71166 Federal Register / Vol. 75, No. 224 / Monday, November 22, 2010 / Notices 

12 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See 15 U.S.C. 78c(a)(39). Pursuant to Exchange 

Act Section 3(a)(39), a person is subject to a 

‘‘statutory disqualification’’ with respect to 

membership or participation in, or association with 

a member of, a self-regulatory organization (‘‘SRO’’) 

if such person, among other things: Has been 

convicted of certain misdemeanor and all felony 

criminal convictions for a period of ten years from 

the date of the filing of an application for 

membership or participation in, or to become 

associated with a member of, such SRO; is subject 

to a temporary or permanent injunction (regardless 

of its age) issued by a court of competent 

jurisdiction involving a broad range of unlawful 

investment activities; has been expelled or 

suspended from membership or participation in an 

SRO; or is subject to an SEC order denying, 

suspending, or revoking broker-dealer registration. 

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–FINRA–2010–060 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–2010–060. 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–2010–060 and 

should be submitted on or before 

December 13, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.12

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–29395 Filed 11–19–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63316; File No. SR–FINRA– 

2010–056] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Proposed Rule Change To Adopt 

FINRA Rule 1113 (Restriction 

Pertaining to New Member 

Applications) and To Amend the FINRA 

Rule 9520 Series (Eligibility 

Proceedings) 

November 15, 2010. 

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

Securities Exchange Act of 1934 

(‘‘Exchange Act’’ or ‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 notice is hereby 

given that on November 1, 2010, 

Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) (f/k/a 

National Association of Securities 

Dealers, Inc. (‘‘NASD’’)) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I, II, 

and III below, which Items have been 

prepared by FINRA. 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 Substance of 

the Proposed Rule Change 

FINRA is proposing to adopt new 

FINRA Rule 1113 (Restriction Pertaining 

to New Member Applications) and to 

amend the FINRA Rule 9520 Series 

(Eligibility Proceedings) to restrict new 

member applicants’ and certain 

members’ association with disqualified 

persons. 

The text of the proposed rule change 

is available on FINRA’s Web site at 

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

office of FINRA 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, 

FINRA 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. FINRA 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 

FINRA is proposing a rule change to 

adopt new FINRA Rule 1113 

(Restriction Pertaining to New Member 

Applications) and to amend the FINRA 

Rule 9520 Series (Eligibility 

Proceedings) to restrict new member 

applicants’ and certain members’ 

association with disqualified persons. 

The details of the proposed rule change 

are described below. 

Background 

Article III, Section 3(b) of the FINRA 

By-Laws provides that no person shall 

be associated with a member, continue 

to be associated with a member, or 

transfer association to another member 

if such person is or becomes subject to 

disqualification; and that no firm shall 

be admitted to membership, and no 

member shall be continued in 

membership, if any person associated 

with it is subject to a disqualification. 

Pursuant to Article III, Section 4 of the 

FINRA By-Laws, a person is subject to 

a ‘‘disqualification’’ with respect to 

membership, or association with a 

member, if such person is subject to any 

‘‘statutory disqualification’’ as such term 

is defined in Exchange Act Section 

3(a)(39).3


jlentini on DSKJ8SOYB1PROD with NOTICES
Federal Register / Vol. 75, No. 224 / Monday, November 22, 2010 / Notices 71167 

4Proposed FINRA Rule 1113, by its terms, will 

not apply to a member submitting a continuing 

membership application pursuant to NASD Rule 

1017 (Application for Approval of Change in 

Ownership, Control, or Business Operations). 

5Article I of the FINRA By-Laws defines an 

associated person as a: (1) A natural person who is 

registered or has applied for registration under 

FINRA rules; (2) a sole proprietor, partner, officer, 

director, or branch manager of a member, or other 

natural person occupying a similar status or 

performing similar functions, or a natural person 

engaged in the investment banking or securities 

business who is directly or indirectly controlling or 

controlled by a member, whether or not any such 

person is registered or exempt from registration 

with FINRA under its By-Laws or rules; and (3) for 

purposes of FINRA Rule 8210, any other person 

listed in Schedule A of Form BD of a member. See 

FINRA By-Laws, Article I (rr) (definition of ‘‘person 

associated with a member’’ or ‘‘associated person of 

a member’’). 

6As previously noted, Article III, Section 4 of the 

FINRA By-Laws incorporates the definition of 

‘‘statutory disqualification’’ as such term is defined 

in Exchange Act Section 3(a)(39). 

7FINRA Rule 9521(b)(4). 

