4992 Federal Register / Vol. 74, No. 17 / Wednesday, January 28, 2009 / Notices 

14 15 U.S.C. 78s(b)(3)(A). 

15 17 CFR 240.19b–4(f)(6). 

16 17 CFR 240.19b–4(f)(6)(iii). 

17 17 CFR 240.19b–4(f)(6). 18 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

III. Date of Effectiveness of the 

Proposed Rule Changes and Timing for 

Commission Action 

Because the foregoing proposed rule 

change does not: (i) Significantly affect 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate, it has 

become effective pursuant to Section 

19(b)(3)(A) of the Act 14 and Rule 19b– 

4(f)(6) thereunder.15

Rule 19b–4(f)(6)(iii) 16 requires the 

Exchange to give the Commission 

written notice of the Exchange’s intent 

to file a proposed rule change along 

with a brief description and text of the 

proposed rule change, at least five 

business days prior to the date of filing 

of the proposed rule change, or shorter 

time as designated by the Commission. 

The Exchange has satisfied this 

requirement. 

As described above and in its filing 

with the Commission, the Exchange 

believes that the proposed rule change 

is consistent with the rules of another 

self-regulatory organization. For the 

foregoing reasons, this rule filing 

qualifies for immediate effectiveness as 

a ‘‘non-controversial’’ rule change under 

paragraph (f)(6) of Rule 19b–4.17

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission may summarily abrogate 

such rule change if it appears to the 

Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the Act. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposal 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 

No. SR–BATS–2009–002 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 No. 

SR–BATS–2009–002. 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 changes 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 inspection and copying 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 BATS. 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 No. 

SR–BATS–2009–002 and should be 

submitted on or before February 18, 

2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.18

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–1872 Filed 1–27–09; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59273; File No. SR–FINRA– 

2008–067] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Proposed Rule Change To Adopt Rules 

Governing Financial Responsibility in 

the Consolidated FINRA Rulebook 

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 December 

30, 2008, Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) (f/k/a 

National Association of Securities 

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

Securities and Exchange Commission 

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

rule change as described in Items I, II, 

and III below, which Items have been 

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 adopt a new, 

consolidated set of financial 

responsibility rules. Accordingly, 

FINRA proposes to adopt FINRA Rules 

4110 (Capital Compliance), 4120 

(Regulatory Notification and Business 

Curtailment), 4130 (Regulation of 

Activities of Section 15C Members 

Experiencing Financial and/or 

Operational Difficulties), 4140 (Audit) 

and 4521 (Notifications, Questionnaires 

and Reports) in the Consolidated FINRA 

Rulebook and to delete NASD Rules 

3130 and 3131, NASD IM–3130, 

Incorporated NYSE Rules 312(h), 

313(d), 325, 326, 328, 416.20, 418, 420, 

421 and NYSE Rule Interpretations 

313(d)/01, 313(d)/02, 325(c)(1), 

325(c)(1)/01 and 416/01. FINRA also 

proposes to revise FINRA Rule 9557 

(Procedures for Regulating Activities 

Under Rules 4110, 4120 and 4130 

Regarding a Member Experiencing 

Financial or Operational Difficulties) 

and FINRA Rule 9559 (Hearing 

Procedures for Expedited Proceedings 

Under the Rule 9550 Series). Lastly, 

FINRA proposes to make conforming 

revisions to Section 4(g) of Schedule A 

to the FINRA By-Laws. 

The text of the proposed rule change 

is attached hereto as Exhibit A. 


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3See FINRA Regulatory Notice 08–23 (Proposed 

Consolidated FINRA Rules Governing Financial 

Responsibility) (May 2008) (the ‘‘Notice’’). 

4See infra, Item II.C. for more information on the 

Notice and the comments received in response 

thereto. 

5The current FINRA rulebook includes, in 

addition to FINRA Rules, (1) NASD Rules and (2) 

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’’). 

For more information about the rulebook 

consolidation process, see FINRA Information 

Notice, March 12, 2008 (Rulebook Consolidation 

Process). 

6For convenience, the Incorporated NYSE Rules 

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

7All requirements set forth in the proposed rules 

that would apply to firms that clear or carry 

customer accounts would also apply to firms that 

operate pursuant to the exemptive provisions of 

SEA Rule 15c3–3(k)(2)(i). For further clarification in 

response to commenter concerns, see Section 2 

under Item II.C. See also infra note 9. 

8See also Section (F) under this Item. 

9For clarification, introducing firms and firms 

with limited business models (for example, firms 

that engage exclusively in subscription-basis 

mutual fund transactions, direct participation 

programs, or mergers and acquisitions activities) are 

not deemed carrying or clearing members and 

therefore would not be subject to Proposed FINRA 

Rule 4110(a), or for that matter any of the other 

provisions of the proposed rules that would apply 

only to carrying or clearing members. 

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. In addition, 

FINRA discussed comments it received 

in response to a Regulatory Notice 3 it 

published in May of 2008 requesting 

comment on the proposed rule change.4

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’’),5

FINRA is proposing to adopt a new, 

consolidated set of financial 

responsibility rules. Accordingly, 

FINRA proposes to adopt FINRA Rules 

4110 (Capital Compliance), 4120 

(Regulatory Notification and Business 

Curtailment), 4130 (Regulation of 

Activities of Section 15C Members 

Experiencing Financial and/or 

Operational Difficulties), 4140 (Audit) 

and 4521 (Notifications, Questionnaires 

and Reports) in the Consolidated FINRA 

Rulebook and to delete NASD Rules 

3130 and 3131, NASD IM–3130, 

Incorporated NYSE Rules 312(h), 

313(d), 325, 326, 328, 416.20, 418, 420, 

421 and NYSE Rule Interpretations 

313(d)/01, 313(d)/02, 325(c)(1), 

325(c)(1)/01 and 416/01. FINRA also 

proposes to revise FINRA Rule 9557 

(Procedures for Regulating Activities 

Under Rules 4110, 4120 and 4130 

Regarding a Member Experiencing 

Financial or Operational Difficulties) 

and FINRA Rule 9559 (Hearing 

Procedures for Expedited Proceedings 

Under the Rule 9550 Series). Lastly, 

FINRA proposes to make conforming 

revisions to Section 4(g) of Schedule A 

to the FINRA By-Laws. 

Currently, both NASD and NYSE 

Rules 6 contain provisions governing 

financial responsibility. These 

provisions have played an important 

role in supporting the SEC’s minimum 

net capital and other financial 

responsibility requirements by 

establishing criteria promoting the 

permanency of member’s capital, 

requiring the review and approval of 

material financial transactions and 

establishing criteria intended to identify 

member firms approaching financial 

difficulty and to monitor their financial 

and operational condition. For that 

reason, FINRA has placed high priority 

on expeditiously developing the unified 

set of proposed rules for inclusion in the 

Consolidated FINRA Rulebook. FINRA 

believes that the proposed rules would 

incorporate many of [these] the 

provisions in the existing rules but 

would streamline and reorganize the 

provisions. In addition, FINRA has 

tiered many provisions to apply only to 

those firms that clear or carry customer 

accounts.7

(A) Proposed FINRA Rule 4110 (Capital 

Compliance) 

(1) Authority To Increase Capital 

Requirement 

Proposed FINRA Rule 4110(a), based 

primarily on NYSE Rule 325(d), would 

enable FINRA to prescribe greater net 

capital requirements for carrying and 

clearing members, or require any such 

member to restore or increase its net 

capital or net worth, when deemed 

necessary for the protection of investors 

or in the public interest. The authority 

to act under the proposed rule would 

reside with FINRA’s Executive Vice 

President charged with oversight for 

financial responsibility (or his or her 

written officer delegate) (referred to as 

‘‘FINRA’s EVP’’). To execute such 

authority, FINRA would be required to 

issue a notice pursuant to Proposed 

FINRA Rule 9557 (a ‘‘Rule 9557 

notice’’). FINRA believes that proposed 

FINRA Rule 9557, much like the current 

rule, would afford a member adequate 

safeguards because, among other things, 

it provides opportunity for an expedited 

hearing pursuant to Proposed FINRA 

Rule 9559.8

Proposed FINRA Rule 4110(a) would 

be a new provision for FINRA members 

that are not Dual Members (‘‘non-NYSE 

members’’) that are carrying or clearing 

members. However, it would not apply 

to introducing firms or to certain firms 

with limited business models (together, 

‘‘non-clearing firms’’).9 In this regard, 

certain Dual Members that currently are 

subject to NYSE Rule 325(d)—namely 

those NYSE member firms that are not 

carrying or clearing members (‘‘NYSE 

non-clearing firms’’)—would not be 

subject to the similar requirement in the 

FINRA Rule. All member firms that are 

subject to the requirement would have 

an opportunity to request an expedited 

hearing if they receive a Rule 9557 

notice, which would be a new 

procedural right not available under 

NYSE Rule 325(d). 

As FINRA has explained in the 

Notice, the NYSE staff historically 

employed NYSE Rule 325(d) in limited 

circumstances, and FINRA anticipates 

that it would apply Proposed FINRA 

Rule 4110(a) in similar fashion. The 

proposed rule would enable FINRA to 

respond promptly to extraordinary, 

unanticipated or emergency 

circumstances. Under Proposed FINRA 

Rule 4110(a), FINRA’s EVP could 

require a carrying or clearing member to 

comply with increased capital 

requirements in circumstances such as 

where unanticipated systemic market 

events threaten the member firm’s 

capital, or where the member firm 

maintains an undue concentration in 

illiquid products. In such instances, 

FINRA’s EVP may, for example, find it 

appropriate, in the public interest, to 

raise the applicable ‘‘haircut’’ (that is, to 

increase the percentage of the market 

value of certain securities or 

commodities positions by which the 

member must reduce its net worth) or 

treat certain assets as non-allowable in 

computing net capital. 

(2) Suspension of Business Operations 

Proposed FINRA Rule 4110(b)(1) is 

based in part on NASD Rule 3130(e) and 

would provide that, unless otherwise 

permitted by FINRA, a member firm 

must suspend all business operations 


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10The Commission notes that the net capital rule 

requires that ‘‘every broker or dealer shall at all 

times have and maintain’’ certain specified levels 

of net capital. The Commission further notes that 

to the extent a broker-dealer fails to maintain at 

least the amount of net capital specified in that rule, 

it must cease doing a securities business. [See 72 

FR 12862, at 12872.] 

11All references to ‘‘commenters’’ are to persons 

that submitted comments in response to the Notice. 

For further information on this issue, see infra Item 

II.C. 

12See Section 4 under Item II.C. 

13The calculation of 10 percent of excess net 

capital must be based on the member’s excess net 

capital position as reported in its most recently 

filed Form X–17A–5. The member must assure itself 

that the excess net capital so reported has not 

materially changed since the time the form was 

filed. 

14The calculation of 10 percent of tentative net 

capital must be based on the member’s tentative net 

capital position as reported in its most recently 

filed Form X–17A–5. The member must assure itself 

that the tentative net capital so reported has not 

materially changed since the time the form was 

filed. 

15See supra note 14. 

16See supra note 14. 

17See supra note 14. 

during any period of time in which it is 

not in compliance with SEA Rule 15c3– 

1. This requirement is consistent with 

current law.10

As with NASD Rule 3130(e), Proposed 

FINRA Rule 4110(b)(1) is self-operative 

(that is, a firm would automatically be 

required to comply with the provision 

without any direction from FINRA). 

Notwithstanding that the proposed 

provision is self-operative, FINRA may 

issue a Rule 9557 notice directing a 

member that is not in compliance with 

SEA Rule 15c3–1 to suspend all or a 

portion of its business. Upon receipt of 

a Rule 9557 notice, the firm would have 

the right to request an expedited 

hearing. Neither the fact that FINRA 

may issue a Rule 9557 notice nor the 

right to an expedited hearing would be 

a defense in any subsequent 

disciplinary proceeding with respect to 

a member firm’s non-compliance with 

Proposed FINRA Rule 4110(b)(1). 

(3) Withdrawal of Equity Capital 

To further the goal of financial 

stability, Proposed FINRA Rule 

4110(c)(1) would prohibit a member 

from withdrawing equity capital for a 

period of one year, unless otherwise 

permitted by FINRA in writing. In 

response to commenter 11 requests for 

clarification of this provision, the 

proposed rule expressly provides that, 

subject to the requirements of Proposed 

FINRA Rule 4110(c)(2), members would 

not be precluded from withdrawing 

profits earned. 

