69508 Federal Register / Vol. 75, No. 218 / Friday, November 12, 2010 / Notices 

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

5 15 U.S.C. 78f(b)(4). 

6 15 U.S.C. 78s(b)(3)(A)(ii). 

7 17 CFR 240.19b–4. 8 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 62621 

(July 30, 2010), 75 FR 47863 (August 9, 2010) 

(‘‘Notice’’). 

4See letter from Brendan Daly, Legal and 

Compliance Counsel, Commonwealth Financial 

Network, to Elizabeth M. Murphy, Secretary, 

Commission, dated August 27, 2010 

(‘‘Commonwealth Letter’’); letter from Kristin Bulls, 

Products and Broker-Dealer Compliance Director, 

State Farm VP Management Corp., to Elizabeth M. 

Murphy, Secretary, Commission, dated August 30, 

2010 (‘‘State Farm Letter’’); letter from Joan 

Hinchman, Executive Director, President and CEO, 

National Society of Compliance Professionals, to 

Elizabeth M. Murphy, Secretary, Commission, dated 

August 30, 2010 (‘‘NSCP Letter’’); letter from Clifford 

E. Kirsch and Susan S. Krawczyk, Sutherland Asbill 

& Brennan LLP, on behalf of the Committee of 

Annuity Insurers, to Elizabeth M. Murphy, 

Secretary, Commission, dated August 30, 2010 

(‘‘CAI Letter’’); letter from Michael Lesutis, Assistant 

General Counsel, PFS Investments, Inc., to 

Elizabeth M. Murphy, Secretary, Commission, dated 

September 1, 2010 (‘‘PFS Letter’’); letter from James 

T. McHale, Managing Director and Associate 

General Counsel, Securities Industry and Financial 

Markets Association, to Elizabeth M. Murphy, 

Secretary, Commission, dated September 1, 2010 

(‘‘SIFMA Letter’’); letter from Dale E. Brown, 

President and CEO, Financial Services Institute, to 

Elizabeth M. Murphy, Secretary, Commission, dated 

September 15, 2010 (‘‘FSI Letter’’). 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

the provisions of Section 6(b) of the 

Act,4 in general, and Section 6(b)(4) of 

the Act,5 in particular, in that it is 

designed to provide for the equitable 

allocation of reasonable dues, fees and 

other charges among its members and 

other persons using the facilities of the 

Exchange. Moreover, the proposed rule 

change is not discriminatory in that all 

qualified ETP Holders are eligible to 

submit (or not submit) trades and quotes 

at any price in AutoEx and Order 

Delivery in all tapes, as either displayed 

or undisplayed and as liquidity adding 

or liquidity taking, and may do so at 

their discretion. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any inappropriate burden on 

competition. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

The Exchange has neither solicited 

nor received written comments on the 

proposed rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The proposed rule change has taken 

effect upon filing pursuant to Section 

19(b)(3)(A)(ii) of the Act 6 and 

subparagraph (f)(2) of Rule 19b–4 7

thereunder, because, as provided in 

(f)(2), it changes ‘‘a due, fee or other 

charge applicable only to a member’’ 

(known on the Exchange as an ETP 

Holder). At any time within sixty (60) 

days of the filing of such proposed rule 

change, the Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the 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–NSX–2010–14 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–NSX–2010–14. 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 NSX. 

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–NSX–2010–14 and should 

be submitted on or before December 3, 

2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.8

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–28453 Filed 11–10–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63260; File No. SR–FINRA– 

2010–034] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filings of 

Amendments No. 1 and 2 and Order 

Granting Accelerated Approval of a 

Proposed Rule Change, as Amended, 

To Adopt FINRA Rule 4530 (Reporting 

Requirements) in the Consolidated 

FINRA Rulebook 

November 5, 2010. 

I. Introduction 

On July 30, 2010, the Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) (f/k/a National Association of 

Securities Dealers, Inc. (‘‘NASD’’)) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

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

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

19b–4 thereunder,2 a proposal to (i) 

adopt NASD Rule 3070 (Reporting 

Requirements) as FINRA Rule 4530 in 

the Consolidated FINRA Rulebook, with 

certain amendments and the addition of 

a supplementary material section, and 

(ii) delete paragraphs (a) through (d) of 

Incorporated NYSE Rule 351 and 

Incorporated NYSE Rules 351.10 and 

351.13. The proposal was published for 

comment in the Federal Register on 

August 9, 2010.3 The Commission 

received seven comments on the 

proposal.4 On October 18, 2010, FINRA 

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5See Amendment No. 1, dated October 18, 2010 

(‘‘Amendment No. 1’’). The text of Amendment No. 

1 is available on FINRA’s Web site at http:// 

www.finra.org, at the principal office of FINRA, and 

on the Commission’s Web site, http://www.sec.gov/ 

rules/sro.shtml. In Amendment No. 1, FINRA 

responded to the comment letters received 

regarding the Notice and revised the proposed rule 

change. Among other things, FINRA proposes to 

amend (i) proposed FINRA Rule 4530(a)(1)(G) to 

require the reporting of any claims for damages by 

a customer, broker or dealer that relates to the 

provision of financial services or relates to a 

financial transaction; (ii) proposed Supplementary 

Material .01 to provide clarity on what internal 

conclusions of violative conduct a member must 

report pursuant to proposed FINRA Rule 4530(b); 

(iii) proposed Supplementary Material .07 to clarify 

the circumstances under which a firm would not be 

required to report information relating to a former 

associated person; (iv) proposed Supplementary 

Material .08 to clarify a member’s reporting 

obligations regarding customer complaints pursuant 

to proposed FINRA Rules 4530(a)(1)(B) and 4530(d); 

and (v) proposed Supplementary Material .09 to 

provide a definition for the term ‘‘financial-related.’’ 

