12380 Federal Register / Vol. 76, No. 44 / Monday, March 7, 2011 / Notices 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Exchange Act Release No. 63375 (November 

24, 2010), 75 FR 74759 (December 1, 2010) (Notice 

of Filing of Proposed Rule Change; File No. SR– 

FINRA–2010–061) (‘‘Notice’’). 

4See Letter from D. Grant Vingoe, Arnold & 

Porter LLP (‘‘Arnold & Porter’’), to Elizabeth M. 

Murphy, Secretary, SEC, dated December 22, 2010 

(available at http://www.sec.gov/comments/sr-finra2010–061/finra2010061.shtml). 

5See Amendment No. 1 dated February 24, 2011 

(‘‘Amendment No. 1’’) and FINRA’s response to 

comments, dated February 24, 2011 (‘‘Response to 

Comments’’), which are available on FINRA’s Web 

site at http://www.finra.org, at the principal office 

of FINRA, and on the Commission’s Web site at 

http://www.sec.gov/rules/sro.shtml. 

Investing Fund Sub-Advisor waives 

fees, the benefit of the waiver will be 

passed through to the Investing 

Management Company. 

6. No Investing Fund or Investing 

Fund Affiliate (except to the extent it is 

acting in its capacity as an investment 

adviser to a Fund) will cause a Fund to 

purchase a security in an Affiliated 

Underwriting. 

7. The Board of the Fund, including 

a majority of the disinterested Board 

members, will adopt procedures 

reasonably designed to monitor any 

purchases of securities by the Fund in 

an Affiliated Underwriting, once an 

investment by an Investing Fund in the 

securities of the Fund exceeds the limit 

of section 12(d)(1)(A)(i) of the Act, 

including any purchases made directly 

from an Underwriting Affiliate. The 

Board will review these purchases 

periodically, but no less frequently than 

annually, to determine whether the 

purchases were influenced by the 

investment by the Investing Fund in the 

Fund. The Board will consider, among 

other things: (i) Whether the purchases 

were consistent with the investment 

objectives and policies of the Fund; 

(ii) how the performance of securities 

purchased in an Affiliated Underwriting 

compares to the performance of 

comparable securities purchased during 

a comparable period of time in 

underwritings other than Affiliated 

Underwritings or to a benchmark such 

as a comparable market index; and 

(iii) whether the amount of securities 

purchased by the Fund in Affiliated 

Underwritings and the amount 

purchased directly from an 

Underwriting Affiliate have changed 

significantly from prior years. The 

Board will take any appropriate actions 

based on its review, including, if 

appropriate, the institution of 

procedures designed to assure that 

purchases of securities in Affiliated 

Underwritings are in the best interest of 

shareholders. 

8. Each Fund will maintain and 

preserve permanently in an easily 

accessible place a written copy of the 

procedures described in the preceding 

condition, and any modifications to 

such procedures, and will maintain and 

preserve for a period of not less than six 

years from the end of the fiscal year in 

which any purchase in an Affiliated 

Underwriting occurred, the first two 

years in an easily accessible place, a 

written record of each purchase of 

securities in Affiliated Underwritings 

once an investment by an Investing 

Fund in the securities of the Fund 

exceeds the limit of section 

12(d)(1)(A)(i) of the Act, setting forth 

from whom the securities were 

acquired, the identity of the 

underwriting syndicate’s members, the 

terms of the purchase, and the 

information or materials upon which 

the Board’s determinations were made. 

9. Before investing in a Fund in 

excess of the limits in section 

12(d)(1)(A), an Investing Fund will 

execute a FOF Participation Agreement 

with the Fund stating that their 

respective boards of directors or trustees 

and their investment advisers, or 

Trustee and Sponsor, as applicable, 

understand the terms and conditions of 

the order, and agree to fulfill their 

responsibilities under the order. At the 

time of its investment in shares of a 

Fund in excess of the limit in section 

12(d)(1)(A)(i), an Investing Fund will 

notify the Fund of the investment. At 

such time, the Investing Fund will also 

transmit to the Fund a list of the names 

of each Investing Fund Affiliate and 

Underwriting Affiliate. The Investing 

Fund will notify the Fund of any 

changes to the list as soon as reasonably 

practicable after a change occurs. The 

Fund and the Investing Fund will 

maintain and preserve a copy of the 

order, the FOF Participation Agreement, 

and the list with any updated 

information for the duration of the 

investment and for a period of not less 

than six years thereafter, the first two 

years in an easily accessible place. 

