Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Notices 74759 

21 15 U.S.C. 78s(b)(3)(A)(ii). 

22The text of the proposed rule change is 

available on the Commission’s Web site at http:// 

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

23 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The 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). 

19(b)(3)(A)(ii) of the Act.21 At any time 

within 60 days of the filing of the 

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. If the Commission 

takes such action, the Commission shall 

institute proceedings to determine 

whether the proposed rule should be 

approved or 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–Phlx–2010–162 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–Phlx–2010–162. 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,22 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 the 

Exchange. 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–Phlx– 

2010–162 and should be submitted on 

or before December 22, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.23

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2010–30227 Filed 11–30–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63375; File No. SR–FINRA– 

2010–061] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Proposed Rule Change To Adopt Rules 

Governing Guarantees, Carrying 

Agreements, Security Counts and 

Supervision of General Ledger 

Accounts in the Consolidated FINRA 

Rulebook 

November 24, 2010. 

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

Securities Exchange Act of 1934 (‘‘Act’’ 

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

notice is hereby given that on November 

12, 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 and 

II 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 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, 

Incorporated NYSE Rules 322, 382, 

440.10 and 440.20 and Incorporated 

NYSE Rule Interpretations 382/01 

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

01. 

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 

As part of the process of developing 

a new consolidated rulebook 

(‘‘Consolidated FINRA Rulebook’’),3

FINRA is proposing to adopt new, 

consolidated rules governing 

guarantees, carrying agreements, 

security counts and supervision of 

general ledger accounts for purposes of 

the Consolidated FINRA Rulebook. 

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 


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4For convenience, the Incorporated NYSE Rules 

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

5See Securities 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); Regulatory 

Notice 09–03 (January 2009) (Financial 

Responsibility and Related Operational Rules). 

6For 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. For further 

discussion, see 74 FR 58334. See also proposed 

FINRA Rule 4523.02 in this rule filing. 

7 In response to comments, FINRA notes 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. See Section (A) under Item II.C. 

8NASD 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. 

9 In the interest of clarity, FINRA has revised the 

proposed rule so as to better align it with the 

requirements of Appendix C. 

10See note 33. 

11See Section (A) under Item II.C. 

12See, 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). 

322, 382, 440.10 and 440.20 and NYSE 

Rule Interpretations 382/01 through 

382/05, 409(a)/01 and 440.20/01.4

The proposed rules would, in 

combination with the new consolidated 

financial responsibility rules that the 

SEC has approved,5 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.6 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. 

(A) Proposed FINRA Rule 4150 

(Guarantees by, or Flow Through 

Benefits for, Members) 

Proposed FINRA Rule 4150(a), based 

in large part on NYSE Rule 322, requires 

that prior written notice be given to 

FINRA whenever a member guarantees, 

endorses or assumes, directly or 

indirectly, the obligations 7 or liabilities 

of another person (including an entity).8

Paragraph (b) of the rule requires that 

prior written approval must be obtained 

from FINRA whenever any member 

receives flow-through capital benefits in 

accordance with Appendix C of SEA 

Rule 15c3–1.9 Details of the rule’s notice 

and prior approval requirements are 

included in proposed FINRA Rule 

4150.01. Proposed FINRA Rule 4150.02 

provides that a member may at any time 

(i.e., not just within the context of the 

prior written notice that the member 

provides or the prior written approval 

that the member seeks to obtain 

pursuant to the proposed rule) be 

required to provide FINRA with 

information with respect to the 

arrangement, relationship and dealings 

with a person referred to in the 

proposed rule. 

Proposed FINRA Rule 4150.03 

prohibits any member from entering 

into an arrangement described in the 

proposed rule unless the member has 

the authority to make available 

promptly the books and records of the 

other person for inspection by FINRA in 

the United States. The proposed rule 

provides that the books and records of 

the other person must be kept separately 

from those of the member. 

With respect to persons referred to in 

the proposed rule that are registered 

broker-dealers, proposed FINRA Rule 

4150.04 requires that the member must 

furnish to FINRA copies of the person’s 

FOCUS Reports simultaneous with their 

being filed with the person’s designated 

examining authority (‘‘DEA’’). FINRA 

expects that members shall furnish the 

person’s FOCUS Reports to FINRA on 

an ongoing basis (the member need not 

furnish the person’s FOCUS Reports to 

FINRA if FINRA is the person’s DEA). 

With respect to persons that are not 

registered broker-dealers, the proposed 

rule requires, in lieu of FOCUS Reports, 

submission of financial and operational 

statements, in such format and at such 

time periods as FINRA may require, 

sufficient to gauge the capital and 

operational effects of the arrangement or 

relationship on the member. 