FINRA anticipates that approvals for 

the early withdrawal of equity capital 

pursuant to Proposed FINRA Rule 

4110(c)(1) would be granted on a 

limited basis.12

Proposed FINRA Rule 4110(c)(2) 

would apply only to carrying or clearing 

members and would prohibit any such 

member, without the prior written 

approval of FINRA, from withdrawing 

capital, paying a dividend or effecting a 

similar distribution that would reduce 

the member’s equity, or making any 

unsecured advance or loan to a 

stockholder, partner, sole proprietor, 

employee or affiliate, where such 

withdrawals, payments, reductions, 

advances or loans in the aggregate, in 

any rolling 35-calendar-day period, on a 

net basis, would exceed 10 percent of 

the member’s excess net capital.13 This 

provision is based in part on NYSE Rule 

312(h) and SEA Rule 15c3–1(e). While 

it would be a new requirement for nonNYSE members that are carrying or 

clearing members, it would not apply to 

non-clearing firms. In this regard, NYSE 

non-clearing firms that currently are 

subject to NYSE Rule 312(h) would not 

be subject to the similar provision in the 

FINRA Rule. FINRA further notes that 

the 10 percent limit set forth in 

Proposed FINRA Rule 4110(c)(2) would 

provide a de minimis exception; current 

NYSE Rule 312(h) does not include 

such an exception. 

(4) Sale-and-Leasebacks, Factoring, 

Financing, Loans and Similar 

Arrangements 

To ensure the permanency of net 

capital in contemplated sale-andleaseback, factoring, financing and 

similar arrangements, Proposed FINRA 

Rule 4110(d)(1)(A) would provide that 

no carrying or clearing member may 

consummate a sale-and-leaseback 

arrangement with respect to any of its 

assets, or a sale, factoring or financing 

arrangement with respect to any 

unsecured accounts receivable, where 

any such arrangement would increase 

the member’s tentative net capital by 10 

percent or more,14 without the prior 

written authorization of FINRA. 

Proposed FINRA Rule 4110(d)(1)(A) is 

based on NYSE Rule 328(a), but would 

apply only to carrying and clearing 

members. While the provision would be 

new for non-NYSE members that are 

carrying or clearing members, it would 

not apply to non-clearing firms. In this 

regard, NYSE non-clearing firms that 

currently are subject to NYSE Rule 

328(a) would no longer be subject to the 

similar provision in the FINRA Rule. 

Moreover, unlike NYSE Rule 328(a), 

Proposed FINRA Rule 4110(d)(1)(A) 

includes a de minimis exception by 

permitting a member to consummate, 

without FINRA’s prior authorization, a 

sale-and-leaseback arrangement with 

respect to any of its assets, or a sale, 

factoring or financing arrangement with 

respect to any unsecured accounts 

receivable where the arrangement 

would not increase the member firm’s 

tentative net capital by 10 percent or 

more.15

Proposed FINRA Rule 4110(d)(1)(B), 

which is also based on NYSE Rule 

328(a), would provide that no carrying 

member may consummate any 

arrangement concerning the sale or 

factoring of customer debit balances, 

irrespective of amount, without the 

prior written authorization of FINRA. 

The provision would be new for nonNYSE members that are carrying 

members. 

Proposed FINRA Rule 4110(d)(2) is 

based on NYSE Rule 328(b), but would 

apply only to carrying and clearing 

members. The provision would require 

FINRA’s prior approval for any loan 

agreement entered into by such a 

member, the proceeds of which exceed 

10 percent of the member’s tentative net 

capital 16 and that is intended to reduce 

the deduction in computing net capital 

for fixed assets and other assets that 

cannot be readily converted into cash 

under SEA Rule 15c3–1(c)(2)(iv). 

Because the provision would apply only 

to carrying and clearing members, NYSE 

non-clearing firms would be relieved 

from current requirements under NYSE 

Rule 328(b). In addition, unlike NYSE 

Rule 328(b), the proposed rule would 

include a de minimis exception. 

Proposed FINRA Rule 4110(d)(3) 

provides that any member that is subject 

to paragraphs (d)(1)(A), (d)(1)(B) or 

(d)(2) of Proposed FINRA Rule 4110 

would be prohibited from 

consummating, without FINRA’s prior 

written authorization, any arrangement 

pursuant to those paragraphs if the 

aggregate of all such arrangements 

would exceed 20 percent of the 

member’s tentative net capital.17

Proposed FINRA Rule 4110(d)(4) 

implements a requirement of the SEC’s 

net capital rule and therefore would 

apply to all members. It provides that 

any agreement relating to a 

determination of a ‘‘ready market’’ for 

securities based upon the securities 

being accepted as collateral for a loan by 

a bank under SEA Rule 15c3–1(c)(11)(ii) 

must be submitted to, and be acceptable 

to, FINRA before the securities may be 

deemed to have a ‘‘ready market.’’ When 

determining the acceptability of a loan 

agreement, pursuant to Proposed FINRA 

Rule 4110(d)(4), FINRA staff would, as 

a general matter, consider such factors 

as whether the bank would have sole 

recourse under the agreement and 


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18See SEA Rule 15c3–1d. Note that the proposed 

Supplementary Material would require that, for 

purposes of Proposed FINRA Rule 4110(e)(1), the 

member must assure itself that any applicable 

provisions of the Securities Act of 1933 and/or state 

Blue Sky laws have been satisfied, and may be 

required to submit evidence thereof to FINRA prior 

to approval of the subordinated loan agreement. See 

Proposed FINRA Rule 4110.01 (Compliance with 

Applicable Law). 

19The determination of whether the financial 

triggers were reached must be based on the 

member’s financial position as reported in its most 

recently filed Form X–17A–5. The member must 

assure itself that its financial position so reported 

has not materially changed since the time the form 

was filed. 

whether the term of the loan is at least 

one year. FINRA expects that a 

determination of acceptability can 

generally be made within approximately 

one week. 

(5) Subordinated Loans, Notes 

Collateralized by Securities and Capital 

Borrowings 

Proposed FINRA Rule 4110(e) is 

based in part on current NYSE Rule 420 

and would address the requirements for 

subordinated loans and loans made to 

general partners of members that are 

partnerships. 

Proposed FINRA Rule 4110(e)(1) 

would implement Appendix D of SEA 

Rule 15c3–1 and require that all 

subordinated loans or notes 

collateralized by securities must meet 

such standards as FINRA may require to 

ensure the continued financial stability 

and operational capability of a member, 

in addition to meeting those standards 

specified in Appendix D of SEA Rule 

15c3–1.18 Appendix D of SEA Rule 

15c3–1 requires that all subordination 

agreements must be found acceptable by 

the Examining Authority before they 

can become effective. 

Proposed FINRA Rule 4110(e)(2) 

would require that, unless otherwise 

permitted by FINRA, each member 

whose general partner enters into any 

secured or unsecured borrowing, the 

proceeds of which will be contributed to 

the capital of the member, must, in 

order for the proceeds to qualify as 

capital acceptable for inclusion in 

computation of the member’s net 

capital, submit to FINRA for approval a 

signed copy of the loan agreement. The 

loan agreement must have at least a 12- 

month duration and provide nonrecourse to the assets of the member 

firm. Moreover, because a general 

partner’s interest may allow the lender 

to reach into the assets of the brokerdealer, FINRA is requiring a provision 

in the loan agreement that would estop 

the lender from having that right. 

(B) Proposed FINRA Rule 4120 

(Regulatory Notification and Business 

Curtailment) 

(1) Regulatory Notification 

Proposed FINRA Rule 4120(a) is 

based on current NYSE Rule 325(b), but 

would apply only to carrying and 

clearing members. The proposed rule 

would require any such member 

promptly, but in any event within 24 

hours, to notify FINRA when certain 

specified financial triggers are 

reached.19 This would be a new 

notification requirement for non-NYSE 

members that are carrying or clearing 

members; it would not, however, apply 

to non-clearing firms. Accordingly, 

NYSE non-clearing firms would no 

longer be subject to these requirements. 

(2) Restrictions on Business Expansion 

Proposed FINRA Rule 4120(b) is 

based on NASD Rule 3130(c) and NYSE 

Rule 326(a) and addresses 

circumstances under which a member 

would be prohibited from expanding its 

business. 

Proposed FINRA Rule 4120(b)(1), 

which is self-operative, would apply 

only to carrying and clearing members, 

and requires any such member, unless 

otherwise permitted by FINRA, to 

refrain from expanding its business 

during any period in which any of the 

conditions described in Proposed 

FINRA Rule 4120(a)(1) continue to exist 

for the specified time period. While 

NASD Rule 3130(c) includes 

comparable provisions, the requirement 

would now be self-operative for nonNYSE members that are carrying or 

clearing members. Proposed FINRA 

Rule 4120(b) also provides that FINRA 

may issue a Rule 9557 notice directing 

any such member not to expand its 

business, in which case the member 

would have the right to request an 

expedited hearing. Neither the fact that 

FINRA may issue a Rule 9557 notice nor 

the right to an expedited hearing would 

be a defense in any subsequent 

disciplinary proceeding with respect to 

a member’s non-compliance with 

Proposed FINRA Rule 4120(b)(1). 

Unlike the self-operative nature of 

paragraph (b)(1), Proposed FINRA Rule 

4120(b)(2) authorizes FINRA, for any 

financial or operational reason, to 

restrict any member’s ability to expand 

its business by the issuance of a Rule 

9557 notice. In all such cases, the 

member would have the right to request 

an expedited hearing. This same right 

currently applies to NASD Rule 

3130(c)(2). 

(3) Reduction of Business 

Proposed FINRA Rule 4120(c) is 

based on NASD Rule 3130(d) and NYSE 

Rule 326(b) and addresses 

circumstances under which a member 

would be required to reduce its 

business. 

Proposed FINRA Rule 4120(c)(1), 

which is self-operative, would apply 

only to carrying and clearing members, 

requiring any such member, unless 

otherwise permitted by FINRA in 

writing, to reduce its business to a point 

enabling its available capital to exceed 

the standards set forth in Proposed 

FINRA Rule 4120(a)(1) when any of the 

enumerated conditions continue to exist 

for the specified time period. While 

NASD Rule 3130(d) includes 

comparable provisions, the requirement 

would now be self-operative for nonNYSE members that are carrying or 

clearing members. Proposed FINRA 

Rule 4120(c)(1) also provides that 

FINRA may issue a Rule 9557 notice 

directing any such member to reduce its 

business, in which case the member 

would have the right to an expedited 

hearing. Neither the fact that FINRA 

may issue a Rule 9557 notice nor the 

right to an expedited hearing would be 

a defense in any subsequent 

disciplinary proceeding with respect to 

a member’s non-compliance with 

Proposed FINRA Rule 4120(c)(1). 

Unlike the self-operative nature of 

paragraph (c)(1), proposed FINRA Rule 

4120(c)(2) authorizes FINRA, for any 

financial or operational reason, to 

require any member firm to reduce its 

business by the issuance of a notice in 

accordance with Rule 9557. In all such 

cases, the member firm would have the 

right to request an expedited hearing. 

This same right currently applies to 

NASD Rule 3130(d)(2). 

(C) Proposed FINRA Rule 4130 

(Regulation of Activities of Section 15C 

Members Experiencing Financial and/or 

Operational Difficulties) 

Proposed FINRA Rule 4130 would be 

substantially identical to NASD Rule 

3131 except that the proposed rule 

would reflect FINRA as the designated 

examining authority and make other 

conforming revisions. The proposed 

rule would apply only to certain firms 

that are subject to the Treasury 

Department’s liquid capital 

requirements. 

(D) Proposed FINRA Rule 4140 (Audit) 

Proposed FINRA Rule 4140 would 

incorporate FINRA’s existing authority 

under NASD Rule 3130 and NASD IM– 

3130 and NYSE Rule 418 to request an 

audit or an agreed-upon procedures 

review under certain circumstances. 

The proposed rule would impose a late 

fee of $100 for each day that a requested 


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20NYSE Rules 416(a), 416(c) and 416.10 will 

remain in the Transitional Rulebook to be 

addressed later in the rulebook consolidation 

process. On July 11, 2008, the SEC approved 

FINRA’s proposal to delete NYSE Rule 416(b). See 

Securities Exchange Act Release No. 58149 (July 11, 

2008), 73 FR 42385 (July 21, 2008) (Notice of Filing 

and Order Granting Accelerated Approval of 

Proposed Rule Change; File No. SR–FINRA–2008– 

034). 

