Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 9459 

21See BATS Rule 5.5, Commentary .01. 

22 15 U.S.C. 78s(b)(2). 

23See Securities Exchange Act Release No. 53128 

(Jan. 13, 2006), 71 FR 3550 (January 23, 2006) 

(adopting Nasdaq IM–2110–2; IM–2110–3; IM– 

2110–4, and Rule 3010); 60604 (September 1, 2009), 

74 FR 46272 (September 8, 2009) (SR–NYSEArca– 

2009–78). 

24 15 U.S.C. 78s(b)(2). 25 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 If this proposed rule change is approved by the 

Commission, the By-Laws of NASD Dispute 

Resolution will be redesignated as the ‘‘By-Laws of 

FINRA Dispute Resolution.’’ 

maintain and enforce written 

procedures reasonably designed to 

prevent the misuse of material nonpublic information by the Member or 

persons associated with the Member. 

The misuse of material non-public 

information includes trading in a 

security or related securities or options 

or other derivative securities, while in 

possession of material non-public 

information concerning the issuer, or 

while in possession of material nonpublic information concerning 

imminent transactions in the security or 

related securities.21 The Exchange also 

proposes to add BATS Rule 12.13, 

which will prohibit a Member from 

establishing, increasing, decreasing or 

liquidating an inventory position in a 

security or derivative of that security 

based on advance non-public 

knowledge of the content or timing of a 

research report concerning that security. 

Further, BATS Rules 5.1, 5.2, 5.3 and 

5.4, which relate to a Member’s 

responsibilities or obligations related to 

conduct or supervision, will continue to 

apply. For example, BATS Rule 5.1 

requires BATS Members to ‘‘establish, 

maintain and enforce written 

procedures which will enable it to 

supervise properly the activities of 

associated persons of the Member and to 

assure their compliance with applicable 

securities laws, rules, regulations and 

statements of policy promulgated 

thereunder, with the rules of the 

designated self-regulatory organization, 

where appropriate, and with Exchange 

Rules.’’ In addition, BATS Rule 5.4 

requires BATS Members to ‘‘review the 

activities of each office, which shall 

include the periodic examination of 

customer accounts to detect and prevent 

irregularities or abuses.’’ These rules 

thus provide additional clarification 

that the supervisory systems and 

internal inspections of Members must 

be reasonably designed to achieve 

compliance with applicable securities 

laws and regulations and with 

applicable BATS rules, including those 

relating to the misuse of material nonpublic information. 

Pursuant to this proposal rule change, 

Members may utilize the flexible, 

principles-based approach to modify 

their policies and procedures as 

appropriate to reflect changes to their 

business model, business activities, or 

to the securities market itself. A Member 

should be proactive in assuring that its 

policies and procedures reflect the 

current state of its business and 

continue to be reasonably designed to 

achieve compliance with applicable 

federal securities law and regulations, 

and with applicable Exchange rules. In 

addition, the Commission notes that, 

while information barriers are not 

specifically required under the 

proposal, a Member’s business model or 

business activities may dictate that an 

information barrier or a functional 

separation be part of the appropriate set 

of policies and procedures that would 

be reasonably designed to achieve 

compliance with applicable securities 

law and regulations, and with 

applicable Exchange rules. In this 

regard, the Exchange included in 

Interpretation and Policy .02 to 

amended BATS Rule 5.5 a statement 

that the adequacy of each Member’s 

policies and procedures relating to the 

misuse of material non-public 

information will depend upon the 

nature of such Member’s business. 

The Commission believes that the 

regulatory approach in this proposed 

rule change is substantially similar to 

the regulatory approach of Nasdaq and 

NYSE Arca. In particular, the BATS 

approach, like the Nasdaq and NYSE 

Arca approach, (i) enumerates the 

conduct that is prohibited by its 

members, including the potential 

misuse of material non-public 

information and (ii) provides for the 

policies and procedures that must be 

reasonably designed to ensure 

compliance with the same. In addition, 

the Commission notes that the Exchange 

has represented that its current 

examination procedure for the review of 

appropriate supervisory systems and 

procedures will remain in place. 

The Commission also finds good 

cause, pursuant to Section 19(b)(2) of 

the Act,22 for approving the proposed 

rule change prior to the 30th day after 

the date of publication of notice in the 

Federal Register. Although this 

proposed rule change does not require 

that Members maintain specificallyprescribed information barriers, it will 

continue to mandate that Members 

establish and maintain a set of policies 

and procedures reasonably designed to 

achieve compliance with applicable 

securities law and regulations, and with 

applicable Exchange rules. As such, the 

Exchange is adopting an approach that 

is substantially similar to the approach 

currently employed by Nasdaq and 

NYSE Arca.23

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,24 that the 

proposed rule change (SR–BATS–2010– 

003) be, and it hereby is, approved on 

an accelerated basis. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.25

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–4230 Filed 3–1–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–61575; File No. SR–FINRA– 

2010–007] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Proposed Rule Change To Amend the 

By-Laws of NASD Dispute Resolution 

February 23, 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 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’’) on January 22, 

2010, the proposed rule change as 

described in Items I, II, and III below, 

which Items have been substantially 

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 amend the ByLaws of NASD Dispute Resolution.3

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 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES

9460 Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 

4See Securities Exchange Act Release No. 56145 

(July 26, 2007), 72 FR 42169 (August 1, 2007), as 

amended by Securities Exchange Act Release No. 

