NATIONAL ASSOCIATION OF SECURITIES DEALERS (NASD) [RULES ]

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1 NATIONAL ASSOCIATION OF SECURITIES DEALERS (NASD) [RULES ] Gildardo Michel-Garcia, Esq. TABLE OF CONTENT GENERAL PROVISIONS Adoption and Application of Rules Adoption of Rules Effective Date Interpretation Effect on Transactions in Municipal Securities Applicability Definitions Definitions in NASD By-Laws Delegation, Authority and Access MEMBERSHIP, REGISTRATION AND QUALIFICATION REQUIREMENTS IM Filing of Misleading Information as to Membership or Registration IM Status of Sole Proprietors and Registered Representatives Serving in the Armed Forces IM Failure to Register Personnel IM Branch Offices and Offices of Supervisory Jurisdiction Membership Proceedings Definitions IM Safe Harbors for Business Expansions General Provisions New Member Application and Interview Gildardo Michel Garcia is an associate with the global law firm of Clifford Chance Rogers & Wells, LLP in New York and a member of the Inter-American Affairs Committee of the Bar Association of the City of New York. Mr. Michel Garcia s practice focuses on transactional corporate and U.S. securities laws with an emphasis on international corporate finance, private equity and international M&A. Mr. Michel-Garcia s experience includes: (i) representing issuers and underwriters in registered, Reg. S/Rule 144A or Reg. D debt and equity offerings by companies in the U.S., Canada, Venezuela, Argentina, Mexico, France, Spain and the Netherlands; (ii) advising on domestic and international mergers and acquisitions and private equity transactions involving companies in the United States, Mexico, France, Spain, the Bahamas, El Salvador, Argentina, the Dominican Republic, the British Virgin Islands, Switzerland, the Netherlands, Egypt, Kuwait, Bahrain, and Saudi Arabia; (iii) advising depositary banks in the establishment of Global/American Depositary Receipt programs; and (iv) creating and serving as counsel to registered investment companies regarding various domestic compliance and corporate issues.

2 NASD [Rules ] Department Decision Review by National Adjudicatory Council Discretionary Review by NASD Board Application for Approval of Change in Ownership, Control, or Business Operations Removed Application to Commission for Review Registration of Principals Registration Requirements Categories of Principal Registration IM Registered Options Principals IM Limited Principal General Securities Sales Supervisor Registration of Representatives Registration Requirements Categories of Representative Registration Registration of Assistant Representatives Order Processing Registration Requirements Restrictions Persons Exempt from Registration Qualification Examinations and Waiver of Requirements Confidentiality of Examinations Foreign Members Foreign Associates Registration of Government Securities Principals and Representatives Registration of Principals [Reserved.] Persons Exempt From Registration Continuing Education Requirements Reliance on Current Membership List Electronic Filing Rules BUSINESS CONDUCT GENERAL STANDARDS Standards of Commercial Honor and Principles of Trade IM Free-Riding and Withholding IM Trading Ahead of Customer Limit Order IM Front Running Policy IM Trading Ahead of Research Reports IM Anti-Intimidation/Coordination IM Confirmation of Callable Common Stock Use of Manipulative, Deceptive or Other Fraudulent Devices COMMUNICATIONS WITH CUSTOMERS AND THE PUBLIC... 74

3 NASD [Rules ] Communications with the Public IM Communications with the Public About Collateralized Mortgage Obligations (CMOs) IM Communications with the Public About Variable Life Insurance and Variable Annuities IM Use of Rankings in Investment Companies Advertisements and Sales Literature IM Limitations on Use of Association s Name IM Requirements for the Use of Bond Mutual Fund Volatility Ratings Telemarketing Options Communications with the Public Confirmations IM Third Market Confirmations Disclosure of Control Relationship with Issuer Disclosure of Participation or Interest in Primary or Secondary Distribution Forwarding of Proxy and Other Materials IM Suggested Rates of Reimbursement Disclosure of Financial Condition to Customers Investor Education and Protection TRANSACTIONS WITH CUSTOMERS Recommendations to Customers (Suitability) IM Possible Application of SEC Rules 15g-1 through 15g IM Fair Dealing with Customers IM Suitability Obligations to Institutional Customers Best Execution and Interpositioning Customers Securities or Funds IM Segregation of Customers Securities Customer Account Statements Broker/Dealer Conduct on the Premises of Financial Institutions Approval Procedures for Day-Trading Accounts Day-Trading Risk Disclosure Statement COMMISSIONS, MARK-UPS AND CHARGES Net Prices to Persons Not in Investment Banking or Securities Business Dealing with Non-Members IM Transactions Between Members and Non-Members IM Continuing Commissions Policy Charges for Services Performed Fair Prices and Commissions