8The proposed rule change also would make 

conforming amendments throughout the FINRA 

Rule 9520 Series to reflect the proposed amendment 

discussed above that a new member applicant may 

not sponsor a person subject to a disqualification. 

9FINRA Rule 9521(b)(2). 

10See The Ass’n of X as a Gen. Secs. 

Representative, Chairman, CEO, and owner, 

Redacted Decision No. SD99013 (NASD NAC 1999) 

at 9 (the National Adjudicatory Council denied a 

sponsoring firm’s statutory disqualification 

application, finding that the proposed supervisor 

would not adequately supervise a disqualified 

individual who would be 100 percent owner of the 

firm). 

11Exchange Act Section 3(a)(39)(E) subjects a 

person to a statutory disqualification if the person 

is associated with any person who is known, or in 

the exercise of reasonable care should be known, by 

him to be subject to any statutory disqualification 

described in Exchange Act Sections 3(a)(39)(A) 

through (D). Because the applicable definition of 

‘‘associated person’’ (set forth in Exchange Act 

Section 3(a)(21)) includes non-natural persons, a 

member may find itself subject to a statutory 

disqualification solely because it is associated with 

a person who is subject to a statutory 

disqualification pursuant to Exchange Act Section 

3(a)(39)(A) through (D). For additional information, 

see Regulatory Notice 09–19 (April 2009). 

The FINRA Rule 9520 Series sets forth 

procedures for a person to become or 

remain associated with a member, 

notwithstanding the existence of a 

statutory disqualification, and for a 

current member or person associated 

with a member to obtain relief from the 

eligibility or qualification requirements 

of the FINRA By-Laws and rules. The 

FINRA Rule 9520 Series also 

contemplates that a new member 

applicant may sponsor a proposed 

associated person or itself for relief from 

the eligibility or qualification 

requirements. A member (or new 

member applicant) seeking to associate 

with a person subject to a 

disqualification must seek approval 

from FINRA by filing a Form MC–400 

application, pursuant to the FINRA Rule 

9520 Series. Members (and new member 

applicants) that are themselves subject 

to a disqualification that wish to obtain 

relief from the eligibility requirements 

are required to submit a Form MC–400A 

application. 

New Membership Application Rule 

FINRA is proposing to adopt new 

FINRA Rule 1113 providing that the 

Department of Member Regulation 

(‘‘Department’’) shall reject an 

application for FINRA membership 4 in 

which either the applicant or an 

associated person, as defined in Article 

I of the FINRA By-Laws,5 of the 

applicant is subject to a statutory 

disqualification, as defined in Article 

III, Section 4 of the FINRA By-Laws.6

The proposed rule also provides that 

any new member application that the 

Department approves by virtue of 

Department or applicant error 

(including, but not limited to, an 

inadvertent or intentional misstatement 

or omission by the applicant or 

associated person) shall be subject to 

membership cancellation in accordance 

with FINRA Rule 9555 (Failure to Meet 

the Eligibility or Qualification 

Standards or Prerequisites for Access to 

Services). 

FINRA believes that a new member 

applicant should enter the membership 

application process free of the concerns 

and issues that can arise from either 

being associated with a disqualified 

person or being itself subject to a 

statutory disqualification. Also, a new 

member applicant has no prior 

operating or supervisory history, and 

therefore, would not be able to 

demonstrate adequately its ability to 

supervise a disqualified person. 

FINRA Rule 9520 Series Amendments 

FINRA also is proposing several 

amendments to the FINRA Rule 9520 

Series, which, as noted above, set forth 

the eligibility proceedings. First, the 

proposed rule change would amend the 

FINRA Rule 9520 Series definition of 

‘‘sponsoring member’’ 7 to eliminate the 

reference to new member applicants. As 

stated above, FINRA is concerned about 

the ability of new member applicants to 

supervise adequately a disqualified 

person, as such new member applicants 

generally would not have any prior 

operating or supervisory history that 

would indicate the necessary experience 

to supervise disqualified persons. Thus, 

this amendment conforms to the 

proposed new membership application 

rule discussed above by precluding new 

member applicants from being able to 

sponsor disqualified persons.8

Second, the proposed rule change 

would amend the definition of 

‘‘disqualified member’’ 9 in the FINRA 

Rule 9520 Series to clarify that a new 

member applicant is not eligible to 

submit an application for relief under 

the FINRA Rule 9520 Series where the 

new member applicant itself is subject 

to a disqualification. 