Proposed FINRA Rule 4150.05 

provides that guarantees executed 

routinely in the normal course of 

business, such as trade guarantees, 

signature guarantees, endorsement of 

securities and the writing of options, are 

not subject to the requirements of the 

proposed rule provided that, in regard 

to the guarantee of the writing of 

options, the transaction is appropriately 

recorded on the member’s books and 

records in accordance with SEA Rule 

17a–3(a)(10) and is reflected in its net 

capital computation pursuant to SEA 

Rule 15c3–1.10

In response to commenter 

suggestions, proposed FINRA Rule 

4150.06 provides that, within 30 days of 

the implementation date of the rule, 

each member must advise FINRA, in 

writing, of any guarantees, 

endorsements, assumptions of 

obligations/liabilities, or flow through 

capital benefits, in effect as of the 

implementation date of the rule, not 

having otherwise been reported, in 

writing, to the appropriate Regulatory 

Coordinator.11

NASD 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. 

(B) Proposed FINRA Rule 4311 

(Carrying Agreements) 

Proposed FINRA Rule 4311 is based 

on NASD Rule 3230 and NYSE Rule 382 

(including NYSE Rule Interpretations 

382/01 through/05 and 409(a)/01). 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 

SRO’s and SEC’s financial responsibility 

and other rules and regulations, as 

applicable.12 The proposed rule 

continues to serve that same purpose 

and, accordingly, contains many 

requirements that are substantially 

unchanged from NASD Rule 3230 and 

NYSE Rule 382. Proposed FINRA Rule 

4311 also codifies certain provisions 

that are new for non-NYSE members, or 

are new for both Dual Members and 

non-NYSE members alike. Following is 

a summary of the more significant 

provisions of the proposed rule. 

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 (for 

purposes of Rule 4311, ‘‘customer 


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13Because carrying firms generally are FINRA 

members, FINRA expects requests to enter into 

carrying agreements with firms that are not FINRA 

members to be infrequent. Further, as proposed in 

Regulatory Notice 09–03, the proposed rule’s scope 

would reach any customer account. FINRA has 

revised proposed Rule 4311 to clarify that the rule 

applies, unless otherwise permitted by FINRA, to 

the carrying of any customer account in which 

securities transactions can be effected. FINRA has 

made other minor changes to the proposed rule in 

the interest of clarity. 

14 In response to commenter suggestion, the 

proposed rule includes revised guidance as to what 

constitutes a material change for purposes of Rule 

4311(b)(1). See Section (B)(3) under Item II.C. 

Specifically, as set forth in proposed FINRA Rule 

4311.01, material changes include, but are not 

limited to, changes to: The allocation of 

responsibilities required by the proposed rule; 

termination clauses applicable to the introducing 

firm; any terms or provisions affecting the liability 

of the parties; and the parties to the agreement, 

including, for example, the addition of a new party 

to the agreement, such as a ‘‘piggyback’’ 

arrangement, a new carrying firm or a new 

introducing firm, but not including a termination of 

the agreement. (However, as explained in 

Regulatory Notice 08–76, under NYSE Rule 416A 

carrying firms that are Dual Members are required 

to update their Firm Clearing Arrangement Form 

information on an ongoing basis no later than 30 

days after the information has changed. FINRA 

expects to extend this requirement to all carrying 

firms later as part of the rulebook consolidation 

process. See Regulatory Notice 08–76 (December 

2008) (Reporting Clearing Arrangements).) Lastly, 

FINRA has made other minor changes to proposed 

FINRA Rule 4311(b)(1) in the interest of clarity. 

15Note that proposed FINRA Rule 4311(a)(2) 

would expressly permit a carrying firm to enter into 

a carrying agreement for the carrying of the 

customer accounts of a person other than a U.S. 

registered broker or dealer, subject to the conditions 

set forth in the proposed rule. 

16Proposed FINRA Rule 4311.02 provides that, 

for purposes of the notice requirement, the carrying 

firm must submit a questionnaire in such form as 

to be specified by FINRA in a Regulatory Notice, 

which questionnaire may be updated from time to 

time as FINRA deems necessary. 

17Supplementary Material to the proposed rule 

provides that, for purposes of proposed FINRA Rule 

4311(b)(4), the due diligence may include, without 

limitation, inquiry by the carrying firm into the 

introducing firm’s business model and product mix, 

proprietary and customer positions, FOCUS and 

similar reports, audited financial statements and 

complaint and disciplinary history. See proposed 

FINRA Rule 4311.03. See also Section (B)(2) under 

Item II.C. 

18However, the proposed rule provides that the 

carrying firm may authorize the introducing firm to 

prepare and/or transmit such statements on the 

carrying firm’s behalf with the prior written 

approval of FINRA. See proposed FINRA Rule 

4311(c)(2). In the interest of customer protection, 

FINRA has revised proposed FINRA Rule 4311(c)(2) 

(and made corresponding revisions to Rule 

4311(c)(1)) to provide that the safeguarding of funds 

and securities for the purposes of SEA Rule 15c3– 

3 must also be expressly allocated to the carrying 

firm. 

19See Section (B)(3) under Item II.C. 

account’’ or ‘‘account’’), unless the 

agreement is with a carrying firm that is 

a FINRA member.13 This is a new 

requirement for all members; however, 

the vast majority of carrying firms in the 

United States are FINRA members. 

