47630 Federal Register / Vol. 74, No. 178 / Wednesday, September 16, 2009 / Notices 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 60112 

(June 15, 2009), 74 FR 29527 (June 22, 2009). 

4See Letters from Deborah M. Castiglioni, CEO, 

Cutter & Company, Inc., dated July 9, 2009 

(‘‘Cutter’’); Larry Dorn, Owner/President/AML 

Officer/Financial Principal, Dorn & Co., Inc., dated 

July 16, 2009 (‘‘Dorn’’); Joe Giordano, President, 

Joseph James Financial Services, Inc., dated July 14, 

2009 (‘‘Joseph James’’); S. Lauren Heyne, Chief 

Compliance Officer, RW Smith & Associates, Inc., 

dated July 13, 2009 (‘‘RW Smith’’); Judy L. Loy, 

CEO, Nestlerode & Loy Inc., dated July 8, 2009 

(‘‘Nestlerode’’); William R. Pictor, CEO, Trubee 

Collins Co., Inc., dated July 10, 2009 (‘‘Trubee 

Collins’’); Terri F. Rumans, Chief Compliance 

Officer, Sage Rutty Co., Inc., dated July 13, 2009 

(‘‘Sage Rutty’’). Unless otherwise indicated, all 

letters cited in this order were addressed to either 

Florence Harmon, Deputy Secretary of the 

Commission or Elizabeth M. Murphy, Secretary of 

the Commission. 

5See Letter from Patricia Albrecht, Assistant 

General Counsel, FINRA, dated July 29, 2009 

(‘‘FINRA’s Response’’). 

6See Currency and Foreign Transactions 

Reporting Act of 1970 (commonly referred to as the 

Bank Secrecy Act), 12 U.S.C. 1829b, 12 U.S.C. 

1951–1959, and 31 U.S.C. 5311–5330). 

7NASD Rule 3011 permits a member to conduct 

the independent testing every two years (on a 

calendar-year basis) if it does not execute 

transactions for customers or otherwise hold 

customer accounts or act as an introducing broker 

with respect to customer accounts (e.g., engages 

solely in proprietary trading, or conducts business 

only with other broker-dealers). Incorporated NYSE 

Rule 445 uses slightly different terminology to 

achieve the same result, specifically providing that 

a member may conduct independent testing every 

two years (on a calendar-year basis) if it ‘‘does not 

engage in a public business (e.g., engages solely in 

proprietary trading, or conducts business only with 

other broker-dealers).’’ 

8FINRA is proposing to replace NASD Rule 1160 

with FINRA Rule 4540 (Member Information and 

Data Reporting and Filing Requirements). See 

Regulatory Notice 09–02 (January 2009). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60645; File No. SR–FINRA– 

2009–039] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Approving 

Proposed Rule Change To Adopt 

FINRA Rule 3310 (Anti-Money 

Laundering Compliance Program) in 

the Consolidated FINRA Rulebook 

September 10, 2009. 

I. Introduction 

On June 1, 2009, the Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) (f/k/a National Association 

of Securities Dealers, Inc. (‘‘NASD’’)) 

filed with the Securities and Exchange 

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

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

Securities Exchange Act of 1934 

(‘‘Exchange Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

adopt FINRA Rule 3310 (Anti-Money 

Laundering (‘‘AML’’) Compliance 

Program). The Commission published 

the proposed rule change for comment 

in the Federal Register on June 22, 

2009.3 The comment period expired on 

July 13, 2009. The Commission received 

seven comments in response to the 

proposed rule change.4 On July 29, 

2009, FINRA responded to the 

comments.5 This order approves the 

proposed rule change. 

II. Description of the Proposed Rule 

Change 

FINRA proposed to adopt: (1) NASD 

Rule 3011 (AML Compliance Program) 

as FINRA Rule 3310 (AML Compliance 

Program), without substantive change; 

(2) NASD IM–3011–1 (Independent 

Testing Requirements) as 

supplementary material to proposed 

FINRA Rule 3310, subject to certain 

amendments; and (3) NASD IM–3011–2 

(Review of AML Compliance Person 

Information) as supplementary material 

to proposed FINRA Rule 3310, without 

substantive change. The proposed rule 

change would delete Incorporated NYSE 

Rule 445 (AML Compliance Program) in 

its entirety as duplicative. 

A. Background 

NASD Rule 3011 (AML Compliance 

Program) and Incorporated NYSE Rule 

445 (AML Compliance Program) are 

substantially similar rules requiring 

members to develop and implement a 

written AML program reasonably 

designed to achieve and monitor 

compliance with the requirements of the 

Bank Secrecy Act (‘‘BSA’’) 6 and the 

implementing regulations promulgated 

by the Department of the Treasury. Each 

member’s AML compliance program 

must be approved, in writing, by a 

member of senior management. 