Lastly, the proposed rule change 

would further amend the definition of 

‘‘sponsoring member’’ to preclude any 

member from sponsoring the association 

or continued association of a 

disqualified person to be admitted, 

readmitted, or permitted to continue in 

association that is directly or indirectly 

a beneficial owner of more than five 

percent of the sponsoring member. This 

proposed change reflects FINRA’s belief 

that a member cannot effectively 

supervise such a disqualified person in 

light of the inherent conflict of interest 

resulting from the ownership interest. In 

FINRA’s experience, a member’s 

decision to sponsor such a person is 

nearly always influenced more by that 

person’s beneficial ownership interest 

in the firm, rather than by objective 

considerations, such as the person’s 

work experience, the length of time 

since the disqualifying event, the 

person’s professional activities since the 

time of the disqualifying event, or 

subsequent lack of disciplinary 

history.10

FINRA notes that the proposed rule 

change is not designed to apply in 

several situations. Proposed new FINRA 

Rule 1113 would not apply to a new 

member applicant that itself is subject to 

a statutory disqualification solely due to 

its association with a non-natural 

person that is subject to a statutory 

disqualification.11 Also, in such 

situations, notwithstanding the 

proposed rule change to the FINRA Rule 

9520 Series that would preclude a new 

member applicant from submitting an 

application for relief under the FINRA 

Rule 9520 Series, the new member 

applicant would be permitted to file an 

MC–400A application on behalf of itself. 

Moreover, the proposed amendments 

to the FINRA Rule 9520 Series that 

would preclude any member from 

sponsoring a disqualified person that is 

directly or indirectly a beneficial owner 

of more than five percent of the 

sponsoring member would not preclude 

a member from filing an MC–400A 

application to sponsor itself where 

needed (e.g., a member whose majority 

owner is subject to a 30-day principal 

suspension for failure to supervise a 

books and records violation may seek to 

sponsor itself for continued membership 

rather than having to cease business for 

the period of its owner’s suspension). 

FINRA will announce the effective 

date of the proposed rule change in a 


jlentini on DSKJ8SOYB1PROD with NOTICES
71168 Federal Register / Vol. 75, No. 224 / Monday, November 22, 2010 / Notices 

12 15 U.S.C. 78o–3(b)(6). 13 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(6)(iii). 

Regulatory Notice to be published no 

later than 60 days following 

Commission approval. The effective 

date will be no later than 90 days 

following publication of the Regulatory 

Notice announcing Commission 

approval. 

2. Statutory Basis 

FINRA believes that the proposed rule 

change is consistent with the provisions 

of Section 15A(b)(6) of the Act,12 which 

requires, among other things, that 

FINRA rules must be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, and, in 

general, to protect investors and the 

public interest. The proposed rule 

change will further these purposes by 

restricting certain members and new 

member applicants from being able to 

associate with statutorily disqualified 

persons in light of the concerns to 

investor protection raised by such 

associations. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

FINRA does not believe that the 

proposed rule change will result in any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the self-regulatory 

organization consents, the Commission 

will: 

(A) By order approve or disapprove 

such proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

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–FINRA–2010–056 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–2010–056. 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–2010–056 and 

should be submitted on or before 

December 13, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–29281 Filed 11–19–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63322; File No. SR–BATS– 

2010–032] 

Self-Regulatory Organizations; BATS 

Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Establish a $0.50 

Strike Program 

November 16, 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 

November 10, 2010, BATS Exchange, 

Inc. (the ‘‘Exchange’’ or ‘‘BATS’’) filed 

with the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

the proposed rule change as described 

in Items I and II below, which Items 

have been prepared by the Exchange. 

The Exchange has designated this 

proposal as a ‘‘non-controversial’’ 

proposed rule change pursuant to 

Section 19(b)(3)(A) of the Act 3 and Rule 

19b–4(f)(6)(iii) thereunder,4 which 

renders it effective upon filing with the 

Commission. 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 Substance of 

the Proposed Rule Change 

The Exchange is proposing to amend 

Rule 19.6 (Series of Options Contracts 

Open for Trading) to adopt a $0.50 

Strike Program consistent with 

analogous programs offered by other 

options exchanges. 

The text of the proposed rule change 

is available at the Exchange’s Web site 

at http://www.batstrading.com, at the 

principal office of the Exchange, on the 

Commission’s Web site at http:// 

www.sec.gov, 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, the 

Exchange 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. The 

Exchange has prepared summaries, set 


jlentini on DSKJ8SOYB1PROD with NOTICES