Proposed FINRA Rule 4311(a)(1) also 

includes a provision that requires that 

when an introducing firm acts as an 

intermediary for another introducing 

firm or firms (so-called ‘‘piggyback’’ or 

‘‘intermediary clearing arrangements’’) 

for the purpose of obtaining clearing 

services from the carrying firm, the 

introducing firm must notify the 

carrying firm of the existence of the 

arrangement(s) with the other 

introducing firm(s) and disclose the 

identity of the firm(s). Based in large 

part on NYSE Rule Interpretation 382/ 

05, the proposed rule further requires 

that each carrying agreement must 

identify and bind every direct and 

indirect recipient of clearing services as 

a party thereto. 

Proposed FINRA Rule 4311(b)(1), 

consistent with the requirements of 

NASD Rule 3230(e) and NYSE Rule 

382(a), 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. The 

proposed rule also provides that the 

carrying firm must also submit to 

FINRA for prior approval any material 

changes to an approved carrying 

agreement before the changes may 

become effective.14 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 brokerdealers. The proposed rule requires a 

carrying firm to submit to FINRA for 

approval each carrying agreement with 

a non-U.S.-registered broker-dealer.15

This is a new requirement for non-NYSE 

members. 

Proposed FINRA Rule 4311(b)(3) 

codifies the current practice under 

NYSE Rule 382 of requiring that as early 

as possible, but 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.16

This 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. 

Proposed FINRA Rule 4311(b)(4) 

expressly requires each carrying firm to 

conduct appropriate due diligence with 

respect to any new introducing firm 

relationship. In response to commenter 

suggestion, the proposed rule provides 

that such due diligence must assess the 

financial, operational, credit and 

reputational risk that such arrangement 

will have upon the carrying firm.17 The 

rule 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 SEA Rule 

17a–4(b), of the due diligence 

conducted for each new introducing 

firm. 

Proposed FINRA Rule 4311(c), based 

in part on NASD Rule 3230(a) and 

NYSE Rule 382(b), 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. The rule 

sets forth the minimum responsibilities 

that the agreement must allocate. 

Because FINRA believes that it is 

important to ensure the accuracy and 

integrity of customer account 

statements, the proposed rule requires 

that each carrying agreement in which 

accounts are to be carried on a fully 

disclosed basis must expressly allocate 

to the carrying firm the responsibility 

for preparing and transmitting 

statements of account to customers.18

Based in part on NASD Rule 3230(g), 

NYSE Rule 382(c) and NYSE Rule 

Interpretation 382/03, proposed FINRA 

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. The carrying firm 

would be responsible for the content of 

the notification to the customer. 

Further, the proposed rule provides that 

the customer must be notified promptly 

and in writing in the event of any 

change to any of the parties to the 

agreement or any material change to the 

allocation of responsibilities thereunder. 

In response to commenter suggestion,19

Supplementary Material to the proposed 

rule provides that, for purposes of 

proposed FINRA Rule 4311(d), 

notification to customers of a change to 

any of the parties to the carrying 

agreement is not required in instances 

where, consistent with applicable 

FINRA rules and the federal securities 

laws, such customers’ accounts are 

being transferred pursuant to: (a) 

ACATS using an authorized Transfer 


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20See proposed FINRA Rule 4311.04. 

21FINRA has made minor changes to the 

proposed rule in the interest of clarity. 

22 In response to commenter request for 

clarification, FINRA notes that the proposed rule, 

by its terms, does not apply to members that are 

exempt from SEA Rule 17a–13. See Section (C) 

under Item II.C. 

Instruction Form (TIF); or (b) a process 

outside of ACATS where notification to 

customers is provided by means of an 

alternative mechanism such as 

affirmative or negative response 

letters.20

Consistent with NYSE Rule 

Interpretation 382/03, 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. This 

is a new requirement for non-NYSE 

members. 

Based in large part on NASD Rule 

3230(d) and NYSE Rule 382(f), 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 SEA 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

The provisions of proposed FINRA 

Rule 4311(g)(1) and (h) generally 

address the obligations of the parties to 

provide the 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. (FINRA notes that the 

July 1 deadline set forth in paragraph 

(h)(2) of the proposed rule differs from 

the current requirement (no later than 

July 31) specified by the corresponding 

NASD and NYSE rule provisions.) 

Proposed FINRA Rule 4311(g)(2) 

provides that, upon a showing of good 

cause, FINRA, at its discretion, may 

exclude certain carrying firms from the 

requirements of proposed FINRA Rule 

4311(g)(1) in instances where the 

introducing firm is an affiliated entity of 

the carrying firm. This provision is 

based upon NASD Rule 3230(b)(3) but is 

not contained in NYSE Rule 382. 

Proposed FINRA Rule 4311(i) is based 

largely on NASD Rule 3230(h) and does 

not have a corresponding provision to 

NYSE Rule 382. The proposed rule 

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. 

Consistent with NASD Rule 3230(h), the 

proposed rule’s requirements apply only 

to intermediary clearing arrangements 

that are established on or after February 

20, 2006. 

