51886 Federal Register / Vol. 74, No. 194 / Thursday, October 8, 2009 / Notices 

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

2 17 CFR 240.19b–4. 

3The current FINRA rulebook consists of (1) 

FINRA Rules; (2) NASD Rules; and (3) rules 

incorporated from NYSE (‘‘Incorporated NYSE 

Rules’’) (together, the NASD Rules and Incorporated 

NYSE Rules are referred to as the ‘‘Transitional 

Rulebook’’). While the NASD Rules generally apply 

to all FINRA members, the Incorporated NYSE 

Rules apply only to those members of FINRA that 

are also members of the NYSE (‘‘Dual Members’’). 

The FINRA Rules apply to all FINRA members, 

unless such rules have a more limited application 

by their terms. For more information about the 

rulebook consolidation process, see Information 

Notice, March 12, 2008 (Rulebook Consolidation 

Process). 

4For purposes of these rules, the term ‘‘noninstitutional customer’’ means a customer that does 

not qualify as an ‘‘institutional account’’ under 

NASD Rule 3110(c)(4). See NASD Rule 2360(f); 

NASD Rule 2361(d). FINRA is proposing to adopt 

NASD Rule 3110(c)(4) as FINRA Rule 4512(c). See 

Regulatory Notice 08–25 (May 2008). 

5See NASD Rule 2360(e); NASD Rule 2361(c). 

appropriate in the public interest or for 

the protection of investors. Rule 30e–1 

generally requires a fund to transmit to 

its shareholders, at least semi-annually, 

reports containing the information that 

is required to be included in such 

reports by the fund’s registration 

statement form under the Investment 

Company Act. Failure to require the 

collection of this information would 

seriously impede the amount of current 

information available to shareholders 

and the public about funds and would 

prevent the Commission from 

implementing the regulatory program 

required by statute. Approximately 

2,800 funds, with a total of 

approximately 10,460 portfolios, 

respond to rule 30e–1 annually. The 

estimate of the total annual reporting 

burden of the collection of information 

is approximately 114.2 hours per 

portfolio, and the total estimated annual 

burden for the industry is 1,194,532 

hours (114.2 hours × 10,460 portfolios). 

Providing the information required by 

rule 30e–1 is mandatory. Responses will 

not be kept confidential. Estimates of 

the burden hours are made solely for the 

purposes of the Paperwork Reduction 

Act, and are not derived from a 

comprehensive or even a representative 

survey or study of the costs of SEC rules 

and forms. 

An agency may not conduct or 

sponsor, and a person is not required to 

respond to a collection of information 

unless it displays a currently valid 

control number. 

Written comments are invited on: (a) 

Whether the proposed collection of 

information is necessary for the proper 

performance of the functions of the 

agency, including whether the 

information will have practical utility; 

(b) the accuracy of the agency’s estimate 

of the burden of the collection of 

information; (c) ways to enhance the 

quality, utility, and clarity of the 

information collected; and (d) ways to 

minimize the burden of the collection of 

information on respondents, including 

through the use of automated collection 

techniques or other forms of information 

technology. Consideration will be given 

to comments and suggestions submitted 

in writing within 60 days of this 

publication. 

Please direct your written comments 

to Charles Boucher, Director/CIO, 

Securities and Exchange Commission, 

C/O Shirley Martinson, 6432 General 

Green Way, Alexandria, VA 22312; or 

send an e-mail to: 

PRA_Mailbox@sec.gov. 

Dated: October 2, 2009. 

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–24269 Filed 10–7–09; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60754; File No. SR–FINRA– 

2009–059] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Proposed Rule Change To Adopt 

NASD Rules 2360 and 2361 Into the 

Consolidated Rulebook as FINRA 

Rules 2130 and 2270 

October 2, 2009. 