56145A (May 30, 2008), 73 FR 32377 (June 6, 2008) 

(File No. SR–NASD–2007–023). 

5See Securities Exchange Act Rel. No. 58626 

(Sept. 23, 2008), 73 FR 56872 (Sept. 30, 2008) (File 

No. SR–FINRA–2008–046, Notice of Filing and 

Amendment No. 1). 

6See Securities Exchange Act Rel. No. 58909 

(Nov. 6, 2008), 73 FR 68467 (Nov. 18, 2008). 

7See Securities Exchange Act Rel. No. 59696 

(Apr. 2, 2009), 74 FR 16020 (Apr. 8, 2009) (File No. 

SR–FINRA–2009–020). 

8See Securities Exchange Act Rel. No. 59962 

(May 21, 2009), 74 FR 25792 (May 29, 2009) (Order 

Approving SR–FINRA–2009–020). 

9See Securities Exchange Act Rel. No. 41971 

(Sept. 30, 1999), 64 FR 55793 (Oct. 14, 1999) (Order 

Approving a Proposed Rule Change by the National 

Association of Securities Dealers, Inc. to Create a 

Dispute Resolution Subsidiary). 

10See FINRA Manual, Corporate Organization, 

Plan of Allocation & Delegation of Functions by 

NASD to Subsidiaries, NASD Dispute Resolution, 

Section III (A)(1)(a) and (c). 

11FINRA’s Board of Governors consists of 21 

members, 11 of whom are public members. See 

FINRA By-Laws, Article I(ss) and I(tt), definitions 

of Public Director and Public Governor, 

respectively. The Regulation Policy Committee is 

comprised of seven public, five industry, and two 

neutral members of FINRA’s Board of Governors. 

The two neutral members are the Chief Executive 

Officers of FINRA and NYSE Regulation, Inc. 

FINRA’s By-Laws require that FINRA’s committees 

consist of a majority public members. See FINRA 

By-Laws, Article IX (Committees—Appointment), 

section 1(b). 

12FINRA’s Chair and Chief Executive Officer is 

an ex-officio, non-voting member of the FINRA 

Regulation and FINRA Dispute Resolution Boards 

of Directors. 

13Supra note 3. 

14Supra note 7. 

15Public Law 106–102, 113 Stat. 1338 (1999). 

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 

Background on FINRA and Its 

Subsidiaries 

On July 30, 2007, NASD and the New 

York Stock Exchange (‘‘NYSE’’) 

consolidated their member firm 

regulation and dispute resolution 

operations into a combined 

organization, FINRA.4 As part of the 

consolidation, the SEC approved 

amendments to the NASD By-Laws to 

implement governance and related 

changes. The resulting FINRA By-Laws 

included a FINRA Board governance 

structure that balanced public and 

industry representation and designated 

seven governor seats to represent 

member firms of various sizes based on 

the criteria of firm size. 

On September 8, 2008, FINRA filed a 

proposal with the SEC to amend the ByLaws of FINRA’s regulatory subsidiary 

(‘‘FINRA Regulation’’) to realign the 

representation of industry members on 

the National Adjudicatory Council 

(‘‘NAC’’) to follow more closely the 

industry representation on the FINRA 

Board of Governors (‘‘FINRA Board’’), to 

eliminate the Regional Nominating 

Committees, to transfer such 

committees’ responsibilities for NAC 

industry appointments to the FINRA 

Nominating Committee (‘‘Nominating 

Committee’’), and to change the name of 

‘‘NASD Regulation’’ and ‘‘NASD’’ to 

‘‘FINRA Regulation ’’ and ‘‘FINRA’’ 

respectively.5 The SEC approved the 

amendments to FINRA Regulation’s ByLaws on November 6, 2008.6

On March 27, 2009, FINRA filed a 

proposal with the SEC to amend further 

the By-Laws of FINRA Regulation to 

modify the FINRA Regulation Board 

(‘‘FINRA Regulation Board’’) 

composition, to adopt changes to 

conform the FINRA Regulation By-Laws 

to the FINRA By-Laws, and to reflect the 

corporate name change and similar 

matters.7 The SEC approved the 

amendments to FINRA Regulation’s ByLaws on May 21, 2009.8

FINRA Dispute Resolution (formerly 

known as NASD Dispute Resolution) is 

a subsidiary of FINRA that operates 

according to the Plan of Allocation and 

Delegation of Functions by NASD to 

Subsidiaries (‘‘Delegation Plan’’), as 

amended,9 which NASD adopted first in 

1996. Pursuant to the Delegation Plan, 

FINRA’s dispute resolution subsidiary 

conducts arbitration, mediation and 

other dispute resolution programs and 

interprets rules and regulations 

pertaining to its dispute resolution 

programs.10 NASD Dispute Resolution’s 

By-Laws were not amended at the time 

of the consolidation. Now that the 

consolidation has been completed and 

amendments to FINRA Regulation’s ByLaws have been approved, FINRA 

believes NASD Dispute Resolution’s ByLaws should be updated. 