Both NASD 3011 and NYSE 445 

require that each AML compliance 

program must, at a minimum: (1) 

Establish and implement policies and 

procedures that can be reasonably 

expected to detect and cause the 

reporting of suspicious transactions; (2) 

establish and implement policies, 

procedures, and internal controls 

reasonably designed to achieve 

compliance with the BSA and its 

implementing regulations; (3) provide 

for annual (on a calendar-year basis) 

independent testing for compliance to 

be conducted by member personnel or 

a qualified outside party; 7 (4) designate 

and identify to FINRA an individual or 

individuals (i.e., AML compliance 

person(s)) who will be responsible for 

implementing and monitoring the dayto-day operations and internal controls 

of the AML compliance program and 

provide prompt notification to FINRA of 

any changes to the designation; and (5) 

provide on-going training for 

appropriate persons. 

NASD IM–3011–1 (Independent 

Testing Requirements) and the 

supplementary material to Incorporated 

NYSE Rule 445 also contain 

substantially similar provisions 

clarifying that: (1) Members should 

undertake more frequent testing than 

required if circumstances warrant; (2) 

the person conducting the independent 

test must have a working knowledge of 

applicable requirements under the BSA 

and its implementing regulations; and 

(3) the testing cannot be conducted by 

the AML compliance person(s), by any 

person who performs the functions 

being tested, or by any person who 

reports to any of these persons. 

NASD IM–3011–1, however, permits 

the AML compliance program testing to 

be conducted by persons who report to 

either the AML compliance person or 

persons performing the functions being 

tested if: (1) The member has no other 

qualified internal personnel to conduct 

the test; (2) the member establishes 

written policies and procedures to 

address conflicts that may arise from 

allowing the test to be conducted by a 

person who reports to the person(s) 

whose activities he or she is testing (e.g., 

anti-retaliation procedures); (3) to the 

extent possible, the person conducting 

the test reports the results of the test to 

someone who is senior to the AML 

compliance person or persons 

performing the functions being tested; 

and (4) the member documents its 

rationale, which must be reasonable, for 

determining there is no other alternative 

than to comply in this manner. In 

addition, if the person does not report 

the results consistent with (3) above, the 

member must document a reasonable 

explanation for not doing so. This 

provision is referred to as the 

‘‘independent testing exception.’’ 

Incorporated NYSE Rule 445 does not 

have a comparable provision. 

Finally, NASD IM–3011–2 (Review of 

AML Compliance Person Information) 

requires each member to identify, 

review, and if necessary, update the 

information regarding its AML 

compliance person in the manner 

prescribed in NASD Rule 1160.8 This 

provision is comparable to SM .03 of 

NYSE Rule 445. 

B. Proposed FINRA Rule 3310 and 

Related Supplementary Material 

The proposed rule change would 

adopt NASD Rule 3011 without 


srobinson on DSKHWCL6B1PROD with NOTICES
Federal Register / Vol. 74, No. 178 / Wednesday, September 16, 2009 / Notices 47631 

9See 31 U.S.C. 5318(h)(1)(D). See also 31 CFR 

103.120 (AML programs requirements for financial 

institutions regulated by, among others, selfregulatory organizations). 

10See Letter from Jamal El-Hindi, Associate 

Director, Regulatory Policy & Programs Division, 

FinCEN, to Nancy M. Morris, Secretary, SEC 

(August 22, 2007) (‘‘FinCEN Comment Letter’’). 

FinCEN submitted the letter to the SEC in response 

to the NYSE’s ‘‘omnibus filing,’’ which sought to 

achieve greater harmonization between the NYSE 

and NASD rules, including the AML compliance 

program rules (SR–NYSE–2007–22). See Securities 

Exchange Act Release No. 56142 (July 16, 2007), 72 

FR 42195 (August 1, 2007). 

11See supra note 4. 

12Cutter, Dorn, and Nestlerode. 

13 Id. The commenters asserted that employees of 

a small broker-dealer have an interest in bringing 

problems to light, not ignoring them. 

14Cutter, Dorn, Joseph James, RW Smith, Sage 

Rutty, and Trubee Collins. 

15Nestlerode, Cutter, RW Smith, and Dorn. 

16See FINRA’s Response, supra note 5. See also 

FinCEN Comment Letter, supra note 10 and 

accompanying text. 

17 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

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

18 15 U.S.C. 78o–3(b)(6). 

19See FinCEN Comment Letter, supra note 10 and 

accompanying text. 

20 15 U.S.C. 78s(b)(2). 