21Because FINRA proposes to delete NYSE Rule 

421(2) and its related provision Rule 421.40, the 

proposed rule change would, in combination with 

rule change SR–FINRA–2008–033 (which was 

approved by the SEC on September 4, 2008 and 

took effect on December 15, 2008), delete NYSE 

Rule 421 in its entirety. See Securities Exchange 

Act Release No. 58461 (September 4, 2008), 73 FR 

52710 (September 10, 2008) (Order Approving 

Proposed Rule Change; File No. SR–FINRA–2008– 

033); see also FINRA Regulatory Notice 08–57 (SEC 

Approves New Consolidated FINRA Rules) (October 

2008). 

22FINRA notes that NASD Rule 3150 (Reporting 

Requirements for Clearing Firms) currently requires 

most carrying and clearing members to submit such 

data to FINRA. Rule 3150 will be addressed later 

in the rulebook consolidation process. 23See Section 7 under Item II.C. 

24See Proposed FINRA Rule 9557(g)(2). 

25See Proposed FINRA Rule 9557(e)(1). 

report is not timely filed, up to a 

maximum of 10 business days. 

(E) Proposed FINRA Rule 4521 

(Notifications, Questionnaires and 

Reports) 

Drawing in part on NASD IM–3130 

and Rule 3150 and NYSE Rules 

325(b)(2), 416 20 and 421(2),21 Proposed 

FINRA Rule 4521 would address 

FINRA’s authority to request certain 

information from members to carry out 

its surveillance and examination 

responsibilities. As further described 

below, many of the provisions would 

apply only to carrying and clearing 

members. 

Proposed FINRA Rule 4521(a) would 

provide that each carrying or clearing 

member must submit to FINRA such 

financial and operational information 

regarding the member or any of its 

correspondents as FINRA deems 

essential for the protection of investors 

and the public interest. The provisions 

would be new for certain non-NYSE 

members that are carrying or clearing 

members.22

Proposed FINRA Rule 4521(b) would 

require every member approved by the 

SEC pursuant to SEA Rule 15c3–1 to use 

the alternative method of computing net 

capital contained in Appendix E to that 

Rule to file such supplemental and 

alternative reports as may be prescribed 

by FINRA. 

Proposed FINRA Rule 4521(c) would 

require each carrying or clearing 

member to notify FINRA in writing no 

more than 48 hours after its tentative net 

capital, as computed pursuant to SEA 

Rule 15c3–1, has declined 20 percent or 

more from the amount reported in its 

most recent FOCUS Report or, if later, 

the most recent such notification filed 

with FINRA. This would be a new 

requirement for non-NYSE members 

that are carrying or clearing members. 

Proposed FINRA Rule 4521(d) would 

require that, unless otherwise permitted 

by FINRA in writing, member firms 

carrying margin accounts for customers 

must submit, on a settlement date basis: 

(1) The total of all debit balances in 

securities margin accounts; and (2) the 

total of all free credit balances contained 

in cash or margin accounts. This would 

be a new requirement for non-NYSE 

member firms that carry margin 

accounts. 

In response to commenter suggestion, 

Proposed FINRA Rule 4521(e) has been 

revised to provide that a late fee of $100 

would be imposed for each day that any 

report, notification or information a 

member is required to file pursuant to 

Rule 4521 is not timely filed, up to a 

maximum of 10 business days. 

(F) Proposed FINRA Rules 9557 

(Procedures for Regulating Activities 

Under Rules 4110, 4120 and 4130 

Regarding a Member Experiencing 

Financial or Operational Difficulties) 

and 9559 (Hearing Procedures for 

Expedited Proceedings Under the Rule 

9550 Series) 

FINRA Rules 9557 and 9559 address 

service of notice to member firms that 

are experiencing financial or operational 

difficulties and the related hearing 

procedures. The proposed rule change 

would make a number of conforming 

revisions to FINRA Rules 9557 and 9559 

in light of several of the proposed 

financial responsibility rules (Proposed 

FINRA Rules 4110, 4120 and 4130). In 

response to commenter concerns, 

FINRA re-iterates that the proposed rule 

change also would include new 

provisions to afford members with an 

appeals process that is both more 

expedited than that currently provided 

under FINRA Rules 9557 and 9559 and 

provides members with adequate 

safeguards.23 For example: 

• Proposed FINRA Rule 9557(d) 

would provide that the requirements 

referenced in a Rule 9557 notice served 

upon a member are immediately 

effective. Under the proposed rule 

change, a timely request for a hearing 

would stay the effective date for 10 

business days after the service of the 

notice or until a written order is issued 

pursuant to Proposed FINRA Rule 

9559(o)(4)(A) (whichever period is less), 

unless it is determined that such a stay 

cannot be permitted with safety to 

investors, creditors or other member 

firms; 

• To ensure an expedited process, 

Proposed FINRA Rule 9557(e) would 

require a member to file with the Office 

of Hearing Officers any written request 

for a hearing within two business days 

after service of the Rule 9557 notice; 

• Proposed FINRA Rule 9559(f)(1) 

would provide that, after a respondent 

subject to a Rule 9557 notice files a 

written request for a hearing with the 

Office of Hearing Officers, the hearing 

must be held within five business days 

of such filing; 

• Proposed FINRA Rule 9559(o)(4)(A) 

would provide that, within two business 

days of the date of the close of the 

hearing, the Office of Hearing Officers 

must issue the Hearing Panel’s written 

order. The Hearing Panel order would 

be effective when issued. (The proposed 

rule change provides that, pursuant to 

Proposed FINRA Rules 9559(o)(4)(B) 

and 9559(p), the written decision 

explaining the reasons for the Hearing 

Panel’s determinations must be issued 

within seven days of the issuance of the 

written order.) 

Proposed FINRA Rules 9557 and 9559 

set forth a number of other 

enhancements and clarifications of 

procedure. For example, Proposed 

FINRA Rule 9557(e)(1) provides that a 

member served with a Rule 9557 notice 

may request from FINRA staff a letter of 

withdrawal of the notice. The member 

may make this request either in lieu of 

or in addition to filing with the Office 

of Hearing Officers the written request 

for a hearing. The proposed rule change 

would enable FINRA staff, in response 

to the member’s request, either to 

withdraw the Rule 9557 notice or to 

reduce its requirements and/or 

restrictions.24 The member may submit 

a request for a letter of withdrawal to 

FINRA staff at any time after the notice 

is served. If such request is denied by 

FINRA staff, the proposed rule change 

provides that the member shall not be 

precluded from making a subsequent 

request or requests.25

If a member requests a hearing within 

two business days after service of a 9557 

notice, the member may seek to contest 

(1) the validity of the requirements and/ 

or restrictions imposed by the notice (as 

the same may have been reduced by a 

letter of withdrawal issued by FINRA 

staff pursuant to Rule 9557(g)(2), where 

applicable) and/or (2) FINRA staff’s 

determination not to issue a letter of 

withdrawal of all requirements and/or 

restrictions imposed by the notice, if 

such was requested by the member. The 

Hearing Panel may then either approve 

or withdraw the requirements and/or 


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26 15 U.S.C. 78o–3(b)(6). 

27See supra, note 3. 

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/p038509.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/2008/P038501. As stated 

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

the commenters to the Notice, which are listed in 

Exhibit 2b. 

30Northwestern, Wachovia, FSI, SIFMA, ING and 

Federated. 

31 ING, Thornburg and CAI. 

32The Notice explained that ‘‘operating’’ 

pursuant to the exemptive provisions of SEA Rule 

15c3–3(k)(2)(i) is not meant to include firms that 

have elected the exemption but do not operate as 

such. 

33SIFMA, CAI and Kinkade. 

34SIFMA and ING. 

35FSI, ING, Federated and Fischer. 

36FSI, ING and Fischer. 

37Federated. 

38Cantella. 

39Federated. 

40FSI, Northwestern and CAI. 

41SIFMA. 

42FSI and Northwestern. 

restrictions imposed by the notice. If the 

Hearing Panel approves the 

requirements and/or restrictions and 

finds the member has not complied with 

all of them, the Hearing Panel shall 

impose an immediate suspension on the 

respondent that shall remain in effect 

unless FINRA staff issues a letter of 

withdrawal of all requirements and/or 

restrictions. 

FINRA will announce the effective 

date of the proposed rule change in a 

Regulatory Notice to be published no 

later than 90 days following 

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 financial responsibility. 

Further, FINRA believes that 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 

In May 2008, FINRA published the 

Notice 27 requesting comment on the 

proposed rule changes. A copy of the 

Notice is attached as Exhibit 2a.28 The 

comment period ended on June 13, 

2008. Seventeen commenters responded 

to the Notice. Copies of the comment 

letters received, and a list of the 

commenters, are attached as Exhibit 

2b.29

1. General Comments; Tiering of 

Requirements 

Commenters expressed general 

support for rule consolidation,30

including support specifically for 

FINRA’s proposal to tier certain 

requirements to apply only to firms that 

carry or clear customer accounts.31

2. Members Operating Pursuant to SEA 

Rule 15c3–3(k)(2)(i) Exemption 

As proposed in the Notice, the 

requirements set forth in the proposed 

rules that would apply to carrying and 

clearing members would also apply to 

members that operate pursuant to the 

exemptive provisions of SEA Rule 

15c3–3(k)(2)(i).32 The Notice referred to 

such members as ‘‘(k)(2)(i) members,’’ 

and the relevant provisions of the 

proposed rule text as published in the 

Notice designated them by the phrase 

‘‘operating pursuant to the exemptive 

provisions of Rule 15c3–3(k)(2)(i).’’ 

Commenters suggested that the 

application of the term ‘‘(k)(2)(i) 

member’’ was in need of further 

explanation or reconsideration,33 and 

that it would be better either to 

eliminate references to Rule 15c3– 

3(k)(2)(i) from the proposed rules or to 

specify that the proposed rules apply to 

(k)(2)(i) members that hold customer 

cash or securities.34

FINRA agrees that the application of 

the proposed rules with respect to 

(k)(2)(i) members as put forward in the 

Notice should be clarified. Accordingly, 

the proposed rules have been revised to 

eliminate the phrase ‘‘operating 

pursuant to the exemptive provisions of 

Rule 15c3–3(k)(2)(i).’’ Further, in 

response to commenter requests for 

clarification, FINRA notes that a firm 

‘‘operates’’ pursuant to the exemptive 

provisions of Rule 15c3–3(k)(2)(i), and 

is therefore included as a clearing or 

carrying member for purposes of the 

proposed rules, if it either holds 

customer funds in a bank account 

established pursuant to Rule 15c3– 

3(k)(2)(i) or clears customer transactions 

through such an account. FINRA’s 

records currently indicate that there are 

approximately seventy such member 

firms. 

3. Authority To Increase Capital 

Requirements 

Four commenters expressed concern 

regarding the scope of FINRA’s 

authority under Proposed FINRA Rule 

4110(a).35 Three of the four suggested 

that the factors under which FINRA 

would take action pursuant to the rule 

should be clearly spelled out (including 

one suggestion that procedural 

protections are needed); 36 the fourth of 

these commenters suggested FINRA 

should not undermine haircut 

determinations that the SEC makes 

pursuant to SEA Rule 15c3–1.37 One 

commenter suggested that new rules are 

not needed.38

FINRA staff understands the noted 

concerns, but believes that the proposed 

rule does not lend itself to prescribed 

parameters. As explained in Section 

(A)(1) of Item II.A.1, because Proposed 

Rule 4110(a) is intended to enable 

FINRA to respond promptly to 

extraordinary, unanticipated or 

emergency circumstances (a goal 

acknowledged by at least one 

commenter),39 FINRA does not agree 

that it is in the public interest to limit 

the rule’s application by listing specific 

circumstances under which FINRA 

would exercise its authority. FINRA 

expects to employ its authority pursuant 

to the proposed rule judiciously. 

Further, FINRA rejects the argument 

that the proposed rule does not provide 

adequate safeguards; FINRA would be 

expressly required to issue a Rule 9557 

notice, which among other things 

permits a member opportunity for an 

expedited hearing pursuant to Proposed 

FINRA Rule 9559. 

4. Withdrawal of Equity Capital 

Three commenters said that Proposed 

FINRA Rule 4110(c)(1) is too restrictive 

or is more stringent than current or 

proposed SEC requirements.40 One 

suggested that the proposed rule be 

revised to clarify that withdrawal of 

profits from an earlier period would be 

permitted.41 Two said that the proposed 

rule should either be deleted or, if 

adopted, the factors that FINRA would 

take into consideration in approving 

requests should be articulated; 42 one of 


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43FSI. 

44Northwestern. 

45FSI. 

46SIFMA, ING, Kinkade, Baum and CAI. See also 

note 52 infra and accompanying text. 

47Capstone. 

48SIFMA and FSI. 

49FSI, Baum and TBT. 

50Baum. 

51See Section (A)(3) under Item II.A.1. 