In July 2007, when NASD and the 

NYSE consolidated their member firm 

regulation and dispute resolution 

operations, FINRA created a Regulation 

Policy Committee of the Board of 

Governors, the members of which are 14 

Governors from FINRA’s Board of 

Governors.11 The members of the 

Regulation Policy Committee also serve 

as the Directors of the FINRA Regulation 

and FINRA Dispute Resolution Boards 

of Directors.12 The Commission 

approved the composition of FINRA’s 

committees when it approved 

amendments to FINRA’s By-Laws on 

July 26, 2007.13 The Commission also 

approved the composition of FINRA 

Regulation’s Board of Directors when it 

approved amendments to FINRA’s ByLaws on May 21, 2009.14 When the 

FINRA Regulation and FINRA Dispute 

Resolution Boards of Directors meet, 

they act in their respective capacities as 

directors of those subsidiaries. The 

FINRA Dispute Resolution Board of 

Directors continues to oversee the 

management of FINRA Dispute 

Resolution, establish policies and 

procedures, and monitor the use of 

financial resources, among other things. 

Proposal To Amend NASD Dispute 

Resolution’s By-Laws 

FINRA is proposing to amend the 

NASD Dispute Resolution By-Laws to: 

(1) Modify the composition of the 

FINRA Dispute Resolution Board; (2) 

adopt changes to conform the NASD 

Dispute Resolution By-Laws to the 

FINRA By-Laws; and (3) implement 

other conforming changes to reflect the 

corporate name change and other 

similar matters. The proposed 

amendments to NASD Dispute 

Resolution By-Laws are modeled on 

those of the FINRA and FINRA 

Regulation By-Laws (which, as 

discussed above, were both previously 

approved by the Commission), with 

modifications, described below, as 

appropriate to the particular functions 

of FINRA Dispute Resolution. 

The following discussion addresses 

the proposed amendments to NASD 

Dispute Resolution’s By-Laws under the 

article of the By-Laws of NASD Dispute 

Resolution in which the amendments 

would first appear. 

Amendments to Article I—Definitions 

Article I of the NASD Dispute 

Resolution By-Laws contains definitions 

of terms used in the By-Laws. FINRA is 

proposing to add to or amend some of 

these definitions. 

Broker and Dealer 

FINRA is proposing to amend the 

definitions of ‘‘broker’’ and ‘‘dealer’’ in 

Article I of the By-Laws of NASD 

Dispute Resolution to conform them to 

the definitions of ‘‘broker’’ and ‘‘dealer’’ 

in the Act, as amended by the GrammLeach-Bliley Act of 1999.15 As 

proposed, FINRA would incorporate by 

reference the definitions of the terms 

‘‘broker’’ and ‘‘dealer’’ as set forth in 

Sections 3(a)(4) and 3(a)(5), 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES

Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 9461 

16 15 U.S.C. 78c(a)(4) and (a)(5). 

17See Securities Exchange Act Rel. No. 44052 

(March 8, 2001), 66 FR 15157 (March 15, 2001) (File 

No. SR–NASD–01–13). 

18Supra note 3. 

19The new term ‘‘electronic transmission’’ would 

be added as proposed Article I(k) of the By-Laws 

of NASD Dispute Resolution. 

20The new term ‘‘FINRA member’’ would be 

added as proposed Article I(o) of the By-Laws of 

NASD Dispute Resolution. 

21Rule 12100(o) of the Customer Code (definition 

of member) and Rule 13100(o) of the Industry Code 

(definition of member). In July 2007, the SEC 

approved an amendment to the Codes to clarify the 

term ‘‘member.’’ See Securities Exchange Act Rel. 

No. 56029 (July 9, 2007), 72 FR 38641 (July 13, 

2007) (File No. SR–NASD–2007–038). 

22The term ‘‘Industry Director’’ will be defined in 

proposed Article I(r); ‘‘Industry Member’’ in 

proposed Article I(s). 

23See FINRA By-Laws, Article I(s) and I(t). 

24See FINRA By-Laws, Article I(t). 

25The term ‘‘Public Director’’ will be defined in 

proposed Article I(w); ‘‘Public Member’’ in proposed 

Article I(x). 

26Under the FINRA Regulation’s By-Laws, the 

definitions of Industry Member and Public Member 

contain a reference to a NAC or committee member. 

See FINRA Regulation By-Laws, Articles I(y) and 

I(ii). The NAC is appointed and governed pursuant 

to FINRA Regulation By-Laws; FINRA Dispute 

Resolution does not use this committee, and thus, 

references thereto do not appear in NASD Dispute 

Resolution By-Laws. 

27Supra note 5. 

