principles of trade, and, in general, the protection of investors and the public interest;

(vi) That its members and persons associated with its members shall be appropriately disciplined for violation of any provision of this Code, the rules and regulations thereunder, or the rules of the association;

(vii) That a fair procedure for the disciplining of members and persons associated with members, the denial of membership to any person seeking membership therein, the barring of any person from becoming associated with a member thereof, and the prohibition or limitation by the association of any person with respect to access to services offered by the association or a member thereof.

39.4. (a) A registered securities association shall deny membership to any person who is not a registered broker or dealer.

(b) A registered securities association may deny membership to, or condition the membership of, a registered broker or dealer if such broker or dealer:

(i) Does not meet the standards of financial responsibility, operational capability, training, experience or competence that are prescribe by the rules of the association; or

(ii) Has engaged, and there is a reasonable likelihood it will again engage, in acts or practices inconsistent with just and equitable principles of fair trade.

(c) A registered securities association may deny membership to a registered broker or dealer not engage in a type of business in which the rules of the association require members to be engaged: Provided, however, That no registered securities association may deny membership to a registered broker or dealer by reason of the amount of business done by the broker or dealer.

A registered securities association may examine and verify the qualifications of an applicant to become a member in accordance with procedure established by the rules of the association.

(d) A registered securities association may bar a salesman or person associated with a broker or dealer from being employed by a member or set conditions for the employment of a salesman or associated if such person:

(i) Does not meet the standards of training, experience, or competence that are prescribe by the rules of the association; or

(ii) Has engage, and there is a reasonable likelihood he will again engage, in acts or practices inconsistent with just and equitable principles of fair trade.

A registered securities association may examine and verify the qualifications of an applicant to become a salesman or associated person employed by a member in accordance with the procedures establish by the rules of the association. A registered association also may require a salesman or associated person employed by a member to be registered with the association in accordance with the procedures prescribed in the rules of the association.

39.5. In any proceeding by a registered securities association to determine whether a person shall be denied membership, or barred from association with a member, the association shall provide notice to the person under review of the specific grounds being considered for denial, afford him an opportunity to defend against the allegations, and keep a record of the proceedings. A determination by the association to deny membership shall be supported by a statement setting forth the specific grounds on which the denial is based.