6See Amendment No. 2 dated October 22, 2010 

(‘‘Amendment No. 2’’). The text of Amendment No. 

2 is available on FINRA’s Web site at http:// 

www.finra.org, at the principal office of FINRA, and 

on the Commission’s Web site, http://www.sec.gov/ 

rules/sro.shtml. In Amendment No. 2, FINRA 

proposes to further amend proposed Supplementary 

Material .07 to clarify the circumstances under 

which a firm would not be required to report 

information relating to a former associated person. 

7See Notice, supra note 3, 75 FR at 47863. 

8See Incorporated NYSE Rule 351(b); NYSE 

Information Memo 90–17, ‘‘Timely and Complete 

Filings and Responses to Enforcement Inquiries’’ 

(April 30, 1990) (defining ‘‘prompt’’ filing as 

occurring within 30 days of the reportable event). 

9See Article IV, Section 1 of FINRA’s By-Laws. 

10See Article V, Section 2 of FINRA’s By-Laws. 

11See Article V, Section 3 of FINRA’s By-Laws. 

12FINRA members would still be required to 

report findings of violations of an SRO’s just and 

equitable principles of trade rule, such as FINRA 

Rule 2010. See Notice, supra note 3, 75 FR at 47864. 

13See proposed FINRA Rule 4530(a)(1)(G), as 

modified by Amendment No. 1. 

14See proposed FINRA Rule 4530.06. 

15See proposed FINRA Rule 4530.09, as modified 

by Amendment No. 1. 

responded to the comments and filed 

Amendment No. 1 to the proposed rule 

change.5 On October 22, 2010, FINRA 

filed Amendment No. 2 to the proposed 

rule change.6 The Commission is 

publishing this notice and order to 

solicit comments on Amendments No. 1 

and 2 and to approve the proposed rule 

change, as amended, on an accelerated 

basis. 

II. Description of the Proposal, as 

Modified by Amendments No. 1 and 2 

As part of the process of developing 

a new consolidated rulebook 

(‘‘Consolidated FINRA Rulebook’’), 

FINRA proposes to (i) adopt NASD Rule 

3070 (Reporting Requirements) as 

FINRA Rule 4530 in the Consolidated 

FINRA Rulebook, subject to certain 

amendments described below and the 

addition of a supplementary material 

section as detailed below and (ii) delete 

paragraphs (a) through (d) of 

Incorporated NYSE Rule 351 and 

Incorporated NYSE Rules 351.10 and 

351.13 from the Transitional Rulebook. 

NASD Rule 3070 and Incorporated 

NYSE Rule 351 require members to 

report to FINRA certain specified events 

(e.g., regulatory actions, certain 

customer settlements, securities-related 

law suits or arbitrations, etc.), to file 

with FINRA documents related to such 

events, and to report to FINRA quarterly 

statistical and summary information 

regarding written customer complaints. 

FINRA uses the reported information for 

regulatory purposes; the information, 

among other things, assists FINRA in 

identifying and investigating firms, 

offices and associated persons that may 

pose a regulatory risk.7

Because proposed FINRA Rule 4530 is 

based upon NASD Rule 3070, the 

following description sets forth a 

summary of the ways in which 

proposed FINRA Rule 4530 differs from 

NASD Rule 3070. 

A. Reporting Deadline (Proposed FINRA 

Rules 4530(a) and 4530.03) 

The substantive changes to proposed 

FINRA Rule 4530(a) clarify that a firm 

must report to FINRA after the firm 

‘‘knows or should have known’’ of the 

existence of any of the events specified 

in paragraph (a) of the proposed rule 

and extends the time period for 

reporting the events from 10 business 

days (as provided under NASD Rule 

3070(b)) to no later than 30 calendar 

days after the firm knows or should 

have known of the event. FINRA states 

that the proposed 30-calendar-day 

reporting deadline is consistent with 

Incorporated NYSE Rule 351 8 and the 

reporting deadlines for disclosing 

information on forms BD (Uniform 

Application for Broker-Dealer 

Registration),9 U4 (Uniform Application 

for Securities Industry Registration or 

Transfer) 10 and U5 (Uniform 

Termination Notice for Securities 

Industry Registration) 11 (collectively 

referred to as the ‘‘Uniform Forms’’). 

B. External Findings (Proposed FINRA 

Rule 4530(a)(1)(A)) 

NASD Rule 3070(a)(1) requires a firm 

to report findings of violations of ‘‘any 

provision of any securities laws, or 

regulation, any rule or standards of 

conduct of any governmental agency, 

self-regulatory organization, or financial 

business or professional organization.’’ 

Proposed FINRA Rule 4530(a)(1)(A) 

would instead require a firm to report 

findings of violations of any ‘‘securities-, 

insurance-, commodities-, financial- or 

investment-related laws, rules, 

regulations or standards of conduct of 

any domestic or foreign regulatory body, 

self-regulatory organization or business 

or professional organization’’ and 

eliminates the requirement for firms to 

report findings that a member or 

associated person has engaged in 

conduct inconsistent with just and 

equitable principles of trade.12 Proposed 

Supplementary Material .03 clarifies the 

meaning of the term ‘‘found’’ for the 

purpose of determining when a firm or 

associated person has been ‘‘found to 

have’’ engaged in violative conduct. 