28See Securities Exchange Act Rel. No. 60159 

(June 22, 2009), 74 FR 31779 (July 2, 2009) (File No. 

SR–FINRA–2009–041). 

29See Securities Exchange Act Rel. No. 60878, 74 

FR 56679 (Nov. 2, 2009) (Notice of Filing of 

Amendment No. 1 and Order Granting Accelerated 

Continued 

respectively, of the Act.16 The SEC 

approved the same change to definitions 

of the terms ‘‘broker’’ and ‘‘dealer’’ in the 

then-NASD Regulation’s By-Laws in 

March 2001.17 FINRA believes that the 

proposed changes to the terms ‘‘broker’’ 

and ‘‘dealer’’ are necessary to ensure that 

the definitions in the NASD Dispute 

Resolution By-Laws remain consistent 

with the definitions of the Act. 

Corporation 

FINRA is proposing to add the term 

‘‘Corporation’’ to Article I of the By-Laws 

of NASD Dispute Resolution to reflect 

the change of the Corporation’s name 

from ‘‘NASD’’ to ‘‘FINRA.’’ 18 Proposed 

Article I(e) would define Corporation to 

mean the National Association of 

Securities Dealers, Inc., the Financial 

Industry Regulatory Authority, Inc., or 

any future name of the entity. 

Electronic Transmission 

FINRA is proposing to add the term 

‘‘electronic transmission’’ to Article I of 

the By-Laws of NASD Dispute 

Resolution to reflect the common usage 

of electronic transmission as a means of 

communication.19 The term ‘‘electronic 

transmission’’ would be defined to mean 

communicating or disseminating 

information or documents to 

individuals or entities by telegraph, 

telefax, cable, radio, wireless or other 

device or method. FINRA intends ‘‘other 

device or method’’ to include e-mail, 

text messages, and related technologies, 

for example. FINRA believes that the 

new definition clarifies the current 

methods FINRA uses to communicate 

with and disseminate information to 

individuals and entities, and gives 

FINRA flexibility to use other devices or 

methods as advances in technology are 

made. 

FINRA Member 

FINRA is proposing to add the term 

‘‘FINRA member’’ to Article I of the ByLaws of NASD Dispute Resolution.20 As 

proposed, the term ‘‘FINRA member’’ 

would mean ‘‘any broker or dealer 

admitted to membership in FINRA, 

whether or not the membership has 

been terminated or cancelled; and any 

broker or dealer admitted to 

membership in a self-regulatory 

organization that, with FINRA consent, 

has required its members to arbitrate 

pursuant to the Code of Arbitration 

Procedure for Customer Disputes 

(‘‘Customer Code’’) or the Code of 

Arbitration Procedure for Industry 

Disputes (‘‘Industry Code’’, and together 

with the Customer Code, ‘‘Codes’’) and/ 

or to be treated as members of FINRA 

for purposes of the Codes, whether or 

not the membership has been 

terminated or cancelled.’’ 

FINRA believes the proposed change 

would clarify the forum’s jurisdiction 

concerning a FINRA member, and 

would conform the definition in the ByLaws to that in the Customer Code and 

the Industry Code.21 FINRA believes 

that the proposed change to add the 

term ‘‘FINRA member’’ is necessary to 

ensure that the definitions in the NASD 

Dispute Resolution By-Laws are 

consistent with the definitions in the 

Codes. 

Industry Director or Industry Member 

and Public Director or Public Member 

FINRA is proposing to modify the 

terms ‘‘Industry Director’’ or ‘‘Industry 

member’’ and ‘‘Public Director’’ or 

‘‘Public member’’ in Articles I(k) and I(t), 

respectively. With regard to the term 

‘‘Industry Director’’ or ‘‘Industry 

member’’, the proposed rule change 

would amend the NASD Dispute 

Resolution’s By-Laws by separating 

these definitions into two definitions for 

ease of reference.22

FINRA is also proposing to amend the 

revised terms ‘‘Industry Director’’ and 

‘‘Industry Member’’ to limit the lookback test that characterizes committee 

members as industry if they have served 

as an officer, director, or employee of a 

broker or dealer, among other reasons, 

to the past twelve months. The current 

provision uses a three-year look-back 

test. The proposed change would make 

the definitions of ‘‘Industry Director’’ 

and ‘‘Industry Member’’ under the NASD 

Dispute Resolution By-Laws consistent 

with the definitions of ‘‘Industry 

Director’’, ‘‘Industry Governor’’, and 

‘‘Industry committee member’’ in the 

FINRA By-Laws.23

The proposal would also add the term 

‘‘independent director’’ to the portion of 

the definitions of ‘‘Industry Director’’ 

and ‘‘Industry Member’’ that excludes 

outside directors of a broker or dealer. 