21 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

substantive change into the 

Consolidated FINRA Rulebook as 

FINRA Rule 3310 (AML Compliance 

Program). In addition, the proposed rule 

change would adopt NASD IM–3011–2, 

without substantive change, as 

supplementary material to proposed 

FINRA Rule 3310. 

With respect to NASD IM–3011–1, the 

proposed rule change would adopt its 

provisions as supplementary material to 

proposed FINRA Rule 3310, but would 

eliminate the independent testing 

exception. The Financial Crimes 

Enforcement Network (‘‘FinCEN’’), a 

bureau within the Department of the 

Treasury that is responsible for 

administering the BSA and its 

implementing regulations, has stated 

that the independent testing provision 

of the BSA 9 precludes AML program 

testing by personnel with an interest in 

the outcome of the testing and that an 

independent testing exception, such as 

the one in NASD IM–3011–1, is 

inconsistent with the BSA’s 

independent testing provision and 

FinCEN’s interpretation of this 

provision.10 Accordingly, consistent 

with FinCEN’s guidance, FINRA is 

proposing to eliminate the independent 

testing exception in connection with its 

adoption of proposed FINRA Rule 3310. 

Finally, as stated previously, the 

proposed rule change would delete 

Incorporated NYSE Rule 445 and its 

related supplementary material in their 

entirety as duplicative. FINRA will 

announce the implementation date of 

the proposed rule change in a 

Regulatory Notice to be published no 

later than 90 days following 

Commission approval. 

III. Comment Letters 

Seven commenters raised objections 

to the elimination of the independent 

testing exception.11 Three commenters 

expressed their view that the exception 

was being eliminated to address a 

problem that has not been shown to 

exist.12 These commenters also took 

exception with FinCEN’s view that the 

independent testing exception was 

inconsistent with the requirements of 

the BSA.13 Commenters also expressed 

concern that elimination of the 

independent testing exception would 

require small firms to incur additional 

expenses.14 Some commenters also 

suggested that FINRA should seek 

additional member comment on the 

proposed elimination of the 

independent testing exception.15 In 

responding to the comments, FINRA 

stated that it was proposing to eliminate 

the independent testing exception to be 

consistent with FinCEN’s views 

regarding the BSA’s independent testing 

requirements.16

IV. Discussion and Findings 

After a careful review of the proposal, 

the comments received, and FINRA’s 

Response, the Commission finds that 

the proposed rule change is consistent 

with the requirements of the Exchange 

Act and the rules and regulations 

thereunder applicable to FINRA.17 In 

particular, the Commission finds that 

the proposed rule change is consistent 

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

Act,18 which requires, among other 

things, that FINRA’s rules be designed 

to prevent fraudulent and manipulative 

practices and to promote just and 

equitable principles of trade. 

The Commission finds that the 

proposed rule change is reasonably 

designed to accomplish these ends by 

aligning the independent testing 

requirements of proposed FINRA Rule 

3310 with FinCEN’s interpretation of 

the BSA’s independent testing 

requirement. The Commission notes in 

particular that FinCEN is responsible for 

administering the BSA and its 

implementing regulations. In light of 

FinCEN’s view that the independent 

testing provisions of the BSA preclude 

AML program testing by persons with 

an interest in the outcome of the test, 

the independent testing exception in 

NASD IM–3011–1, is not consistent 

with the BSA.19

V. Conclusion 

It is therefore concluded, pursuant to 

Section 19(b)(2) of the Exchange Act,20

that the proposed rule change (SR– 

FINRA–2009–039) be, and hereby is, 

approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.21

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–22240 Filed 9–15–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60642; File No. SR–ISE– 

2009–61] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Notice of Filing and Immediate 

Effectiveness of Proposed Rule 

Change Regarding Exposure of 

Reserve Orders 

September 9, 2009. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on August 

27, 2009, the International Securities 

Exchange, LLC (the ‘‘Exchange’’ or the 

‘‘ISE’’) filed with the Securities and 

Exchange Commission the proposed 

rule change as described in Items I, II, 

and III below, which items have been 

prepared by the self-regulatory 

organization. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange is proposing to amend 

its rules to adopt an interpretation to its 

rules related to the exposure of reserve 

orders. The text of the proposed rule 

change is as follows, with additions in 

italics: 

Rule 717. Limitations on Orders 

(a) through (g) no change. 

Supplementary Material to Rule 717 

.01–.04 no change. 

.05 With respect to the non-displayed 

reserve portion of a reserve order, the 

exposure requirement of paragraphs (d) 

and (e) are satisfied if the displayable 


srobinson on DSKHWCL6B1PROD with NOTICES