4 NASD [Rules ] 4 IM Mark-Up Policy Installment or Partial Sales Payments for Market Making SPECIAL ACCOUNTS Discretionary Accounts Margin Requirements Margin Requirements - Exception for Certain Members Definitions Related to Options Transactions IM Computation of elapsed days SECURITIES DISTRIBUTIONS Corporate Financing Rule - Underwriting Terms and Arrangements Distribution of Securities of Members and Affiliates Conflicts of Interest Securities Taken in Trade IM Safe Harbor and Presumption of Compliance Selling Concessions, Discounts and Other Allowances IM Services in Distribution Transactions with Related Persons IM Transactions with Related Persons Offerings At the Market Disclosure of Price in Selling Agreements Solicitation of Purchases on an Exchange to Facilitate a Distribution of Securities SPECIAL PRODUCTS Direct Participation Programs Variable Contracts of an Insurance Company Investment Company Securities IM Breakpoint Sales IM Maintaining the Public Offering Price Trading in Index Warrants, Currency Index Warrants, and Currency Warrants General Definitions Account Approval Suitability Discretionary Accounts Supervision of Accounts Customer Complaints Communications with the Public and Customers Concerning Index Warrants, Currency Index Warrants, and Currency Warrants

5 NASD [Rules ] Maintenance of Records Position Limits Exercise Limits Reporting Requirements Liquidation of Index Warrant Positions Trading Halts or Suspensions Options IM Position Limits IM Diligence in Opening Options Accounts Nasdaq Index Options Definitions Nasdaq Index Option Services Available Registration, Qualification and Other General Requirements Applicable to All Nasdaq Index Options Market Makers Character of Index Options Quotations Entered Into the Nasdaq Index Options Service by All Nasdaq Index Options Market Makers Commitment Rules Applicable to Options Market Makers in Nasdaq Index Options Sanctions Applicable to Nasdaq Index Options Market Makers Requirements Applicable to Nasdaq Index Options Order Entry Firms Transaction Reporting and Other Reporting Requirements Authorization of Nasdaq Index Option Market Making Nasdaq Index Option Contracts Authorized for Trading Series of Nasdaq Index Options for Trading Unit of Trading Suspension of Authorization of Nasdaq Index Option Contracts Trade Comparison Procedures for Nasdaq Index Options Clearance and Settlement Procedures for Nasdaq Index Options RESPONSIBILITIES TO OTHER BROKERS OR DEALERS Disclosure of Financial Condition to Other Members RESPONSIBILITIES RELATING TO ASSOCIATED PERSONS, EMPLOYEES, AND OTHERS EMPLOYEES Supervision Fidelity Bonds Outside Business Activities of an Associated Person Private Securities Transactions of an Associated Person Transactions for or by Associated Persons Influencing or Rewarding Employees of Others Reporting Requirements

6 NASD [Rules ] Disclosure to Associated Persons When Signing Form U BOOKS AND RECORDS, AND FINANCIAL CONDITION Books and Records IM Customer Account Information Use of Information Obtained in Fiduciary Capacity Custodian of the Record Regulation of Activities of Members Experiencing Financial and/or Operational Difficulties IM Restrictions on a Member s Activity Regulation of Activities of Section 15C Members Experiencing Financial and/or Operational Difficulties Approval of Change in Exempt Status Under SEC Rule 15c SETTLEMENTS Securities Failed to Receive and Failed to Deliver Adjustment of Open Orders Clearing Agreements TRADING Publication of Transactions and Quotations IM Manipulative and Deceptive Quotations Offers at Stated Prices IM Firmness of Quotations Payment Designed to Influence Market Prices, Other than Paid Advertising Prohibition on Transactions During Trading Halts Short Sale Rule IM Short Sale Rule Short-Interest Reporting Prompt Receipt and Delivery of Securities SelectNet Service COMPUTER SYSTEMS Mandatory Year 2000 Testing Mandatory Decimal Pricing Testing

7 NASD [Rules ] GENERAL PROVISIONS Adoption and Application of Rules Adoption of Rules 1 The following provisions are adopted pursuant to Article VII, Section 1, of the By-Laws of the Corporation Effective Date 2 The Rules shall become effective as provided in Section 1 of Article XI of the By-Laws. [Amended by SR-NASD eff. Nov. 19, 1998.] Interpretation 3 The Rules shall be interpreted in such manner as will aid in effectuating the purposes and business of the Association, and so as to require that all practices in connection with the investment banking and securities business shall be just, reasonable and not unfairly discriminatory. Cross Reference Resolution under Article XI, Section 4, of the By-Laws: Interpretations and Explanations Effect on Transactions in Municipal Securities 4 The Rules shall not be construed to apply to contracts made prior to the effective date of the Rules or to transactions in Municipal securities (as defined in Section 3(a)(29) of the Act). [Amended by SR-NASD eff. Aug. 20, 1996.] Applicability 5 (a) These Rules shall apply to all members and persons associated with a member. Persons associated with a member shall have the same duties and obligations as a member under these Rules. 6 (b) A member or person associated with a member, who has been expelled, canceled or revoked from membership or from registration or who has been barred from being associated with all members, shall cease to have any privileges of membership or registration. A member or person associated with a member who has been suspended from membership or registration shall also cease to have any privileges of membership or registration other than those under the Code of Procedure as set forth in the Rule 9000 Series or insurance programs sponsored by the Association. In neither case shall such a member or person associated with a member be entitled to recover any admission fees, dues, assessments or other charges paid to the Association. Cross Reference IM , Effect of a Suspension, Revocation or Bar. 7 (c) A member or person associated with a member who has been suspended from membership or from registration shall be considered as a nonmember during the period of suspension for purposes of applying the provisions of these Rules which govern dealings between members and non-members.