The term ‘‘independent director’’ is 

synonymous with outside director, but 

FINRA is proposing to add it to the 

exclusionary clause to harmonize the 

NASD Dispute Resolution By-Laws with 

the definition of ‘‘Industry Governor’’ in 

the FINRA By-Laws.24

Similarly, FINRA is proposing to 

modify the term ‘‘Public Director’’ or 

‘‘Public member’’ by separating it into 

two definitions for ease of reference.25

FINRA would also amend the proposed 

terms ‘‘Public Director’’ or ‘‘Public 

Member’’ to clarify that an individual’s 

service as a public director of a self 

regulatory organization does not 

disqualify that person from serving as a 

Pubic Director or Public Member under 

NASD Dispute Resolution’s By-Laws. 

FINRA notes that the proposed 

changes to the definitions of ‘‘Industry 

Director’’ and ‘‘Industry Member’’ as well 

as ‘‘Public Director’’ and ‘‘Public 

Member’’ under the NASD Dispute 

Resolution By-Laws are generally 

consistent with similar amendments to 

the By-Laws of FINRA Regulation,26

which the SEC approved in November 

2008.27 FINRA believes that the changes 

to the definitions would eliminate any 

ambiguity concerning the interpretation 

of the rules within the Corporation, and 

would ensure uniform application of the 

rules. 

Person Associated With a Member or 

Associated Person of a Member 

On June 5, 2009, FINRA filed a 

proposed rule change to amend Rules 

12100(r), 12506(a), and 12902(a) of the 

Customer Code and Rule 13100(r) of the 

Industry Code to amend the definition 

of ‘‘associated person,’’ streamline a case 

administration procedure, and clarify 

that customers could be assessed 

hearing session fees based on their own 

claims for relief in connection with an 

industry claim.28 The Commission 

approved the proposal on October 26, 

2009.29

WReier-Aviles on DSKGBLS3C1PROD with NOTICES

9462 Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 

Approval of SR–2009–041, as Modified by 

Amendment No. 1). 

30Rule 12100(r) of the Customer Code and Rule 

13100(r) of the Industry Code define ‘‘person 

associated with a member’’ to mean: (1) A natural 

person registered under the Rules of FINRA; or (2) 

A sole proprietor, partner, officer, director, or 

branch manager of a member, or a 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 the By-Laws or the Rules of FINRA. 

For purposes of the Code, a person formerly 

associated with a member is a person associated 

with a member. 

31FINRA’s By-Laws define ‘‘person associated 

with a member or associated person of a member’’ 

as (1) a natural person who is registered or has 

applied for registration under the Rules of the 

Corporation; (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 the Corporation under these By-Laws or the 

Rules of the Corporation; and (3) for purposes of 

Rule 8210, any other person listed in Schedule A 

of Form BD of a member. See By-Laws of the 

Corporation, Article I, Definitions (rr). 

32See By-Laws of the Corporation, Article VII 

(Board of Governors), section 4(a). 

33See NASD Dispute Resolution By-Laws, Article 

IV, Sections 4.3(a) (Qualifications), 4.5 

(Resignation), 4.11(c) (Meetings), 4.13(f) (Executive 

Committee), and 4.13(g) (Finance Committee). 

Section 141(c)(2) of the General Corporation Law of 

the State of Delaware provides that ‘‘[t]he board of 

directors may designate 1 or more committees, each 

committee to consist of 1 or more directors of the 

corporation.’’ (Emphasis added). Committees of the 

board, therefore, may be comprised exclusively of 

board members. In addition, any committee of the 

board that is delegated any power and authority of 

the board, such as the Executive Committee, must 

be comprised exclusively of board members. See 

Delaware General Corporation Law, section 

141(c)(2). 

34See Delaware General Corporation Law section 

142, which allows the sole stockholder to make this 

selection if expressly provided for in the By-Laws. 

35The sole stockholder of the capital stock of 

FINRA Dispute Resolution, Inc. is FINRA, Inc. See 

Article VIII, section 8.1 (Sole Stockholder). 

36See Delaware General Corporation Law, section 

141(k). As a practical matter, the FINRA Board 

generally would be asked to pass a resolution 

authorizing an officer of FINRA to execute a sole 

stockholder consent on behalf of FINRA (who is the 

sole stockholder of FINRA Dispute Resolution) 

before such a consent is executed. As such, the 

FINRA Board would have a voice in the matter, but 

as a matter of Delaware law, the consent authorizing 

the removal must be executed by a duly authorized 

officer of FINRA in FINRA’s capacity as sole 

stockholder. 

37See current NASD Dispute Resolution By-Laws, 

Article IV, section 4.4 (Election). 

38 Id. 

39Pursuant to Delaware law, FINRA, as the sole 

stockholder of FINRA Dispute Resolution, has the 

authority to execute a stockholder consent electing 

an individual to the fill the vacancy pursuant to 

directions of the FINRA Board. Alternatively, the 

FINRA Board may pass a resolution making it 

known who they would like appointed to fill the 

vacancy. Under this scenario, it is likely that the 

remaining members of the FINRA Dispute 

Under that proposal, FINRA amended 

the definition of associated person 

under the Codes 30 to match the 

definition in FINRA’s By-Laws.31 The 

proposal amended the definition of 

‘‘person associated with a member’’ in 

the Codes in two ways: (1) By inserting 

the word ‘‘other’’ before the second 

reference to ‘‘natural person’’ to clarify 

that the definition does not include 

corporate entities; and (2) by inserting 

the criterion that a natural person 

includes someone who has applied for 

registration. 

