Federal Register / Vol. 74, No. 75 / Tuesday, April 21, 2009 / Notices 18269 

5FINRA is in the process of developing an 

accompanying qualification examination that will 

provide a more targeted assessment of the job 

functions performed by the individuals that would 

fall within the proposed registration category. The 

examination itself, including the content outline 

and test specifications, and fees associated with it 

will be the subject of a separate proposed rule 

change. 

6Supra note 4. 

7Four of the six commenters raised the issue of 

a proposal previously made to the Division of 

Trading & Markets (the ‘‘Division’’) that would 

create a Federal registration exemption and 

simplified system of regulation for merger and 

acquisition intermediaries. See AM&AA Letter; 

ICBC Letter; M&A Source Letter; MBBI Letter. The 

proposal is not germane to this proposed rule 

change and is being considered separately by the 

Division. 

8See Starlight Investments Letter. 

9 In approving this proposal, the Commission has 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

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

10 15 U.S.C. 78o–3(g)(3). 

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

12 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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 FINRA 

Information Notice, March 12, 2008 (Rulebook 

Consolidation Process). 

Representative-Investment Banking— 

which will have an examination tailored 

for associated persons whose activities 

are limited to investment banking.5 The 

proposed rule change also sets forth the 

registration requirements for principals 

who supervise investment banking 

activities. 

III. Summary of Comments 

The Commission received letters from 

six commenters in response to the 

proposed rule change.6 All of the 

commenters supported the proposal.7

The commenters commended FINRA’s 

acknowledgment of the specialized 

obligations of investment banking 

professionals. One commenter noted 

that this new category of limited 

registration will allow investment 

banking employees to become better 

trained in the rules and regulations 

applicable to the profession.8

IV. Discussion and Commission’s 

Findings 

After careful consideration of the 

proposal and the comments submitted, 

the Commission finds that the proposed 

rule change is consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

a national securities association.9 In 

particular, the Commission finds that 

the proposed rule change is consistent 

with Section 15A(g)(3) of the Act,10

which requires FINRA to prescribe 

standards of training, experience, and 

competence for persons associated with 

FINRA members. The Commission 

believes that the proposal is consistent 

with the provisions of the Act noted 

above because it allows FINRA members 

to more efficiently allocate resources in 

order to better train their specialized 

personnel, which should result in 

improved compliance by principals and 

the employees they supervise. 

V. Conclusion 

It is therefore ordered, pursuant to 

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

proposed rule change (SR–FINRA– 

2009–006) be, and hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.12

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–9057 Filed 4–20–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59762; File No. SR–FINRA– 

2009–023] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Proposed Rule Change To Adopt 

FINRA Rule 2320 in the Consolidated 

FINRA Rulebook 

April 14, 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 March 31, 

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’’) the proposed 

rule change as described in Items I, II, 

and III below, which Items 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 

FINRA is proposing to adopt NASD 

Rule 2820 (Variable Contracts of an 

Insurance Company) as a FINRA rule in 

the consolidated FINRA rulebook with 

minor changes. The proposed rule 

change would renumber NASD Rule 

2820 as FINRA Rule 2320 in the 

consolidated FINRA rulebook. 

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 

Rule 2820 into the Consolidated FINRA 

Rulebook with minor changes discussed 

below. The proposed rule change would 

renumber NASD Rule 2820 as FINRA 

Rule 2320. 

NASD Rule 2820 regulates members 

in connection with the sale and 

distribution of variable life insurance 

and variable annuity contracts (together, 

‘‘variable contracts’’). It prohibits 

members from participating in the offer 

or sale of a variable contract unless 

certain conditions are met. Members 

may not participate in the offering or 

sale of a variable contract on any basis 

other than at a value to be determined 

following receipt of payment in 

accordance with the provisions of the 

contract, the prospectus and the 

Investment Company Act. Members 

must promptly transmit to the issuing 

insurance company all contract 

applications and at least the portion of 

the purchase payment required to be 

credited to the contract. NASD Rule 

2820 also requires selling agreements 

between principal underwriters of 

variable contracts and selling brokerdealers. Such agreements must provide 

that the sales commission will be 

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18270 Federal Register / Vol. 74, No. 75 / Tuesday, April 21, 2009 / Notices 

4For example, the SEC staff has issued a number 

of ‘‘no-action’’ letters permitting, among other 

things, associated persons of members to receive 

compensation for the sale of variable contract 

products from a licensed corporate insurance agent 

acting on behalf of one or more insurance 

companies. See First of America Brokerage Service, 

Inc. (Sept. 28, 1995) (noting that the staff will no 

longer respond to letters regarding networking 

agreements between registered broker-dealers, 

insurance companies, and insurance agencies in 

connection with the offer and sale of Insurance 

Securities unless the [sic] present novel or unusual 

issues); FIMCO Securities, Inc. (July 16, 1993); 

Traditional Equinet Corporation of New York 

(January 8, 1992). 

5FINRA has proposed to transfer NASD Rule 

2810 without material change into the Consolidated 

FINRA Rulebook as FINRA Rule 2310. See SR– 

FINRA–2009–016. 