C. Civil Litigation or Arbitration; Claims 

for Damages (Proposed FINRA Rules 

4530(a)(1)(G), 4530.06 and 4530.09) 

As proposed, FINRA Rule 

4530(a)(1)(G) extends the reporting 

requirement relating to securities- and 

commodities-related civil suits and 

arbitrations and claims for damages by 

customers and broker-dealers disposed 

of by judgment, award or settlement (in 

an amount exceeding certain monetary 

thresholds) to include ‘‘any financialrelated insurance civil litigation or 

arbitration’’ but limits the requirement 

to report claims for damages by 

customers, brokers or dealers to those 

claims for damages that relate to the 

provision of financial services or a 

financial transaction.13 Proposed 

Supplemental Material .06 clarifies that 

for purposes of determining whether a 

civil suit, arbitration or claim for 

damages exceeds the monetary 

threshold and must be reported 

pursuant to proposed FINRA Rule 

4530(a)(1)(G), (1) members must take 

into account awards of attorneys fees 

and interest, and (2) if parties are 

subject to ‘‘joint and several’’ liability, 

each party is considered separately 

liable for the aggregate amount.14

Proposed Supplemental Material .09 

defines the term ‘‘financial related’’ to 

mean ‘‘related to the provision of 

financial services.’’ 15

D. Statutory Disqualifications (Proposed 

FINRA Rule 4530(a)(1)(H)) 

Proposed FINRA Rule 4530(a)(1)(H) 

modifies the reporting requirement in 

NASD Rule 3070(a)(9) relating to 

statutory disqualifications to clarify that 

a member must report to FINRA 

whenever the member itself is subject to 

a ‘‘statutory disqualification,’’ or 

whenever an associated person of the 

firm is subject to a ‘‘statutory 

disqualification.’’ While NASD Rule 

3070(a)(9) requires a member to report 

to FINRA if the member or an associated 

person of the member ‘‘is associated in 

any business or financial activity’’ with 

a person subject to a ‘‘statutory 

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16FINRA notes that this provision is consistent 

with Incorporated NYSE Rule 351(a)(9). See Notice, 

supra note 3, 75 FR at 47864. 

17FINRA notes that this proposed rule is 

generally based on Incorporated NYSE Rule 

351(a)(1), which requires a firm to report whenever 

it or its associated persons have violated any 

provision of any securities law or regulation, any 

agreement with or rule or standard of conduct of 

any governmental agency, self-regulatory 

organization (‘‘SRO’’), or business or professional 

organization, or engaged in conduct that is 

inconsistent with just and equitable principles of 

trade or detrimental to the interests or welfare of the 

NYSE. See Notice, supra note 3, 75 FR at 47864. 

18See proposed FINRA Rule 4530.01, as modified 

by Amendment No. 1. 

19 Id. 

20See proposed FINRA Rule 4530.02. 

21Proposed FINRA Rule 4530(e) provides that a 

firm is not required to report an event otherwise 

required to be reported under proposed FINRA 

Rules 4530(a) or (b) if the firm discloses the event 

on a Form U5, consistent with the requirements of 

that form. 

22See Notice, supra note 3, 75 FR at 47865. 

23See proposed FINRA Rule 4530.05. 

24See proposed FINRA Rule 4530.07. 

25Proposed FINRA Rule 4530(a)(1)(B) is identical 

to NASD Rule 3070(a)(2) and requires a member to 

report to FINRA if the member or an associated 

person of the member is the subject of any written 

customer complaint involving allegations of theft or 

misappropriation of funds or securities or of 

forgery. 

disqualification,’’ proposed FINRA Rule 

4530(a)(1)(H) instead requires a member 

to report to FINRA whenever the 

member or an associated person of the 

member ‘‘is involved in the sale of any 

financial instrument, the provision of 

any investment advice or the financing 

of any such activities’’ with a person 

subject to a ‘‘statutory 

disqualification.’’ 16

E. Internal Disciplinary Actions Against 

Associated Persons (Proposed FINRA 

Rule 4530(a)(2)) 

Similar to NASD Rule 3070(a)(10), 

proposed FINRA Rule 4530(a)(2) 

requires a firm to report certain 

disciplinary actions taken by the firm 

against its associated persons. Proposed 

FINRA Rule 4530(a)(2) states that 

disciplinary actions involving the 

withholding of compensation or of any 

other remuneration in excess of $2,500 

are reportable events (as opposed to just 

the withholding of commissions, as 

provided by NASD Rule 3070(a)(10)). 

F. Internal Conclusions (Proposed 

FINRA Rules 4530(b), 4530.01 and 

4530.02) 

Proposed FINRA Rule 4530(b) 

requires firms to report internal 

conclusions of certain enumerated 

violative conduct.17 Specifically, a firm 

would be required to report to FINRA 

no later than 30 calendar days after the 

firm has concluded, or reasonably 

should have concluded, that an 

associated person of the firm or the firm 

itself has violated any securities-, 

insurance-, commodities-, financial- or 

investment-related laws, rules, 

regulations or standards of conduct of 

any domestic or foreign regulatory body 

or SRO. 

Pursuant to proposed Supplementary 

Material .01, if a firm disciplines an 

associated person in the manner 

described in proposed FINRA Rule 

4530(a)(2), the firm would be required 

to report the event under proposed 

FINRA Rule 4530(a)(2).18 In addition, 

proposed Supplementary Material .01 

clarifies that FINRA only expects a 

member to report internal conclusions 

pursuant to proposed FINRA Rule 

4530(b) relating to violative conduct 

that has widespread or potentially 

widespread effect on the member, its 

customers or markets, or, in the case of 

violative conduct of the member, that 

arises from a material failure of the 

member’s systems, policies or practices 

involving numerous customers, 

multiple errors or significant dollar 

amounts, or, in the case of violative 

conduct by an associated person, has a 

significant monetary result with respect 

to a member(s), customer(s) or market(s) 

or where there are multiple instances of 

any violative conduct.19

In addition, proposed Supplementary 

Material .02 states that proposed FINRA 

Rule 4530(b) only requires reporting 

where a member has concluded or 

reasonably should have concluded on 

its own that violative conduct has 

occurred, as opposed to where there has 

been a finding of violative conduct by 

an external body, such as a court, 

domestic or foreign regulatory body, 

SRO or business or professional 

organization (which would be 

reportable pursuant to proposed FINRA 

Rule 4530(a)(1)(A)).20

G. Reporting Obligation (Proposed 

FINRA Rule 4530(e)) 