8 NASD [Rules ] 8 However, such member or person associated with a member shall have all of the obligations imposed by the rules of the Corporation. Selected Notices to Members: 87-53, [Amended by SR-NASD eff. Aug. 20, 1996.] Definitions 8 When used in these Rules, unless the context otherwise requires: 9 Act The term Act means the Securities Exchange Act of 1934, as amended. 10 Association The term Association means, collectively, the NASD, NASD Regulation, and Nasdaq. 11 By-Laws The term By-Laws means the By-Laws of the Corporation. 12 Code of Procedure The term Code of Procedure means the procedural rules contained in the Rule 9000 Series. 13 Commission The term Commission means the Securities and Exchange Commission (SEC), established pursuant to the Act. 14 Completion of the Transaction The term the completion of the transaction means: (1) In the case of a customer who purchases a security through or from a member, except as provided in subparagraph (2), the time when such customer pays the member any part of the purchase price, or, if payment is effected by a bookkeeping entry, the time when such bookkeeping entry is made by the member for any part of the purchase price; (2) In the case of a customer who purchases a security through or from a member and who makes payment therefor prior to the time when payment is requested or notification is given that payment is due, the time when such member delivers the security to or into the account of such customer; (3) In the case of a customer who sells a security through or to a member, except as provided in subparagraph (4), if any security is not in the custody of the member at the time of sale, the time when the security is delivered to the member, and if the security is in the custody of the member at the time of sale, when the member transfers the security from the account of such customer; (4) In the case of a customer who sells a security through or to a member and who delivers such security to such member prior to the time when delivery is requested or notification is given that delivery is due, the time when such member makes payment to or into the account of such customer. 15 Customer The term customer shall not include a broker or dealer. 16 Fixed Price Offering The term fixed price offering means the offering of securities at a stated public offering price or prices, all or part of which securities are publicly offered in the United States or any territory thereof, whether or not registered under the Securities Act of 1933, except that the term

9 NASD [Rules ] 9 does not include offerings of exempted securities or municipal securities as those terms are defined in Sections 3(a)(12) and 3(a)(29), respectively, of the Act or offerings of redeemable securities of investment companies registered pursuant to the Investment Company Act of 1940 which are offered at prices determined by the net asset value of the securities. 17 Member The term member means any individual, partnership, corporation or other legal entity admitted to membership in the Association under the provisions of Articles III and IV of the By-Laws. 18 NASD The term NASD means NASD, Inc. 19 Nasdaq The term Nasdaq means The Nasdaq Stock Market, Inc. 20 NASD Regulation The term NASD Regulation means NASD Regulation, Inc. 21 National Adjudicatory Council The term National Adjudicatory Council means the committee of the Board of Directors of NASD Regulation which may be authorized and directed to act for the Board of Directors of NASD Regulation in a manner consistent with the By-Laws of NASD Regulation, the Rules of the Association, and the Delegation Plan with respect to (1) an appeal or review of a disciplinary proceeding; (2) a statutory disqualification decision; (3) a review of a membership proceeding; (4) a review of an offer of settlement, a letter of acceptance, waiver, and consent, and a minor rule violation plan letter; (5) the exercise of exemptive authority; and (6) such other proceedings or actions authorized by the Rules of the Association. 22 Person The term person shall include any natural person, partnership, corporation, association, or other legal entity. 23 Rules or Rules of the Association The term Rules or Rules of the Association means the numbered rules set forth in the NASD Manual beginning with the Rule 0100 Series, as adopted by the Board of Governors of the NASD pursuant to the By-Laws of the NASD, as hereafter amended or supplemented. 24 Selling Group The term selling group means any group formed in connection with a public offering, to distribute all or part of an issue of securities by sales made directly to the public by or through members of such selling group, under an agreement which imposes no financial commitment on the members of such group to purchase any such securities except as they may elect to do so. 25 Selling Syndicate The term selling syndicate means any syndicate formed in connection with a public offering, to distribute all or part of an issue of securities by sales made directly to the public by or through participants in such syndicate under an agreement which imposes a financial commitment upon participants in such syndicate to purchase any such securities. [Amended by SR-NASD eff: 8/7/97; amended by SR-NASD eff. Nov. 19, 1998; amended by SR-NASD eff. March 26, 1999.] Definitions in NASD By-Laws 26 Unless the context otherwise requires, or unless otherwise defined in these Rules, terms used in the Rules and interpretive material, if defined in the NASD By-Laws, shall have the meaning as defined in the NASD By-Laws.

10 NASD [Rules ] 10 [Amended by SR-NASD eff: 8/7/97.] Delegation, Authority and Access 27 (a) The National Association of Securities Dealers, Inc., delegates to its subsidiaries (NASD Regulation, Inc. and The Nasdaq Stock Market, Inc., hereinafter Subsidiaries ) the authority to act on behalf of the Association as set forth in a Plan of Allocation and Delegation adopted by the Board of Governors and approved by the Commission pursuant to its authority under the Act. 28 (b) Notwithstanding any delegation of authority to the Subsidiaries pursuant to this Rule, the staff, books, records and premises of the Subsidiaries are the staff, books, records and premises of the Association subject to oversight pursuant to the Act, and all officers, directors, employees and agents of the Subsidiaries are the officers, directors, employees and agents of the Association for purposes of the Act. [Adopted by SR-NASD eff. Apr. 11, 1996.] MEMBERSHIP, REGISTRATION AND QUALIFICATION REQUIREMENTS IM Filing of Misleading Information as to Membership or Registration 29 The filing with the Association of information with respect to membership or registration as a Registered Representative which is incomplete or inaccurate so as to be misleading, or which in any way tend to mislead, or the failure to correct such filing after notice thereof, may be deemed to be conduct inconsistent with just and equitable principles of trade and when discovered may be sufficient cause for appropriate disciplinary action. IM Status of Sole Proprietors and Registered Representatives Serving in the Armed Forces 30 Any registered Representative of a member who volunteers or is called into the Armed Forces of the United States shall be placed, after proper notification to the Executive Office, upon inactive status and need not be re-registered by such member upon his return to active employment with the member. 31 Any member (Sole Proprietor) who temporarily closes his business by reason of volunteering or being called into the Armed Forces of the United States, shall be placed, after proper notification to the Executive Office, on inactive status until his return to active participation in the investment banking and securities industries. 32 A Registered Representative who is placed on inactive status as set forth above shall not be included within the definition of Personnel for purposes of the dues or assessments as provided in Article VI of the By-Laws. 33 Any member placed on inactive status as set forth above shall not be required to pay dues or assessments during the pendency of such inactive status and shall not be required to pay an admission fee upon return to active participation in the investment banking and securities business.

11 NASD [Rules ] 11 IM Failure to Register Personnel 34 The failure of a member to register an employee, who should be so registered, as a Registered Representative may be deemed to be conduct inconsistent with just and equitable principles of trade and when discovered may be sufficient cause for appropriate disciplinary action. IM Branch Offices and Offices of Supervisory Jurisdiction 35 Each member is under a duty to insure that its membership application with the Association is kept current at all times by supplementary amendments to its original application and that any offices other than the main office are properly designated and registered, if required, with the Association. 36 Each member must designate to the Association those offices of supervisory jurisdiction, including the main office, and must register those offices which are deemed to be branch offices in accordance with the standards set forth in Rule [Amended by NASD eff. July 9, 1998.] Selected Notices to Members: 85-48, 87-14, 87-53, 88-90, Membership Proceedings Definitions 37 Unless otherwise provided, terms used in the Rule 1010 Series shall have the meaning as defined in Rule Applicant The term Applicant means a person that applies for membership in the Association under Rule 1013 or a member that files an application for approval of a change in ownership, control, or business operations under Rule Associated Person The term Associated Person means: (1) a natural person registered under the Rules of the Association; or (2) a sole proprietor, partner, officer, director, branch manager, or other natural person occupying a similar status or performing similar functions who will be or is anticipated to be associated with the Applicant, or a natural person engaged in the investment banking or securities business who will be or is anticipated to be directly or indirectly controlling or controlled by the Applicant, whether or not any such person is registered or exempt from registration under the NASD By-Laws or the Rules of the Association. 40 Department The term Department means the Department of Member Regulation of NASD Regulation. 41 Director The term Director means a member of the NASD Regulation Board. 42 district The term district means a district established by the NASD Regulation Board. 43 district office The term district office means an office of NASD Regulation located in a district. 44 Governor The term Governor means a member of the NASD Board.