6See, e.g., the following Notices to Members: 98– 

75 (SEC Approves Rule Change Relating to NonCash Compensation for Mutual Funds and Variable 

Products) (Sept. 1998); 99–103 (SEC Approves Rule 

Change Relating to Sales Charges for Investment 

Companies and Variable Contracts) (Dec. 1999); 00– 

44 (NASD Reminds Members of Their 

Responsibilities Regarding the Sale of Variable Life 

Insurance) (July 2000). 

7 15 U.S.C. 78o–3(b)(6). 

returned to the issuer if the contract is 

tendered for redemption within seven 

business days after acceptance. In 

addition, members may not sell variable 

contracts unless the insurance company 

promptly honors customer redemption 

requests in accordance with the 

contract, its prospectus and the 

Investment Company Act. 

NASD Rule 2820(g) regulates member 

compensation in connection with the 

sale and distribution of variable 

contracts, including both cash and noncash compensation arrangements. 

Generally, NASD Rule 2820(g) prohibits 

associated persons of a member from 

accepting any compensation from any 

person other than the member with 

which the person is associated. The rule 

contains an exception to allow 

arrangements where a non-member pays 

compensation directly to associated 

persons, provided that the member 

agrees to the arrangement, and relies on 

appropriate rules or guidance from the 

SEC that apply to the specific fact 

situation of the arrangement, and the 

relevant associated persons treat the 

funds as compensation.4 NASD Rule 

2820(g) also prohibits associated 

persons from accepting securities as 

compensation, limits the payment or 

receipt of non-cash compensation (such 

as gifts, entertainment, training or 

education meetings and sales contests), 

and requires certain records to be kept. 

The rule’s non-cash compensation 

provision requires a member to keep 

records of all compensation received by 

the member or its associated persons 

from ‘‘offerors’’ (generally insurance 

companies and their affiliates), other 

than small gifts and entertainment 

permitted by the rule. Currently, this 

provision requires the records to 

include the nature of, and ‘‘if known,’’ 

the value of any non-cash compensation 

received. FINRA proposes to modify 

this requirement by deleting the phrase 

‘‘if known’’ regarding the value of noncash compensation. The proposed 

change to Rule 2820 would require 

members to determine and keep records 

of the value of non-cash compensation 

received from offerors in all cases. This 

change would make the provision more 

consistent with the non-cash 

compensation recordkeeping 

requirements regarding public offerings 

of securities (FINRA Rule 5110(i)(2)) 

and direct participation programs 

(NASD Rule 2810(c)(2)).5 Members 

would be permitted to estimate the 

actual value of non-cash compensation 

for which a receipt (or similar 

documentation) assigning a value is not 

available. 

The proposed rule change also would 

make certain non-substantive, technical 

changes to the rule to reflect FINRA’s 

corporate name and the new format of 

the Consolidated FINRA Rulebook. 

Over the past several years, variable 

life insurance products have continued 

to be of interest to members and the 

investing public. FINRA has noted the 

growth in sales and popularity of 

variable life insurance products, and has 

published information, including 

several Notices, addressing regulatory 

concerns regarding these products.6

FINRA believes that the provisions of 

NASD Rule 2820 continue to be an 

important tool in the effective regulation 

of variable contracts. Accordingly, for 

the reasons set forth above, FINRA 

recommends that NASD Rule 2820 be 

transferred with minor changes into the 

Consolidated FINRA Rulebook as 

FINRA Rule 2320. As noted above, 

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. 

2. Statutory Basis 

FINRA believes that the proposed rule 

change is consistent with the provisions 

of Section 15A(b)(6) of the Act,7 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 continue to 

allow FINRA to effectively regulate 

members in connection with the sale 

and distribution of variable contracts. 

The proposed rule change makes minor 

changes to a rule that has proven 

effective in meeting statutory mandates. 

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–2009–023 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–2009–023. 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 

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Federal Register / Vol. 74, No. 75 / Tuesday, April 21, 2009 / Notices 18271 

8 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 59519 

(March 5, 2009), 74 FR 10630 (‘‘Notice’’). 

4See letter from Beth N. Lowson, The Nelson Law 

Firm, LLC, to Elizabeth M. Murphy, Secretary, 

Commission, dated March 31, 2009 (‘‘Nelson 

Letter’’); letter from Sean C. Davy, Managing 

Director, Securities Industry and Financial Markets 

Association (‘‘SIFMA’’), to Elizabeth M. Murphy, 

Secretary, Commission, dated March 31, 2009 

(‘‘SIFMA Letter’’). 

5See infra Section III. 

6 15 U.S.C. 77c. 

7According to FINRA, if an insolvent corporation 

is reorganized under Chapter 11 of the U.S. 

Bankruptcy Code, new debt securities are often 

issued. The issuance is subject to the approval of 

the trustee and the securities are not required to be 

registered under the Securities Act. See 11 U.S.C. 

101 et seq. 

8 15 U.S.C. 77c(a)(9). For example, an issuer may 

exchange an issue of corporate debt securities that 

are registered under the Securities Act (and subject 

to both TRACE reporting and dissemination) for 

new securities that are not registered in reliance 

upon Section 3(a)(9), which permits such exchanges 

without registration of the new securities. Although 

the exchanged security was TRACE-eligible, the 

new security is not because it is not registered, as 

required by existing FINRA Rule 6710(a). 

9 15 U.S.C. 77c(a)(2). 

10Notice, 74 FR at 10631. 

11 17 CFR 230.144A. 

12See 17 CFR 230.144A(a)(1) (defining QIB). 

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 the filing will also 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 No. SR–FINRA– 

2009–023 and should be submitted on 

or before May 12, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.8

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–9058 Filed 4–20–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59768; File No. SR–FINRA– 

2009–004] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Amendment No. 1 and Order Granting 

Accelerated Approval to Proposed 

Rule Change, as Modified by 

Amendment No. 1, To Expand the 

Definition of ‘‘TRACE–Eligible 

Security’’ 

April 14, 2009. 

I. Introduction 

On February 11, 2009, the Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) (f/k/a the National 

Association of Securities Dealers, Inc. 

(‘‘NASD’’)) filed with the Securities and 

Exchange Commission (‘‘Commission’’), 

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

Securities Exchange Act of 1934 

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

proposed rule change to expand the 

definition of ‘‘TRACE-eligible security’’ 

in FINRA Rule 6710(a). The proposed 

rule change was published for comment 

in the Federal Register on March 11, 

2009.3 The Commission received two 

comments on the proposal.4 On April 9, 

2009, FINRA filed Amendment No. 1 to 

the proposed rule change, in which 

FINRA also responded to the 

comments.5 The Commission is 

publishing this notice and order to 

solicit comments on Amendment No. 1 

and to approve the proposed rule 

change, as modified by Amendment No. 

1, on an accelerated basis. 

II. Description of the Proposed Rule 

Change 

The current definition of ‘‘TRACEeligible security’’ in Rule 6710(a) was 

adopted in 2002 and has not been 

amended. FINRA generally believes that 

this definition is sufficiently broad to 

require the reporting of, and provide 

price transparency for, a substantial 

portion of corporate debt securities that 

are eligible for public sale. However, 

FINRA has identified several situations 

where corporate debt securities that are 

eligible for public sale in the secondary 

market are trading without TRACE price 

transparency. According to FINRA, such 

securities are in many cases ‘‘exempted 

securities’’ under Section 3 of the 

Securities Act.6 For example, debt 

securities that are issued subject to the 

jurisdiction and approval of a court of 

competent jurisdiction in insolvency 

matters might be eligible for public sale 

but not TRACE-eligible because they are 

not registered under the Securities Act.7

In addition, debt securities issued as 

part of an issuer exchange offer effected 

pursuant to Section 3(a)(9) of the 

Securities Act 8 and those issued by a 

bank or other financial institutions 

under Section 3(a)(2) of the Securities 

Act 9 generally are not subject to TRACE 

reporting and dissemination for this 

reason. 

Therefore, FINRA has proposed to 

amend Rule 6710(a), the definition of 

‘‘TRACE-eligible security,’’ by 

eliminating the requirement that such 

securities be ‘‘(1) registered under the 

Securities Act; or (2) issued pursuant to 

Section 4(2) of the Securities Act and 

purchased or sold pursuant to Securities 

Act Rule 144A.’’ This change would 

expand TRACE eligibility to include 

additional corporate debt securities that 

are eligible for public sale, and may 

have participation by retail investors. 

Moreover, FINRA notes that its 

obligation to conduct surveillance in the 

corporate bond market is not limited to 

transactions in securities that are 

registered under the Securities Act, and 

that its equity trade reporting rules 

generally apply to any equity securities 

eligible for public sale and do not 

consider registration a factor. FINRA 

believes that expanding TRACE 

eligibility in this manner ‘‘is vital to its 

mandate to regulate the market, to 

promote market integrity and to protect 

investors.’’ 10

FINRA also has proposed to add the 

phrase ‘‘and, if a ‘restricted security’ as 

defined in Securities Act Rule 

144(a)(3)’’ in place of the deleted 

language discussed in the preceding 

paragraph. Thus, if a security were a 

restricted security, it would be TRACEeligible if it were sold pursuant to Rule 

144A under the Securities Act 11

(assuming it meets the other 

requirements for TRACE eligibility). The 

current definition of TRACE-eligible 

security requires transaction reporting 

for some but not all of the large market 

in corporate debt securities that are 

restricted securities and sold to 

qualified institutional buyers 

(‘‘QIBs’’) 12 in transactions effected 

pursuant to Rule 144A. Although a 

significant number of restricted 

securities sold in Rule 144A 

transactions are preceded by an offering 

that is exempt under Section 4(2) of the 

Securities Act, the limitation in the 

current definition excludes other Rule 

144A transactions that FINRA believes 

should be reported. Consequently, 

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