FINRA is proposing to implement the 

same changes to the definition of 

associated person of a member in the 

NASD Dispute Resolution By-Laws, as 

have been approved recently by the 

Commission to same definitions under 

the Codes, to ensure uniform 

application of the definition. 

Amendments to Article IV—Board of 

Directors 

FINRA is proposing to make limited 

conforming changes to Article IV of the 

NASD Dispute Resolution By-Laws to 

parallel more closely the governance 

structure of the FINRA Board. 

Section 4.3—Qualifications 

The proposed rule change would 

amend Article IV, section 4.3(a) to 

reflect FINRA’s current governance 

structure by establishing that NASD 

Dispute Resolution Board members 

would be drawn exclusively from the 

FINRA Board. The proposed rule change 

would also amend section 4.3(a) to 

streamline the composition of NASD 

Dispute Resolution’s Board and 

implement a requirement that it contain 

more Public Directors than Industry 

Directors. Thus, section 4.3(a) would be 

amended to state that ‘‘the number of 

Public Directors shall exceed the 

number of Industry Directors.’’ FINRA’s 

By-Laws contain a similar 

requirement.32

The proposal would make other 

changes to Article IV, section 4.3 as 

follows: 

• Re-structure the Board to remove 

the President of NASD Dispute 

Resolution. The President would not be 

deemed a Director, and therefore, the 

proposed rule change would delete 

several references to the President of 

NASD Dispute Resolution;33

• Clarify that the Chair of the FINRA 

Board and the Chief Executive Officer of 

FINRA shall be ex-officio non-voting 

members of the Board; 

• Transfer the task of selecting the 

Chair of the NASD Dispute Resolution 

Board from the Board members to NASD 

Dispute Resolution’s stockholder;34

• Eliminate the requirement that the 

Board select a Vice Chair; and 

• State that the stockholder will 

designate the Chair at the same time that 

the Directors are elected. 

Section 4.4—Election 

The proposed rule change would 

eliminate as unnecessary the reference 

to the first meeting of NASD Regulation 

at which Directors initially were 

elected. 

Section 4.5—Resignation 

The proposal would remove the 

requirement that Directors submit 

written notice of resignation to the 

President. Under the proposal, such 

notice would be submitted to the Chair 

of the Board, instead of the President. 

Section 4.6—Removal 

The proposed rule change would 

transfer the authority to remove 

Directors from a majority vote of the 

FINRA Board to the stockholder of 

FINRA Regulation.35 The proposed 

amendment would reflect Delaware law, 

which requires that a stock corporation 

vest the power to remove directors with 

the stockholder.36

Section 4.7—Disqualification 

In connection with the proposed 

change to section 4.3(a), which would 

require the number of Public Directors 

to exceed the number of Industry 

Directors, the proposal would also 

amend section 4.7 to clarify that when 

a Director is disqualified from Board 

service and the Director’s remaining 

term is not more than six months, the 

Board may continue to operate and will 

not violate any compositional 

requirements if it does not replace the 

disqualified Director. 

Section 4.8—Filling of Vacancies 

Currently, Directors of FINRA Dispute 

Resolution are elected annually at the 

meeting of FINRA Dispute Resolution’s 

stockholder meeting or at a special 

meeting dedicated to Board elections.37

When the annual election of Directors is 

not held on the designated date, the 

NASD Dispute Resolution By-Laws 

charge the Directors to ‘‘cause such 

election’’ to be held.38 The proposed 

rule change would confirm that the 

same process should be used by the 

FINRA Dispute Resolution Board when 

filling vacancies among its ranks. Thus, 

the proposal would amend section 4.8 

to provide that the FINRA Board shall 

‘‘cause the election’’ of a qualified 

Director to fill the vacant position.39

WReier-Aviles on DSKGBLS3C1PROD with NOTICES

Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 9463 

Resolution Board will follow the advice of its 

controlling stockholder and elect the recommended 

individual. See Delaware General Corporation Law, 

section 223. 

40See current NASD Dispute Resolution By-Laws, 

Article IV, section 4.12(b) (Notice of Meeting; 

Waiver of Notice) and Article IX, section 9.3(b) 

(Waiver of Notice). 

41FINRA proposed similar changes to Article IV, 

Section 4.12 (Notice of Meeting; Waiver of Notice) 

and Article XII, Section 12.3 (Waiver of Notice) of 

the FINRA Regulation By-Laws. See Securities 

Exchange Act Rel. No. 59696 (April 2, 2009), 74 FR 

16020 (April 8, 2009) (File No. SR–FINRA–2009– 

020). 

42See also proposed Article I(r) (Industry 

Director); proposed Article I(s) (Industry Member); 

proposed Article I(w) (Public Director); and 

proposed Article I(x) (Public Member). 

43See Article IV, section 4.12(f) (Executive 

Committee). 

