8772 Federal Register / Vol. 75, No. 37 / Thursday, February 25, 2010 / Notices 

6 17 CFR 240.17a–5(c). 

7SEC Rule 17a–5(c)(5) contains a conditional 

exemption from the requirement that broker-dealers 

semi-annually send customers a full balance sheet. 

Under the exemption, a broker-dealer can semiannually send its customers summary information 

regarding its net capital, as long as it also provides 

customers with a toll-free number to call for a free 

copy of its full balance sheet, makes its full balance 

sheet available to customers on its Web site, and 

meets other specified requirements. See Securities 

Exchange Act Release No. 48272 (August 1, 2003), 

68 FR 46446 (August 6, 2003). 

8 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

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

9 15 U.S.C. 78o–3(b)(6). 

10 15 U.S.C. 78s(b)(2). 

11 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). 

4See Securities Exchange Act Release No. 61302 

(January 6, 2010), 75 FR 1672 (January 12, 2010). 

with such member’s usual practice or as 

required by any State or Federal 

securities laws, or any rule or regulation 

thereunder. 

FINRA proposed amending the 

requirements of NASD Rule 2270 to 

provide an alternative means of 

satisfying the requirement that members 

make balance sheet information 

available to bona fide regular customers. 

Currently, the rule requires that 

members ‘‘make available to inspection 

by any bona fide regular customer, upon 

request, the information relative to such 

member’s financial condition as 

disclosed in its most recent balance 

sheet * * *.’’ FINRA proposed 

providing members with the option of 

delivering their balance sheet, in paper 

or electronic form, to customers who 

request it. With respect to electronic 

delivery, the requesting customer must 

consent to receive the balance sheet in 

electronic form to ensure that such 

information is accessible to the 

customer. FINRA did not propose 

requiring members to deliver their 

balance sheet to all customers (instead 

of making them available to inspection 

or delivering them upon request) 

because Rule 17a–5(c) under the Act 6

generally requires a broker-dealer that 

carries customer accounts to send its 

full balance sheet and certain other 

financial information to each of its 

customers twice a year.7 NASD Rule 

2270 provides customers with 

additional access to their broker’s 

balance sheet information by requiring 

that members permit customers to 

inspect or obtain a copy of a member’s 

most recent balance sheet at any time 

upon request. 

NASD Rule 2910 requires any 

member that is a party to an open 

transaction or who has on deposit cash 

or securities of another member to 

furnish, upon the written request of the 

other member, a statement of its 

financial condition as disclosed in its 

most recently prepared balance sheet. 

FINRA proposed amending the 

provisions of NASD Rule 2910 to 

require, consistent with NASD Rule 

2270, that members provide to other 

members the balance sheet that was 

‘‘prepared either in accordance with 

such member’s usual practice or as 

required by any State or Federal 

securities laws, or any rule or regulation 

thereunder.’’ In addition, FINRA 

proposed that members be permitted to 

provide their balance sheet to other 

members in paper or electronic form. 

However, unlike the proposed 

amendments to NASD Rule 2270, 

FINRA did not propose requiring 

members to obtain the consent of other 

members to electronically deliver the 

balance sheet. FINRA believes that other 

members, unlike all customers, will be 

equipped to receive electronic delivery. 

FINRA believes that the requirements 

of NASD Rule 2270 and NASD Rule 

2910 continue to provide access to 

important information by allowing 

customers and other members to have 

access to a copy of a member’s most 

recent balance sheet at any time upon 

request and should be transferred, as 

amended, to the Consolidated FINRA 

Rulebook as FINRA Rule 2261. 

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 Commission finds that the 

proposed rule change is consistent with 

the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

association.8 In particular, the 

Commission finds that the proposal is 

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

Act,9 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, and, in 

general, to protect investors and the 

public interest. The Commission 

believes that the proposed rule change 

will further the purposes of the Act by, 

among other things, ensuring that basic, 

current information regarding the 

financial condition of members with 

which customers and other members 

conduct business is available upon 

request. The Commission therefore 

believes that it is appropriate and 

consistent with the Act for FINRA to 

Adopt FINRA Rule 2261 (Disclosure of 

Financial Condition) in the 

Consolidated FINRA Rulebook. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,10 that the 

proposed rule change (SR–FINRA– 

2009–081) is approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.11

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–3778 Filed 2–24–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–61537; File No. SR–FINRA– 

2009–095] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Approving 

Proposed Rule Change To Adopt 

FINRA Rule 3240 (Borrowing From or 

Lending to Customers) in the 

Consolidated FINRA Rulebook 

February 18, 2010. 