Similar to NASD Rule 3070(d), 

proposed FINRA Rule 4530(e) provides 

that proposed FINRA Rule 4530 does 

not relieve a firm or an associated 

person from other obligations, such as 

the requirement to disclose information 

on the Uniform Forms, as applicable. In 

addition, proposed FINRA Rule 4530(e) 

clarifies that a firm must comply with 

the reporting obligations under 

proposed FINRA Rules 4530(a) and (b) 

and must report quarterly statistical and 

summary information regarding written 

customer complaints pursuant to 

proposed FINRA Rule 4530(d), 

regardless of whether such information 

is reported or disclosed pursuant to any 

other rule or requirement, including the 

requirements of the Forms BD or U4.21

H. Elimination of the Exemption for 

Dual Members Subject to Another SRO’s 

Rule 

Proposed FINRA Rule 4530 does not 

include the exemption set forth in 

NASD Rule 3070(e) for firms subject to 

substantially similar reporting 

requirements of another SRO because 

this provision was intended to exempt 

Dual Members subject to the reporting 

requirements of NASD Rule 3070 and 

the reporting requirements of 

Incorporated NYSE Rule 351.22

I. Filing of Related Documents With 

FINRA (Proposed FINRA Rule 4530(f)) 

Consistent with NASD Rule 3070(f), 

proposed FINRA Rule 4530(f) requires a 

firm to file copies of certain criminal 

and civil complaints and arbitration 

claims with FINRA. However, proposed 

FINRA Rule 4530(f) expands the filing 

requirement to include (1) copies of any 

complaint in which a member is named 

as a defendant or respondent in any 

‘‘financial-related insurance private civil 

litigation’’ and (2) any ‘‘financial-related 

insurance arbitration claim’’ filed 

against a member in any forum other 

than the FINRA Dispute Resolution 

forum. 

J. Additional Supplementary Material 

(Proposed FINRA Rules 4530.05, .07 

and .08) 

In addition to the supplementary 

material discussed above, FINRA also 

proposes as supplementary material the 

following clarifications: (1) For 

purposes of proposed FINRA Rules 

4530(a) and (b), firms should not report 

a single event under more than one 

paragraph or subparagraph; however, 

members may be required to report 

related events under more than one 

paragraph or subparagraph; 23 (2) for 

purposes of proposed FINRA Rules 

4530(a), (b) and (d), firms should report 

an event relating to a former associated 

person if the event occurred while the 

individual was associated with the 

member; however, a member is not 

required to report such an event where, 

based on its records or information 

available through Web CRD, the member 

cannot determine that the person was an 

associated person of the member; 24 and 

(3) any written customer complaint 

reported under proposed FINRA Rule 

4530(a)(1)(B) must also be reported 

pursuant to proposed FINRA Rule 

4350(d); 25 however, for the purpose of 

reporting under proposed FINRA Rule 

4350(d), a member must report (1) any 

written grievance involving the member 

or its associated person by a person, 

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26See proposed FINRA Rule 4530.08. 

27See Notice, supra note 3, 75 FR at 47866. 

28See supra, note 4. 

29See State Farm Letter. 

30 Id. 

31See Amendment No. 1 at 7. 

32 Id. FINRA points to NASD Rule 3070(a)(3) and 

NYSE Rule 351(a)(3) (requiring reporting where a 

firm or an associated person is named as a 

defendant or respondent in any proceeding brought 

by a regulatory or self-regulatory body alleging the 

violation of any insurance laws, rules or 

regulations), NASD Rule 3070(a)(4) and NYSE Rule 

351(a)(4) (requiring reporting where a firm or an 

associated person is disciplined by any insurance 

regulatory or self-regulatory body, is denied 

membership or continued membership in any such 

self-regulatory body, or is barred from becoming 

associated with any member of any such selfregulatory body), and NASD Rule 3070(a)(6) and 

NYSE Rule 351(a)(6) (requiring reporting where a 

firm or an associated person is a director, 

controlling stockholder, partner, officer, sole 

proprietor, or an associated person of an insurance 

company that was suspended, expelled or had its 

registration denied or revoked). 

33 Id. 

34See NSCP Letter. 

35See Amendment No. 1 at 7–8. 

36See CAI Letter, NSCP Letter and State Farm 

Letter. 

37See proposed FINRA Rule 4530.09. 

38See CAI Letter and NSCP Letter. 

39See Amendment No. 1 at 8. 

40 Id. 

41See Notice, supra note 3, 75 FR at 47864. 

42See NSCP Letter and State Farm Letter. 

43See proposed FINRA Rule 4350(a)(1)(G), as 

modified by Amendment No. 1. 

44See proposed FINRA Rule 4350(b). 

45See Notice, supra note 3, 75 FR at 47865. 

46See CAI Letter, Commonwealth Letter and 

NSCP Letter. 

47See CAI Letter and State Farm Letter. 

48See Amendment No. 1 at 10. 