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 

September 9, 2009, Financial Industry 

Regulatory Authority, Inc. (‘‘FINRA’’) (f/ 

k/a National Association of Securities 

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

Securities and Exchange Commission 

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

rule change to adopt NASD Rule 2360 

(Approval Procedures for Day-Trading 

Accounts) as FINRA Rule 2130 and to 

adopt NASD Rule 2361 (Day-Trading 

Risk Disclosure Statement) as FINRA 

Rule 2270 in the consolidated FINRA 

rulebook, with minor changes, as 

described in Items I, II, and III below, 

which Items substantially have been 

prepared by FINRA. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The text of the proposed rule change 

is available on FINRA’s Web site at 

http://www.finra.org, at the principal 

office of FINRA and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

FINRA included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. FINRA has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

As part of the process of developing 

a new consolidated rulebook 

(‘‘Consolidated FINRA Rulebook’’),3

FINRA is proposing to adopt NASD 

Rules 2360 and 2361 in the consolidated 

FINRA rulebook with minor changes, as 

FINRA Rules 2130 and 2270 

respectively. 

NASD Rules 2360 and 2361 focus on 

members’ obligations to disclose to noninstitutional customers 4 the basic risks 

of engaging in a ‘‘day-trading strategy’’ 

and to assess the appropriateness of 

day-trading strategies for such 

customers. The rules define a ‘‘daytrading strategy’’ as ‘‘an overall trading 

strategy characterized by the regular 

transmission by a customer of intra-day 

orders to effect both purchase and sale 

transactions in the same security or 

securities.’’ 5 NASD Rule 2360 creates 

an obligation on members that promote 

a day-trading strategy regarding 

account-opening approval procedures 

for non-institutional customers. NASD 

Rule 2361 creates an obligation on such 

members to disclose to non-institutional 

customers the unique risks of engaging 

in a day-trading strategy. 

NASD Rule 2360 prohibits a member 

promoting a day-trading strategy from 

opening an account for a noninstitutional customer unless, prior to 

opening the account, the member has 

furnished the customer with a risk 

disclosure statement (as described in 

NASD Rule 2361) and has either (1) 

approved the customer’s account for a 

day-trading strategy and prepared a 

record setting forth the basis for the 

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Federal Register / Vol. 74, No. 194 / Thursday, October 8, 2009 / Notices 51887 

6 In making such determination, the rule requires 

a member to exercise reasonable diligence to 

ascertain the essential facts relative to the customer, 

including investment objectives, investment and 

trading experience and knowledge, financial 

situation, tax status, employment status, marital 

status, number of dependents and age. See NASD 

Rule 2360(b). 

7The rule provides that, in lieu of the disclosure 

statement specified in the rule, a member may use 

an alternative disclosure statement, provided that it 

is substantially similar to the specified disclosure 

statement and is approved by FINRA’s Advertising 

Department prior to use. See NASD Rule 2361(b). 

8See NASD Rule 2360(g). 

9See Securities Exchange Act Release No. 43021 

(July 10, 2000), 65 FR 44082 (July 17, 2000) 

(Approval Order; File No. SR–NASD–99–41); 

Notice to Members 00–62 (September 2000) 

(announcing SEC approval of Rules 2360 and 2361). 

10See 2000 FINRA Notice. See also 2000 SEC 

Approval Order, 65 FR at 44082–83. 

11See 2000 SEC Approval Order, 65 FR at 44083– 

44084; 2000 FINRA Notice, at note 2. 

12To enhance the readability of the rule, the 

proposed rule change would relocate paragraph (g) 

of Rule 2360 regarding those activities that would 

not constitute ‘‘promoting a day-trading strategy,’’ 

as paragraph (b) of this new Supplementary 

Material .01. 

13See proposed Supplementary Material .03 to 

proposed FINRA Rule 2130. 

approval; or (2) obtained from the 

customer a written agreement stating 

that the customer does not intend to use 

the account to engage in a day-trading 

strategy. The rule further requires that, 

in order to approve a customer’s 

account for a day-trading strategy, a 

member must have reasonable grounds 

to make a determination that a daytrading strategy is appropriate for the 

customer.6

NASD Rule 2361 requires members 

that promote a day-trading strategy to 

deliver to their non-institutional 

customers, prior to opening an account 

for such customers, a risk disclosure 

statement, as specified in paragraph (a) 

of the rule (the ‘‘Disclosure 

Statement’’).7 In addition, members that 

promote a day-trading strategy must 

post the Disclosure Statement on their 

Web sites in a clear and conspicuous 

manner. The Disclosure Statement 

includes seven specific points, 

described in more detail in the 

statement itself, addressing the 

following factors that a customer should 

consider before engaging in day-trading, 

as follows: 

(1) Day trading can be extremely 

risky. 

(2) Be cautious of claims of large 

profits from day trading. 

(3) Day trading requires knowledge of 

securities markets. 

(4) Day trading requires knowledge of 

a firm’s operations. 

(5) Day trading will generate 

substantial commissions, even if the per 

trade cost is low. 

(6) Day trading on margin or short 

selling may result in losses beyond your 

initial investment. 

(7) Potential registration requirements 

(i.e., persons providing investment 

advice for others or managing securities 

accounts for others may need to register 

as an investment adviser or broker or 

dealer; such activities also may trigger 

state registration requirements). 

Although these rules define ‘‘daytrading strategy,’’ neither defines 

‘‘promoting a day-trading strategy.’’ 

NASD Rule 2360 does provide, 

however, that a firm will not be deemed 

to be ‘‘promoting a day-trading strategy’’ 

solely by engaging in the following 

activities: 

(1) promoting efficient execution 

services or lower execution costs based 

on multiple trades; 

(2) providing general investment 

research or advertising the high quality 

or prompt availability of such general 

research; and 

(3) Having a Web site that provides 

general financial information or news or 

that allows the multiple entry of intraday purchases and sales of the same 

securities.8

Additional guidance regarding as to 

what constitutes ‘‘promoting a daytrading strategy’’ can be found in the 

SEC order approving the adoption of 

NASD Rule 2360 and 2361 (the ‘‘2000 

SEC Approval Order’’) and FINRA’s 

Notice announcing SEC approval of the 

rules (the ‘‘2000 FINRA Notice’’).9 For 

example, the 2000 FINRA Notice 

provides: 

A member will be subject to the daytrading rules if it affirmatively promotes daytrading activities or strategies through 

advertising, training seminars, or direct 

outreach programs. For instance, a firm 

generally will be subject to the new rules if 

its advertisements address the benefits of day 

trading, rapid-fire trading, or momentum 

trading, or encourages persons to trade or 

profit like a professional trader. A firm also 

will be subject to the new rules if it promotes 

its day-trading services through a third party. 

Moreover, the fact that many of a firm’s 

customers are engaging in a day-trading 

strategy will be relevant in determining 

whether a firm has promoted itself in this 

way.10

The 2000 SEC Approval Order and the 

2000 FINRA Notice also state that a 

member may submit an advertisement 

to FINRA’s Advertising Department for 

review and guidance on whether the 

content of the advertisement constitutes 

‘‘promoting a day-trading strategy’’ for 

purposes of NASD Rules 2360 and 

2361.11

Proposed FINRA Rule 2130 

The proposed rule change would 

transfer NASD Rule 2360 with the 

following minor changes into the 

Consolidated FINRA Rulebook as 

FINRA Rule 2130. First, the proposed 

rule change would add Supplementary 

Material to clarify the concept of 

‘‘promoting a day-trading strategy,’’ 

based on guidance provided in the 2000 

FINRA Notice and the 2000 SEC 

Approval Order, as follows: 

.01 Promoting a Day-Trading Strategy 

(a) A member shall be deemed to be 

‘‘promoting a day-trading strategy’’ if it 

affirmatively endorses a ‘‘day-trading 

strategy,’’ as defined in paragraph (e) of this 

Rule, through advertising, its Web site, 

training seminars or direct outreach 

programs. For example, a member generally 

shall be deemed to be ‘‘promoting a daytrading strategy’’ if its advertisements address 

the benefits of day trading, rapid-fire trading, 

or momentum trading, or encourage persons 

to trade or profit like a professional trader. 