52Colonnade, TBT and Capstone. 

53See note 9 under Item II.A.1. 

54 ING. 

55See Proposed FINRA Rule 4140(a). 

56Thornburg. 

57See Section (E) under Item II.A.1. 

58SIFMA and Cantella. 

59FSI and ING. 

60FSI. 

61SIFMA. 

these two commenters suggested that a 

period of time should be established 

within which FINRA would process any 

requests pursuant to the proposed 

rule.43 One suggested that the proposed 

rule would restrict a parent company’s 

support of a broker-dealer subsidiary.44

One raised concerns regarding the 

proposed rule’s potential impact on 

smaller or start-up firms.45

Proposed FINRA Rule 4110(c)(2) drew 

comments that were similar to those for 

Proposed FINRA Rule 4110(c)(1). Five 

commenters said that the proposed rule 

is too restrictive or is more stringent 

than current or proposed SEC 

requirements.46 One suggested the 

proposed rule would put the financial 

management of firms in FINRA’s hands, 

rather than the firms exercising their 

own management.47 Two suggested that 

a period of time should be established 

within which FINRA would process any 

requests pursuant to the proposed 

rule.48 Three suggested that the factors 

FINRA would consider in approving 

requests should be articulated.49 One 

suggested that the proposed rule would 

be burdensome for smaller firms.50

In response, FINRA notes that 

Proposed FINRA Rule 4120 (Regulatory 

Notification and Business 

Curtailment)—in particular Proposed 

FINRA Rule 4120.01—sets forth 

examples of the types of factors that 

FINRA staff would take into 

consideration when considering 

whether to approve a request for a 

withdrawal of equity capital pursuant to 

Proposed Rules 4110(c)(1) or (c)(2). 

FINRA would consider the overall risks 

particular to the member and what the 

member’s condition would be after the 

proposed withdrawal. FINRA believes 

that the proposed rules are not 

burdensome because, as a general 

matter, requests for a withdrawal can be 

handled in a routine manner—FINRA’s 

decision typically would be issued in 

approximately three business days. 

Further, FINRA notes that Proposed 

FINRA Rule 4110(c)(2) provides a 10 

percent de minimis threshold. Lastly, 

FINRA agrees that Proposed FINRA 

Rule 4110(c)(1) should not preclude the 

withdrawal of profits, and has 

accordingly revised the proposed rule to 

clarify that, subject to the requirements 

of Proposed FINRA Rule 4110(c)(2), the 

rule does not preclude a member from 

withdrawing profits earned.51

Several commenters appeared to 

express concerns regarding Proposed 

FINRA Rule 4110(c)(2) based on the 

belief that the rule would apply to 

introducing firms or firms with limited 

business models.52 Because such 

members generally are not carrying or 

clearing members, they would not be 

subject to the proposed rule. As 

explained in the Notice and re-iterated 

in FINRA’s filing with the Commission, 

non-clearing firms generally include, for 

example, firms that engage exclusively 

in subscription-basis mutual fund 

transactions, direct participation 

programs, or mergers and acquisitions 

activities.53

5. Audits 

One commenter said that Proposed 

FINRA Rule 4140 is too broad and that 

the imposition of an audit pursuant to 

the rule would essentially operate as a 

sanction, for which reason there should 

be an appeal process in the event an 

audit is imposed.54 FINRA disagrees. 

Though NASD Rule 3130 and NASD 

IM–3130 provide for an appeal process 

pursuant to current Rule 9557, NYSE 

Rule 418 includes no such provision. 

FINRA emphasizes that the purpose of 

Proposed FINRA Rule 4140 is to confer 

upon FINRA necessary authority, 

especially in emergency circumstances. 

The proposed rule would be invoked 

only in situations where there are 

‘‘concerns regarding the accuracy or 

integrity of a member’s financial 

statements, books and records or prior 

audited financial statements.’’ 55 FINRA 

emphasizes that only FINRA’s EVP, or 

his or her written officer delegate, 

would have the authority to request an 

audit. 

6. Notifications, Questionnaires and 

Reports 

One commenter suggested expanding 

the late fee provided for under Proposed 

FINRA Rule 4521(e) to include all 

reports, notifications and information 

required under Rule 4521. (As 

published in the Notice, the rule would 

have limited the late fee to financial and 

operational information regarding a 

member or its correspondents as 

required under Proposed FINRA Rule 

4521(a); the commenter proposed to 

expand that to include for instance the 

margin account information required 

under the rule.) 56 FINRA agrees with 

this proposal as consistent with the goal 

of clarity and ease of administration, 

and has revised the proposed rule 

accordingly.57

7. Service of Notice and Hearing 

Procedures 

Two commenters expressed concern 

regarding the scope of the discretion 

that Proposed FINRA Rule 9557 would 

grant to FINRA staff.58 Two commenters 

suggested that the proposed rule change 

does not provide sufficient time to 

broker-dealers; 59 one suggested giving 

members five days to decide whether to 

pursue an appeal rather than two.60 One 

commenter suggested that the 

effectiveness of a Rule 9557 notice 

should be two days after being issued, 

rather than immediately effective.61

This same commenter also said that the 

proposed rule change grants substantial 

discretion to FINRA’s CEO to deny a 

stay of a Rule 9557 notice after a 

member requests a hearing and that 

FINRA should be required either to 

present the member with a factual 

finding in the event a stay is denied, or 

that the FINRA decision be made in 

consultation with a third party, such as 

the National Adjudicatory Council or 

the SEC. 

In response, FINRA emphasizes that 

because Proposed FINRA Rules 9557 

and 9559 are designed to enable FINRA 

to respond to emergency circumstances, 

FINRA does not believe that the 

effectiveness of a Rule 9557 notice 

should be anything other than 

immediate. Similarly, FINRA sees no 

reason to extend the time within which 

a member must decide whether to 

pursue an appeal. FINRA intentionally 

designed Rules 9557 and 9559 to 

provide an expedited hearing process 

for affected parties. Moreover, because 

the restrictions or requirements set forth 

in a Rule 9557 notice generally are 

stayed during the appeal process, it is 

imperative that the matter be resolved 

expeditiously in the event the Hearing 

Panel approves the restrictions and/or 

requirements. With respect to stays, 

FINRA further notes that the proposed 

rule change provides that the Rule 9557 

notice is routinely stayed during the 

time of the hearing. The proposed rule 

change does not require the member to 

request the stay—the stay is provided 

for unless the CEO makes a 

determination otherwise, when 


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62See Section (F) under Item II.A.1. 

63SIFMA. 

64See Section (A)(5) under Item II.A.1. 

65SIFMA. 

66Thornburg. This commenter also suggested a 

number of clarifying edits with respect to Proposed 

FINRA Rules 4130(a) and 4521. FINRA has aligned 

Proposed FINRA Rule 4130(a) with the current 

requirements of NASD Rule 3131(a) (see Section (C) 

under Item II.A.1) and has re-organized Proposed 

FINRA Rule 4521 for purposes of clarity. 

67Baum. 

68Cantella and Kinkade. 69 17 CFR 200.30–3(a)(12). 

necessary for the safety of investors, 

creditors or other member firms. 

Moreover, FINRA anticipates that the 

CEO would use such authority only in 

extraordinary circumstances. 

Accordingly, the only revisions that 

FINRA has made with respect to 

Proposed Rules 9557 and 9559 have 

been with a view to further procedural 

enhancements and clarifications of the 

rules as published in the Notice.62

8. Additional Comments 

In response to comments, FINRA has 

made a number of additional clarifying 

revisions to the proposed rules or has 

provided clarifying explanations, 

including: 

• One commenter suggested that the 

language of Proposed FINRA Rule 

4110(e)(2) be clarified with respect to 

LLCs.63 In response, FINRA has 

reconsidered the proposed rule and 

determined that it is not necessary to 

apply it to LLCs; 64

• One commenter proposed clarifying 

language for Proposed FINRA Rule 

4120(c)(3)(I).65 In response, FINRA has 

made clarifying revisions; 

• One commenter suggested that 

FINRA clarify that though the 

requirements of Proposed FINRA Rule 

4120(a) would only apply to carrying 

and clearing members, all members 

nonetheless remain subject to the 

requirements of SEA Rule 17a–11, and 

that the notification that would be 

required under the proposed rule is in 

addition to the notification required 

under SEA Rules 17a–11(b) and (c).66

FINRA agrees that all members should 

be mindful of their obligations under 

Rule 17a–11 in addition to those that 

the proposed rule would impose; 

• Three commenters objected to 

provisions in the proposed rules (one 

commenter as to Proposed FINRA Rule 

4110(d)(4),67 the others as to Proposed 

FINRA Rule 4110(e)(2) 68 pertaining to 

review by FINRA of loan 

documentation. In response, FINRA 

believes that the documentation reviews 

as set forth in the proposed rules are a 

necessary part of FINRA’s function. 

FINRA encourages members to consult 

Proposed FINRA Rule 4120.01 for 

examples of the types of factors that 

FINRA staff would consider when 

reviewing loan documentation. 

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–2008–067 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–2008–067. 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 inspection and copying 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–2008–067 and 

should be submitted on or before 

February 18, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.69

Florence E. Harmon, 

Deputy Secretary. 

Exhibit A 

Proposed new language is italicized; 

deletions are in brackets. 

* * * * * 

Text of Proposed New FINRA Rules 

4110, 4120, 4130, 4140, 4521, 9557 and 

9559 (Proposed FINRA Rules 9557 and 

9559 Are Marked to Show Changes 

from FINRA Rules 9557 and 9559, 

Respectively) 

* * * * * 

4000. FINANCIAL AND 

OPERATIONAL RULES 

4100. FINANCIAL CONDITION 

4110. Capital Compliance 

(a) When necessary for the protection 

of investors or in the public interest, 

FINRA may, at any time or from time to 

time with respect to a particular 

carrying or clearing member or all 

carrying or clearing members, pursuant 

to authority exercised by FINRA’s 

Executive Vice President charged with 

oversight for financial responsibility, or 

his or her written officer delegate, 

prescribe greater net capital or net 

worth requirements than those 

otherwise applicable, including more 

stringent treatment of items in 

computing net capital or net worth, or 

require such member to restore or 

increase its net capital or net worth. In 

any such instance, FINRA shall issue a 

notice pursuant to Rule 9557. 

(b) (1) Unless otherwise permitted by 

FINRA, a member shall suspend all 

business operations during any period 

in which it is not in compliance with 

applicable net capital requirements set 

forth in SEA Rule 15c3–1. 

(2) FINRA may issue a notice 

pursuant to Rule 9557 directing a 


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member that is not in compliance with 

applicable net capital requirements set 

forth in SEA Rule 15c3–1 to suspend all 

or a portion of its business. 

(c) (1) Any equity capital contributed 

by a member may not be withdrawn for 

a period of one year, unless otherwise 

permitted by FINRA in writing. Subject 

to the requirements of paragraph (c)(2) 

of this Rule, this paragraph shall not 

preclude a member from withdrawing 

profits earned. 

(2) A carrying or clearing member 

shall not, without the prior written 

approval of FINRA, withdraw capital, 

pay a dividend or effect a similar 

distribution that would reduce such 

member’s equity, or make any 

unsecured advance or loan to a 

stockholder, partner, sole proprietor, 

employee or affiliate, where such 

withdrawals, payments, reductions, 

advances or loans in the aggregate, in 

any 35 rolling calendar day period, on 

a net basis, exceeds 10% of its excess 

net capital. 

(d) Sale-And-Leasebacks, Factoring, 

Financing, Loans and Similar 

Arrangements 

(1)(A) No carrying or clearing member 

shall consummate a sale-and-leaseback 

arrangement with respect to any of its 

assets, or a sale, factoring, or financing 

arrangement with respect to any 

unsecured accounts receivable, where 

any such arrangement would increase 

the member’s tentative net capital by 

10% or more, without the prior written 

authorization of FINRA. 

(B) No carrying member shall 

consummate any arrangement 

concerning the sale or factoring of 

customer debit balances, irrespective of 

amount, without the prior written 

authorization of FINRA. 

(2) Any loan agreement entered into 

by a carrying or clearing member, the 

proceeds of which exceed 10% of such 

member’s tentative net capital and 

which is intended to reduce the 

deduction in computing net capital for 

fixed assets and other assets which 

cannot be readily converted into cash 

under SEA Rule 15c3–1(c)(2)(iv), must 

be submitted to and be acceptable to 

FINRA, prior to such reduction 

becoming effective. 

(3) Members subject to paragraphs 

(d)(1)(A), (d)(1)(B) or (d)(2), shall not 

consummate any arrangement pursuant 

to such paragraph(s) if the aggregate of 

all such arrangements outstanding 

would exceed 20% of such member’s 

tentative net capital, without the prior 

written authorization of FINRA. 

(4) Any agreement relating to a 

determination of a ‘‘ready market’’ for 

securities based upon the securities 

being accepted as collateral for a loan 

by a bank under SEA Rule 15c3– 

1(c)(11)(ii), must be submitted to and be 

acceptable to FINRA before the 

securities may be deemed to have a 

‘‘ready market.’’ 

(e) Subordinated Loans, Notes 

Collateralized by Securities and Capital 

Borrowings 

(1) All subordinated loans or notes 

collateralized by securities shall meet 

such standards as FINRA may require to 

ensure the continued financial stability 

and operational capability of the 

member, in addition to those specified 

in Appendix D of SEA Rule 15c3–1. 

(2) Unless otherwise permitted by 

FINRA, each member partnership whose 

general partner enters into any secured 

or unsecured borrowing, the proceeds of 

which will be contributed to the capital 

of the member, shall submit the 

following for approval in order for such 

proceeds to qualify as capital 

acceptable for inclusion in the 

computation of the net capital of the 

member: 

A signed copy of the loan agreement 

which must: 

(A) Have at least a 12 month duration; 

and 

(B) Provide non-recourse to the assets 

of the member. 

Additional documents may be 

required, the nature of which will vary, 

depending upon the legal status of the 

lender e.g., an individual, bank, estate, 

trust, corporation, partnership, etc. 

• • • Supplementary Material: —— 

.01 Compliance with Applicable 

Law. For purposes of paragraph (e)(1), 

the member shall assure itself that any 

applicable provisions of the Securities 

Act of 1933 and/or State Blue Sky laws 

have been satisfied and may be required 

to submit evidence thereof to FINRA 

prior to approval of the subordinated 

loan agreement. 

4120. Regulatory Notification and 

Business Curtailment 

(a) Notification 

(1) Each carrying or clearing member 

shall promptly, but in any event within 

24 hours, notify FINRA in writing if its 

net capital falls below the following 

percentages: 

(A) The member’s net capital is less 

than 150 percent of its minimum dollar 

net capital requirement or such greater 

percentage thereof as may from time to 

time be designated by FINRA; 

(B) The member is subject to the 

aggregate indebtedness requirement of 

SEA Rule 15c3–1, and its aggregate 

indebtedness is more than 1,000 percent 

of its net capital; 

(C) The member elects to use the 

alternative method of computing net 

capital pursuant to SEA Rule 15c3– 

1(a)(1)(ii), and its net capital is less than 

the level specified in SEA Rule 17a– 

11(c)(2); 

(D) The member is approved to use 

the alternative method of computing net 

capital pursuant to SEA Rule 15c3–1e, 

and 

(i) Its tentative net capital as defined 

in SEA Rule 15c3–1(c)(15) is less than 

50 percent of the early warning 

notification amount required by SEA 

Rule 15c3–1(a)(7)(ii), or 

(ii) Its net capital is less than $1.25 

billion; 

(E) The member is registered as a 

Futures Commission Merchant pursuant 

to the Commodity Exchange Act, and its 

net capital is less than 120% of the 

minimum risk-based capital 

requirements of Commodity Exchange 

Act Rule 1.17; or 

(F) The member’s deduction of capital 

withdrawals, which it anticipates 

making, whether voluntarily or as a 

result of a commitment, including 

maturities of subordinated liabilities 

entered into pursuant to Appendix D of 

SEA Rule 15c3–1, during the next six 

months, would result in any one of the 

conditions described in paragraph 

(a)(1)(A) through (E) of this Rule. 

(b) Restrictions on Business Expansion 

(1) Except as otherwise permitted by 

FINRA in writing, a member that carries 

customer accounts or clears 

transactions shall not expand its 

business during any period in which 

any of the conditions described in 

paragraph (a)(1) continue to exist for 

more than 15 consecutive business days, 

provided that such condition(s) has 

been known to FINRA or the member for 

at least five consecutive business days. 

FINRA may issue a notice pursuant to 

Rule 9557 directing any such member 

not to expand its business; however, 

FINRA’s authority to issue such notice 

does not negate the member’s obligation 

not to expand its business in 

accordance with this paragraph (b)(1). 

(2) No member may expand its 

business during any period in which 

FINRA restricts the member from 

expanding its business for any financial 

or operational reason. In any such 

instance, FINRA shall issue a notice 

pursuant to Rule 9557. 

(3) For purposes of paragraph (b) of 

this Rule, the term ‘‘expansion of 

business’’ may include: 

(A) Net increase in the number of 

registered representatives or other 

producing personnel; 

(B) Exceeding average capital 

commitments over the previous three 


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months for market making or block 

positioning; 

(C) Initiation of market making in new 

securities or any new proprietary 

trading or other commitment in 

securities or commodities in which a 

market is not made (other than riskless 

trades associated with customer orders); 

(D) Exceeding average commitments 

over the previous three months for 

underwritings; 

(E) Opening of new branch offices; 

(F) Entering any new line of business 

or deliberately promoting or expanding 

any present lines of business; 

(G) Making unsecured or partially 

secured loans, advances, drawings, 

guarantees or other similar receivables; 

and 

(H) Such other activities as FINRA 

deems appropriate under the 

circumstances, in the public interest or 

for the protection of investors. 

(c) Reduction of Business 

(1) Except as otherwise permitted by 

FINRA in writing, a member that carries 

customer accounts or clears 

transactions is obligated to reduce its 

business to a point enabling its 

available capital to exceed the 

standards set forth in paragraph 

(a)(1)(A) through (F) of this Rule, when 

any of the following conditions continue 

to exist for more than 15 consecutive 

business days, provided that such 

condition(s) has been known to FINRA 

or the member for at least five 

consecutive business days: 

(A) The member’s net capital is less 

than 125 percent of its minimum dollar 

net capital requirement or such greater 

percentage thereof as may from time to 

time be designated by FINRA; 

(B) The member is subject to the 

aggregate indebtedness requirement of 

SEA Rule 15c3–1, and its aggregate 

indebtedness is more than 1,200 percent 

of its net capital; 

(C) The member elects to use the 

alternative method of computing net 

capital pursuant to SEA Rule 15c3– 

1(a)(1)(ii), and its net capital is less than 

one percentage point below the level 

specified in SEA Rule 17a–11(c)(2); 

(D) The member is approved to use 

the alternative method of computing net 

capital pursuant to SEA Rule 15c3–1e, 

and 

(i) Its tentative net capital as defined 

in SEA Rule 15c3–1(c)(15) is less than 

40 percent of the early warning 

notification amount required by SEA 

Rule 15c3–1(a)(7)(ii), or 

(ii) Its net capital is less than $1 

billion; 

(E) The member is registered as a 

Futures Commission Merchant pursuant 

to the Commodity Exchange Act, and its 

net capital is less than 110% of the 

minimum risk-based capital 

requirements of Commodity Exchange 

Act Rule 1.17; or 

(F) The member’s deduction of capital 

withdrawals, including maturities of 

subordinated liabilities entered into 

pursuant to Appendix D of SEA Rule 

15c3–1, scheduled during the next six 

months, would result in any one of the 

conditions described in paragraph 

(c)(1)(A) through (E) of this Rule. 

FINRA may issue a notice pursuant to 

Rule 9557 directing any such member to 

reduce its business to a point enabling 

its available capital to exceed the 

standards set forth in paragraph 

(a)(1)(A) through (F) of this Rule; 

however, FINRA’s authority to issue 

such notice does not negate the 

member’s obligation to reduce its 

business in accordance with this 

paragraph (c)(1). 

(2) A member must reduce its 

business as directed by FINRA for any 

financial or operational reason. In any 

such instance, FINRA shall issue a 

notice pursuant to Rule 9557. 

(3) For purposes of paragraph (c) of 

this Rule, the term ‘‘business reduction’’ 

shall mean reducing or eliminating 

parts of a member’s business in order to 

reduce the amount of capital required, 

which may include: 

(A) Promptly paying all or a portion 

of free credit balances to customers; 

(B) Promptly effecting delivery to 

customers of all or a portion of fully 

paid securities in the member’s 

possession or control; 

(C) Introducing all or a portion of its 

business to another member on a fully 

disclosed basis; 

(D) Reducing the size or modifying the 

composition of its inventory and 

reducing or ceasing market making; 

(E) Closing of one or more existing 

branch offices; 

(F) Collecting unsecured or partially 

secured loans, advances, drawings, 

guarantees or other similar receivables; 

(G) Accepting no new customer 

accounts; 

(H) Restricting the payment of salaries 

or other sums to partners, officers, 

directors, shareholders, or associated 

persons of the member; 

(I) Effecting liquidating or closing 

customer and/or proprietary 

transactions; 

(J) Accepting only unsolicited 

customer orders; and 

(K) Such other activities as FINRA 

deems appropriate under the 

circumstances in the public interest or 

for the protection of investors. 

• • • Supplementary Material —— 

.01 Exercise of Discretion by FINRA. 

The following are examples of the 

conditions under which FINRA may 

exercise its discretion pursuant to 

paragraphs (b)(2) or (c)(2) above: 

(a) The member has experienced a 

substantial change in the manner in 

which it processes its business, which, 

in the view of FINRA, increases the 

potential risk of loss to customers or 

other members; 

(b) The member’s books and records 

are not maintained in accordance with 

the provisions of SEA Rules 17a–3 or 

17a–4; 

(c) The member is not in compliance, 

or is unable to demonstrate compliance, 

with applicable net capital 

requirements; 

(d) The member is not in compliance, 

or is unable to demonstrate compliance, 

with SEA Rule 15c3–3 (Customer 

Protection—Reserves and Custody of 

Securities); 

(e) The member is unable to clear and 

settle transactions promptly; or 

(f) The member’s overall business 

operations are in such condition, given 

the nature of its business that, 

notwithstanding the absence of any of 

the conditions enumerated in 

paragraphs (a) through (e), a 

determination of financial or 

operational difficulty should be made. 

.02 Correspondent Firms. The Rule 

contemplates that any restrictions or 

conditions imposed on a carrying or 

clearing member’s business under this 

Rule may require that member to restrict 

the business activities of one or more 

correspondent firms for which the 

member clears, insofar as such business 

would be handled by such carrying or 

clearing member. 

4130. Regulation of Activities of Section 

15C Members Experiencing Financial 

and/or Operational Difficulties 

(a) Application—For purposes of this 

Rule, the term ‘‘member’’ shall be 

limited to any member of FINRA 

registered with the SEC pursuant to 

Section 15C of the Exchange Act that is 

not designated to another self-regulatory 

organization by the SEC for financial 

responsibility pursuant to Section 17 of 

the Exchange Act and SEA Rule 17d–1. 

(b) Each member subject to Section 

402.2 of the rules of the Treasury 

Department shall comply with the 

capital requirements prescribed therein 

and with the provisions of this Rule. 

(c) A member, when so directed by 

FINRA shall not expand its business 

during any period in which: 

(1) Any of the following conditions 

continue to exist for more than 15 

consecutive business days: 

(A) The member’s liquid capital is less 

than 150 percent of the total haircuts or 

such greater percentage thereof as may 


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from time to time be prescribed by 

FINRA; 

(B) The member’s liquid capital 

minus total haircuts is less than 150 

percent of its minimum dollar capital 

requirement; or 

(C) The deduction of ownership equity 

and maturities of subordinated debt 

scheduled during the next six months 

would result in any one of the 

conditions described in (A) or (B) of this 

subparagraph (1); or 

(2) FINRA restricts the member for 

any other financial or operational 

reason. 

(d) A member, when so directed by 

FINRA, shall forthwith reduce its 

business: 

(1) To a point at which the member 

would not be subject to a prohibition 

against expansion of its business as set 

forth in paragraphs (c)(1)(A), (B), or (C) 

of this Rule if any of the following 

conditions continue to exist for more 

than 15 consecutive business days: 

(A) The member’s liquid capital is less 

than 125 percent of total haircuts or 

such greater percentage thereof as may 

from time to time be prescribed by 

FINRA; 

(B) The member’s liquid capital 

minus total haircuts is less than 125 

percent of its minimum dollar capital 

requirement; or 

(C) The deduction of ownership equity 

and maturities of subordinated debt 

scheduled during the next six months 

would result in any one of the 

conditions described in (A) or (B) of this 

subparagraph (1); and 

(2) As required by FINRA when it 

restricts a member for any other 

financial or operational reason. 

(e) A member shall suspend all 

business operations during any period 

of time when the member is not in 

compliance with applicable liquid 

capital requirements as set forth in 

Section 402.2 of the rules of the 

Treasury Department. FINRA staff may 

issue a notice to such member directing 

it to suspend all business operations; 

however, the member’s obligation to 

suspend all business operations arises 

from its obligations under Section 402.2 

of the rules of the Treasury Department 

and is not dependent on any notice that 

may be issued by FINRA staff. 

(f) Any notice directing a member to 

limit or suspend its business operations 

shall be issued by FINRA staff pursuant 

to Rule 9557. 

4140. Audit 

(a) FINRA may at any time, due to 

concerns regarding the accuracy or 

integrity of a member’s financial 

statements, books and records or prior 

audited financial statements, direct any 

member to cause an audit to be made 

by an independent public accountant of 

its accounts, or cause an examination to 

be made in accordance with attestation, 

review or consultation standards 

prescribed by the AICPA. Such audit or 

examination shall be directed pursuant 

to authority exercised by FINRA’s 

Executive Vice President charged with 

oversight for financial responsibility, or 

his or her written officer delegate, and 

shall be made in accordance with such 

requirements as FINRA may prescribe. 

(b) Any member failing to file an 

audited financial and/or operational 

report or examination report under this 

Rule in the prescribed time shall be 

subject to a late fee as set forth in 

Schedule A Section 4(g)(1) to the FINRA 

By-Laws. 

* * * * * 

4500. BOOKS, RECORDS AND 

REPORTS 

* * * * * 

4520. Financial Records and Reporting 

Requirements 

4521. Notifications, Questionnaires and 

Reports 

(a) Each carrying or clearing member 

shall submit to FINRA, or its designated 

agent, at such times as may be 

designated, or on an ongoing basis, in 

such form and within such time period 

as may be prescribed, such financial 

and operational information regarding 

the member or any of its correspondents 

as FINRA deems essential for the 

protection of investors and the public 

interest. 

(b) Every member approved by the 

SEC pursuant to SEA Rule 15c3–1 to use 

the alternative method of computing net 

capital contained in Appendix E to that 

Rule shall file such supplemental and 

alternative reports as may be prescribed 

by FINRA. 

(c) Each carrying or clearing member 

shall notify FINRA in writing, no more 

than 48 hours after its tentative net 

capital as computed pursuant to SEA 

Rule 15c3–1 has declined 20 percent or 

more from the amount reported in its 

most recent FOCUS Report or, if later, 

the most recent such notification filed 

with FINRA. For purposes of this 

paragraph, ‘‘tentative net capital as 

computed pursuant to SEA Rule 15c3– 

1’’ shall exclude withdrawals of capital 

previously approved by FINRA. 

(d)(1) Unless otherwise permitted by 

FINRA in writing, members carrying 

margin accounts for customers are 

required to submit, on a settlement date 

basis, the information specified in 

paragraphs (d)(2)(A) and (d)(2)(B) of 

this Rule as of the last business day of 

the month. If a member has no 

information to submit, a report should 

be filed with a notation thereon to that 

effect. Reports are due as promptly as 

possible after the last business day of 

the month, but in no event later than the 

sixth business day of the following 

month. Members shall use such form as 

FINRA may prescribe for these reporting 

purposes. 

(2) Each member carrying margin 

accounts for customers shall submit 

reports containing the following 

customer information: 

(A) Total of all debit balances in 

securities margin accounts; and 

(B) Total of all free credit balances in 

all cash accounts and all margin 

accounts. 

(3) For purposes of this paragraph (d): 

(A) Only free credit balances in cash 

and margin accounts shall be included 

in the member’s report. Balances in 

short accounts and in Special 

Memorandum Accounts (as defined in 

Section 2.2 of Regulation T under the 

Exchange Act) shall not be considered 

as free credit balances. 

(B) Reported debit or credit balance 

information shall not include the 

accounts of other organizations that are 

FINRA members, or of the associated 

persons of the member submitting the 

report where such associated person’s 

account is excluded from the definition 

of customer pursuant to SEA Rule 15c3– 

3. 

(e) Unless a specific temporary 

extension of time has been granted, 

there shall be imposed upon each 

member required to file any report, 

notification or information pursuant to 

this Rule, a late fee as set forth in 

Schedule A Section 4(g)(1) to the FINRA 

By-Laws. 

(f) For purposes of this Rule, any 

report filed pursuant to this Rule 

containing material inaccuracies shall 

be deemed not to have been filed until 

a corrected copy of the report has been 

resubmitted. 

* * * * * 

9000. CODE OF PROCEDURE 

* * * * * 

9500. OTHER PROCEEDINGS 

* * * * * 

9557. Procedures for Regulating 

Activities Under [NASD] Rules 4110, 

[3130] 4120 and 4130 [3131] Regarding 

a Member Experiencing Financial or 

Operational Difficulties 

(a) Notice of Requirements and/or 

Restrictions; FINRA Action 

FINRA staff may issue a notice 

directing a member to comply with the 


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provisions of Rule 4110, 4120 or 4130 or 

restrict its business activities, either by 

limiting or ceasing to conduct those 

activities consistent with Rule 4110, 

4120 or 4130, if FINRA staff has reason 

to believe that a condition specified in 

[NASD] Rule 4110, 4120 [3130] or 4130 

[Rule 3131] exists. A notice served 

under this Rule shall constitute FINRA 

action. 

(b) No Change. 

(c) Contents of Notice 

A notice issued under this Rule shall: 

(1) State the specific grounds and 

include the factual basis for the FINRA 

action[.]; 

(2) Specify the date of the notice and 

the requirements and/or restrictions 

being imposed by the notice; 

(3) [The notice shall] state [when the 

FINRA action will take effect and] that 

the requirements and/or restrictions 

imposed by the notice are immediately 

effective; 

(4) Specify [explain what the 

respondent must do to avoid such 

action] the conditions for complying 

with and, where applicable, avoiding or 

terminating the requirements and/or 

restrictions imposed by the notice[.]; 

(5) Inform the member that, pursuant 

to paragraph (f) of this Rule, the failure 

to comply with the requirements and/or 

restrictions imposed by an effective 

notice under this Rule shall be deemed, 

without further notice from FINRA staff, 

to result in automatic and immediate 

suspension unless FINRA staff issues a 

letter of withdrawal of all requirements 

and/or restrictions imposed by the 

notice pursuant to paragraph (g)(2) of 

this Rule; 

(6) Explain that the member may 

make a request for a letter of withdrawal 

of the notice pursuant to paragraph (e) 

of this Rule; 

(7) [The notice shall] state that, in 

addition to making a request for a letter 

of withdrawal of the notice, the 

[respondent] member may file a written 

request for a hearing with the Office of 

Hearing Officers pursuant to Rule 

9559[.]; 

(8) [The notice also shall] inform the 

[respondent] member of the applicable 

deadline for filing a request for a 

hearing and [shall] state that a request 

for a hearing must set forth with 

specificity any and all defenses to the 

FINRA action[.]; and 

(9) [In addition, the notice shall] 

explain that, pursuant to Rule[s 8310(a) 

and] 9559(n), a [Hearing Officer or, if 

applicable,] Hearing Panel[,] may 

approve[, modify] or withdraw the 

requirements and/or restrictions [any 

and all sanctions or limitations] 

imposed by the notice, and [may impose 

any other fitting sanction] that if the 

Hearing Panel approves the 

requirements and/or restrictions 

imposed by the notice and finds that the 

member has not complied with all of 

them, the Hearing Panel shall impose an 

immediate suspension on the member. 

(d) Effectiveness [Date] of the 

Requirements and/or Restrictions 

The requirements and/or restrictions 

imposed by a notice issued and served 

under this Rule are immediately 

effective, except that a timely request for 

a hearing shall stay the effective date for 

ten business days after service of the 

notice or until the Office of Hearing 

Officers issues a written order under 

Rule 9559(o)(4)(A) (whichever period is 

less), unless FINRA’s Chief Executive 

Officer (or such other senior officer as 

the Chief Executive Officer may 

designate) determines that such a stay 

cannot be permitted with safety to 

investors, creditors or other members. 

Such a determination by FINRA’s Chief 

Executive Officer (or such other senior 

officer as the Chief Executive Officer 

may designate) cannot be appealed. An 

extension of the stay period is not 

permitted. Where a timely request for a 

hearing stays the action for ten business 

days after service of the notice or until 

the Office of Hearing Officers issues a 

written order under Rule 9559(o)(4)(A) 

(whichever period is less), the notice 

shall not be deemed to have taken effect 

during that entire period. [The 

restrictions referenced in a notice issued 

and served under this Rule shall become 

effective seven days after service of the 

notice, unless stayed by a request for a 

hearing pursuant to Rule 9559.] 

Any requirements and/or restrictions 

imposed by an effective notice shall 

remain in effect unless FINRA staff shall 

remove or reduce the requirements and/ 

or restrictions pursuant to a letter of 

withdrawal of the notice issued as set 

forth in paragraph (g)(2) of this Rule. 

(e) Request for a Letter of Withdrawal of 

the Notice; Request for a Hearing 

A member served with a notice under 

this Rule may request from FINRA staff 

a letter of withdrawal of the notice 

pursuant to paragraph (g)(2) of this Rule 

and/or file with the Office of Hearing 

Officers a written request for a hearing 

pursuant to Rule 9559. 

(1) A request for a letter of withdrawal 

of the notice may be made at any time 

after service of a notice under this Rule. 

The member making the request must 

demonstrate to the satisfaction of 

FINRA staff that the requirements and/ 

or restrictions imposed by the notice 

should be removed or reduced. If such 

a request is denied by FINRA staff, the 

member shall not be precluded from 

making a subsequent request or 

requests. 

(2) A request for a hearing shall be 

made within two business days after 

service of a notice under this Rule 

[before the effective date of the notice, 

as indicated in paragraph (d) of this 

Rule]. A request for a hearing must set 

forth with specificity any and all 

defenses to the FINRA action. A request 

for a hearing may seek to contest: 

(A) The validity of the requirements 

and/or restrictions imposed by the 

notice (as the same may have been 

reduced by a letter of withdrawal 

pursuant to paragraph (g)(2) of this 

Rule, where applicable); and/or 

(B) FINRA staff’s determination not to 

issue a letter of withdrawal of all 

requirements and/or restrictions 

imposed by the notice, if such was 

requested by the member. 

(f) [Failure to Request Hearing] 

[If a member does not timely request 

a hearing, the restrictions specified in 

the notice shall become effective seven 

days after service of the notice. The 

restrictions specified in the notice shall 

remain in effect until the head of the 

FINRA department or office that issued 

the notice or, if another FINRA 

department or office is named as the 

party handling the matter on behalf of 

the issuing department or office, the 

head of the FINRA department or office 

that is so designated reduces or removes 

the restrictions pursuant to paragraph 

(h) of this Rule.] 

(g) [Order to] Enforcement of [Sanctions] 

Notice 

[If FINRA staff determines that a] A 

member that has failed to comply with 

the [any] requirements and/or 

restrictions imposed by [a decision or] 

an effective notice under this Rule shall 

be deemed, without further notice from 

FINRA staff, automatically and 

immediately suspended [that have not 

been stayed, FINRA staff shall issue an 

order imposing the sanctions set forth in 

the decision or notice and specifying the 

effective date and time of such 

sanctions. The order shall inform the 

member that it may apply for relief from 

the sanctions imposed by the order by 

filing a written request for a hearing 

before the Office of Hearing Officers 

under Rule 9559. The procedures 

delineated in this Rule shall be 

applicable]. Such suspension shall 

remain in effect unless FINRA staff shall 

issue a letter, pursuant to paragraph 

(g)(2) of this Rule, stating that the 

suspension is lifted. 


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[(h)] (g) Additional Requirements and/or 

Restrictions or the Removal or 

Reduction [or Removal] of Requirements 

and/or Restrictions; Letter of 

Withdrawal of the Notice 

(1) Additional Requirements and/or 

Restrictions 

If a member continues to experience 

financial or operational difficulty 

specified in [NASD] Rule 4110 or 4120 

[3130] or 4130 [3131], notwithstanding 

an effective notice[, order or decision 

under this Rule], FINRA staff may 

impose additional requirements and/or 

restrictions by [issuing] serving [a] an 

additional notice under paragraph (b) of 

this Rule. The additional notice shall 

inform the member that it may apply for 

relief from the additional requirements 

and/or restrictions by filing a written 

request for a letter of withdrawal of the 

notice and/or a written request for a 

hearing before the Office of Hearing 

Officers under Rule 9559. The 

procedures delineated in this Rule shall 

be applicable to such [a] additional 

notice. 

(2) [Reduction or] Removal or Reduction 

of Requirements and/or Restrictions 

and/or Lifting of Suspension; Letter of 

Withdrawal 

(A) Removal or Reduction of 

Requirements and/or Restrictions 

If, upon the member’s demonstration 

to the satisfaction of FINRA staff, 

FINRA staff determines that any 

requirements and/or restrictions 

[previously] imposed by a notice under 

this Rule should be [reduced or] 

removed or reduced, FINRA staff shall 

serve the member, pursuant to 

paragraph (b) of this Rule, a written 

letter of withdrawal that shall, in the 

sole discretion of FINRA staff, withdraw 

the notice in whole or in part [on the 

member pursuant to Rule 9134]. A 

notice that is withdrawn in part shall 

remain in force, unless FINRA staff 

shall remove the remaining 

requirements and/or restrictions. 

(B) Lifting of Suspension 

If, upon the member’s demonstration 

to the satisfaction of FINRA staff, 

FINRA staff determines that a 

suspension imposed by a notice under 

this Rule should be lifted, FINRA staff 

shall serve the member, pursuant to 

paragraph (b) of this Rule, a letter that 

shall, in the sole discretion of FINRA 

staff, lift the suspension. Where all or 

some of the requirements and/or 

restrictions imposed by a notice issued 

under this Rule remain in force, the 

letter shall state that the member’s 

failure to continue to comply with those 

requirements and/or restrictions that 

remain effective shall result in the 

member being immediately suspended. 

(h) FINRA Staff For purposes of this 

Rule, ‘‘FINRA staff’’ shall mean: 

(1) The head of the FINRA 

department or office that issued the 

notice, or his or her written officer 

delegate; or 

(2) If another FINRA department or 

office is named as the party handling 

the matter on behalf of the issuing 

department or office, the head of the 

FINRA department or office that is so 

designated, or his or her written officer 

delegate. 

(i) Notice to Membership 

FINRA shall provide notice of any 

suspension [final FINRA action taken] 

pursuant to this Rule in the next notice 

of Disciplinary and Other FINRA 

Actions. 

* * * * * 

9559. Hearing Procedures for Expedited 

Proceedings Under the Rule 9550 Series 

(a) No Change 

(b) Computation of Time 

Rule 9138 shall govern the 

computation of time in proceedings 

brought under the Rule 9550 Series, 

except that intermediate Saturdays, 

Sundays and Federal holidays shall be 

included in the computation in 

proceedings brought under Rules 9556 

through 9558, unless otherwise 

specified. 

(c) Stays 

(1) Unless the Chief Hearing Officer or 

the Hearing Officer assigned to the 

matter orders otherwise for good cause 

shown, a timely request for a hearing 

shall stay the effectiveness of a notice 

issued under Rules 9551 through 

9556[7], except that the effectiveness of 

a notice of a limitation or prohibition on 

access to services offered by FINRA or 

a member thereof under Rule 9555 with 

respect to services to which the member 

or person does not have access shall not 

be stayed by a request for a hearing. 

(2) A timely request for a hearing shall 

stay the effectiveness of a notice issued 

under Rule 9557 for ten business days 

after service of the notice or until the 

Office of Hearing Officers issues a 

written order under Rule 9559(o)(4)(A) 

(whichever period is less), unless 

FINRA’s Chief Executive Officer (or 

such other senior officer as the Chief 

Executive Officer may designate) 

determines that a notice under Rule 

9557 shall not be stayed. Where a notice 

under Rule 9557 is stayed by a request 

for a hearing, such stay shall remain in 

effect only for ten business days after 

service of the notice or until the Office 

of Hearing Officers issues a written 

order under Rule 9559(o)(4)(A) 

(whichever period is less) and shall not 

be extended. 

(3) A timely request for a hearing shall 

not stay the effectiveness of a notice 

issued under Rule 9558, unless the 

Chief Hearing Officer or the Hearing 

Officer assigned to the matter orders 

otherwise for good cause shown. 

(d) Appointment and Authority of 

Hearing Officer and/or Hearing Panel 

(1) For proceedings initiated under 

Rules 9553 and 9554, the Chief Hearing 

Officer shall appoint a Hearing Officer 

to preside over and act as the sole 

adjudicator for the matter. 

(2) For proceedings initiated under 

Rules 9551, 9552, 9555, 9556, 9557 and 

9558, the Chief Hearing Officer shall 

appoint a Hearing Panel composed of a 

Hearing Officer and two Panelists. The 

Hearing Officer shall serve as the chair 

of the Hearing Panel. For proceedings 

initiated under Rules 9551, 9552, 9555, 

9556 and 9558, [T]the Chief Hearing 

Officer shall select as Panelists persons 

who meet the qualifications delineated 

in Rules 9231 and 9232. For proceedings 

initiated under Rule 9557, the Chief 

Hearing Officer shall select as Panelists 

current or former members of the FINRA 

Financial Responsibility Committee. 

(3) Rules 9231(e), 9233 and 9234 shall 

govern disqualification, recusal or 

withdrawal of a Hearing Officer or, if 

applicable, Hearing Panelist. 

(4) A Hearing Officer appointed 

pursuant to this provision shall have 

authority to do all things necessary and 

appropriate to discharge his or her 

duties as set forth under Rules 9235 and 

9280. 

(5) Hearings under the Rule 9550 

Series shall be held by telephone 

conference, unless the Hearing Officer 

orders otherwise for good cause shown. 

(6) For good cause shown, or with the 

consent of all of the parties to a 

proceeding, the Hearing Officer or, if 

applicable, the Hearing Panel may 

extend or shorten any time limits 

prescribed by this Rule other than those 

relating to Rule 9557. 

(e) Consolidation or Severance of 

Proceedings 

Rule 9214 shall govern the 

consolidation or severance of 

proceedings, except that, where one of 

the notices that are the subject of 

consolidation under this Rule requires 

that a hearing be held before a Hearing 

Panel, the hearing of the consolidated 

matters shall be held before a Hearing 

Panel. Where two consolidated matters 

contain different timelines under this 

Rule, the Chief Hearing Officer or 


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Hearing Officer assigned to the matter 

has discretion to determine which 

timeline is appropriate under the facts 

and circumstances of the case. Where 

one of the consolidated matters includes 

an action brought under a Rule [9558] 

that does not permit a stay of the 

effectiveness of the notice or where 

FINRA’s Chief Executive Officer (or 

such other senior officer as the Chief 

Executive Officer may designate), in the 

case of Rule 9557, or Hearing Officer, in 

the case of Rule 9558(d), determines 

that a request for a hearing shall not 

stay the effectiveness of the notice, the 

limitation, prohibition, condition, 

requirement, restriction, or suspension 

specified in the notice shall not be 

stayed pending resolution of the case 

[unless the Chief Hearing Officer or 

Hearing Officer assigned to the matter 

orders otherwise for good cause shown. 

Where one of the consolidated matters 

includes an action brought under Rule 

9555 with respect to services to which 

the member or person does not have 

access, the effectiveness of a notice of a 

limitation or prohibition on access to 

services offered by FINRA or a member 

thereof shall not be stayed pending 

resolution of the case]. Where one of the 

consolidated matters includes an action 

brought under Rule 9557 that is stayed 

for up to ten business days, the 

requirement and/or restriction specified 

in the notice shall not be further stayed. 

(f) Time of Hearing 

(1) A hearing shall be held within five 

business days after a respondent subject 

to a notice issued under Rule 9557 files 

a written request for a hearing with the 

Office of Hearing Officers. 

([1]2) A hearing shall be held within 

14 days after a respondent subject to a 

notice issued under Rules 9556 

[through] and 9558 files a written 

request for a hearing with the Office of 

Hearing Officers. 

([2]3) A hearing shall be held within 

60 days after a respondent subject to a 

notice issued under Rules 9551 through 

9555 files a written request for a hearing 

with the Office of Hearing Officers. 

([3]4) The timelines established by 

paragraphs (f)(1) [and] through (f)[(2)](3) 

confer no substantive rights on the 

parties. 

(g) Notice of Hearing 

The Hearing Officer shall issue a 

notice stating the date, time, and place 

of the hearing as follows: 

(1) At least two business days prior to 

the hearing in the case of an action 

brought pursuant to Rule 9557; 

([1]2) At least seven days prior to the 

hearing in the case of an action brought 

pursuant to Rules 9556 [through] and 

9558; and 

([2]3) At least 21 days prior to the 

hearing in the case of an action brought 

pursuant to Rules 9551 through 9555. 

(h) Transmission of Documents 

(1) Not less than two business days 

before the hearing in an action brought 

under Rule 9557, not less than seven 

days before the hearing in an action 

brought under Rules 9556 [through] and 

9558, and not less than 40 days before 

the hearing in an action brought under 

Rules 9551 through 9555, FINRA staff 

shall provide to the respondent who 

requested the hearing, by facsimile or 

overnight courier, all documents that 

were considered in issuing the notice 

unless a document meets the criteria of 

Rule 9251(b)(1)(A), (B) or (C). A 

document that meets such criteria shall 

not constitute part of the record, but 

shall be retained by FINRA until the 

date upon which FINRA serves a final 

decision or, if applicable, upon the 

conclusion of any review by the SEC or 

the federal courts. 

(2) Not less than two business days 

before the hearing in an action brought 

under Rule 9557, not less than three 

days before the hearing in an action 

brought under Rules 9556 [through] and 

9558, and not less than 14 days before 

the hearing in an action brought under 

Rules 9551 through 9555, the parties 

shall exchange proposed exhibit and 

witness lists. The exhibit and witness 

lists shall be served by facsimile or by 

overnight courier. (i) through (m) No 

Change. 

(n) Sanctions, Costs and Remands 

(1) In any action brought under the 

Rule 9550 Series, other than an action 

brought under Rule 9557, [T]the Hearing 

Officer or, if applicable, the Hearing 

Panel may approve, modify or withdraw 

any and all sanctions, requirements, 

restrictions or limitations imposed by 

the notice[. The Hearing Officer or, if 

applicable, the Hearing Panel] and, 

pursuant to Rule 8310(a), [also] may 

also impose any other fitting sanction[, 

pursuant to Rule 8310(a)]. 

(2) In an action brought under Rule 

9557, the Hearing Panel shall approve 

or withdraw the requirements and/or 

restrictions imposed by the notice. If the 

Hearing Panel approves the 

requirements and/or restrictions and 

finds that the respondent has not 

complied with all of them, the Hearing 

Panel shall impose an immediate 

suspension on the respondent that shall 

remain in effect unless FINRA staff 

issues a letter of withdrawal of all 

requirements and/or restrictions 

pursuant to Rule 9557(g)(2). 

(3) The Hearing Officer or, if 

applicable, the Hearing Panel may 

impose costs pursuant to Rule 8330 

regarding all actions brought under the 

Rule 9550 Series. 

([3]4) In any action brought under the 

Rule 9550 Series, other than an action 

brought under Rule 9557, [T]the Hearing 

Officer or, if applicable, the Hearing 

Panel may remand the matter to the 

department or office that issued the 

notice for further consideration of 

specified matters. 

(o) Timing of Decision 

(1) Proceedings initiated under Rules 

9553 and 9554 

Within 60 days of the date of the close 

of the hearing, the Hearing Officer shall 

prepare a proposeed written decision 

and provide it to the National 

Adjudicatory Council’s Review 

Subcommittee. 

(2) Proceedings initiated under Rules 

9556 [through] and 9558 

Within 21 days of the date of the close 

of the hearing, the Hearing Officer shall 

prepare a proposed written decision that 

reflects the views of the Hearing Panel, 

as determined by majority vote, and 

provide it to the National Adjudicatory 

Council’s Review Subcommittee. 

(3) Proceedings initiated under Rules 

9551, 9552 and 9555 

Within 60 days of the date of the close 

of the hearing, the Hearing Officer shall 

prepare a proposed written decision that 

reflects the views of the Hearing Panel, 

as determined by majority vote, and 

provide it to the National Adjudicatory 

Council’s Review Subcommittee. 

(4) Proceedings initiated under Rule 

9557 

(A) Written Order 

Within two business days of the date 

of the close of the hearing, the Office of 

Hearing Officers shall issue a written 

order that reflects the Hearing Panel’s 

summary determinations, as decided by 

majority vote, and shall serve the 

Hearing Panel’s written order on the 

Parties. The Hearing Panel’s written 

order under Rule 9557 is effective when 

issued. The Hearing Panel’s written 

order will be followed by a written 

decision explaining the reasons for the 

Hearing Panel’s summary 

determinations, as required by 

paragraphs (o)(4)(B) and (p) of this Rule. 