(C) Proposed FINRA Rule 4522 (Periodic 

Security Counts, Verifications and 

Comparisons) 

Proposed FINRA Rule 4522(a), based 

in large part on NYSE Rule 440.10, 

requires each member firm that is 

subject to the requirements of SEA Rule 

17a–13 to make the counts, 

examinations, verifications, 

comparisons and entries set forth in 

SEA Rule 17a–13. Proposed FINRA Rule 

4522(b), again based in large part on 

NYSE Rule 440.10, requires each 

carrying or clearing member subject to 

SEA Rule 17a–13 to make more frequent 

counts, examinations, verifications, 

comparisons and entries where prudent 

business practice would so require. 

Each such carrying or clearing member 

would be required to receive position 

statements no less than once per month 

with respect to securities held by 

clearing corporations, other 

organizations or custodians and, at least 

once per month, reconcile all such 

securities and money balances by 

comparison of the clearing corporations’ 

or custodians’ position statements to the 

member’s books and records. The 

carrying or clearing member must 

promptly report any differences to the 

contra organization, and both the contra 

organization and the member firm must 

promptly resolve the differences. Where 

there is a higher volume of activity, the 

proposed rule provides that good 

business practice may require a more 

frequent exchange of statements and 

performance of reconciliations. The 

proposed rule further requires that no 

later than seven business days after each 

security count, the carrying or clearing 

member must enter any unresolved 

differences in a ‘‘Difference’’ account for 

that security count. 

NASD Rules do not have a provision 

that corresponds to NYSE Rule 440.10. 

Accordingly, the requirements of 

proposed FINRA Rule 4522(b) are new 

to non-NYSE carrying or clearing 

members that are subject to the 

requirements of SEA Rule 17a–13.22

(D) Proposed FINRA Rule 4523 

(Assignment of Responsibility for 

General Ledger Accounts and 

Identification of Suspense Accounts) 

Proposed FINRA Rule 4523, based in 

large part on NYSE Rule 440.20, is 

intended to help assure the accuracy of 

each member’s books and records and 

includes supervisory measures for their 

implementation. Paragraph (a) of the 

proposed rule requires that each 

member must designate an associated 

person to be responsible for each 

general ledger bookkeeping account and 

account of like function used by the 

member, and that 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. 

The proposed rule requires that a 

supervisor must, as frequently as is 

necessary considering the function of 

the account but, in any event, at least 

monthly, review each account to 

determine that it is accurate and that 

any items that are aged or uncertain as 

to resolution are promptly identified for 

research and possible transfer to a 

suspense account(s). 

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. In the interest 

of clarity, FINRA has revised the 

proposed rule to require that all records 

made pursuant to Rule 4523(b) must be 

preserved for a period of not less than 

six years (the period set forth in SEA 

Rule 17a–4(a)). 

Proposed FINRA Rule 4523(c) 

provides that each member must record, 

in an account that must be clearly 

identified as a suspense account, money 

charges or credits and receipts or 

deliveries of securities whose ultimate 

disposition is pending determination. 

The proposed rule requires that a record 

must be maintained of all information 

known with respect to each item so 

recorded. Again, in the interest of 

clarity, FINRA has revised proposed 

Rule 4523(c) to require that all records 

made pursuant to that paragraph must 

be preserved for a period of not less 


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23See Section (D) under Item II.C. 

24See proposed FINRA Rule 4523.01. 

25See note 6. 

26 15 U.S.C. 78o–3(b)(6). 

27Letter from Claire Santaniello, Managing 

Director and Chief Compliance Officer, Pershing 

LLC (‘‘Pershing’’), dated April 27, 2009; Letter from 

Holly H. Smith and Eric A. Arnold, Sutherland 

Asbill & Brennan LLP, on behalf of the Committee 

of Annuity Insurers (‘‘CAI’’), dated February 20, 

2009; Letter from Sarah McCafferty, Vice President, 

Chief Compliance Officer, T. Rowe Price Investment 

Services, Inc. (‘‘TRP’’), dated February 19, 2009; and 

E-mail from Terry Nickels, Chief Financial Officer, 

Vice President, Wedge Securities, LLC (‘‘Wedge’’), 

dated February 19, 2009. 

28The Commission notes that while provided in 

Exhibit 2a to FINRA’s filing with the Commission, 

the Notice is not attached hereto. The Notice can 

be accessed online at http://www.finra.org/web/ 

groups/industry/@ip/@reg/@notice/documents/ 

notices/p117679.pdf. 

29The Commission notes that while provided in 

Exhibit 2b to the filing, the list of the commenters 

and comment letters received by FINRA are not 

attached hereto. Those comment letters can be 

accessed online at http://www.finra.org/Industry/ 

Regulation/Notices/2009/P117680. As stated 

previously, all references to ‘‘commenters’’ are to the 

commenters to the Notice, which are listed in 

Exhibit 2b. 

30CAI. 

31See note 7. 

32See proposed FINRA Rule 4150.06. 

33FINRA also has made minor clarifying 

revisions to proposed FINRA Rule 4150.05. 

than six years (the period set forth in 

SEA Rule 17a–4(a)). 