49See CAI Letter, Commonwealth Letter, FSI 

Letter, NSCP Letter, PFS Letter, SIFMA Letter and 

FSI Letter. 

other than a broker or dealer, with 

whom the member has engaged in 

securities activities and (2) any 

securities-related written grievance 

involving the member or its associated 

person and any written complaint 

reportable under proposed Rule 

4530(a)(1)(B) by a person other than a 

broker or dealer, with whom the 

member has sought to engage in 

securities activities.26

K. Deletion of Certain Incorporated 

NYSE Provisions 

FINRA proposes to delete paragraphs 

(a) through (d) of Incorporated NYSE 

Rule 351 and NYSE Rules 351.10 and 

351.13 because these provisions are 

substantially similar to, otherwise 

incorporated in, or rendered obsolete by 

proposed FINRA Rule 4530, or 

addressed by other rules.27

III. Summary of Comments and 

FINRA’s Response 

The Commission received seven 

comment letters to the proposed rule 

change.28 FINRA responded to the 

comments and modified the proposed 

rule change in Amendments No. 1 

and 2. 

A. Reporting of Insurance-Related 

External Findings Under Proposed 

FINRA Rule 4530(a)(1)(A) 

FINRA Rule 4350(a)(1)(A) requires 

members to report, among other things, 

external findings of violations of 

insurance-related laws, rules, or 

regulations. One commenter believes 

that the requirement to report 

insurance-related external findings is 

unwarranted, burdensome, and outside 

the scope of FINRA’s authority.29 The 

commenter argues that reportable 

external findings should be limited to 

those that derive from a transaction with 

a customer.30 FINRA responds that 

current NASD Rule 3070(a)(1) requires a 

member to report external findings 

relating to violations of any rule or 

standard of conduct of any 

governmental agency, SRO, or financial 

business or professional organization.31

Therefore, members are currently 

required to report external findings 

related to insurance matters and the 

proposed rule simply continues this 

requirement and is consistent with other 

provisions of FINRA’s rules.32 Finally, 

FINRA states that this information is 

relevant because it assists FINRA in 

identifying members and associated 

persons that may pose a regulatory 

risk.33

In response to a comment that FINRA 

should provide additional guidance 

regarding what members should identify 

and report pursuant to proposed FINRA 

Rule 4530(a)(1)(A),34 FINRA notes that 

proposed Supplementary Material .02, 

which states that FINRA Rule 

4530(a)(1)(A) is limited to situations 

where there has been a finding of 

violative conduct by an external body, 

such as a court, domestic or foreign 

regulatory body, SRO or business or 

professional organization.35

B. Civil Litigation or Arbitration and 

Other Claims for Damages Under 

Proposed FINRA Rule 4350(a)(1)(G) 

Proposed Rule 4530(a)(1)(G) requires 

that members report any ‘‘insurance’’ 

civil litigation or arbitration that is 

‘‘financial-related.’’ Three commenters 

opined that the term ‘‘financial-related’’ 

is ambiguous and needs greater 

clarification.36 In response, FINRA 

amended its proposal to add 

Supplementary Material .09, which 

defines the term ‘‘financial-related’’ to 

mean ‘‘related to the provision of 

financial services.’’ 37

Two commenters believe that the 

reporting of insurance-related civil 

litigation and arbitration should be 

limited to insurance products that are 

securities.38 FINRA clarifies that the 

proposed rule would exclude civil 

litigation and arbitration related to 

certain insurance products, such as 

traditional auto and health insurance, 

but would include civil litigation and 

arbitration involving non-securities 

insurance products related to the 

provision of financial services.39 FINRA 

does not believe that the proposed rule 

should be limited to insurance products 

that are securities.40

As initially proposed, proposed Rule 

4530(a)(1)(G) required the reporting of 

claims for damages by customers that 

were ‘‘financial or transactional in 

nature.’’ 41 Two commenters requested 

further clarification to effectively 

identify and report insurance matters 

relevant to FINRA.42 In response to 

these comments, FINRA revised the 

language of proposed Rule 4530(a)(1)(G) 

to require reporting of any claim for 

damages that relates to the provision of 

financial services or relates to a 

financial transaction.43

C. Reporting of Internal Conclusions 

Under Proposed FINRA Rule 4530(b) 

Proposed FINRA Rule 4350(b) 

requires members to report to FINRA 

certain internal conclusions of violative 

conduct.44 As initially proposed, 

Supplementary Material .01 stated that 

FINRA Rule 4530(b) would not require 

a member to report an isolated violation 

by the member or an associated person 

of the member that could be reasonably 

viewed as a ministerial violation that 

did not result in customer harm and was 

remedied promptly upon discovery.45

Four commenters argued that the 

provisions of proposed FINRA Rules 

4530(b) and Supplementary Material .01 

are unduly burdensome, overly broad 

and costly,46 and two requested 

elimination of the reporting 

requirement.47 In response, FINRA 

notes that NYSE Rule 351(a)(1) requires 

firms to report internal conclusions of 

violative conduct and that FINRA’s 

examination programs use this 

information as part of their assessment 

processes and risk-based analyses.48

All commenters believe that the 

requirements of proposed FINRA Rule 

4530(b) and the language in 

Supplementary Material .01 are vague 

and that FINRA should clarify and 

provide examples of what internal 

conclusions are required to be 

reported.49 Some of these commenters 

suggest that FINRA should adopt the 

reporting standard and interpretive 

guidance set forth in NYSE Information 

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50See CAI Letter, Commonwealth Letter, FSI 

Letter and PFS Letter. 51 Id. at 15. 52See proposed FINRA Rule 4350.01, as modified 

by Amendment No. 1. 53See NSCP Letter and State Farm Letter. 54See Amendment No. 1 at 11. 

55See Amendment No. 1 at 11–12. 

56See CAI Letter, Commonwealth Letter, FSI 

Letter, NSCP Letter and SIFMA Letter. 

57See Amendment No. 1 at 13. 

58See Notice, supra note 3, 75 FR at 47867. 

59See Commonwealth Letter, NSCP Letter and 

SIFMA Letter. 

60See Notice, supra note 3, 75 FR at 47867. 

61See CAI Letter, Commonwealth Letter and 

SIFMA Letter. 

62See SIFMA Letter. 

63See CAI Letter and Commonwealth Letter. 

64See Amendment No. 1 at 14–15. 

65See Amendment No. 1 at 15. 

66 Id. 

67See Notice, supra note 3, 75 FR at 47867. 

68See Notice, supra note 3, 75 FR at 47868. 

Proposed Supplementary Material .08 defines 

‘‘customer’’ as any person, other than a broker or 

dealer, with whom a member has engaged, or has 

sought to engage, in securities activities. This 

definition is identical to the definition of 

‘‘customer’’ contained in NASD Rule 3070(c). 

69 Id. 

70See State Farm Letter. 

71See proposed FINRA Rule 4530.08, as modified 

by Amendment No. 1. 

72See CAI Letter, FSI Letter and SIFMA Letter. 

73See Amendment No. 1 at 18. 

74 17 CFR 240.17a–4. 

75See CAI Letter and FSI Letter. 

Memorandum 06–11.50 In response to 

these comments, FINRA noted that it 

continues to believe the standard set 

forth in NYSE Information 

Memorandum 06–11 is too narrow 51

but amended Supplementary Material 

.01 to further clarify what internal 

conclusions of violative conduct FINRA 

expects a member to report.52

Two commenters believe that the term 

‘‘concluded’’ is vague.53 FINRA responds 

that a firm is free to determine the 

persons responsible for concluding that 

a violation has occurred. FINRA stated 

that a firm cannot defend against a 

failure to report such conduct by 

asserting that the conduct was of a 

nature that did not merit consideration 

by a person of seniority.54 In addition, 

FINRA notes that if someone within a 

firm reaches a conclusion of violation, 

but upon review, senior management 

reaches a different conclusion, a firm 

could rely on senior management’s 

determination, provided it is 

reasonable.55

A number of commenters took issue 

with the requirement to report violative 

conduct pursuant to proposed FINRA 

Rule 4350(b) if a member ‘‘reasonably 

should have concluded’’ a violation 

occurred, arguing it will create 

uncertainty, result in inconsistent 

application, and could be used in 

hindsight by FINRA to pursue a firm if 

FINRA concludes after-the-fact that the 

firm should have reported.56 In 

response, FINRA clarifies that if a 

reasonable person would have 

concluded that a violation occurred, 

then the matter is reportable, and if a 

reasonable person would not have 

concluded that a violation occurred, 

then the matter is not reportable; FINRA 

will rely on a firm’s good-faith 

reasonable determination.57

Numerous commenters expressed 

concern that FINRA’s statement that the 

existence of internal audit findings 

creates a strong presumption that a 

matter is reportable 58 could undermine 

the internal audit process at member 

firms.59 Similarly, commenters believe 

FINRA’s statement 60 that matters 

subject to a firm’s internal review 

processes as required under other 

FINRA rules are subject to being 

reported as internal conclusions under 

proposed FINRA Rule 4530(b) could be 

problematic.61 One commenter believes 

this could result in firms diluting their 

internal control findings.62 Two 

commenters point out that this runs 

counter to previous guidance by NASD 

that it would not use the reports and 

review processes contemplated by 

NASD Rules 3012 and 3013 as a 

roadmap for disciplinary action against 

firms.63 FINRA responds that the 

reporting obligation under proposed 

FINRA Rule 4350(b) and the internal 

review processes set forth under other 

rules (e.g., FINRA Rule 3130) are 

mutually exclusive and that, while 

internal review processes may inform a 

member’s determination that a violation 

occurred, they do not by themselves 

lead to the conclusion that a matter is 

reportable under proposed FINRA Rule 

4350(b).64 FINRA notes that it would 

not view a discussion in an internal 

audit report regarding the need for 

enhanced controls in a particular area 

alone as determinative of a reportable 

violation under proposed FINRA Rule 

4350(b).65 FINRA also clarifies that, 

rather than creating a strong 

presumption, an internal audit finding 

would serve only as one factor, among 

others, that a firm should consider in 

determining whether violative conduct 

occurred.66 Furthermore, FINRA has 

stated that it believes that the goals of 

customer protection and market 

integrity necessitate the reporting of 

such conduct to FINRA.67

D. Customer Complaints 

Proposed FINRA Rule 4530(d) 

requires members to submit monthly 

reports to FINRA regarding written 

customer complaints received by the 

member. A member would not be 

required to report written complaints 

relating to non-securities products, if 

such complaints are not from customers 

that the member has engaged, or has 

sought to engage, in securities 

activities.68 If a member has engaged, or 

has sought to engage, in securities 

activities with a person, then any 

written complaint from that person is 

reportable, regardless of whether it 

relates to non-securities products.69 One 

commenter stated that it would be 

difficult to determine with whom a firm 

has ‘‘sought to engage’’ in securities 

activities, and also expressed concern 

regarding the potential number of nonsecurities related complaints it would 

have to report in connection with 

customers it ‘‘sought to engage’’ in 

securities activities.70 In response, 

FINRA notes that the definition of 

‘‘customer’’ under NASD Rule 3070(c) 

includes persons with whom a member 

has ‘‘sought to engage’’ in securities 

activities and, therefore, firms should 

currently have procedures to identify 

whether a person submitting a written 

complaint is someone that the firm has 

sought to engage in securities activities. 

In addition, FINRA amended proposed 

Supplementary Material .08 to clarify 

circumstances under which a member 

would be required to report, pursuant to 

proposed FINRA Rules 4530(d) and 

4530(a)(1)(B), complaints from persons 

with whom the member has engaged in 

securities activities versus persons with 

whom the member has sought to engage 

in securities activities.71

E. Duplicative Reporting 

Three commenters believe that FINRA 

should completely eliminate duplicative 

reporting requirements under proposed 

FINRA Rule 4530(e) and Forms U4, U5 

and BD.72 FINRA responds that it will 

work toward this goal and that proposed 

FINRA Rule 4530(e) will eliminate 

duplicative reporting of information 

disclosed on the Form U5.73

F. Former Associated Persons 

Two commenters argued that the 

requirement to report certain events 

related to former associated persons 

would be unduly burdensome and 

recommend that the requirement be 

amended to conform to the record 

retention requirements of Rule 17a–4 of 

the Act 74 and the reporting period for 

formerly associated persons be capped 

at three years.75 In response, FINRA 

revised proposed Supplementary 

Material .07 to state that a firm is not 

required to report information with 

respect to a former associated person 

where, based on its records or 

information available through Web CRD, 

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Federal Register / Vol. 75, No. 218 / Friday, November 12, 2010 / Notices 69513 

76See proposed FINRA Rule 4530.07, as modified 

by Amendments No. 1 and 2, which applies only 

if a firm has kept its records in accordance with 

Rule 17a–4(e)(1) of the Act. 

77See PFS Letter. 

78See FSI Letter. 

79See Notice, supra note 3, 75 FR at 47867. 

80See CAI Letter and FSI Letter. 

81See supra notes 32–33 and accompanying text. 

82 In approving this proposed rule change, the 

Commission has considered the proposed rule 

change’s impact on efficiency, competition, and 

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

83 15 U.S.C. 78o–3(b)(6). 

84 15 U.S.C. 78s(b)(2). 

the member cannot determine whether 

the person was an associated person.76

G. Other Comments 

One commenter urges the 

Commission to reject the rule and 

require FINRA to provide a detailed 

analysis to support its claim that the 

proposed rule will advance customer 

protection and market integrity without 

placing an undue burden on firms.77

FINRA responds that the proposed rule 

change would enhance FINRA’s ability 

to detect and investigate violative 

conduct. 

One commenter argues that the 

current dollar thresholds in the rule that 

trigger a reporting obligation are too low 

and outdated.78 While FINRA does not 

address this comment in Amendment 

No. 1, FINRA previously responded that 

it believes the current dollar thresholds 

in proposed FINRA Rule 4350 continue 

to be consistent with the purposes of the 

rule, and that the $ 15,000 reporting 

threshold for an associated person is 

consistent with the Forms U4 and U5 

current reporting thresholds.79

Two commenters argue that FINRA 

does not have the jurisdiction to require 

firms to report information required 

under the proposed rule, such as 

matters relating to insurance laws and 

commodities laws.80 As discussed 

above, FINRA notes that the 

requirement to report insurance matters 

is consistent with other provisions of 

the current rules and that this 

information is relevant to FINRA’s 

programs as it assists FINRA in 

identifying members and associated 

persons that may pose a regulatory 

risk.81

IV. Discussion and Commission 

Findings 

After carefully reviewing the 

proposed rule change, the comment 

letters, and FINRA’s response, the 

Commission finds that the proposed 

rule change is consistent with the 

requirements of the Act and the rules 

and regulations thereunder that are 

applicable to a national securities 

association.82 In particular, the 

Commission finds that the proposed 

rule change is consistent with Section 

15A(b)(6) of the Act,83 which requires, 

among other things, that FINRA’s rules 

be designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and, in general, to protect 

investors and the public interest. The 

proposed rule change is consistent with 

FINRA’s statutory obligations under the 

Act to protect investors and the public 

interest because it would enhance 

FINRA’s ability to detect and investigate 

violative conduct and to identify 

members and associated persons of 

member firms that may pose a 

regulatory risk. The proposed rule 

change streamlines the rules governing 

reporting requirements in NASD Rule 

3070 and Incorporated NYSE Rule 351 

while maintaining the disclosure 

requirements in Incorporated NYSE 

Rule 351(a)(1) relating to internal 

conclusions. 

The Commission believes that the 

changes made in Amendments No. 1 

and 2 should provide greater clarity to 

members regarding when a reporting 

requirement arises pursuant to proposed 

FINRA Rule 4350 and the types of 

external findings, internal conclusions 

and customer complaints that must be 

reported. The Commission believes the 

proposed rule further strengthens 

FINRA’s ability to effectively detect 

violative conduct by members and 

associated persons and protect 

investors. Further, as the proposed rule 

change consolidates the NYSE and 

NASD reporting requirement rules into 

one rule in the Consolidated FINRA 

Rulebook, it should simplify reporting 

requirements for broker-dealers and 

their associated persons. 

V. Accelerated Approval 

The Commission finds good cause, 

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

Act,84 for approving the proposed rule 

change, as amended, prior to the 30th 

day after publication of Amendments 

No. 1 and 2 in the Federal Register. The 

changes proposed in Amendments No. 1 

and 2 respond to specific concerns 

raised by commenters and do not raise 

additional issues. The rule change 

should enhance FINRA’s ability to 

oversee the conduct of its members and 

their associated persons, which should 

further investor protection and the 

public interest. Accordingly, the 

Commission finds that good cause exists 

to approve the proposal, as modified by 

Amendments No. 1 and 2, on an 

accelerated basis. 

VI. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether Amendments No. 1 

and 2 to the proposed rule change are 

consistent with the 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–2010–039 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–2010–034. 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 website 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 filings 

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–2010–034 and 

should be submitted on or before 

December 3, 2010. 

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69514 Federal Register / Vol. 75, No. 218 / Friday, November 12, 2010 / Notices 

85 15 U.S.C. 78s(b)(2). 86 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3The text of the proposed rule change is attached 

as Exhibit 5 to DTC’s filing, which is available at 

http://www.dtcc.com/downloads/legal/rule_filings/ 

2010/dtc/2010-14.pdf. 

4The Commission has modified the text of the 

summaries prepared by NSCC. 

5The amendment was the subject of a DTC 

proposed rule change approved by the Commission. 

Securities Exchange Act No. 34–41529 (June 15, 

1999), 64 FR 33333 (June 22, 1999) [File No. SR– 

DTC–1999–08]. The amendment was also approved 

by the New York State Superintendent of Banks. 

6Securities Exchange Release Nos. 34–43197 

(August 23, 2000), 65 FR 52459 (August 29, 2000) 

[File No. SR–DTC–2000–02]; 34–54775 (November 

17, 2006), 71 FR 68662 (November 27, 2006) [SR– 

DTC–2006–14]; 34–59612 (March 20, 2009), 74 FR 

13488 (March 27, 2009) [File No. SR–DTC–2009– 

06]. 

7 DTC, as a member institution of the Federal 

Reserve System, is subject to capital guidelines 

issued by the Board of Governors of the Federal 

Reserve System. To be considered ‘‘wellcapitalized’’ under these guidelines, DTC must, 

among other things, maintain a Total Risk-Based 

Capital Ratio of at least 10%, a Leverage Ratio of 

at least 5%, and a Tier 1 Risk-Based Capital Ratio 

of at least 6%. The issuance of the additional Series 

A preferred stock will enable DTC to continue to 

meet these requirements. 

8 In order to amend its Certificate of Organization 

to increase the authorized preferred stock, DTC is 

also required to seek approval from the New York 

State Banking Department. DTC has sought such 

approval concurrently with this rule filing. On 

October 20, 2010, DTC’s sole stockholder, The 

Depository Trust & Clearing Corporation, 

authorized DTC to make this amendment, as 

required by Section 8003 of the Banking Law of the 

State of New York. 

9The authorization of an additional 1,750,000 

shares will increase the number of authorized 

shares of Preferred Stock and of Series A Preferred 

stock to a total of 3,250,000 shares with a par value 

of $100 per share and a total value of $325 million. 

VII. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,85 that the 

proposed rule change (SR–FINRA– 

2010–034), as modified by Amendments 

No. 1 and 2, be, and hereby is, approved 

on an accelerated basis. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.86

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–28444 Filed 11–10–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63254; File No. SR–DTC– 

2010–14] 

Self-Regulatory Organizations; The 

Depository Trust Company; Notice of 

Filing of Proposed Rule Change To 

Amend the Certificate of Organization 

To Authorize Additional Shares of 

Preferred Stock and Designate Shares 

as Series A Preferred Stock 

November 5, 2010. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on October 

22, 2010, The Depository Trust 

Company (‘‘DTC’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

primarily by DTC.3 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 

The purpose of this proposed rule 

change is to amend DTC’s Certificate of 

Organization to authorize an additional 

1,750,000 shares of preferred stock and 

to designate such shares as Series A 

preferred stock. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

DTC 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. DTC has prepared 

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

and (C) below, of the most significant 

aspects of these statements.4

(A) Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In 1999, DTC’s Certificate of 

Organization was amended (‘‘1999 

Amendment’’) to provide for the 

authorization and issuance of 1,500,000 

shares of preferred stock, par value $100 

per share.5 The 1999 Amendment also 

provided that the preferred stock could 

be issued in one or more classes having 

such designations, relative rights, 

preferences, or limitation as fixed by the 

Board of Directors of DTC at the time of 

issuance of any such preferred stock. 

DTC’s Certificate of Organization has 

been amended three times thereafter to 

provide for the issuance of variable rate, 

noncumulative, nonvoting shares of 

Series A preferred stock, par value $100 

per share, which are preferred over 

DTC’s common stock as to dividends 

and in the event of liquidation (‘‘Series 

A Preferred Stock’’). The first such 

amendment (filed in 2000) provided for 

the issuance of 750,000 shares of the 

Series A Preferred Stock. The second 

amendment (filed in 2006) provided for 

the issuance of an additional 500,000 

shares of Series A Preferred Stock. The 

third amendment (filed in 2009) 

provided for the issuance of an 

additional 250,000 shares of Series A 

Preferred Stock.6

DTC participants are required to 

purchase and own shares of the Series 

A Preferred Stock in proportion to their 

use of DTC services. DTC treats the 

Series A Preferred Stock held by 

participants substantially the same as it 

treats the mandatory cash deposits made 

by participants to the Participants Fund 

for purposes of collateralizing securities 

transactions, limiting net debit 

positions, implementing default 

procedures, and allocating unrecovered 

losses. 

In order that DTC may further 

increase its capital,7 DTC is proposing 

to amend its Certificate of Organization 8

to authorize an additional 1,750,000 

shares of preferred stock at the par value 

of $100 per share and to designate such 

shares as Series A Preferred Stock with 

such rights, preferences, and limitations 

as provided in its Certificate of 

Organization.9

The proposed rule change is 

consistent with the requirements of the 

Securities Exchange Act of 1934, as 

amended, (‘‘Act’’) and the rules and 

regulations thereunder applicable to 

DTC, as well as CPSS/IOSCO 

Recommendations for Securities 

Settlement Systems applicable to DTC 

because the proposed rule change will 

not affect the safeguarding of securities 

and funds in DTC’s custody or control 

or for which it is responsible. 

(B) Self-Regulatory Organization’s 

Statement on Burden on Competition 

DTC does not believe that the 

proposed rule change would impose any 

burden on competition. 

(C) Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

Written comments relating to the 

proposed rule change have not been 

solicited or received. DTC will notify 

the Commission of any written 

comments received by DTC. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within forty-five days of the date of 

publication of this notice in the Federal 

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