(B) Written Decision 

Within seven days of the issuance of 

the Hearing Panel’s written order, the 

Office of Hearing Officers shall issue a 

written decision that complies with the 


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5006 Federal Register / Vol. 74, No. 17 / Wednesday, January 28, 2009 / Notices 

requirements of paragraph (p) of this 

Rule and shall serve the Hearing Panel’s 

written decision on the Parties. 

(5) If not timely called for review by 

the National Adjudicatory Council’s 

Review Subcommittee pursuant to 

paragraph (q) of this Rule, the Hearing 

Officer’s or, if applicable, the Hearing 

Panel’s written decision shall constitute 

final FINRA action. For decisions issued 

under Rules 9551 through 9556 and 

9558, [T]the Office of Hearing Officers 

shall promptly serve the decision of the 

Hearing Officer or, if applicable, the 

Hearing Panel on the Parties and 

provide a copy to each FINRA member 

with which the respondent is 

associated. 

([5]6) The timelines established by 

paragraphs (o)(1) through [(4)](5) confer 

no substantive rights on the parties. 

(p) Contents of Decision 

The decision, which for purposes of 

Rule 9557 means the written decision 

issued under paragraph (o)(4)(B) of this 

Rule, shall include: 

(1) a statement describing the 

investigative or other origin of the 

notice issued under the Rule 9550 

Series; 

(2) the specific statutory or rule 

provision[s that were] alleged to have 

been violated or providing the authority 

for the FINRA action; 

(3) a statement setting forth the 

findings of fact with respect to any act 

or practice the respondent was alleged 

to have committed or omitted or any 

condition specified in the notice; 

(4) the conclusions of the Hearing 

Officer or, if applicable, Hearing Panel 

regarding the alleged violation or 

condition specified in the notice [as to 

whether the respondent violated any 

provision alleged in the notice]; 

(5) a statement of the Hearing Officer 

or, if applicable, Hearing Panel in 

support of the disposition of the 

principal issues raised in the 

proceeding; and 

(6) a statement describing any 

sanction, requirement, restriction or 

limitation imposed, the reasons 

therefore, and the date upon which such 

sanction, requirement, restriction or 

limitation shall become effective. 

(q) Call for Review by the National 

Adjudicatory Council 

(1) For proceedings initiated under 

the Rule 9550 Series (other than Rule 

9557), [T]the National Adjudicatory 

Council’s Review Subcommittee may 

call for review a proposed decision 

[issued] prepared by a Hearing Officer 

or, if applicable, Hearing Panel [under 

the Rule 9550 Series] within 21 days 

after receipt of the decision from the 

Office of Hearing Officers. For 

proceedings initiated under Rule 9557, 

the National Adjudicatory Council’s 

Review Subcommittee may call for 

review a written decision issued under 

paragraph (o)(4)(B) of this Rule by a 

Hearing Panel within 14 days after 

receipt of the written decision from the 

Office of Hearing Officers. Rule 9313(a) 

is incorporated herein by reference. 

(2) No Change. 

(3) For good cause shown, or with the 

consent of all of the parties to a 

proceeding, the Review Subcommittee, 

the National Adjudicatory Council 

Subcommittee or the National 

Adjudicatory Council may extend or 

shorten any time limits prescribed by 

this Rule other than those relating to 

Rule 9557. 

(4) through (6) No Change. 

(r) through (s) No Change. 

* * * * * 

Text of Proposed Changes to Section 4 

of Schedule A to the FINRA By-Laws 

SCHEDULE A TO THE BY-LAWS OF 

THE CORPORATION 

Section 1 through Section 3 No Change. 

Section 4—Fees 

(a) through (f) No Change. 

(g)(1) Unless a specific temporary 

extension of time has been granted, 

there shall be imposed upon each 

member required to file reports, as 

designated by this paragraph 

(‘‘Designated Reports’’), a fee of $100 for 

each day that such report is not timely 

filed. The fee will be assessed for a 

period not to exceed 10 business days. 

Requests for such extension of time 

must be submitted to FINRA at least 

three business days prior to the due 

date; and 

(2) Any report filed pursuant to this 

Rule containing material inaccuracies or 

filed incompletely shall be deemed not 

to have been filed until a corrected copy 

of the report has been resubmitted. 

(3) List of Designated Reports: 

(A) SE[C]A Rule 17a–5—Monthly and 

quarterly FOCUS reports and annual 

audit reports; [and] 

(B) SE[C]A Rule 17a–10—Schedule 

I[.]; 

(C) FINRA Rule 4140—any audited 

financial and/or operational report or 

examination report required pursuant to 

Rule 4140; and 

(D) FINRA Rule 4521—any report, 

notification or information required 

pursuant to Rule 4521. 

(h) No Change. 

IM-Section 4(b)(1) and (e) through 

Section 13 No Change. 

* * * * * 

Text of Incorporated NYSE Rules To 

Remain in the Transitional Rulebook 

Incorporated NYSE Rules 

* * * * * 

Rule 312. Changes Within Member 

Organizations 

(a) through (g) No Change. 

(h) Reserved. [No member corporation 

subject to Rule 325 shall, without the 

prior written consent of the Exchange, 

redeem or repurchase any shares of its 

stock on less than six months notice 

given to the Exchange no sooner than 

six months after the original issuance of 

such shares (or any predecessor shares). 

Each member corporation shall 

promptly notify the Exchange if any 

redemption or repurchase of any of its 

stock is postponed because prohibited 

under the provisions of Exchange Act 

Rule 15c3–1 (see 15c3–1(e)).] 

(i) through (j) No Change. 

Rule 313. Submission of Partnership 

Articles—Submission of Corporate 

Documents 

(a) through (c) No Change. 

(d) Reserved. [Whenever a member 

organization shall offer or sell any 

security, as defined under the Securities 

Act of 1933, as amended, or the General 

Rules and Regulations thereunder (the 

1933 Act), or under the ‘‘blue sky’’ law 

or the regulations thereunder of any 

state in which it is proposed that the 

security be offered, which security is 

issued by the member organization for 

the purpose of raising capital under 

Rules 325 and 326 of the Board of 

Directors of the Exchange, the member 

organization must furnish the Exchange 

with an opinion of counsel in form and 

substance satisfactory to the Exchange 

as to whether or not the securities being 

offered or sold need be registered under 

the 1933 Act and a survey of the type 

customarily prepared in respect of the 

underwriting of securities, but not an 

opinion, as to what action, if any, need 

be taken with respect to such offer or 

sale under any applicable state ‘‘blue 

sky’’ law. If, in counsel’s opinion, the 

securities need not be registered under 

the 1933 Act, his opinion shall state the 

exemption from the registration 

requirements of the 1933 Act upon 

which he is relying and the basis for 

such reliance. If the securities are 

required to be registered under the 1933 

Act counsel’s opinion shall include, in 

addition to such other statements as the 

Exchange in any particular case may 

require, a statement substantially to the 

effect that at the time the registration 

statement became effective, the 

registration statement and the 

prospectus (other than the financial 


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Federal Register / Vol. 74, No. 17 / Wednesday, January 28, 2009 / Notices 5007 

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

2 17 CFR 240.19b–4. 

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

statements contained therein) complied 

as to form in all material respects with 

the requirements of the 1933 Act (and 

with the Trust Indenture Act of 1939, as 

amended, if applicable) and nothing has 

come to counsel’s attention that would 

lead counsel to believe that the 

registration statement at the time it 

became effective contained an untrue 

statement of a material fact or omitted 

to state a material fact required to be 

stated therein or necessary to make the 

statements therein not misleading or 

that the prospectus at the time the 

registration statement became effective 

or at the time of sale of the security 

contained an untrue statement of a 

material fact or omitted to state a 

material fact necessary in order to make 

the statements therein, in the light of the 

circumstances under which they were 

made, not misleading.] 

[Prior to the consummation of the sale 

of the security, counsel shall furnish a 

statement to the Exchange as to the 

action taken in order to comply with the 

state ‘‘blue sky’’ law of any state in 

which the security is offered or sold.] 

[Without limiting the generality of the 

foregoing, counsel, among other things, 

is expected to give appropriate 

consideration to (a) any other 

transactions pursuant to which the 

member organization has raised capital 

in the past, or expects to do so in the 

future, (b) the disclosure of material 

information regarding the member 

organization to offerees of the security, 

and (c) the need for representation by 

the purchaser of the securities as to his 

intention to hold the securities for 

investment.] 

(e) through (f) No Change. 

• • • Supplementary Material: —— 

Information Regarding Partnership 

Articles 

.10 through .12 No Change. 

[.14 A–B–C agreements.—[Rescinded 

by NYSE–2005–77].] 

[.18 Sole board member provision.— 

[Removed by NYSE–2005–77].] 

Information Regarding Member 

Corporations 

.20 through. 23 No Change. 

* * * * * 

Rule 416. Questionnaires and Reports 

(a) No Change. 

(b) No Change. 

(c) No Change. 

• • • Supplementary Material: —— 

.10 No Change. 

.20 Reserved. [Each member and 

member organization shall, on an 

ongoing basis and in such format as the 

Exchange may require, submit to the 

Exchange, or its designated agent, 

prescribed data of the member or 

member organization, and of any brokerdealer that is a party to a carrying 

agreement with a member or member 

organization pursuant to NYSE Rule 

382.] 

* * * * * 

Text of NASD Rules to be Deleted in 

Their Entirety from the Transitional 

Rulebook 

* * * * * 

3100. BOOKS AND RECORDS, AND 

FINANCIAL CONDITION 

* * * * * 

[3130. Regulation of Activities of 

Members Experiencing Financial and/or 

Operational Difficulties] 

Entire text deleted. 

[IM–3130. Restrictions on a Member’s 

Activity] 

Entire text deleted. 

[3131. Regulation of Activities of 

Section 15C Members Experiencing 

Financial and/or Operational 

Difficulties] 

Entire text deleted. 

* * * * * 

Text of Incorporated NYSE Rules and 

NYSE Rule Interpretations to be 

Deleted in Their Entirety from the 

Transitional Rulebook 

Incorporated NYSE Rules 

* * * * * 

[Rule 325. Capital Requirements 

Member Organizations] 

Entire text deleted. 

[Rule 326(a). Growth Capital 

Requirement] 

Entire text deleted. 

[Rule 326(b). Business Reduction 

Capital Requirement] 

Entire text deleted. 

[Rule 326(c). Unsecured Loans and 

Advances] 

Entire text deleted. 

[Rule 326(d). Reduction of 

Elimination of Loans and Advances] 

Entire text deleted. 

* * * * * 

[Rule 328. Sale-And-Leasebacks, 

Factoring, Financing and Similar 

Arrangements] 

Entire text deleted. 

* * * * * 

[Rule 418. Audit] 

Entire text deleted. 

* * * * * 

[Rule 420. Reports of Borrowings and 

Subordinate Loans For Capital 

Purposes] 

Entire text deleted. 

[Rule 421. Periodic Reports] 

Entire text deleted. 

* * * * * 

NYSE RULE INTERPRETATION 

[NYSE Rule 313 SUBMISSION OF 

PARTNERSHIP ARTICLES] 

[SUBMISSION OF CORPORATE 

DOCUMENTS] 

[(d) OPINION OF COUNSEL] 

[/01 Loans, Demand Notes and 

Partners’ Contributions] 

Entire text deleted. 

[/02 Independent Counsel] 

Entire text deleted. 

* * * * * 

[Rule 325 CAPITAL 

REQUIREMENTS] 

[(c)(1) Long Put or Call Options] 

Entire text deleted. 

[/01 SEC no-action letter to NYSE 

dated January 31, 1990 provides interim 

conditions for recognition of long 

unlisted options, for U.S. Government 

debt securities endorsed or guaranteed 

by a limited group of narrowly defined 

issuers.] 

Entire text deleted. 

* * * * * 

[Rule 416 QUESTIONNAIRES AND 

REPORTS] 

[/01 Gold and Silver Offerings] 

Entire text deleted. 

* * * * * 

[FR Doc. E9–1807 Filed 1–27–09; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59276; File No. SR–ISE– 

2009–02] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Notice of Filing and Immediate 

Effectiveness of Proposed Rule 

Change Relating to the Extension of a 

Pilot Program for Directed Orders 

January 22, 2009. 

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

Securities Exchange Act of 1934 

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

19b–4 thereunder,2 notice is hereby 

given that on January 12, 2009, the 

International Securities Exchange, LLC 

(‘‘ISE’’ 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 ISE. The proposed rule 

change has been filed by the ISE as 

effecting a change in an existing orderentry or trading system pursuant to 

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


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