In response to commenter 

suggestion,23 Supplementary Material to 

the proposed rule provides that, for the 

purposes of paragraphs (a) and (b) of the 

rule, members with only one associated 

person may assign primary and 

supervisory responsibility for each 

account to that associated person, 

subject to applicable registration 

requirements.24 Further, the 

Supplementary Material provides that 

members of limited size and resources 

that have more than one associated 

person may seek FINRA’s prior written 

approval to assign primary and 

supervisory responsibility for each 

account to the same associated person. 

Further, for purposes of clarification, 

proposed FINRA Rule 4523.02 provides 

that, for purposes of Rule 4523, all 

requirements that apply to a member 

that clears or carries customer accounts 

shall 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.25

NASD Rules do not have a provision 

that corresponds to NYSE Rule 440.20. 

Accordingly, the requirements of 

proposed FINRA Rule 4523 are new to 

non-NYSE members. 

FINRA will announce the 

implementation date of the proposed 

rule change 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. 

2. Statutory Basis 

FINRA believes that the proposed rule 

change is consistent with the provisions 

of Section 15A(b)(6) of the Act,26 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. FINRA believes that the 

proposed rule change will further the 

purposes of the Act because, as part of 

the FINRA rulebook consolidation 

process, the proposed rule change will 

streamline and reorganize existing rules 

that govern guarantees, carrying 

agreements, security counts and 

supervision of general ledger accounts. 

Further, the proposed rule change will 

provide greater regulatory clarity with 

respect to these issues. 

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 

The proposed rule change was 

published for comment in Regulatory 

Notice 09–03 (January 2009) (Financial 

Responsibility and Related Operational 

Rules) (the ‘‘Notice’’). Four comments 

were received in response to the 

Notice.27 A copy of the Notice is 

attached to the filing as Exhibit 2a.28 A 

list of the comment letters received in 

response to the Notice is attached to the 

filing as Exhibit 2b.29

(A) Proposed FINRA Rule 4150 

(Guarantees by, or Flow Through 

Benefits for, Members) 

One commenter sought clarification 

as to whether the scope of the term 

‘‘obligations’’ as used in proposed 

FINRA Rule 4150 is limited to financial 

obligations as opposed to other types of 

contractual obligations.30 In response, 

FINRA has clarified 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.31 The same commenter 

sought clarification regarding the 

proposed rule’s impact on expense 

sharing agreements. The commenter 

inquired whether, if a firm files or has 

already filed such an agreement with 

FINRA, the rule imposes a separate 

obligation to provide written notice to 

FINRA. The commenter further 

suggested that the rule should exempt 

guarantees that are already subject to 

review by another regulator (for 

instance, federal bank regulators). In 

response, FINRA believes that, in view 

of the importance of this regulatory area, 

FINRA should be notified in accordance 

with the proposed rule’s provisions of 

any agreement or arrangement that, 

falling within the subject matter covered 

by the rule, is already in existence when 

the rule goes into effect, in addition to 

any such new agreement or arrangement 

going forward. Accordingly, FINRA has 

revised the proposed rule to provide 

that, within 30 days of the 

implementation date of the rule, each 

member must advise FINRA, in writing, 

of any guarantees, endorsements, 

assumptions of obligations/liabilities, or 

flow through capital benefits, in effect 

as of the implementation date of the 

rule, not having otherwise been 

reported, in writing, to the appropriate 

Regulatory Coordinator.32 With respect 

to the commenter’s last point, FINRA 

does not believe that guarantees subject 

to review by other regulatory authorities 

should be exempt from the proposed 

FINRA requirement. It is FINRA’s 

responsibility to exercise supervision 

over its members in accordance with 

FINRA’s standards. In this regard, 

FINRA notes that proposed FINRA Rule 

4150.05 excludes from the rule’s 

coverage guarantees executed routinely 

in the normal course of business, which 

should serve to reduce associated 

burdens on members.33

(B) Proposed FINRA Rule 4311 

(Carrying Agreements) 

(1) Introducing Firms 

As proposed in the Notice, proposed 

FINRA Rules 4311(a)(1) and (i) set forth 

certain requirements with respect to the 

identification of introducing firms and 

their accounts (‘‘clear thru’’ or piggyback 

requirements). Proposed FINRA Rule 

4311(a)(2) permits carrying firms to 

enter into carrying agreements for the 

carrying of the customer accounts of a 

person other than a U.S.-registered 

broker or dealer, subject to the rule’s 


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34FINRA also has made minor clarifying 

revisions to proposed FINRA Rules 4311(a)(1) and 

(2). See note 13. 

35Pershing. 

36Pershing. 

37CAI. 38For clarification, FINRA notes that the carrying 

firm and the introducing firm are not permitted to 

agree to keep due diligence information 

confidential from FINRA. 

39Pershing. 40See note 14. 

requirements.34 One commenter sought 

clarification as to whether under the 

proposed rule the so-called ‘‘clear thru’’ 

requirements would be applied to 

foreign introducing firms in the same 

way as they would to members, and, if 

so, what reporting information would be 

appropriate.35 The commenter further 

inquired whether the term ‘‘introducing 

firm,’’ as used in the proposed rules 

generally, includes a bank or brokerdealer, or foreign equivalent. In 

response, FINRA notes that the term 

‘‘introducing firm’’ includes a bank or 

broker-dealer, or the foreign equivalent. 