44Supra note 32. 

45The proposal would delete as imprecise the 

words ‘‘certificates for’’ in the discussion of 

potential registration of shares of capital stock. See 

proposed NASD Dispute Resolution By-Laws, 

Article VIII, section 8.4(b) (Stock Ledger), 8.5 

(Transfers of Stock), 8.6 (Cancellation), and 8.7 

(Lost, Stolen, Destroyed, and Mutilated 

Certificates). 

46See Delaware General Corporation Law section 

158. 

47See supra note 40, and the explanation of the 

term ‘‘electronic transmission’’ under ‘‘Amendments 

to Article I—Definitions.’’ 

Section 4.9—Quorum and Voting 

The proposed rule change would 

remove a cross-reference to section 

4.14(b) in the quorum provision, and 

also amend the provision to clarify that, 

when there is a quorum, a majority vote 

of the Directors present at a meeting 

constitutes action of the Board. 

Section 4.12—Notice of Meetings; 

Waiver of Notice 

The proposal would clarify the 

conditions under which the NASD 

Dispute Resolution Board may meet. 

The current NASD Dispute Resolution 

By-Laws instruct that a Director may 

waive notice of a Board meeting by 

being present at the meeting, so long as 

the Director did not attend the meeting 

solely to object to the meeting taking 

place.40 FINRA is proposing to amend 

section 4.12(c) to clarify that a Board 

meeting is a legal meeting if all 

Directors are present and no Director is 

present solely for the purpose of 

objecting to the meeting taking place. 

The proposed rule change also would 

amend section 4.12(a) and (b) to replace 

the phrase ‘‘telegraph, telefax, cable, 

radio, or wireless’’ with the new term 

‘‘electronic transmission.’’ 41 For an 

explanation of the term ‘‘electronic 

transmission,’’ see the discussion under 

‘‘Amendments to Article I—Definitions’’ 

above. 

Section 4.13—Committees 

As explained under the discussion of 

section 4.3(a), the proposal would 

implement a requirement that the 

FINRA Dispute Resolution Board 

contain more Public Directors than 

Industry Directors.42 In furtherance of 

this change, references throughout 

Article IV to balancing ‘‘Industry’’ and 

‘‘Non-Industry’’ Board members would 

be replaced with references to balancing 

‘‘Industry’’ and ‘‘Public’’ Board members. 

Similarly, the proposal would remove 

the requirement that the Executive 

Committee include at least one NonIndustry Member and institute the 

requirement that Public Directors shall 

exceed Industry Directors on FINRA 

Dispute Resolution’s Executive 

Committee of the Board.43

Section 4.15—Action Without Meeting 

The proposal would make a related 

change to section 4.15 to eliminate the 

requirement that unanimous consent for 

taking action without a meeting 

specifically be in writing and filed with 

the minutes of the meeting. Instead, the 

proposal would require the consent to 

be ‘‘in accordance with applicable law,’’ 

which in the instance of FINRA Dispute 

Resolution, would be Delaware law. 

FINRA believes that the proposed 

amendments to Article IV would align 

FINRA Dispute Resolution’s Board 

structure with that of FINRA and its 

other subsidiary, and conform FINRA 

Dispute Resolution’s corporate practices 

to Delaware law. 

Amendment to Article V—Officers, 

Agents, and Employees 

Section 5.1—Officers 

As explained under the discussion of 

Article IV, section 4.3, the proposed rule 

change would re-structure the Board to 

remove the President of FINRA Dispute 

Resolution as a Director of the Board.44

In connection with this change, the 

proposal would remove a reference to 

the President from section 5.1, so that 

the amended language would state, in 

relevant part, that none of the officers 

need to be Directors of FINRA Dispute 

Resolution. 

Amendments to Article VIII—Capital 

Stock 

Section 8.3—Signatures 

The proposed rule change would 

amend several provisions regarding 

FINRA Dispute Resolution’s capital 

stock. Currently, under section 8.3(a), 

FINRA’s approach to the corporate law 

issue of signing certificates representing 

shares of FINRA Dispute Resolution 

capital stock is to have these shares 

signed by FINRA Dispute Resolution 

officers. Under the proposed restructuring of the Board, FINRA Dispute 

Resolution would not have an officer as 

Chair of the Board. Thus, FINRA is 

proposing to remove the provision that 

permits the Chair of the Board to sign 

stock certificates, and limit the authority 

to sign such certificates to the President, 

Vice President, Secretary or Treasurer of 

FINRA Dispute Resolution. 

FINRA is proposing to amend section 

8.3(b) to remove the limitations on the 

type of signatures required on 

certificates of capital stock. The current 

provision states, in relevant part, that ‘‘if 

any such certificates are countersigned 

by a transfer agent other than NASD 

Dispute Resolution or its employee, or 

by a registrar other than NASD Dispute 

Resolution or its employee, any other 

signature on the certificate may be a 

facsimile.’’ The proposed amendment 

would eliminate limitations on when 

signatures on certificates representing 

shares of FINRA Dispute Resolution’s 

capital stock may be facsimiles and 

permit any signature to be a facsimile. 