I. Introduction 

On December 31, 2009, 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’’), 

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

Securities Exchange Act of 1934 

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

proposed rule change to adopt NASD 

Rule 2370 (Borrowing From or Lending 

to Customers) as FINRA Rule 3240 

(Borrowing From or Lending to 

Customers) in the Consolidated FINRA 

Rulebook 3 with certain changes and to 

delete Incorporated NYSE Rules 352(e) 

(Limitations on Borrowing From or 

Lending to Customers), (f) (Loan 

Procedures) and (g). The proposed rule 

change would also add a Supplementary 

Material section regarding record 

retention requirements to proposed 

FINRA Rule 3240. The proposed rule 

change was published for comment in 

the Federal Register on January 12, 

2010.4 The Commission received no 


jlentini on DSKJ8SOYB1PROD with NOTICES
Federal Register / Vol. 75, No. 37 / Thursday, February 25, 2010 / Notices 8773 

5For convenience, the Incorporated NYSE Rules 

are referred to as the NYSE Rules. 6NYSE Rules 352(a) through (d) were deleted as 

part of a prior rule change. See Securities Exchange 

Act Release No. 60701 (September 21, 2009), 74 FR 

49425 (September 28, 2009) (Order Approving File 

No. SR–FINRA–2009–014). 

7NASD Rule 2370 defines the term ‘‘immediate 

family’’ to include parents, grandparents, mother-inlaw or father-in-law, husband or wife, brother or 

sister, brother-in-law or sister-in-law, son-in-law or 

daughter-in-law, children, grandchildren, cousin, 

aunt or uncle, or niece or nephew, and any other 

person whom the registered person supports, 

directly or indirectly, to a material extent. 

8The fact that a registered person can negotiate 

a better rate or terms for a loan that is not the 

product of the broker-customer relationship would 

not vitiate the idea that the loan occurred on terms 

generally offered to the public. See Notice to 

Members 04–14 (March 2004). 

9 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

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

comments on the proposed rule change. 

This order approves the proposed rule 

change. 

II. Description of the Proposed Rule 

Change 

FINRA proposed adopting NASD Rule 

2370 as FINRA Rule 3240 in the 

Consolidated FINRA Rulebook with 

certain changes as described below. 

FINRA also proposed deleting 

Incorporated NYSE Rules 352(e) 

through (g) 5 from the Transitional 

Rulebook.6 Further, the proposed rule 

change would also add a Supplementary 

Material section regarding record 

retention requirements to proposed 

FINRA Rule 3240. 

A. Background 

The purpose of NASD Rule 2370 is to 

give FINRA member broker-dealers the 

opportunity to evaluate the 

appropriateness of particular lending 

arrangements between their registered 

persons and customers, to the extent 

permitted by the member, and the 

potential for conflicts of interests 

between both the registered person and 

his or her customer and the registered 

person and the member with which he 

or she is associated. 

To that end, NASD Rule 2370 

prohibits registered persons from 

borrowing money from or lending 

money to their customers (collectively 

referred to as ‘‘lending arrangements’’) 

unless certain conditions are met. 

Specifically, under Rule 2370, no 

registered person may borrow money 

from or lend money to his or her 

customer unless the firm has written 

procedures allowing such lending 

arrangements and (1) the customer is a 

member of the registered person’s 

immediate family; 7 (2) the customer is 

in the business of lending money; (3) 

the customer and the registered person 

are both registered persons of the same 

firm; (4) the lending arrangement is 

based on a personal relationship outside 

of the broker-customer relationship; or 

(5) the lending arrangement is based on 

a business relationship outside of the 

broker-customer relationship. In 

addition, with the exception of lending 

arrangements between immediate family 

members and lending arrangements 

between registered persons and 

customers in the business of lending 

money, FINRA members are required to 

pre-approve in writing the other lending 

arrangements described above. 

With respect to lending arrangements 

between immediate family members, a 

FINRA member’s written procedures 

may indicate that the member permits 

such lending arrangements and that 

registered persons need not notify the 

member or receive member approval for 

such lending arrangements. 

For lending arrangements between 

registered persons and customers in the 

business of lending money, a member’s 

written procedures may indicate that 

registered persons are not required to 

notify the member or receive member 

approval for such lending arrangements, 

provided that such lending 

arrangements have been made on 

commercial terms that the customer 

generally makes available to members of 

the general public who are similarly 

situated as to need, purpose and 

creditworthiness.8 Further, the member 

need not investigate such lending 

arrangements, but may rely on the 

registered person’s representation that 

the terms of the loan meet these 

standards. 

It is important to note that members 

can choose to permit registered persons 

to borrow money from or lend money to 

their customers consistent with the 

requirements of the rule or prohibit the 

practice in whole or in part. 

NYSE Rules 352(e) through (g) also 

govern lending arrangements between 

registered persons and their customers. 

These provisions are substantially 

similar to the provisions of NASD Rule 

2370, with one exception. NYSE Rule 

352(f) provides an exception from the 

pre-approval requirements of the rule 

for loans totaling $100 or less between 

registered persons of the same firm. 

B. Proposal 

FINRA proposed adopting NASD Rule 

2370 as FINRA Rule 3240 in the 

Consolidated FINRA Rulebook, subject 

to the following changes. FINRA 

proposed amending paragraph (a) 

(Permissible Lending Arrangements; 

Conditions) of the rule to indicate more 

explicitly that such arrangements are 

subject to the procedural requirements 

set forth in paragraph (b) (Notification 

and Approval) of the rule. FINRA also 

proposed amending paragraph (a)(2)(B) 

of the rule regarding permissible 

lending arrangements between 

registered persons and customers in the 

business of lending money to indicate 

more explicitly that such customers 

must be acting in the course of such 

business. 

Further, FINRA proposed amending 

paragraph (b)(1) of the rule to require 

expressly that registered persons notify 

their member firms of the lending 

arrangements that require member preapproval (FINRA proposed this change 

for purposes of consistency with 

paragraphs (b)(2) and (3) of the rule, 

which provide that a registered person 

is not required either to notify the 

member or receive member approval for 

certain specified lending arrangements) 

and to clarify that any modifications to 

such lending arrangements (including 

any extension of the duration of such 

arrangements) are also subject to 

notification and member pre-approval. 

In addition, FINRA proposed 

amending the definition of ‘‘immediate 

family’’ in paragraph (c) (Definition of 

Immediate Family) of the rule to replace 

the reference that the term ‘‘includes’’ 

the enumerated persons to reflect that 

the term ‘‘means’’ such persons. Finally, 

FINRA proposed adding Supplementary 

Material .01 (Record Retention) 

requiring that members preserve the 

written pre-approval required by the 

rule for at least three years after the date 

that the lending arrangement has 

terminated or for at least three years 

after the registered person’s association 

with the member has terminated. FINRA 

proposed deleting NYSE Rules 352(e) 

through (g) as the provisions of the 

NYSE rules are substantially similar to 

NASD Rule 2370. 

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 180 days following Commission 

approval. 

III. Discussion and Findings 

After a careful review of the proposal, 

the Commission finds that the proposed 

rule change is consistent with the 

requirements of the Exchange Act and 

the rules and regulations thereunder 

applicable to FINRA.9 In particular, the 

Commission finds that the proposed 

rule change is consistent with Section 


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8774 Federal Register / Vol. 75, No. 37 / Thursday, February 25, 2010 / Notices 

10 15 U.S.C. 78o–3(b)(6). 

11 15 U.S.C. 78s(b)(2). 

12 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Exchange Act Release No. 40157, File No. SR– 

Amex–96–44 (July 1, 1998) 63 FR 37426 (July 10, 

1998). 

4SR–Amex–96–44 was also silent on the manner 

of expressing strike prices and premium bids and 

offers, thus it is necessary to define them in this 

filing. 

5See Securities Exchange Act Release No. 56351 

(September 4, 2007); see also Securities Exchange 

Act Release No. 52649 (October 21, 2005), 70 FR 

62146 (October 28, 2005) (SR–Amex–2005–063) 

(‘‘NDX Approval Order’’); see also Securities 

Exchange Act Release No. 46393 (August 21, 2002), 

67 FR 55289 (August 28, 2002) (SR–Amex–2002– 

31) (‘‘XMI/XII Permanent Approval Order’’). 