10. Before approving any advisory 

contract under section 15 of the Act, the 

board of directors or trustees of each 

Investing Management Company, 

including a majority of the disinterested 

directors or trustees, will find that the 

advisory fees charged under such 

contract are based on services provided 

that will be in addition to, rather than 

duplicative of, the services provided 

under the advisory contract(s) of any 

Fund in which the Investing 

Management Company may invest. 

These findings and their basis will be 

recorded fully in the minute books of 

the appropriate Investing Management 

Company. 

11. Any sales charges and/or service 

fees charged with respect to shares of an 

Investing Fund will not exceed the 

limits applicable to a fund of funds as 

set forth in NASD Conduct Rule 2830. 

12. No Fund relying on this section 

12(d)(1) relief will acquire securities of 

any investment company or company 

relying on section 3(c)(1) or 3(c)(7) of 

the Act in excess of the limits contained 

in section 12(d)(1)(A) of the Act, except 

to the extent permitted by exemptive 

relief from the Commission permitting 

the Fund to purchase shares of other 

investment companies for short-term 

cash management purposes. 

For the Commission, by the Division of 

Investment Management, under delegated 

authority. 

Cathy H. Ahn, 

Deputy Secretary. 

[FR Doc. 2011–5064 Filed 3–4–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63999; File No. SR–FINRA– 

2010–061] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Amendment No. 1 and Order Granting 

Accelerated Approval of a Proposed 

Rule Change Adopting, as Modified by 

Amendment No. 1, Rules Governing 

Guarantees, Carrying Agreements, 

Security Counts and Supervision of 

General Ledger Accounts in the 

Consolidated FINRA Rulebook 

March 1, 2011. 

I. Introduction 

On November 12, 2010, the Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) filed with the Securities and 

Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Exchange Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to adopt rules governing 

guarantees, carrying agreements, 

security counts and supervision of 

general ledger accounts in the 

consolidated FINRA Rulebook. The 

proposed rule change was published for 

comment in the Federal Register on 

November 24, 2010.3 The Commission 

received one comment letter on the 

proposed rule change.4 On February 24, 

2011, FINRA responded to the 

comments and filed Amendment No. 1 

to the proposed rule change.5 The 

Commission is publishing this notice 

and order to solicit comments on 

Amendment No. 1 and to approve the 


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6The current FINRA rulebook consists of: (1) 

FINRA Rules; (2) NASD Rules; and (3) rules 

incorporated from NYSE (‘‘Incorporated NYSE 

Rules’’) (together, the NASD Rules and Incorporated 

NYSE Rules are referred to as the ‘‘Transitional 

Rulebook’’). While the NASD Rules generally apply 

to all FINRA members, the Incorporated NYSE 

Rules apply only to those members of FINRA that 

are also members of the NYSE (‘‘Dual Members’’). 

The FINRA Rules apply to all FINRA members, 

unless such rules have a more limited application 

by their terms. For more information about the 

rulebook consolidation process, see Information 

Notice, March 12, 2008 (Rulebook Consolidation 

Process). 

7For convenience, the Incorporated NYSE Rules 

are referred to as the ‘‘NYSE Rules.’’ 

8See Exchange Act Release No. 60933 (November 

4, 2009), 74 FR 58334 (November 12, 2009) (Order 

Granting Accelerated Approval to Proposed Rule 

Change; File No. SR–FINRA–2008–067). See also 

Regulatory Notice 09–71 (December 2009) (SEC 

Approves Consolidated FINRA Rules Governing 

Financial Responsibility) and Regulatory Notice 09– 

03 (January 2009) (Financial Responsibility and 

Related Operational Rules). 

9For purposes of the new consolidated financial 

responsibility rules and the proposed rules, FINRA 

has specified in the rule text where appropriate that 

all requirements that apply to a member that clears 

or carries customer accounts also apply to any 

member that, operating pursuant to the exemptive 

provisions of Exchange Act Rule 15c3–3(k)(2)(i), 

either clears customer transactions pursuant to such 

exemptive provisions or holds customer funds in a 

bank account established thereunder. For further 

discussion, see 74 FR 58334. See also proposed 

FINRA Rule 4523.02 in this rule filing. 

10NASD Rules do not have a provision that 

corresponds to NYSE Rule 322. Accordingly, the 

requirements of proposed FINRA Rule 4150 would 

be new to non-NYSE members. 

11FINRA noted that the term ‘‘obligations’’ 

includes financial obligations, as well as other 

obligations that may have a financial impact on a 

member, such as performance obligations. 

12NASD Rule 0120(n) defines ‘‘person’’ to include 

any natural person, partnership, corporation, 

association, or other legal entity. Similarly, NYSE 

Rule 2(d) states that ‘‘person’’ means a natural 

person, corporation, limited liability company, 

partnership, association, joint stock company, trust, 

fund or any organized group of persons whether 

incorporated or not. All references to ‘‘persons’’ in 

this filing include entities. 

13FINRA notes the proposed rule is designed to 

align with the requirements of Appendix C. 

14Proposed FINRA Rule 4311 also is based on 

NYSE Rule Interpretations 382/01 through/05 and 

409(a)/01. 

15See, e.g., Notice to Members 94–7 (February 

1994) (SEC Approves New NASD Rule Relating to 

the Obligations and Responsibilities of Introducing 

and Clearing Firms) and NYSE Information Memo 

82–18 (March 1982) (Carrying Agreements— 

Amendments to Rules 382 and 405). 

16Proposed FINRA Rule 4311(b)(1) is consistent 

with the requirements of NASD Rule 3230(e) and 

NYSE Rule 382(a). 

proposed rule change, as modified by 

Amendment No. 1, on an accelerated 

basis. 

II. Description of Proposed Rule 

Change, as Modified by Amendment 

No. 1 

A. Background 

1. Purpose 

As part of the process of developing 

a new consolidated rulebook 

(‘‘Consolidated FINRA Rulebook’’),6

FINRA is proposing to adopt new, 

consolidated rules governing 

guarantees, carrying agreements, 

security counts and supervision of 

general ledger accounts. FINRA 

proposes to adopt FINRA Rules 4150 

(Guarantees by, or Flow Through 

Benefits for, Members), 4311 (Carrying 

Agreements), 4522 (Periodic Security 

Counts, Verifications and Comparisons) 

and 4523 (Assignment of Responsibility 

for General Ledger Accounts and 

Identification of Suspense Accounts) in 

the Consolidated FINRA Rulebook and 

to delete NASD Rule 3230, NYSE Rules 

322, 382, 440.10 and 440.20 and NYSE 

Rule Interpretations 382/01 through 

382/05, 409(a)/01 and 440.20/01.7

The proposed rules would, in 

combination with other consolidated 

financial responsibility rules approved 

by the SEC,8 enhance FINRA’s authority 

to execute effectively its financial and 

operational surveillance and 

examination programs. Consistent with 

the approach that FINRA discussed in 

SR–FINRA–2008–067 and Regulatory 

Notice 09–71, many of the requirements 

set forth in the proposed rules are 

substantially the same as requirements 

found in current rules and, where 

appropriate, are tiered to apply only to 

carrying or clearing firms, or to firms 

that engage in certain specified 

activities.9 Certain of the proposed rule 

provisions are new for FINRA members 

that are not Dual Members (‘‘non-NYSE 

members’’). Certain other provisions are 

new for both Dual Members and nonNYSE members alike. 

In Amendment No. 1, FINRA 

proposes new Supplementary Material 

.04 to Rule 4311. This Supplementary 

Material is technical in nature. It is 

intended to remind members that, for 

purposes of paragraphs (c)(1)(F) and 

(c)(2) of Rule 4311, the receipt and 

delivery of customers’ funds and 

securities and the safeguarding of such 

funds and securities must comply with 

the requirements of the SEC’s financial 

responsibility rules, in particular 

Exchange Act Rule 15c3–3 and 

applicable SEC guidance. Amendment 

No. 1 would redesignate the original 

Supplementary Material .04 as .05. 

2. Proposed Amendments 

FINRA proposes the following 

amendments to its rules. 

(A) Proposed FINRA Rule 4150 

(Guarantees by, or Flow Through 

Benefits for, Members) 

As stated in the Notice, Proposed Rule 

4150(a) is based in large part on NYSE 

Rule 322.10 Proposed Rule 4150(a) 

requires that prior written notice be 

given to FINRA whenever a member 

guarantees, endorses or assumes, 

directly or indirectly, the obligations 11

or liabilities of another person 

(including an entity).12 Paragraph (b) of 

the rule requires that prior written 

approval must be obtained from FINRA 

whenever any member receives flowthrough capital benefits in accordance 

with Appendix C of Exchange Act Rule 

15c3–1.13

(B) Proposed FINRA Rule 4311 

(Carrying Agreements) 

Proposed FINRA Rule 4311 is based 

on NASD Rule 3230 and NYSE Rule 

382.14 The proposed rule governs the 

requirements applicable to members 

when entering into agreements for the 

carrying of any customer accounts in 

which securities transactions can be 

effected. Historically, the purpose of the 

NASD and NYSE rules upon which the 

proposed rule is based has been to 

ensure that certain functions and 

responsibilities are clearly allocated to 

either the introducing or carrying firm, 

consistent with the requirements of the 

self-regulatory organization and SEC’s 

financial responsibility and other rules 

and regulations, as applicable.15

As discussed in the Notice, Proposed 

FINRA Rule 4311(a)(1) prohibits a 

member, unless otherwise permitted by 

FINRA, from entering into an agreement 

for the carrying on an omnibus or fully 

disclosed basis, of any customer account 

in which securities transactions can be 

effected, unless the agreement is with a 

carrying firm that is a FINRA member. 

Proposed FINRA Rule 4311(b)(1) 

requires that the carrying firm must 

submit to FINRA for prior approval any 

agreement for the carrying of accounts, 

whether on an omnibus or fully 

disclosed basis, before such agreement 

may become effective.16 The proposed 

rule also provides that the carrying firm 

must submit to FINRA for prior 

approval any material changes to an 

approved carrying agreement before the 

changes may become effective. The 

proposed rule codifies the practice 

under NASD Rule 3230 of permitting 

use of pre-approved standardized forms 

of agreement, with the exception of 

agreements with parties that are not 

U.S.-registered broker-dealers. The 

proposed rule requires a carrying firm to 

submit to FINRA for approval each 

carrying agreement with a non-U.S.- 

registered broker-dealer. 

FINRA Rule 4311(b)(3) codifies the 

current practice under NYSE Rule 382 

of requiring that as early as possible, but 


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17This is a new requirement for non-NYSE 

carrying members, and permits FINRA to obtain 

additional information that enables it to evaluate 

the impact of the new carrying arrangement on the 

financial and operational condition of the member. 

18Proposed FINRA Rule 4311(c) is based in part 

on NASD Rule 3230(a) and NYSE Rule 382(b). 

19Proposed FINRA Rule 4311(d) is based in part 

on NASD Rule 3230(g), NYSE Rule 382(c), and 

NYSE Rule Interpretation 382/03. 

20This is a new requirement for non-NYSE 

members. 

21Proposed FINRA Rule 4311(f) is based in part 

on NASD Rule 3230(d) and NYSE Rule 382(f). 

22Proposed FINRA Rule 4311(i) is based largely 

on NASD Rule 3230(h) and does not have a 

corresponding provision in NYSE Rule 382. 

23Proposed FINRA Rule 4522(a) is based in part 

on NYSE Rule 440.10. 

24 Id. 

25Proposed FINRA Rule 4523 is based on NYSE 

Rule 440.20. NASD Rules do not have a provision 

that corresponds to NYSE Rule 440.20; therefore, 

the requirements of proposed FINRA Rule 4523 are 

new to non-NYSE members. 

26See supra note 4. 

not later than 10 business days, prior to 

the carrying of any accounts of a new 

introducing firm (including the 

accounts of any piggyback or 

intermediary introducing firm(s)), the 

carrying firm must submit to FINRA a 

notice identifying each such introducing 

firm by name and CRD number and 

include such additional information as 

FINRA may require.17 FINRA Rule 

4311(b)(4) expressly requires each 

carrying firm to conduct appropriate 

due diligence with respect to any new 

introducing firm relationship. The rule 

provides that such due diligence must 

assess the financial, operational, credit 

and reputational risk that such 

arrangement will have upon the 

carrying firm. The rule also provides 

that FINRA, in its review of any 

arrangement, may in its discretion 

require specific items to be addressed by 

the carrying firm as part of the firm’s 

due diligence requirement under the 

rule. The rule further provides that the 

carrying firm must maintain a record, in 

accord with the time frames prescribed 

by Exchange Act Rule 17a–4(b), of the 

due diligence conducted for each new 

introducing firm. 

Proposed FINRA Rule 4311(c) 

requires that each carrying agreement in 

which accounts are to be carried on a 

fully disclosed basis must specify the 

responsibilities of each party to the 

agreement.18 The proposed rule also 

requires each carrying agreement in 

which accounts are to be carried on a 

fully disclosed basis to expressly 

allocate to the carrying firm the 

responsibility for preparing and 

transmitting statements of account to 

customers. 

FINRA Proposed Rule 4311(d) 

requires that each customer whose 

account is introduced on a fully 

disclosed basis must be notified in 

writing upon the opening of the account 

of the existence of the carrying 

agreement and the responsibilities 

allocated to each respective party.19

Proposed FINRA Rule 4311(e) 

requires that each carrying agreement 

must expressly state that to the extent 

that a particular responsibility is 

allocated to one party, the other party or 

parties will supply to the responsible 

organization all appropriate data in their 

possession pertinent to the proper 

performance and supervision of that 

responsibility.20

Proposed FINRA Rule 4311(f) 

provides that a carrying agreement may 

authorize an introducing firm to issue 

negotiable instruments directly to its 

customers on the carrying firm’s behalf, 

using instruments for which the 

carrying firm is the maker or drawer, 

provided that the parties comply with 

Exchange Act Rule 15c3–3 and further 

that the introducing firm represents to 

the carrying firm in writing that the 

introducing firm maintains, and will 

enforce, supervisory policies and 

procedures with respect to such 

negotiable instruments that are 

satisfactory to the carrying firm.21

Proposed FINRA Rules 4311(g) and 

4311(h) generally address obligations of 

parties to provide referenced 

information, such as any written 

customer complaints and exception 

reports, to each other and/or to FINRA 

and are based upon existing NASD and 

NYSE rule provisions. 

Proposed FINRA Rule 4311(i) 

provides that all carrying agreements 

must require each introducing firm to 

maintain its proprietary and customer 

accounts, and the proprietary and 

customer accounts of any introducing 

firm for which it is acting as an 

intermediary in obtaining clearing 

services from the carrying firm, in such 

a manner as to enable the carrying firm 

and FINRA to specifically identify the 

proprietary and customer accounts 

belonging to each introducing firm.22

(C) Proposed FINRA Rule 4522 (Periodic 

Security Counts, Verifications and 

Comparisons) 

Proposed FINRA Rule 4522(a) 

requires each member firm that is 

subject to the requirements of Exchange 

Act Rule 17a–13 to make the counts, 

examinations, verifications, 

comparisons, and entries set forth in 

that rule.23 Proposed FINRA Rule 

4522(b) requires each carrying or 

clearing member subject to Exchange 

Act Rule 17a–13 to make more frequent 

counts, examinations, verifications, 

comparisons, and entries where prudent 

business practice would so require.24

(D) Proposed FINRA Rule 4523 

(Assignment of Responsibility for 

General Ledger Accounts and 

Identification of Suspense Accounts) 

Proposed FINRA Rule 4523 is 

intended to help assure the accuracy of 

each member’s books and records.25

Proposed FINRA Rule 4523(a) requires 

that each member must designate an 

associated person to be responsible for 

each general ledger bookkeeping 

account and account of similar function 

used by the member. The associated 

person must control and oversee entries 

into each such account and determine 

that the account is current and accurate 

as necessary to comply with all 

applicable FINRA rules and federal 

securities laws governing books and 

records and financial responsibility 

requirements. 

Proposed FINRA Rule 4523(b) 

requires that each carrying or clearing 

member must maintain a record of the 

name of each individual assigned 

primary and supervisory responsibility 

for each account as required by 

paragraph (a) of the rule. 

Proposed FINRA Rule 4523(c) 

provides that each member must record, 

in an account that must be clearly 

identifiable as a suspense account, 

money charges or credits and receipts or 

deliveries of securities whose ultimate 

disposition is pending determination. 

(E) Implementation Date 

FINRA will announce the 

implementation date of these proposed 

rule changes in a Regulatory Notice to 

be published no later than 90 days 

following Commission approval. The 

implementation date will be no later 

than 120 days following publication of 

the Regulatory Notice announcing 

Commission approval. 

III. Summary of Comment Letter and 

FINRA’s Response 

The proposed rule change was 

published for comment in the Federal 

Register on November 24, 2010, and the 

comment period closed on December 

22, 2010. The Commission received one 

comment letter in response to the 

proposing release, the Arnold & Porter 

letter.26 Arnold & Porter expressed 

concerns about the scope of proposed 

FINRA Rule 4311. Specifically, the 

commenter suggested that proposed 

FINRA Rule 4311 was not clear as to 

whether a FINRA member firm that 


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27See also Notice, note 6, at FR 74760 (stating, 

‘‘[f]or purposes of the new consolidated financial 

responsibility rules and the proposed rules, FINRA 

has specified in the rule text where appropriate that 

all requirements that apply to a member that clears 

or carries customer accounts also apply to any 

member that, operating pursuant to the exemptive 

provisions of SEA Rule 15c3–3(k)(2)(i), either clears 

customer transactions pursuant to such exemptive 

provisions or holds customer funds in a bank 

account established thereunder.’’). 

28See Response to Comments. 

29 Id. 

30 In approving this proposed rule change, the 

Commission notes that it has considered the 

proposed rule’s impact on efficiency, competition, 

and capital formation. 15 U.S.C. 78c(f). 

31 15 U.S.C. 78o–3(b)(6). 

32 15 U.S.C. 78s(b)(2). 

operates pursuant to the exemptive 

provision of Exchange Act Rule 15c3– 

3(k)(2)(i) is engaged in carrying activity 

and, thereby, subject to the rule. In 

FINRA’s response, it noted that FINRA 

had specified in the rule text where 

appropriate those requirements of the 

proposed rule which are intended to 

apply to firms that operate pursuant to 

the exemptive provisions of Exchange 

Act Rule 15c3–3(k)(2)(i).27

The Arnold & Porter letter also raised 

concerns as to whether proposed FINRA 

Rule 4311 impacts the status of DVP/ 

RVP clearance and settlement 

arrangements across international 

borders that may be structured as 

omnibus accounts where U.S.-registered 

broker-dealers seek to designate these 

accounts at a foreign affiliate as 

approved foreign control locations 

under Exchange Act Rule 15c3–3. As 

FINRA stated in its response, the 

proposed rule applies to arrangements 

to carry customer accounts and is ‘‘not 

meant to address the substantive 

requirements of SEA Rule 15c3–3(c) as 

it applies to good control locations nor 

to apply to cross-border clearance and 

settlement arrangements that are 

structured on a basis that is permissible 

under and consistent with SEC rules.’’ 28

Finally, FINRA noted that the 

propriety of structuring cross-border 

clearance and settlement arrangements 

in the manner described by the 

commenter, and the propriety of a U.S.- 

registered broker-dealer’s reliance on 

Exchange Act Rule 15c3–3(k)(2)(i) for 

various business activities, were outside 

the scope of the proposed rule change.29

IV. Discussion and Commission 

Findings 

The Commission has carefully 

considered the proposed rule change, as 

modified by Amendment No. 1, the 

comment letter received, and FINRA’s 

response, and finds that the proposed 

rule change is consistent with the 

requirements of the Exchange Act and 

the rules and regulations thereunder 

that are applicable to a national 

securities association.30 In particular, 

the Commission finds that the proposal 

is consistent with Section 15A(b)(6) of 

the Exchange Act,31 which requires, 

among other things, that the rules of a 

national securities association be 

designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and, in general, protect 

investors and the public interest. 

The Commission believes that FINRA 

adequately addressed the concerns 

raised by the commenter in its response. 

Further, the rule language in 

Amendment No. 1 reminds FINRA 

members that, for purposes of 

paragraphs (c)(1)(F) and (c)(2) of Rule 

4311, the receipt and delivery of 

customers’ funds and securities and the 

safeguarding of such funds and 

securities must comply with the 

requirements of the SEC’s financial 

responsibility rules, in particular 

Exchange Act Rule 15c3–3 and 

applicable SEC guidance. The 

Commission believes the proposed rule 

change, as modified by Amendment No. 

1, will further the purposes of the 

Exchange Act by, among other things, 

clarifying and streamlining the 

requirements surrounding carrying 

agreements, as well as the rules 

governing guarantees, security counts, 

and supervision of general ledger 

accounts. 

V. Accelerated Approval 

The Commission finds good cause, 

pursuant to Section 19(b)(2) of the 

Exchange Act,32 for approving the 

proposed rule change, as modified by 

Amendment No. 1 thereto, prior to the 

30th day after publication of 

Amendment No. 1 in the Federal 

Register. The changes proposed in 

Amendment No. 1 add clarity to Rule 

4311 and do not raise novel regulatory 

concerns. In particular, Amendment No. 

1 further reminds FINRA members that, 

for purposes of paragraphs (c)(1)(F) and 

(c)(2) of Rule 4311, receipt and delivery 

of customers’ funds and securities and 

the safeguarding of such funds and 

securities must comply with the 

requirements of the SEC’s financial 

responsibility rules, in particular 

Exchange Act Rule 15c3–3 and 

applicable SEC guidance. 

Accordingly, the Commission finds 

that good cause exists to approve the 

proposal, as modified by Amendment 

No. 1, on an accelerated basis. 

VI. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether Amendment No. 1 to 

the proposed rule change is consistent 

with the Exchange Act. Comments may 

be submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–FINRA–2010–061 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. All submissions should 

refer to File Number SR–FINRA–2010– 

061. This file number should be 

included on the subject line if e-mail is 

used. To help the Commission process 

and review your comments more 

efficiently, please use only one method. 

The Commission will post all comments 

on the Commission’s Internet Web site 

(http://www.sec.gov/rules/sro.shtml). 

Copies of the submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street, NE., 

Washington, DC 20549, on official 

business days between the hours of 

10 a.m. and 3 p.m. Copies of such filing 

also will be available for inspection and 

copying at the principal office of 

FINRA. All comments received will be 

posted without change; the Commission 

does not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–FINRA–2010–061 and 

should be submitted on or before March 

28, 2011. 


srobinson on DSKHWCL6B1PROD with NOTICES
12384 Federal Register / Vol. 76, No. 44 / Monday, March 7, 2011 / Notices 

33 15 U.S.C. 78(b)(2). 34 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3A ‘‘Customer’’ is any entity that receives the BBO 

Data Feed directly from MDX’s system and then 

distributes it either internally or externally to 

Subscribers. A ‘‘Subscriber’’ is a person (other than 

an employee of a Customer) that receives the BBO 

Data Feed from a Customer for its own internal use. 

4The Exchange notes that MDX makes available 

to Customers the BBO data and last sale data that 

is included in the BBO Data Feed no earlier than 

the time at which the Exchange sends that data to 

the processors under the CQ, CTA and Nasdaq/UTP 

Plans. The Exchange also notes that it also makes 

the BBO data and last sale data that is included in 

the BBO Data Feed available directly to CBSX 

Trading Permit Holders, and permits them to 

redistribute the data to their customers. 

5 15 U.S.C. 78f(b). 

6 15 U.S.C. 78f(b)(4). 

7 15 U.S.C. 78f(b)(5). 

VII. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act,33

that the proposed rule change (SR– 

FINRA–2010–061), as modified by 

Amendment No. 1, be, and hereby is, 

approved on an accelerated basis. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.34

Cathy H. Ahn, 

Deputy Secretary. 

[FR Doc. 2011–5024 Filed 3–4–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63998; File No. SR–CBOE– 

2011–018] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Codify a Fee Schedule 

for the Sale by Market Data Express, 

LLC, of a BBO Data Feed for Securities 

Traded on CBSX 

March 1, 2011. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that on February 

17, 2011, Chicago Board Options 

Exchange, Incorporated (‘‘CBOE’’ or the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of the Substance 

of the Proposed Rule Change 

This proposal submitted by Chicago 

Board Options Exchange, Incorporated 

(‘‘CBOE’’ or ‘‘Exchange’’) is to codify a fee 

schedule for the sale by Market Data 

Express, LLC (‘‘MDX’’), an affiliate of 

CBOE, of a data product that includes 

CBOE Stock Exchange (‘‘CBSX’’) best bid 

and offer and trade data and certain 

related market data. The text of the 

proposed rule change is available on the 

Exchange’s Web site (http:// 

www.cboe.org/legal), at the Exchange’s 

Office of the Secretary and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

CBOE included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. CBOE has prepared 

summaries, set forth in sections (A), (B), 

and (C) below, of the most significant 

aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of the proposed rule 

change is to establish fees that MDX will 

charge for the sale of certain market data 

with respect to the trading of securities 

on CBSX. CBSX is CBOE’s stock trading 

facility. 

CBOE currently collects and processes 

market data with respect to quotes and 

orders and the prices of trades for all 

securities that are traded on CBSX. This 

market data includes the ‘‘best bid and 

offer,’’ or ‘‘BBO’’, consisting of all 

outstanding quotes and standing orders 

at the best available price level on each 

side of the market, with aggregate size 

(‘‘BBO data,’’ sometimes referred to as 

‘‘top of book data’’). Data with respect to 

executed trades is referred to as ‘‘last 

sale’’ data. CBOE reports CBSX BBO 

data under the Consolidated Quotation 

Plan (‘‘CQ Plan’’) and CBSX last sale data 

under the Consolidated Tape 

Association Plan (‘‘CTA Plan’’) with 

respect to NYSE-listed securities and 

securities listed on exchanges other than 

NYSE and Nasdaq for inclusion in those 

Plans’ consolidated data streams. CBOE 

reports CBSX BBO data and CBSX last 

sale data under the Nasdaq Unlisted 

Trading Privileges Plan (‘‘Nasdaq/UTP 

Plan’’) with respect to Nasdaq-listed 

securities for inclusion in that Plan’s 

consolidated data stream. 

MDX provides to ‘‘Customers’’ 3 a realtime, low latency data feed that includes 

the CBSX BBO data and last sale data. 

(This data feed is sometimes referred to 

in this filing as the ‘‘BBO Data Feed’’). 

The BBO and last sale data contained in 

the BBO Data Feed is identical to the 

data that CBOE sends to the processors 

under the CQ, CTA and Nasdaq/UTP 

Plans.4 In addition, the BBO Data Feed 

includes certain data that is not 

included in the data sent to the 

processors under the CQ, CTA and 

Nasdaq/UTP Plans, namely, totals of 

customer versus non-customer shares at 

the BBO and All-or-None contingency 

orders priced better than or equal to the 

BBO. The purpose of this proposed rule 

change is to establish the fees MDX will 

charge for the sale of the BBO Data 

Feed. 

MDX would charge Customers a 

‘‘direct connect fee’’ of $500 per 

connection per month. MDX would also 

charge Customers a ‘‘per user fee’’ of $25 

per month per ‘‘Authorized User’’ or 

‘‘Device’’ for receipt of the BBO Data 

Feed by Subscribers. An ‘‘Authorized 

User’’ is defined as an individual user 

(an individual human being) who is 

uniquely identified (by user ID and 

confidential password or other 

unambiguous method reasonably 

acceptable to MDX) and authorized by 

a Customer to access the BBO Data Feed 

supplied by the Customer. A ‘‘Device’’ is 

defined as any computer, workstation or 

other item of equipment, fixed or 

portable, that receives, accesses and/or 

displays data in visual, audible or other 

form. Either a CBSX Trading Permit 

Holder or a non-CBSX Trading Permit 

Holder may be a Customer. All 

Customers would be assessed the same 

fees. 

The proposed fees would be 

implemented on March 1, 2011. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

the requirements of Section 6(b) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 5 in general, and, in particular, 

with Section 6(b)(4) of the Act 6 in that 

it provides for the equitable allocation 

of reasonable dues, fees and other 

charges among CBSX Trading Permit 

Holders and other persons using its 

facilities, and with Section 6(b)(5) 7 of 

the Act in that there will be no unfair 

discrimination between customers, 

issuers, brokers, or dealers in the 

distribution of the data. In addition, the 

Exchange believes that the proposed 


srobinson on DSKHWCL6B1PROD with NOTICES