With respect to reporting information, 

FINRA notes that FINRA would expect 

requirements as to foreign introducing 

firms to be applied in the same fashion 

as they do with respect to members. 

(2) Due Diligence 

One commenter suggested that the 

proposed rule should not set forth 

specific review requirements with 

respect to due diligence obligations and 

that firms should be allowed to craft 

their own due diligence review based on 

a prudential approach according to the 

business model of the introducing 

firm.36 The commenter suggested that 

due diligence should be limited to 

confirming that a prospective 

introducing firm relationship is 

appropriate from a commercial 

perspective and does not pose undue 

credit risk or liability to the carrying 

firm, and that the rule should not imply 

a responsibility on the part of the 

carrying firm to take further steps to 

proactively determine the 

appropriateness of the introducing 

firm’s activities or compliance profile, 

which, the commenter suggested, is the 

responsibility of regulatory authorities. 

The commenter further suggested that, 

in place of the proposed rule’s due 

diligence requirement, the new rule 

should instead incorporate language 

from current NYSE Rule Interpretation 

384/04, to the effect that members 

‘‘should carefully weigh the capital and 

other regulatory and practical 

consequences’’ of assuming the 

responsibilities required under the rule. 

In response, FINRA notes that the 

purpose of the proposed rule is to set a 

standard as to the due diligence that 

carrying firms must exercise. The staff 

believes such a standard is important as 

a matter of investor protection. 

However, in response to the 

commenter’s suggestion, FINRA has 

revised proposed FINRA Rule 4311(b)(4) 

to provide that the carrying firm must 

conduct appropriate due diligence with 

respect to any new introducing firm 

relationship to assess the financial, 

operational, credit and reputational risk 

that such arrangement will have upon 

the carrying firm. Supplementary 

Material to the revised rule (proposed 

FINRA Rule 4311.03) provides that, for 

purposes of FINRA Rule 4311(b)(4), the 

due diligence may include, without 

limitation, inquiry by the carrying firm 

into the introducing firm’s business 

model and product mix, proprietary and 

customer positions, FOCUS and similar 

reports, audited financial statements 

and complaint and disciplinary history. 

Further, the revised rule 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 due 

diligence requirement under the rule. 

One commenter suggested that FINRA 

should make clear that the carrying 

firm’s due diligence obligation extends 

only to pertinent information regarding 

the introducing firm that receives 

clearing services, and not the 

introducing firm’s affiliates.37 The 

commenter also suggested that FINRA 

should make clear that any information 

provided by the introducing firm as part 

of the due diligence review must be kept 

confidential by the carrying firm. In 

response, FINRA notes that the due 

diligence obligation is with respect to 

the introducing firm relationship; 

information about affiliates is not 

expressly required but should be 

considered if necessary to make an 

informed decision about entering into a 

carrying agreement with the introducing 

firm. FINRA believes that the 

confidentiality of due diligence 

information generally is a matter 

between the carrying firm and the 

introducing firm, subject to applicable 

laws and rules.38

(3) Notification of Termination of 

Carrying Agreements 

One commenter sought clarification 

as to whether, for purposes of proposed 

FINRA Rule 4311(b)(1), it is a ‘‘material 

change’’ to an agreement if a party 

chooses to exercise its right to terminate 

the agreement, in which case FINRA’s 

prior approval would be required.39 The 

commenter suggested that construing 

the proposed rules in such fashion 

would burden the parties to the 

agreement. The commenter further 

suggested that the rules should delete 

any proposed requirement to notify 

customers of such termination because 

there are existing mechanisms designed 

to provide customers of such changes, 

such as communications pursuant to 

Notice to Members 02–57 (addressing 

the use of negative response letters for 

the bulk transfer of customer accounts) 

as well as customers’ affirmative 

consent to open and transfer their 

accounts to another firm. The 

commenter cited concern that a further 

notification requirement could confuse 

customers and suggested that the 

proposed rule should require the 

introducing firm, not the carrying firm, 

to be responsible for any such 

notifications. The commenter further 

suggested the carrying firm should only 

be required to communicate directly 

with customers in circumstances when 

it provides services to the customer 

through contract. 

In response, FINRA has revised 

proposed FINRA Rule 4311.01 to clarify 

that certain changes to the parties to the 

agreement—including the addition of a 

new party to the agreement, such as a 

‘‘piggyback’’ arrangement, a new 

carrying firm or a new introducing 

firm—are material and thus require 

FINRA’s prior approval, but that a 

termination of the agreement is not 

material for purposes of the provision. 