12 NASD [Rules ] Interested Association Staff The term Interested Association Staff means an employee who directly participates in a decision under Rule 1014 or 1017, an employee who directly supervises an employee with respect to such decision, an employee who conducted an investigation or examination of a member that files an application under Rule 1017, the District Director for the relevant district, and the head of the Department. 46 material change in business operations The term material change in business operations includes, but is not limited to: (1) removing or modifying a membership agreement restriction; (2) market making, underwriting, or acting as a dealer for the first time; and (3) adding business activities that require a higher minimum net capital under SEC Rule 15c3-1; 47 NASD Board The term NASD Board means the Board of Governors of the NASD. 48 NASD Regulation Board The term NASD Regulation Board means the Board of Directors of NASD Regulation. 49 principal place of business The term principal place of business means the executive office from which the sole proprietor or the officers, partners, or managers of the Applicant direct, control, and coordinate the activities of the Applicant, unless the Department determines that the principal place of business is where: (1) the largest number of Associated Persons of the Applicant are located; or (2) the books and records necessary to provide information and data to operate the business and comply with applicable rules are located. 50 sales practice event The term sales practice event means any customer complaint, arbitration, or civil litigation that has been reported to the Central Registration Depository, currently is required to be reported to the Central Registration Depository, or otherwise has been reported to the Association. 51 Subcommittee The term Subcommittee means a subcommittee of the National Adjudicatory Council that is constituted pursuant to Rule 1015 to conduct a review of a Department decision issued under the Rule 1010 Series. [Adopted by SR-NASD eff. July 20, 1984; amended by SR-NASD eff. Feb. 1, 1992; amended by SR-NASD eff. July 20, 1994; amended by SR-NASD eff. Aug. 7, 1997; amended by SR-NASD eff. Jan. 16, 1998; amended by SR-NASD eff. Nov. 15, 2000.] IM Safe Harbors for Business Expansions 52 This interpretive material concerns the types of business expansions that will not require a member to submit a Rule 1017 application to obtain NASD Regulation s approval of the expansion. This safe harbor applies to: (1) firms that do not have a membership agreement, and (2) firms that have a membership agreement that does not contain a restriction on the factors listed below. 53 The safe harbor is not available to a member that has a membership agreement that contains a specific restriction as to one or more of the factors

13 NASD [Rules ] 13 listed below. In that case, the agreement takes precedence because NASD Regulation has determined that a particular restriction should apply as to one or more of the factors, and NASD Regulation has issued a decision with a rationale for that restriction. Similarly, the safe harbor also does not apply if the member has a membership agreement that permits expansion beyond the limits set forth below (e.g., an Applicant requests and obtains approval for ten registered representatives in the first six months with an additional ten registered representatives in the next year); in such case, the Department has specifically considered the firm s expansion plans and approved them. 54 The safe harbor is not available to any member that has disciplinary history. For purposes of this Interpretation, disciplinary history means a finding of a violation by the member or a principal of the member in the past five years by the Securities and Exchange Commission, a self-regulatory organization, or a foreign financial regulatory authority of one or more of the following provisions (or a comparable foreign provision) or rules or regulations thereunder: Sections 15(b)(4)(E) and 15(c) of the Securities Exchange Act of 1934; Section 17(a) of the Securities Act of 1933; SEC Rules 10b-5 and 15g-1 through 15g-9; NASD Rules 2110, 2120, 2310, 2330, 2440, 3010 (failure to supervise only), 3310, and 3330; and MSRB Rules G-19, G-30, and G-37(b) & (c). 55 For those firms to which the safe harbor is available, the following types of expansions are presumed not to be a material change in business operations and therefore do not require a Rule 1017 application. For any expansion beyond these limits, a member should contact its district office prior to implementing the change to determine whether the proposed expansion requires an application under Rule Expansions in each area are measured on a rolling 12-month basis; members are required to keep records of increases in personnel, offices, and markets to determine whether they are within the safe harbor. 56 Associated Persons involved in sales includes all Associated Persons, whether or not registered, who are involved in sales activities with public customers, including sales assistants and cold callers, but excludes clerical, back office, and trading personnel who are not involved in sales activities. Number of Associated Persons Involved in Sales Safe Harbor Increase Permitted Within One Year Period Without Rule 1017 Application persons 11 or more 10 persons or a 30 percent increase, whichever is greater Number of Offices (registered or unregistered) offices 6 or more 3 offices or a 30 percent increase, whichever is greater Number of Markets Made markets 11 or more 10 markets or a 30 percent increase, whichever is greater [Adopted by SR-NASD eff. Nov. 15, 2000.]

14 NASD [Rules ] General Provisions (a) Filing by Applicant or Service by the Association 57 (1) An Applicant may file an application or any document or information requested under the Rule 1010 Series by first-class mail, overnight courier, or hand delivery. If the Department and the Applicant agree, the Applicant also may file a requested document or information by facsimile. 58 (2) The Association shall serve a notice or decision issued under the Rule 1010 Series by first-class mail on the Applicant or its counsel, unless a Rule specifies a different method of service. 59 (3) Service by the Association or filing by an Applicant shall be deemed complete as follows: (A) Service or filing by first-class mail shall be deemed complete on the date of postmark; (B) Service or filing by overnight courier shall be deemed complete on the date of delivery to the overnight courier as specified in the airbill; (C) Service or filing by hand delivery shall be deemed complete on the date of receipt as evidenced by a date stamp; and (D) Service or filing by facsimile shall be deemed complete on the date specified in the document and on the written confirmation of transmission. (b) Lapse of Application 60 (1) Absent a showing of good cause, an application filed under Rule 1013 or 1017 shall lapse if an Applicant fails to: (A) respond fully within 60 days after service of an initial written request for information or documents under Rule 1013, within 30 days after service of an initial written request for information or documents under Rule 1017, within 30 days after service of a subsequent written request for information or documents under Rule 1013 or 1017, or within such other time period agreed to by the Department and the Applicant; (B) appear at or otherwise participate in a scheduled membership interview pursuant to Rule 1013(b) or 1017(f); or (C) file an executed membership agreement under Rule 1014(d) or Rule 1017(g)(4) within 25 days after service of the agreement, or within such other period agreed to by the Department and the Applicant. 61 (2) If an Applicant wishes to continue to seek membership or approval of a change in ownership, control, or business operations, then the Applicant shall be required to submit a new application and fee under Rule 1013 or 1017, respectively. The Association shall not refund any fee for a lapsed application. (c) Ex Parte Communications 62 (1) The prohibitions against ex parte communications shall become effective when Association staff has knowledge that an Applicant intends to file a written request for review by the National Adjudicatory Council under Rule 1015.