A member also shall be deemed to be 

‘‘promoting a day-trading strategy’’ if it 

promotes its day-trading services through a 

third party. Moreover, the fact that many of 

a member’s customers are engaging in a daytrading strategy will be relevant in 

determining whether a member has promoted 

itself in this way.12

Second, the proposed rule change 

would add Supplementary Material, 

based on guidance provided in the 2000 

SEC Approval Order and the 2000 

FINRA Notice, to specifically provide 

that a member may submit advertising 

materials to FINRA’s Advertising 

Department for review and guidance on 

whether the content of the 

advertisement constitutes ‘‘promoting a 

day-trading strategy,’’ as follows: 

.02 Review by FINRA’s Advertising 

Department 

A member may submit its advertisements 

to FINRA’s Advertising Department for 

review and guidance on whether the content 

of the advertisement constitutes ‘‘promoting 

a day-trading strategy’’ for purposes of this 

Rule. 

Third, the proposed rule change 

would add Supplementary Material to 

alert members of additional FINRA rules 

specifically addressing day-trading, 

including the rule addressing the 

Disclosure Statement (further discussed 

below) and rules regarding margin 

requirements.13

Finally, the proposal would make 

minor changes to the rule to update 

cross-references and format. 

Proposed FINRA Rule 2270 

The proposed rule change would 

transfer NASD Rule 2361 with the 

following minor changes into the 

Consolidated FINRA Rulebook as 

FINRA Rule 2270. 

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51888 Federal Register / Vol. 74, No. 194 / Thursday, October 8, 2009 / Notices 

14See proposed Supplementary Material .01 and 

.02 to proposed FINRA Rule 2270. 

15 15 U.S.C. 78o–3(b)(6). 

16 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

First, the proposed rule change would 

slightly modify the rule’s existing 

provisions regarding form of delivery of 

documents. Currently, the rule provides 

that the disclosure statements may be 

provided to individuals either ‘‘in 

writing or electronically.’’ Because in 

some circumstances electronic 

documents may be considered a form of 

‘‘writing,’’ the proposal would amend 

the rule to clarify that the documents 

may be provided ‘‘in paper or electronic 

form.’’ 

Second, to comport with the proposed 

revisions to NASD Rule 2360, the 

proposed rule change would add a 

statement to FINRA Rule 2270 that the 

term ‘‘promoting a day-trading strategy’’ 

shall have the meaning as provided in 

FINRA Rule 2130. 

Third, the proposed rule change 

would add Supplementary Materials 

similar to those proposed to be added to 

FINRA Rule 2130, as discussed above, 

to specifically provide that a member 

may submit advertising materials to 

FINRA’s Advertising Department for 

review and guidance on whether the 

content of the advertisement constitutes 

‘‘promoting a day-trading strategy’’ and 

to alert members of additional FINRA 

rules specifically addressing daytrading.14

Finally, the proposed rule change 

would make minor changes to the rule 

to update cross-references and format. 

FINRA intends to announce the 

implementation 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,15 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 continues to 

believe that the required approval 

process for day-trading accounts serves 

to protect investors engaged in daytrading activities, and the requisite 

disclosures in the Disclosure Statement 

increase investors’ understanding of the 

risks associated with day trading. 

FINRA believes that the proposed rule 

change will provide greater clarity 

regarding these requirements. 

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 

Written comments were neither 

solicited nor received. 

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–2009–059 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Florence E. Harmon, Deputy 

Secretary, Securities and Exchange 

Commission, 100 F Street, NE,. 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–FINRA–2009–059. 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–2009–059 and 

should be submitted on or before 

October 29, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.16

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–24259 Filed 10–7–09; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60774; File No. SR–FINRA– 

2009–062] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Update Certain CrossReferences Within Certain FINRA 

Rules 

October 2, 2009. 

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 

September 18, 2009, Financial Industry 

Regulatory Authority, Inc. (‘‘FINRA’’) 

filed with the Securities and Exchange 

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

the proposed rule change as described 

in Items I and II below, which Items 

have been prepared by FINRA. FINRA 

has designated the proposed rule change 

as constituting a ‘‘non-controversial’’ 

rule change under paragraph (f)(6) of 

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