(FINRA has noted, however, that—as 

explained in Regulatory Notice 08–76— 

under NYSE Rule 416A, carrying firms 

that are Dual Members are required to 

update their Firm Clearing Arrangement 

Form information on an ongoing basis 

no later than 30 days after the 

information has changed; FINRA 

expects to extend this requirement to all 

carrying firms later as part of the 

rulebook consolidation process.40) With 

respect to notification to customers, 

FINRA has added proposed FINRA Rule 

4311.04 to clarify that notification to 

customers of a change in the parties to 

the agreement is not required under 

FINRA Rule 4311(d) in instances where, 

consistent with applicable FINRA rules 

and the federal securities laws, such 

customers’ accounts are being 

transferred pursuant to: (a) ACATS 

using an authorized Transfer Instruction 

Form (TIF); or (b) a process outside of 

ACATS where notification to customers 

is provided by means of an alternative 

mechanism such as affirmative or 

negative response letters. As a result, 

customers would need to be notified of 

changes in parties under proposed 

FINRA Rule 4311 when, for example, 

any party to the agreement undergoes a 


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41Pershing. 

42CAI. 

43See note 22. 

44TRP. 

45CAI and Wedge. 

46CAI. 

47Wedge. 

48FINRA has also amended proposed Rule 4523 

to require members to designate an ‘‘associated 

person’’ to perform the specified functions, rather 

than an ‘‘individual.’’ 

49See Notice to Members 07–16 (Frequently 

Asked Financial and Operational Questions) (April 

2007), Question A–1. 

50See note 6. 

reorganization that results in a name 

change or a carrying firm requires an 

introducing firm to clear via a 

piggybacking arrangement rather than 

directly with the carrying firm. 

(4) Furnishing of Customer Complaints 

and Reports 

As proposed in the Notice, proposed 

FINRA Rule 4311(g)(1)(A) provides that 

each carrying agreement must authorize 

and direct the carrying firm to furnish 

promptly to the introducing firm and 

introducing firm’s DEA, or, if none, its 

appropriate regulatory body, any written 

customer complaint regarding the 

introducing firm and its associated 

persons. Proposed FINRA Rule 

4311(h)(2) provides that no later than 

July 1 of each year the carrying firm 

must notify certain officers of the 

introducing firm of a list of reports 

supplied to the introducing firm, and 

that a copy of such notification must be 

provided to the same authorities as 

specified under Rule 4311(g)(1)(A). One 

commenter suggested that, if the 

proposed requirements apply to nonU.S. introducing firms, they could 

present difficulties for members because 

some non-U.S. regulatory authorities are 

not accustomed to or prepared for the 

receipt of such information.41 The 

commenter suggested that FINRA 

should engage in additional 

international coordination efforts and 

industry discussions. 

In response, FINRA notes that the 

proposed rule does extend to non-U.S. 

introducing firms and, accordingly, the 

requirement to provide information to 

foreign regulators may apply. FINRA 

believes that the proposed requirement 

is consistent with the goal of 

strengthening international regulatory 

coordination and is conducive to 

investor protection, and further notes 

that the requirement exists under 

current rules. Though FINRA has not 

revised the proposed rule with respect 

to this issue, FINRA notes that it plans 

to engage in coordination and education 

efforts with such bodies as IOSCO, and 

will consider whether any future 

changes are necessary based on such 

discussions. 

(C) Proposed FINRA Rule 4522 (Periodic 

Security Counts, Verifications and 

Comparisons) 

As proposed in the Notice, proposed 

FINRA Rule 4522 imposes certain 

requirements on members that are 

subject to SEA Rule 17a–13. One 

commenter requested clarification as to 

whether members that are exempt from 

Rule 17a–13 would also be exempt from 

the proposed rule, notwithstanding that 

such members may be carrying or 

clearing firms.42 In response, FINRA has 

clarified that the proposed rule, by its 

terms, does not apply to members that 

are exempt from SEA Rule 17a–13.43

(D) Proposed FINRA Rule 4523 

(Assignment of Responsibility for 

General Ledger Accounts and 

Identification of Suspense Accounts) 

One commenter sought clarification 

as to whether the proposed rule is 

intended only to cover general ledger 

accounts used by the member and not 

the general ledger accounts of the 

corporate complex to which the member 

belongs.44 Two commenters suggested 

that the proposed rule should be revised 

so as to permit flexibility with respect 

to members’ supervisory obligations.45

One of the two suggested the proposed 

rule should incorporate a concept of 

reasonable supervision and policies and 

procedures reasonably designed to 

achieve compliance; the commenter 

further suggested that FINRA should 

strike from the proposed rule the 

requirement that the person responsible 

for the account must determine ‘‘at all 

times’’ that the account is current and 

accurate.46 The second of the two 

commenters suggested that there should 

be an exemption for small firms so that 

the person assigned responsibility for 

general ledger bookkeeping would also 

be the person exercising the supervisory 

functions that the proposed rule sets 

forth.47 The same commenter also 

sought clarification as to what 

evidentiary proof of review of the 

account would be required under the 

rule. 

