Notice of Approval




Amendment Approved on Periodic Compliance Examination: Rule G-16


Route To:
  • Manager, Muni Department
  • Compliance


Amendments Approved

The amendment revises the 24-month examination requirement in rule G-16 to a two calendar year requirement.




Questions about the amendment may be directed to Carolyn Walsh, Assistant General Counsel. 


On October 15, 1999 the Securities and Exchange Commission (“SEC”) approved an amendment to rule G-16, on periodic compliance examination.[1] The amendment revises the 24-month examination requirement in rule G-16 to a two calendar year requirement. The amendment became effective upon approval.


Section 15B(c)(7)(A) of the Securities Exchange Act of 1934 provides that periodic examinations of dealers for compliance with Board rules are to be conducted by the National Association of Securities Dealers, Inc. (“NASD”) with respect to securities firms and by the appropriate federal bank regulatory agencies with respect to bank dealers. Rule G-16 permits such examinations to be combined with other periodic examinations of securities firms and bank dealers in order to avoid unnecessary regulatory duplication and undue regulatory burdens for such firms and bank dealers.


By letter dated April 28, 1999, NASD Regulation, Inc. (“NASDR”) requested that the Board revise rule G-16. The letter states that, because of NASDR’s efforts to coordinate examination schedules, NASDR believes there is a need for a change in rule G-16.   NASDR requested that the Board change the 24-month requirement in rule G-16 to a two calendar year requirement. NASDR stated that without the rule change it might be necessary to remove municipal securities examinations from the coordinated examination program.


The Board discussed the proposed amendment with representatives from the Federal Deposit Insurance Corporation, the Federal Reserve Board, and the Office of the Comptroller of the Currency  (“the bank regulators”). The bank regulators also examine dealers for compliance with Board rules pursuant to rule G-16. All of the bank regulators responded favorably to the NASDR’s request, stating that the requested change would help bank regulators better coordinate examinations.           


Coordination of on-site examinations eliminates unnecessary regulatory duplication and is less intrusive for dealers without negatively impacting investor protection. A formal Memorandum of Understanding among the North American Securities Administrators Association, Inc., SEC, NASDR and other securities industry self-regulatory organizations reflects the joint commitment to coordinated examinations. The Board believes that the proposed amendment will permit more effective coordination of examinations with other regulatory and self-regulatory organizations. It will also provide operating flexibility in planning and scheduling NASDR’s and the bank regulators’ overall examination programs.


October 20, 1999



Rule G-16. Periodic Compliance Examination 

At least once each twenty-four months two calendar years, each broker, dealer and municipal securities dealer shall be examined in accordance with Section 15B(c)(7) of the Act to determine, at a minimum, whether such broker, dealer or municipal securities dealer and its associated persons are in compliance with all applicable rules of the Board and all applicable provisions of the Act and rules and regulations of the Commission thereunder. 






[1]           Securities Exchange Act Release No. 42019 (October 15, 1999), 64 FR 57505 (1999).

[2]           Underlining indicates new language; strikethrough denotes deletions.


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