15 NASD [Rules ] (2) Unless on notice and opportunity for an Applicant and Interested Association Staff to participate, or to the extent required for the disposition of ex parte matters as authorized by the Rules of the Association: (A) an Applicant, a counsel or representative of an Applicant, or an Interested Association Staff shall not make or knowingly cause to be made an ex parte communication relevant to the merits of a membership proceeding under the Rule 1010 Series to a Governor, a member of the National Adjudicatory Council or a Subcommittee thereof, or an Association employee who is participating or advising in a decision of such a person with respect to that proceeding; and (B) a Governor, a member of the National Adjudicatory Council or a Subcommittee thereof, or an Association employee who is participating or advising in the decision of such a person with respect to a membership proceeding shall not make or knowingly cause to be made to an Applicant, a counsel or representative of the Applicant, or an Interested Association Staff an ex parte communication relevant to the merits of that proceeding. 64 (3) A Governor, a member of the National Adjudicatory Council or a Subcommittee thereof, or an Association employee participating or advising in the decision of such a person, who receives, makes, or knowingly causes to be made a communication prohibited by this paragraph shall place in the record of the membership proceeding: (A) all such written communications; (B) memoranda stating the substance of all such oral communications; and (C) all written responses and memoranda stating the substance of all oral responses to all such communications. (d) Recusal or Disqualification 65 A Governor or a member of the National Adjudicatory Council or a Subcommittee thereof shall not participate in a matter governed by the Rule 1010 Series as to which that person has a conflict of interest or bias, or if circumstances otherwise exist where his or her fairness might reasonably be questioned. In such a case, the person shall recuse himself or shall be disqualified as follows: (1) The Chair of the NASD Board shall have authority to direct the disqualification of a Governor, and a majority of the Governors of the NASD Board excluding the Chair shall have authority to direct the disqualification of the Chair of the NASD Board. (2) The Chair of the National Adjudicatory Council shall have authority to direct the disqualification of a member of the National Adjudicatory Council or a member of a Subcommittee appointed pursuant to Rule 1015, and the Vice Chair of the National Adjudicatory Council shall have authority to direct the disqualification of the Chair of the National Adjudicatory Council. (e) Computation of Time 66 (1) Calendar Day In the Rule 1010 Series, day means calendar day.

16 NASD [Rules ] (2) Formula In computing a period of time under the Rule 1010 Series, the day of the act, event, default, or lapse from which the period of time designated begins to run shall not be included. The last day of the period so computed shall be included unless it is a Saturday, Sunday, or Federal holiday, in which event the period runs until the end of the next day that is not a Saturday, Sunday, or Federal holiday. Intermediate Saturdays, Sundays, and Federal holidays shall be excluded from the computation when the period prescribed is ten days or less. [Adopted by SR-NASD eff. July 20, 1984; amended by SR-NASD eff. July 20, 1994; amended by SR-NASD eff. Aug. 07, 1997; amended by SR-NASD eff. Jan. 16, 1998; amended by SR-NASD eff. Nov. 15, 2000.] New Member Application and Interview (a) Filing of Application (1) Where To File 68 An Applicant for Association membership shall file its application with the Department of Member Regulation at the district office in the district in which the Applicant intends to have its principal place of business as defined in Rule 1011(l). (2) Contents 69 The application shall include: (A) an original signed and notarized paper Form BD, with applicable schedules; (B) an original signed paper Form U-4 for each Associated Person who is required to be registered under the Rules of the Association; (C) an original NASD-approved fingerprint card for each Associated Person who will be subject to SEC Rule 17f-2; (D) a new member assessment report; (E) a check for the appropriate fee; (F) a detailed business plan that adequately and comprehensively describes all material aspects of the business that will be, or are reasonably anticipated to be, performed at and after the initiation of business operations, including future business expansion plans, if any, and includes: (i) a trial balance, balance sheet, supporting schedules, and computation of net capital, each of which has been prepared as of a date that is within 30 days before the filing date of the application; (ii) a monthly projection of income and expenses, with a supporting rationale, for the first twelve months of operations; (iii) an organizational chart; (iv) the intended location of the Applicant s principal place of business and all other offices, if any, whether or not such offices would be