In response, FINRA appreciates the 

concerns that small firms may have with 

respect to supervision of general ledger 

accounts. As a general matter FINRA 

does not believe it is appropriate, from 

the standpoint of investor protection, 

that the same person assigned 

responsibility for the accounts also be 

the person exercising the supervisory 

functions set forth in the rule. However, 

in view of the circumstances of small 

firms, FINRA has revised the proposed 

rule to allow each member with only 

one associated person to assign primary 

and supervisory responsibility for each 

account to that associated person; 

members of limited size and resources 

would be able to seek FINRA’s prior 

written approval to assign primary and 

supervisory responsibility for each 

account to the same associated person.48

With respect to the requirement, as set 

forth in the rule as proposed in the 

Notice, to ensure such accounts are 

current and accurate ‘‘at all times,’’ 

FINRA notes the particular importance 

of this subject matter. FINRA believes 

that requiring the accounts be accurate 

‘‘at all times’’ is consistent with SEA 

Rule 15c3–1(a), which governs net 

capital requirements, and requires a 

broker-dealer to maintain its required 

net capital continuously and 

demonstrate moment-to-moment 

compliance.49 However, in response to 

commenter suggestion, FINRA has 

revised proposed FINRA Rule 4523(a) to 

clarify that the obligation imposed by 

the rule is to ensure that the general 

ledger 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. Further, FINRA notes that 

the rule’s requirements only apply to 

the general ledger account of the 

member, as opposed to the corporate 

complex to which the member belongs. 

Lastly, with respect to maintaining 

records that give evidence of the 

supervisory review, FINRA notes that 

FINRA expects members to keep such 

records as would reasonably 

demonstrate that the supervision 

required by the proposed rule is being 

carried out. (In the interest of clarity 

with respect to record-retention 

requirements, FINRA notes that it has 

revised proposed FINRA Rules 4523(b) 

and (c) to require that all records made 

pursuant to each of those rules must be 

preserved for a period of not less than 

six years, the period set forth in SEA 

Rule 17a–4(a)). 

(E) Miscellaneous Comments 

In FINRA’s separate rule filing 

regarding the proposed consolidated 

financial responsibility rules, FINRA 

has proposed certain regulatory 

treatment of firms that operate pursuant 

to the exemptive provisions of SEA Rule 

15c3–3(k)(2)(i).50 Regarding such 

treatment, one commenter on the Notice 

raised concerns that the commenter 

expressed in virtually identical language 

in a letter submitted to the SEC on SR– 


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51CAI. 

52See letter to Elizabeth M. Murphy, Secretary, 

U.S. Securities and Exchange Commission, from 

Adam H. Arkel, Assistant General Counsel, FINRA, 

dated April 14, 2009. See also Partial Amendment 

No. 2 to SR–FINRA–2008–067 (June 30, 2009). 

53 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3 17 CFR 240.19b–4(f)(6). 

4See Exchange Act Release No. 62434 (July 1, 

2010; 75 FR 39603 (July 9, 2010); SR–FINRA–2009– 

089 (Order Approving Proposed FINRA Rule 6490 

(Processing of Company-Related Actions) to Clarify 

the Scope of FINRA’s Authority When Processing 

Documents Related to Announcements for 

Company-Related Actions for Non-Exchange Listed 

Securities and To Implement Fees for Such 

Services). 

5 17 CFR 240.10b–17. 

FINRA–2008–067.51 Because FINRA has 

already responded to the commenter’s 

concerns in a separate letter that is 

available on the SEC Web site,52 FINRA 

will not re-address them in connection 

with this filing. 

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–2010–061 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 

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 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 

December 22, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.53

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2010–30229 Filed 11–30–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63373; File No. SR–FINRA 

2010–057] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change to Permit a One-Time 

Waiver of Late Fees Assessable 

Pursuant to FINRA Rule 6490 

November 24, 2010. 

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 November 

12, 2010, Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) filed with the 

Securities and Exchange Commission 

(the ‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by FINRA. FINRA has designated the 

proposed rule change as constituting a 

‘‘non-controversial’’ rule change under 

paragraph (f)(6) of Rule 19b–4 under the 

Act.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 Substance of 

the Proposed Rule Change 

FINRA is filing the proposed rule 

change to grant a one-time waiver of 

certain late fees under FINRA Rule 

6490. The proposed rule change would 

not make any changes to the text of 

FINRA Rule 6490. 

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 

self-regulatory organization 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 those 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 parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

On September 27, 2010, FINRA Rule 

6490 (Processing of Company-Related 

Actions) (the ‘‘Rule’’) became effective.4

The Rule codifies in the FINRA 

rulebook a requirement that exists under 

Rule 10b–17 of the Act.5 Specifically, 

Rule 10b–17 of the Act requires that 

issuers of a class of publicly traded 

securities provide timely notice to 

FINRA of certain corporate actions 

(‘‘Company-Related Action Notice’’) 

including, among other things, notice of 

dividends or other distributions of cash 

or securities, stock splits or reverse 

splits or rights or subscription offerings. 

The Rule clarifies the scope of FINRA’s 

regulatory authority and discretionary 

power when processing documents 

related to announcements of companyrelated actions for non-exchange-listed 

equity and debt securities, and 

implements fees for these services. 

Issuers must complete the necessary 

forms and pay the applicable fees 


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