15A(b)(6) of the Exchange Act,10 which 

requires, among other things, that 

FINRA’s rules be designed to prevent 

fraud and manipulative practices and to 

promote just and equitable principles of 

trade and, in general, to protect 

investors and the public interest. The 

Commission believes that the proposed 

rule change is reasonably designed to 

achieve these ends by providing FINRA 

member broker-dealers the opportunity 

to evaluate the appropriateness of 

certain lending arrangements between 

their registered persons and others, to 

the extent permitted by a FINRA 

member broker-dealer, and the potential 

that these lending arrangements could 

create certain conflicts of interest. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act,11

that the proposed rule change (SR– 

FINRA–2009–095) be, and hereby is, 

approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.12

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–3775 Filed 2–24–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–61535; File No. SR– 

NYSEAmex–2010–14] 

Self-Regulatory Organizations; NYSE 

Amex LLC; Notice of Filing of 

Proposed Rule Change Amending 

Position Limits for Certain Exchange 

Traded Funds 

February 18, 2010. 

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

Securities Exchange Act of 1934 (‘‘Act’’ 

or ‘‘Exchange Act’’) 1 and Rule 19b–4 

thereunder,2 notice is hereby given that 

on February 17, 2010, NYSE Amex LLC 

(‘‘NYSE Amex’’ or ‘‘Exchange’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by the Exchange. 

The Commission is publishing this 

notice to solicit comments on the 

proposed rule change from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to (a) amend 

the Position Limits for certain highly 

liquid Exchange Traded Funds (‘‘ETFs’’); 

(b) memorialize a previously approved 

provision that was never inserted in the 

Exchange’s Rules, as well as clarify its 

applicable scope, and (c) amend certain 

rules to define certain contract terms. 

The text of the proposed rule change is 

available on NYSE Amex’s Web site at 

(http://www.nyse.com), on the 

Commission’s Web site at http:// 

www.sec.gov, at NYSE Amex, 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 

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. 

The Exchange 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 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of this filing is to (a) 

eliminate Position Limits in certain 

highly active ETFs, (b) memorialize a 

previously approved provision that was 

never inserted in the Exchange’s Rules, 

as well as clarify its applicable scope, 

and (c) amend certain rules to define 

certain contract terms. The provision at 

issue—allowing for option contracts on 

ETFs that overly 1,000 shares (‘‘Jumbo 

options’’)—was approved in 1998, but 

did not include changes to Rule Text at 

that time.3 In order to resume listing 

these products, the Exchange is 

proposing to restrict the listing of Jumbo 

options to four specific ETFs that have 

no Position Limit (as proposed below), 

and also define how strike prices and 

premiums will be expressed for Jumbo 

contracts by amending Rule 903 and 

Rule 959NY.4

Position Limits 

Four ETFs have been approved under 

NYSE Amex Rule 904 to have 

exceptional Position Limits. These are 

NASDAQ 100 Tracking Stock (QQQQ); 

SPDR S&P 500 ETF (SPY); iShares 

Russell 2000 Index Fund (IWM); and 

DIAMONDS Trust (DIA). NYSE Amex 

proposes that these four ETFs have no 

Position Limit. 

Position and Exercise limits were 

introduced as a means of forestalling the 

potential manipulation of an equity’s 

price by someone that established a 

large option position. This concern was 

mitigated with cash settled index 

options since the contract settled for 

cash as opposed to physical shares of 

stock. Additionally, those index options 

whose position limits have been 

eliminated are based on a broad based 

index comprised of many equities 

further mitigating concerns about 

manipulation through the establishment 

and subsequent exercise of a large 

options position. This resulted in a 

repeal of position and exercise limits for 

the options on the aforementioned 

broad based indexes.5

While ETF options are physically 

settled, NYSE Amex feels that there are 

specific aspects related to an ETF’s 

structure that serve to mitigate any 

concerns about manipulation and allow 

eliminating position limits on a narrow 

subset of the ETF option universe. First, 

ETF’s are structured as open-ended 

trusts or mutual funds that can 

continually issue new shares as required 

to satisfy demand. This is in sharp 

contrast to an equity that has a float that 

is only increased by corporate action 

and is not a function of investor 

demand. Second, the ETF itself is 

comprised of a basket of stocks, 

specifically those that comprise a 

benchmark broad based index. 

Additionally, in approving the 

elimination of position and exercise 

limits for RUT, NDX, DJX, and SPX 

options, the Commission considered the 

capitalization of the components of each 

of these indexes and the deep and liquid 

markets for the securities underlying 

each index significantly reduced 

concerns of market manipulation or 

disruption in the underlying markets. 

Shares in these four underlying ETFs 

have exceptionally high trading volume, 

demonstrating extraordinary liquidity. 

The volume for each of these ETFs for 


jlentini on DSKJ8SOYB1PROD with NOTICES