17 NASD [Rules ] 17 required to be registered under the Rules of the Association, and the names of the persons who will be in charge of each office; (v) a list of the types of securities to be offered and sold and the types of retail or institutional customers to be solicited; (vi) a description of the methods and media to be employed to develop a customer base and to offer and sell products and services to customers, including the use of the Internet, telephone solicitations, seminars, or mailings; (vii) a description of the business facilities and a copy of any proposed or final lease; (viii) the number of markets to be made, if any, the type and volatility of the products, and the anticipated maximum inventory positions; (ix) any plan to enter into contractual commitments, such as underwritings or other securities-related activities; (x) any plan to distribute or maintain securities products in proprietary positions, and the risks, volatility, degree of liquidity, and speculative nature of the products; (xi) any other activity that the Applicant may engage in that reasonably could have a material impact on net capital within the first twelve months of business operations; and (xii) a description of the communications and operational systems the Applicant will employ to conduct business with customers or other members and the plans and procedures the Applicant will employ to ensure business continuity, including: system capacity to handle the anticipated level of usage; contingency plans in the event of systems or other technological or communications problems or failures that may impede customer usage or firm order entry or execution; system redundancies; disaster recovery plans; system security; disclosures to be made to potential and existing customers who may use such systems; and supervisory or customer protection measures that may apply to customer use of, or access to, such systems; (G) a copy of any decision or order by a federal or state authority or selfregulatory organization taking permanent or temporary adverse action with respect to a registration or licensing determination regarding the Applicant or an Associated Person; (H) a list of all Associated Persons; (I) documentation of any of the following events, unless the event has been reported to the Central Registration Depository: (i) a regulatory action against or investigation of the Applicant or an Associated Person by the Commission, the Commodity Futures Trading Commission, a federal, state, or foreign regulatory agency, or a self-regulatory organization that is pending, adjudicated, or settled;

18 NASD [Rules ] 18 (ii) an investment-related civil action for damages or an injunction against the Applicant or an Associated Person that is pending, adjudicated, or settled; (iii) an investment-related customer complaint or arbitration that is required to be reported on Form U-4; (iv) a criminal action (other than a minor traffic violation) against the Applicant or an Associated Person that is pending, adjudicated, or that has resulted in a guilty or no contest plea; and (v) a copy of any document evidencing a termination for cause or a permitted resignation after investigation of an alleged violation of a federal or state securities law, a rule or regulation thereunder, a self-regulatory organization rule, or an industry standard of conduct; (J) a description of any remedial action, such as special training, continuing education requirements, or heightened supervision, imposed on an Associated Person by a state or federal authority or self-regulatory organization; (K) a written acknowledgment that heightened supervisory procedures and special educational programs may be required pursuant to Notice To Members for an Associated Person whose record reflects disciplinary actions or sales practice events; (L) a copy of final or proposed contracts with banks, clearing entities, or service bureaus, and a general description of any other final or proposed contracts; (M) a description of the nature and source of Applicant s capital with supporting documentation, including a list of all persons or entities that have contributed or plan to contribute financing to the Applicant s business, the terms and conditions of such financing arrangements, the risk to net capital presented by the Applicant s proposed business activities, and any arrangement for additional capital should a business need arise; (N) a description of the financial controls to be employed by the Applicant; (O) a description of the Applicant s supervisory system and a copy of its written supervisory procedures, internal operating procedures (including operational and internal controls), internal inspections plan, written approval process, and qualifications investigations required by Rule 3010; (P) a description of the number, experience, and qualifications of supervisors and principals and the number, experience, and qualifications of persons to be supervised by such personnel, the other responsibilities of the supervisors and principals with the Applicant, their full-time or parttime status, any business activities that the supervisors or principals may engage in outside of their association with the Applicant, the hours per week devoted to such activities, and an explanation of how a part-time supervisor or principal will be able to discharge his or her designated functions on a part-time basis; (Q) a description of Applicant s proposed record-keeping system;

19 NASD [Rules ] 19 (R) a copy of the Applicant s written training plan to comply with Firm Element continuing education requirements described in Rule 1120(b), including the name of the Associated Person responsible for implementation; and (S) a Web CRD entitlement request form and a Member Contact Questionnaire user access request form. (3) Electronic Filings 70 Upon approval of the Applicant s Web CRD entitlement request form, the Applicant shall submit any amendments to its Forms BD or U-4, any additional Forms U-4, and any Form U-5 electronically via Web CRD. Upon approval of the Applicant s membership, the Applicant shall submit any amendments to its Member Contact Questionnaire electronically. (4) Rejection Of Application That Is Not Substantially Complete 71 If the Department determines within 30 days after the filing of an application that the application is not substantially complete, the Department may reject the application and deem it not to have been filed. In such case, within the 30- day period, the Department shall serve a written notice on the Applicant of the Department s determination and the reasons therefor. The Association shall refund the application fee, less $350, which shall be retained by the Association as a processing fee. If the Applicant determines to continue to seek membership, the Applicant shall submit a new application and fee under this Rule. (5) Request For Additional Documents Or Information 72 Within 30 days after the filing of an application, the Department shall serve an initial request for any additional information or documents necessary to render a decision on the application. The Department may serve subsequent requests for additional information or documents at any time during the membership application process. 73 Unless otherwise agreed by the Department and the Applicant, the Applicant shall file any additional information and documents with the Department within 60 days after service of the Department s initial request and 30 days after service of any subsequent request. (b) Membership Interview (1) Requirement for Interview 74 Before the Department serves its decision on an application for new membership in the Association, the Department shall conduct a membership interview with a representative or representatives of the Applicant. (2) Service of Notice 75 At least seven days before the membership interview, the Department shall serve on the Applicant a written notice that specifies the date and time of the interview and the representative or representatives of the Applicant who are required to participate in the interview. The Department shall serve the notice by facsimile or overnight courier. The Applicant and the Department may agree to a shorter or longer period for notice or a different method of service under this subparagraph.

20 NASD [Rules ] 20 (3) Time 76 Unless the Department directs otherwise for good cause shown, a membership interview shall be scheduled to occur within 90 days after the filing of an application or within 60 days after the filing of all additional information or documents requested, whichever is later. (4) Place 77 Unless the Department and the Applicant otherwise agree, the membership interview shall be conducted in the district office for the district in which the Applicant has or intends to have its principal place of business. (5) Updated Financial Documents 78 On or before the date of the membership interview, the Applicant shall file an updated trial balance, balance sheet, supporting schedules, and computation of net capital. The Applicant shall prepare such documents as of a date that is within 45 days before the date of the membership interview, unless the Applicant and the Department agree on a longer period. The Applicant shall promptly notify the Department in writing of any material adverse change in its financial condition that occurs before a decision constituting final action of the Association is served on the Applicant. (6) Review of Standards for Admission 79 During the membership interview, the Department shall review the application and the standards for admission to membership with the Applicant s representative or representatives. (7) Information From Other Sources 80 During the membership interview, the Department shall provide to the Applicant s representative or representatives any information or document that the Department has obtained from the Central Registration Depository or a source other than the Applicant and upon which the Department intends to base its decision under Rule If the Department receives such information or document after the membership interview or decides to base its decision on such information after the membership interview, the Department shall promptly serve the information or document and an explanation thereof on the Applicant. [Adopted by SR-NASD eff. July 20, 1984; amended by SR-NASD eff. July 20, 1994; amended by SR-NASD eff. Aug. 07, 1997; amended by SR-NASD eff. Jan. 16, 1998; amended by SR-NASD eff. Nov. 15, 2000.] Department Decision (a) Standards for Admission 81 After considering the application, the membership interview, other information and documents provided by the Applicant, other information and documents obtained by the Department, and the public interest and the protection of investors, the Department shall determine whether the Applicant meets each of the following standards: 82 (1) The application and all supporting documents are complete and accurate.

21 NASD [Rules ] (2) The Applicant and its Associated Persons have all licenses and registrations required by state and federal authorities and self-regulatory organizations. 84 (3) The Applicant and its Associated Persons are capable of complying with the federal securities laws, the rules and regulations thereunder, and the Rules of the Association, including observing high standards of commercial honor and just and equitable principles of trade. In determining whether this standard is met, the Department may take into consideration whether: (A) a state or federal authority or self-regulatory organization has taken permanent or temporary adverse action with respect to a registration or licensing determination regarding the Applicant or an Associated Person; (B) an Applicant s or Associated Person s record reflects a sales practice event; (C) an Applicant or Associated Person is the subject of a pending, adjudicated, or settled regulatory action or investigation by the Commission, the Commodity Futures Trading Commission, a federal, state, or foreign regulatory agency, or a self-regulatory organization; a pending, adjudicated, or settled investment-related civil action for damages or an injunction; or a criminal action (other than a minor traffic violation) that is pending, adjudicated, or that has resulted in a guilty or no contest plea; (D) an Associated Person was terminated for cause or permitted to resign after an investigation of an alleged violation of a federal or state securities law, a rule or regulation thereunder, a self-regulatory organization rule, or industry standard of conduct; (E) a state or federal authority or self-regulatory organization has imposed a remedial action, such as special training, continuing education requirements, or heightened supervision, on an Associated Person; and (F) a state or federal authority or self-regulatory organization has provided information indicating that the Applicant or an Associated Person otherwise poses a threat to public investors. 85 (4) The Applicant has established all contractual or other arrangements and business relationships with banks, clearing corporations, service bureaus, or others necessary to: (A) initiate the operations described in the Applicant s business plan, considering the nature and scope of operations and the number of personnel; and (B) comply with the federal securities laws, the rules and regulations thereunder, and the Rules of the Association. 86 (5) The Applicant has or has adequate plans to obtain facilities that are sufficient to: (A) initiate the operations described in the Applicant s business plan, considering the nature and scope of operations and the number of personnel; and (B) comply with the federal securities laws, the rules and regulations thereunder, and the Rules of the Association. 87 (6) The communications and operational systems that the Applicant intends to employ for the purpose of conducting business with customers and other members are adequate and provide reasonably for business continuity in each area set forth in Rule 1013(a)(2)(F)(xii);