Thus, under the proposal, the provision 

would be amended to state that ‘‘any 

signature on the stock certificate may be 

a facsimile.’’ FINRA believes this change 

would be consistent with current 

practice that permits its certificates 

representing capital stock to be sealed 

with a facsimile of FINRA Dispute 

Resolution’s corporate seal. 

Section 8.4—Stock Ledger 

Currently, section 8.4(a) of the NASD 

Dispute Resolution By-Laws requires 

that the FINRA Dispute Resolution 

Secretary, or another officer, employee, 

or agent, keep a record of FINRA 

Dispute Resolution’s capital stock 

ownership and ‘‘the number of shares 

represented by each such certificate.’’ 

FINRA is proposing to change several 

references to ‘‘capital stock’’ to 

‘‘certificates representing shares of 

capital stock’’ or similar constructions, 

instead of ‘‘certificates for shares of 

capital stock.’’ 45 This change would 

make NASD Dispute Resolution’s ByLaws more consistent with the language 

of the applicable section of the General 

Corporation Law of the State of 

Delaware.46

Amendments to Article IX— 

Miscellaneous Provisions 

Section 9.3—Waiver of Notice 

FINRA is proposing to amend section 

9.3(a) of the NASD Dispute Resolution 

By-Laws to replace the phrase 

‘‘telegraph, telefax, cable, radio, or 

wireless’’ with the new term ‘‘electronic 

transmission.’’ 47

WReier-Aviles on DSKGBLS3C1PROD with NOTICES

9464 Federal Register / Vol. 75, No. 40 / Tuesday, March 2, 2010 / Notices 

48 15 U.S.C. 78o–3(b)(2). 

49 15 U.S.C. 78o–3(b)(4). 

50 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

Conforming Changes Relating to the 

New FINRA Name and Other Technical 

Changes 

FINRA is proposing to implement 

certain other non-substantive changes to 

all articles of the NASD Dispute 

Resolution By-Laws. The proposed rule 

change would make certain nonsubstantive changes to the NASD 

Dispute Resolution By-Laws as follows: 

• ‘‘The NASD’’ or ‘‘NASD’’ would be 

replaced with ‘‘FINRA’’ or ‘‘the 

Corporation;’’ 

• ‘‘NASD Dispute Resolution’’ would 

be changed to ‘‘FINRA Dispute 

Resolution;’’ 

• ‘‘The Rules of the Association’’ 

would be replaced with ‘‘the Rules of 

the Corporation;’’ 

• ‘‘National Nominating Committee’’ 

would be replaced with ‘‘Nominating 

Committee;’’ 

• A reference to ‘‘FINRA Regulation’’ 

would be added; and 

• ‘‘Association’’ would be replaced 

with ‘‘Corporation.’’ 

FINRA is also proposing to amend 

Article II, section 2.1 to change the 

name and address of the registered agent 

from The Corporation Trust Company, 

1209 Orange Street, Wilmington, DE 

19801 to Corporation Creations Network 

Inc., 1308 Delaware Avenue, 

Wilmington, DE 19806. 

2. Statutory Basis 

FINRA believes that the proposed rule 

change is consistent with the provisions 

of Section 15A of the Act, including 

Section 15A(b)(2) of the Act,48 in that it 

provides for the organization of FINRA 

and FINRA Dispute Resolution in a 

manner that will permit FINRA to carry 

out the purposes of the Act, to comply 

with the Act, and to enforce compliance 

by FINRA members and persons 

associated with FINRA members with 

the Act, the rules and regulations 

thereunder, FINRA and NASD rules and 

the Federal securities laws. FINRA 

further believes that the proposed rule 

change is consistent with Section 

15A(b)(4) of the Act,49 which requires, 

among other things, that FINRA’s rules 

assure a fair representation of its 

members in the selection of its directors 

and administration of its affairs and 

provides that one or more directors shall 

be representative of issuers and 

investors and not be associated with a 

member of FINRA, broker or dealer. 

FINRA believes that the proposed 

composition of its Dispute Resolution 

Board would fairly and effectively 

represent users of the dispute resolution 

forum, and would help resolve dispute 

resolution issues in a manner that will 

redound to the benefit of investors. 

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, as amended. 

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 by FINRA. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 35 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 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–2010–007 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–2010–007. 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. 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 the File Number SR–FINRA–2010– 

007 and should be submitted on or 

before March 23, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.50

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–4235 Filed 3–1–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–61577; File No. SR–BX– 

2010–017] 

Self-Regulatory Organizations; 

NASDAQ OMX BX, Inc.; Notice of Filing 

and Immediate Effectiveness of 

Proposed Rule Change Extending the 

Effective Date of the Rule Governing 

the Exchange’s Directed Order 

Process on the Boston Options 

Exchange 

February 24, 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 February 

23, 2010, NASDAQ OMX BX, Inc. (the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the self-regulatory organization. The 

Exchange filed the proposed rule change 

pursuant to Section 19(b)(3)(A) of the 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES