Federal Register / Vol. 74, No. 76 / Wednesday, April 22, 2009 / Notices 18411 

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

2 17 CFR 240.19b–4. 

3Amendment No. 1 replaced and superceded the 

original filing. 

4The 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). 

5FINRA BrokerCheck is a free online tool to help 

investors check the background of current and 

former FINRA-registered securities firms and 

brokers. 

6See Notice to Members 99–09 (February 1999) 

and Notice to Members 99–54 (July 1999). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59771; File No. SR–FINRA– 

2009–016] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Proposed Rule Change, and 

Amendment No. 1 Thereto, Relating to 

the Adoption of FINRA Rule 2080 

(Obtaining an Order of Expungement 

of Customer Dispute Information From 

the Central Registration Depository 

(CRD System)), FINRA Rule 2310 

(Direct Participation Programs), FINRA 

Rule 4551 (Requirements for 

Alternative Trading Systems To 

Record and Transmit Order and 

Execution Information for Security 

Futures) and FINRA Rule 2266 (SIPC 

Information) in the Consolidated 

FINRA Rulebook 

April 15, 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 March 25, 

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’’) the proposed 

rule change as described in Items I, II, 

and III below, which Items have been 

prepared by FINRA. On April 14, 2009, 

FINRA filed Amendment No. 1 to the 

proposed rule change.3 The Commission 

is publishing this notice to solicit 

comments on the proposed rule change, 

as amended, from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

FINRA is proposing to (1) adopt 

NASD Rules 2130 (Obtaining an Order 

of Expungement of Customer Dispute 

Information from the Central 

Registration Depository (CRD System)), 

2810 (Direct Participation Programs) 

and 3115 (Requirements for Alternative 

Trading Systems to Record and 

Transmit Order and Execution 

Information for Security Futures) as 

FINRA rules in the consolidated FINRA 

rulebook without material change; and 

(2) adopt NASD Rule 2342 (SIPC 

Information) in the consolidated FINRA 

rulebook without material change and to 

delete Incorporated NYSE Rule 409A 

(SIPC Disclosures). The proposed rule 

change would renumber NASD Rule 

2130 as FINRA Rule 2080, NASD Rule 

2810 as FINRA Rule 2310, NASD Rule 

3115 as FINRA Rule 4551 and NASD 

Rule 2342 as FINRA Rule 2266 in the 

consolidated FINRA rulebook. 

Amendment No. 1 to SR–FINRA– 

2009–016 makes minor changes to the 

original filing filed on March 25, 2009. 

The proposed rule change replaces and 

supercedes the proposed rule change 

filed on March 25, 2009 in its entirety. 

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’’),4

FINRA is proposing to (1) adopt FINRA 

Rules 2080 (Obtaining an Order of 

Expungement of Customer Dispute 

Information from the Central 

Registration Depository (CRD) System), 

2310 (Direct Participation Programs) 

and 4551 (Requirements for Alternative 

Trading Systems to Record and 

Transmit Order and Execution 

Information for Security Futures) as 

FINRA rules in the consolidated FINRA 

rulebook; and (2) adopt FINRA Rule 

2266 (SIPC Information) in the 

consolidated FINRA rulebook and 

delete the corresponding provisions in 

Incorporated NYSE Rule 409A. 

a. Proposed FINRA Rule 2080 

FINRA is proposing to adopt NASD 

Rule 2130 without material change into 

the Consolidated FINRA Rulebook as 

FINRA Rule 2080. NASD Rule 2130 

addresses the expungement of customer 

dispute information from the Central 

Registration Depository (‘‘CRD ®’’) 

system. The CRD system is an online 

registration and licensing system that is 

used by the securities industry, State 

and Federal regulators and selfregulatory organizations. It contains 

information regarding members and 

registered persons, specifically 

administrative information (e.g., 

personal, educational and employment 

history) and disclosure information 

(e.g., criminal matters, regulatory and 

disciplinary actions, civil judicial 

actions and information relating to 

customer disputes). Although public 

investors do not have access to the CRD 

system, much of the information in that 

system is available to investors through 

FINRA BrokerCheck and individual 

State disclosure programs.5 FINRA 

recognizes that accurate and complete 

reporting in the CRD system is an 

important component of investor 

protection. 

FINRA operates the CRD system 

pursuant to policies developed jointly 

with the North American Securities 

Administrators Association (‘‘NASAA’’). 

FINRA works with the SEC, NASAA, 

other members of the regulatory 

community and member firms to 

establish policies and procedures 

reasonably designed to ensure that 

information submitted to and 

maintained in the CRD system is 

accurate and complete. These 

procedures, among other things, cover 

expungement of information from the 

CRD system. 

In January 1999, after consultation 

with NASAA, FINRA imposed a 

moratorium on arbitrator-ordered 

expungement of customer dispute 

information from the CRD system.6

Under the moratorium, FINRA would 

expunge such information from the CRD 

system only when a court of competent 

jurisdiction confirmed an arbitrator’s 

directive to expunge customer dispute 

information. During this moratorium, 

however, FINRA continued to expunge 

information from the CRD system based 


dwashington3 on PROD1PC60 with NOTICES
18412 Federal Register / Vol. 74, No. 76 / Wednesday, April 22, 2009 / Notices 

7See Securities Exchange Act Release No. 48933 

(December 16, 2003), 68 FR 74667 (December 24, 

2003). FINRA Rule 2080, as with NASD Rule 2130, 

would apply to any request made to a court of 

competent jurisdiction to expunge customer dispute 

information from the CRD system that has its basis 

in an arbitration or civil lawsuit filed on or after 

April 12, 2004. See Notice to Members 04–16 

(March 2004). 

8For purposes of Rule 2130, ‘‘customer dispute 

information’’ includes customer complaints, 

arbitration claims and court filings made by 

customers, and the arbitration awards or court 

judgments that may result from those claims or 

filings. See Notice to Members 04–16 (March 2004). 

9Under Rule 2130, FINRA may continue to 

expunge information from the CRD system— 

without the need for judicial intervention—for 

expungement directives contained in intra-industry 

arbitration awards that involve registered persons 

and firms based on the defamatory nature of the 

information ordered expunged. 

10 In October 2008, the SEC approved a FINRA 

rule change (File No. SR–FINRA–2008–10), which 

became effective January 26, 2009, establishing new 

procedures that arbitrators must follow when 

considering requests for expungement relief, 

including requiring arbitrators to: (1) Consider the 

terms of a settlement agreement in settled matters; 

(2) hold a recorded hearing regarding the 

appropriateness of expungement; and (3) provide a 

brief written explanation of the reason(s) for 

ordering expungement. See Securities Exchange Act 

Release No. 58886 (October 30, 2008), 73 FR 66086 

(November 6, 2008). See also Regulatory Notice 08– 

79 (December 2008). 

11See Notice to Members 99–54 (July 1999) and 

Notice to Members 01–65 (October 2001). 

on expungement directives in 

arbitration awards rendered in disputes 

between firms and current or former 

registered persons, in which arbitrators 

awarded such relief based on the 

defamatory nature of the information. 

After imposing the moratorium, 

FINRA began considering how to craft 

an approach to expungement that would 

allow FINRA effectively to challenge 

expungement directives that might 

diminish or impair the integrity of the 

CRD system and to ensure the 

maintenance of essential information for 

regulators and investors. In December 

2003, the SEC approved NASD Rule 

2130,7 which contains additional 

standards and procedures for 

expungement of customer dispute 

information 8 from the CRD system. Rule 

2130 continues the requirement started 

with the 1999 moratorium that a court 

of competent jurisdiction must order or 

confirm all expungement directives 

before FINRA will expunge customer 

dispute information from the CRD 

system.9 It also requires that FINRA 

members or associated persons name 

FINRA as an additional party in any 

court proceeding in which they seek an 

order to expunge customer dispute 

information or request confirmation of 

an award containing an order of 

expungement. 

Upon request, however, FINRA may 

waive the requirement to be named as 

a party if it determines that the 

expungement relief is based on an 

affirmative judicial or arbitral finding 

that: (1) The claim, allegation or 

information is factually impossible or 

clearly erroneous; (2) the registered 

person was not involved in the alleged 

investment-related sales practice 

violation, forgery, theft, 

misappropriation or conversion of 

funds; or (3) the claim, allegation or 

information is false. If the expungement 

relief is based on judicial or arbitral 

findings other than those enumerated 

immediately above, FINRA also may 

waive the requirement to be named as 

a party if FINRA determines, in its sole 

discretion and under extraordinary 

circumstances, that the expungement 

relief and accompanying findings on 

which it is based are meritorious and 

the expungement relief would have no 

material adverse effect on investor 

protection, the integrity of the CRD 

system or regulatory requirements. 

Upon receipt of a waiver request, 

FINRA staff will notify the States 

(directly or through NASAA) where the 

individual is registered or seeking 

registration of the expungement notice/ 

waiver request. FINRA staff will then 

examine the basis on which the fact 

finder ordered expungement to 

determine whether the expungement 

was based on one or more of the 

standards in Rule 2130.10 If FINRA staff 

determines that the expungement was 

not based on one or more of the 

standards in Rule 2130, it will advise 

the parties that FINRA will not waive 

the requirement to be named as a party 

in the court confirmation process. The 

parties would then name FINRA as a 

party, and FINRA would have the 

opportunity to oppose the expungement 

in the court proceeding. 

FINRA recommends that NASD Rule 

2130 be transferred without material 

change into the Consolidated FINRA 

Rulebook. NASD Rule 2130 was the 

product of notice and comment 

rulemaking. FINRA solicited comment 

on proposed approaches regarding 

expungement of information in Notices 

to Members issued in July 1999 and 

October 2001.11 FINRA staff drafted the 

proposed rule taking into account the 

comments received and following 

discussions with NASAA. 

Subsequently, the SEC published the 

proposal for comment in the Federal 

Register in March 2003, and the final 

rule reflects additional changes based 

on the comments received by the SEC. 

NASD Rule 2130 serves to enhance the 

integrity of information in the CRD 

system and to further ensure that 

investor protection is not compromised 

when arbitrators order expungement of 

information from a CRD record. 

Moreover, the new procedures that 

arbitrators must follow when 

considering requests for expungement 

will add transparency and procedural 

safeguards designed to ensure that the 

extraordinary relief of expungement is 

granted only under appropriate 

circumstances. 

b. Proposed FINRA Rule 2310 

FINRA is proposing to adopt NASD 

Rule 2810 without material change into 

the Consolidated FINRA Rulebook as 

FINRA Rule 2310. NASD Rule 2810 

addresses underwriting terms and 

arrangements in public offerings of 

direct participation programs (‘‘DPPs’’) 

and unlisted real estate investment 

trusts (‘‘REITs’’) (collectively, 

‘‘Investment Programs’’). A DPP is a 

business venture designed to let 

investors participate directly in the cash 

flow and tax benefits of an underlying 

investment. REITs are investment 

vehicles for income-generating real 

estate that benefit from the tax 

advantages of a trust if they satisfy 

certain criteria in the Internal Revenue 

Code. Rule 2810 requires that members 

participating in a public offering of an 

Investment Program meet certain 

requirements regarding underwriting 

compensation, fees and expenses, 

perform due diligence on the 

Investment Program, follow specific 

guidelines on suitability, and adhere to 

limits on non-cash compensation. 

NASD Rule 2810 requires that, prior 

to participating in a public offering of an 

Investment Program, a member or a 

participating firm on its behalf must file 

information regarding the offering with 

the FINRA Corporate Financing 

Department and receive an opinion from 

the Department that it has no objections 

to the proposed underwriting terms and 

arrangements (a ‘‘no objections’’ 

opinion). Among the terms and 

arrangements that are reviewed by 

FINRA staff are the level of organization 

and offering expenses (‘‘O&O 

expenses’’). Rule 2810 limits the amount 

of O&O expenses for an Investment 

Program (which includes issuer 

expenses, underwriting compensation 

and due diligence expenses) to 15 

percent of the gross proceeds of the 

offering. The rule also requires a 

member to perform due diligence about 

an Investment Program prior to 

participating in a public offering. The 

member must have reasonable grounds 

to believe, based on information in the 

prospectus, that all material facts, 

including those regarding 

compensation, physical properties, tax, 

financial stability and experience of the 

sponsor, and conflicts, are adequately 


dwashington3 on PROD1PC60 with NOTICES
Federal Register / Vol. 74, No. 76 / Wednesday, April 22, 2009 / Notices 18413 

12See Securities Exchange Act Release No. 57803 

(May 8, 2008), 73 FR 27869 (May 14, 2008). 

13See Securities Exchange Act Release No. 16967 

(July 8, 1980), 45 FR 47294 (July 14, 1980). 

14For example, some significant amendments to 

Rule 2810 include the following: in 1982, 

amendments to include suitability, due diligence 

and disclosure requirements; see Securities 

Exchange Act Release No. 19054 (September 16, 

1982), 47 FR 42226 (September 24, 1982); in 1984, 

to require that sales incentives be in cash; see 

Securities Exchange Act Release No. 20844 (April 

11, 1984), 49 FR 15041 (April 16, 1984); in 1986, 

to exempt certain secondary offerings; see 

Securities Exchange Act Release No. 23619 

(September 15, 1986), 51 FR 33968 (September 24, 

1986); in 1994, to apply to limited partnership 

rollup transactions; see Securities Exchange Act 

Release No. 34533 (August 15, 1994), 59 FR 43147 

(August 22, 1994); and in 2003, to modify the noncash compensation provisions; see Securities 

Exchange Act Release No. 47697 (April 18, 2003), 

68 FR 20191 (April 24, 2003). 

15A limited partnership rollup transaction either 

reorganizes an existing limited partnership or 

combines multiple limited partnerships into a new 

entity to take advantage of larger asset pools and 

economies of scale. 

16See supra note 14. 

17See Securities Exchange Act Release No. 57803 

(May 8, 2008), 73 FR 27869 (May 14, 2008). 

18ATSs generally are registered broker-dealers 

that provide or maintain a marketplace for bringing 

together purchasers and sellers of securities or 

otherwise perform the functions commonly 

performed by a securities exchange but do not 

perform self-regulatory functions. 

19A security future is a contract of sale for future 

delivery of a single security or of a narrow-based 

security index. Security futures are defined as 

‘‘securities’’ under the Act; consequently, the 

federal securities laws are generally applicable to 

security futures. See 15 U.S.C. 78c(a)(10). 

20See Securities Exchange Act Release No. 47259 

(January 27, 2003), 68 FR 5319 (February 3, 2003). 

21 15 U.S.C. 78f(h)(5). 

22 In the same rule filing adopting NASD Rule 

3115, FINRA also amended NASD Rule 3340 

(Prohibition on Transactions, Publication of 

Quotations, or Publication of Indications of Interest 

During Trading Halts) to satisfy the requirement 

that a national securities association have ‘‘rules to 

require such person to coordinate trading halts with 

markets trading the securities underlying the 

security futures products and other markets trading 

related securities.’’ See Securities Exchange Act 

Release No. 47259 (January 27, 2003), 68 FR 5319 

(February 3, 2003). The proposed rule change does 

not address NASD Rule 3340. 

and accurately disclosed and provide a 

basis for evaluating the Investment 

Program. 

In addition, NASD Rule 2810 contains 

an exception from the disclosure 

requirements for offerings of certain 

Investment Programs that are listed, or 

approved for listing, on a national 

securities exchange. This exception, 

currently in paragraph (b)(1), would be 

relocated to paragraph (b)(3)(D) of the 

new rule, the section of the rule 

addressing disclosures. In this regard, 

the proposed rule change would return 

the exception to its original location in 

the rule. Prior to 2008, the exception 

was located in paragraph (b)(3)(D) of the 

rule; however, as part of a larger effort 

to streamline the rule in SR–NASD– 

2005–114, it was moved to paragraph 

(b)(1).12 The proposed rule change 

would enhance the clarity of the rule by 

re-locating the exception to the section 

addressing disclosures at paragraph 

(b)(3)(D). 

The rule also imposes specific 

suitability standards on recommended 

transactions to take account of the risks 

and lack of liquidity of Investment 

Programs. Further, it requires members 

and associated persons to ensure, prior 

to participating in a public offering of an 

Investment Program, that all material 

facts are adequately and accurately 

disclosed, including pertinent facts 

relating to the liquidity and 

marketability of the Investment 

Program. In addition, under Rule 2810, 

members cannot accept or make noncash gifts in connection with the sale or 

distribution of an Investment Program 

in excess of $100 per year, nor can any 

non-cash entertainment (such as an 

occasional meal) raise any question of 

propriety or be conditioned on the 

achievement of a sales target. Finally, 

the non-cash provisions of the rule 

prohibit payments for an associated 

person to attend training or educational 

meetings unless the associated person 

obtains the member’s prior approval and 

such training and entertainment is not 

based upon the associated person 

achieving a sales target. Collectively, 

these non-cash provisions are aimed at 

preventing Investment Program 

sponsors from using non-cash 

compensation as a means to circumvent 

the limits on underwriting 

compensation. 

NASD Rule 2810 was adopted in 1980 

to address issues arising from members’ 

participation in oil and gas programs 

and real estate syndications in the 

1970s.13 It has been amended 

periodically to include additional 

programs and procedures,14 including 

greater limitations on sales incentive 

compensation and members’ 

participation in limited partnership 

rollup transactions.15 These 

amendments were adopted to address 

new developments regarding members’ 

participation in Investment Programs, 

and were the product of extensive 

notice and comment rulemaking over a 

period of several years.16 The most 

recent amendments to the rule, which 

became effective on August 6, 2008, 

address O&O expenses and enhanced 

investor disclosures regarding the 

liquidity of Investment Programs.17

FINRA believes that the rule as 

currently drafted is well-understood by 

the sponsors of Investment Programs 

and the broker-dealers that sell them, 

and is providing significant investor 

protections. As a result, FINRA 

recommends that NASD Rule 2810 be 

transferred without material change into 

the Consolidated FINRA Rulebook as 

FINRA Rule 2310. 

c. Proposed FINRA Rule 4551 

FINRA is proposing to adopt NASD 

Rule 3115 without material change into 

the Consolidated FINRA Rulebook as 

FINRA Rule 4551. NASD Rule 3115 

(Requirements for Alternative Trading 

Systems to Record and Transmit Order 

and Execution Information for Security 

Futures) requires alternative trading 

systems (‘‘ATSs’’) 18 that accept orders 

for security futures 19 to record and 

report to FINRA certain information 

regarding those orders, including the 

date and time the order was received, 

the security future product name and 

symbol, the details of the order, and the 

date and time that the order was 

executed. The rule thus provides FINRA 

with an audit trail of orders for security 

futures placed on an ATS. 

NASD Rule 3115 was adopted in 2003 

following the amendments to the Act 

included in the Commodity Futures 

Modernization Act of 2000.20 Section 

6(h)(5) of the Act, which was added as 

part of those amendments, prohibits a 

person other than a national securities 

association or national securities 

exchange from maintaining or providing 

a marketplace or facilities for bringing 

together purchasers and sellers of 

security futures products unless it is a 

member of a national securities 

association or national securities 

exchange that has: (1) Procedures for 

coordinated surveillance; (2) rules to 

require an audit trail necessary or 

appropriate to facilitate coordinated 

surveillance; and (3) rules to require 

such person to coordinate trading halts 

with markets trading the securities 

underlying the security futures products 

and other markets trading related 

securities.21 FINRA adopted NASD Rule 

3115 as part of a package of rules to 

meet these requirements and thus allow 

ATSs that are FINRA members to 

provide a marketplace for security 

futures. Specifically, NASD Rule 3115 

satisfies the requirement that a national 

securities association have ‘‘rules to 

require an audit trail necessary or 

appropriate to facilitate coordinated 

surveillance.’’ 22

Because NASD Rule 3115 is necessary 

to allow ATSs to provide trading 

facilities for security futures, the 

proposed rule change would transfer 

NASD Rule 3115 into the Consolidated 

FINRA Rulebook as FINRA Rule 4551 


dwashington3 on PROD1PC60 with NOTICES
18414 Federal Register / Vol. 74, No. 76 / Wednesday, April 22, 2009 / Notices 

23See U.S. Government Accountability Office, 

‘‘Securities Investor Protection: Steps Needed to 

Better Disclose SIPC Policies to Investors,’’ 

Publication GAO–01–653 (May 25, 2001). 24 15 U.S.C. 78o–3(b)(6). 

without material change. This would 

allow ATSs to continue to provide 

trading facilities for security futures and 

would ensure FINRA receives 

information to maintain an audit trail 

regarding the trading of security futures. 

d. Proposed FINRA Rule 2266 

FINRA is proposing to adopt NASD 

Rule 2342 without material change into 

the Consolidated FINRA Rulebook as 

FINRA Rule 2266 and to delete 

comparable Incorporated NYSE Rule 

409A. NASD Rule 2342 and 

Incorporated NYSE Rule 409A were 

adopted in response to a May 2001 

report issued by the Government 

Accountability Office (‘‘GAO’’), entitled 

‘‘Securities Investor Protection: Steps 

Needed to Better Disclose SIPC Policies 

to Investors.’’ 23 In that report, the GAO 

made recommendations to the SEC and 

the Securities Investor Protection 

Corporation (‘‘SIPC’’) about ways to 

improve the information available to the 

public about SIPC and the Securities 

Investor Protection Act of 1970 

(‘‘SIPA’’). Among other things, the GAO 

recommended that self-regulatory 

organizations explore ways to encourage 

broader dissemination of the SIPC 

brochure to customers so that they can 

become more aware of the scope of 

coverage of SIPA. 

In May 2007, the SEC approved NASD 

Rule 2342 setting forth requirements for 

providing SIPC information to 

customers. Rule 2342 requires all 

FINRA members, except those members 

(1) that are excluded from membership 

in SIPC and are not SIPC members; or 

(2) whose business consists exclusively 

of the sale of investments that are 

ineligible for SIPC protection, to advise 

all new customers that they may obtain 

information about SIPC, including the 

SIPC brochure, by contacting SIPC. 

Such members also must provide SIPC’s 

Web site address and telephone number. 

Members must provide this disclosure 

to new customers, in writing, at the 

opening of an account and also must 

provide customers with the same 

information, in writing, at least once 

each year. In cases where both an 

introducing firm and clearing firm 

service an account, the firms may assign 

these requirements to one of the firms. 

Incorporated NYSE Rule 409A is 

substantially similar to NASD Rule 

2342; however, the Incorporated NYSE 

rule does not contain the exclusions set 

forth in NASD Rule 2342 because NYSE 

member organizations generally would 

not qualify for those exclusions. 

FINRA believes that the approach in 

NASD Rule 2342, which excludes nonSIPC members and members that sell 

exclusively non-SIPC eligible securities 

from the rule’s requirements, is the 

more appropriate rule for the FINRA 

membership. Accordingly, the proposed 

rule change would transfer NASD Rule 

2342 without material change into the 

Consolidated FINRA Rulebook as 

FINRA Rule 2266 and delete 

Incorporated NYSE Rule 409A. 

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,24 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 

transferring NASD Rule 2130 into the 

Consolidated FINRA Rulebook will 

ensure that its standards and procedures 

regarding expungement of customer 

dispute information from the CRD 

system continue to be reasonably 

designed to ensure that information 

submitted to and maintained in the CRD 

system is accurate and complete. FINRA 

believes that transferring NASD Rule 

2810 into the Consolidated FINRA 

Rulebook will ensure that policies and 

procedures regarding members’ 

participation in public offerings of 

Investment Programs continue to meet 

statutory mandates. FINRA believes that 

transferring NASD Rule 3115 into the 

Consolidated FINRA Rulebook will 

continue to allow ATSs to provide 

trading facilities for security futures 

while also ensuring that FINRA will 

receive sufficient information to 

maintain an audit trail regarding the 

trading of security futures on ATSs. 

Finally, FINRA believes that transferring 

NASD Rule 2342 into the Consolidated 

FINRA Rulebook will continue to 

ensure that SIPC information is 

provided to customers effectively. The 

proposed rule change makes nonmaterial changes to rules that have 

proven effective in meeting the 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–2009–016 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–2009–016. 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 


dwashington3 on PROD1PC60 with NOTICES
Federal Register / Vol. 74, No. 76 / Wednesday, April 22, 2009 / Notices 18415 

25 17 CFR 200.30–3(a)(12). 

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

2 15 U.S.C. 78s(b)(3)(A)(iii). 

3 17 CFR 240.19b–4(f)(4). 

4The rule change does not change the option for 

a participant to submit P&I withdrawal requests 

electronically. 

5 ‘‘Collateral’’ is defined in DTC’s rules as the sum 

of (i) the participant’s Actual Fund Deposit, (ii) the 

participant’s Actual Preferred Stock Investment, 

(iii) the participant’s Net Additions, and (iv) any 

SPPs wired by the participant to DTC’s account at 

the Federal Reserve Bank of New York. 

6A net debit cap helps ensure that DTC can 

complete settlement, even if a participant fails to 

settle. 

7Under DTC’s rules, a settling bank is a 

participant that is a bank or trust company subject 

to supervision or regulation pursuant to Federal or 

State banking laws and a party to an effective 

‘‘Settling Bank Agreement.’’ 

8The upcoming reduction in debit caps for 

‘‘families’’ will likely cause increased volume in 

SPPs. See Securities Exchange Act Release No. 

59148 (Dec. 23, 2008), 73 FR 80481 (Dec. 31, 2008). 

9 DTC tracks collateral in a participant’s account 

through the Collateral Monitor (‘‘CM’’). The CM 

reflects the amount that the collateral in the account 

exceeds the net debit in the account. When 

processing a transaction, DTC verifies that the 

participant’s CM would not become negative when 

the transaction completes. If the transaction would 

cause the participant to have a negative CM, the 

transaction will recycle until the participant has 

sufficient collateral to complete. 

10Withdrawals that are blocked as a result of 

insufficient collateral or net debit cap will recycle 

until enough collateral or settlement credits are 

generated to satisfy the collateral or net debit cap 

deficiency or until the end of the recycle period 

when transactions that have not successfully 

completed are dropped by the system. 

11The updated wire instructions are attached as 

Exhibit 5 to DTC’s rule filing. 

12 15 U.S.C. 78q–1. 

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 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– 

2009–016 and should be submitted on 

or before May 13, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.25

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–9157 Filed 4–21–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59774; File No. SR–DTC– 

2009–08] 

Self-Regulatory Organizations; the 

Depository Trust Company; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change Relating to the 

Settlement Service Guide and 

Settlement Progress Payments 

April 15, 2009. 

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

Securities Exchange Act of 1934 

(‘‘Act’’),1 notice is hereby given that on 

April 3, 2009, the Depository Trust 

Company (‘‘DTC’’) 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 primarily by DTC. DTC filed 

the proposed rule change pursuant to 

Section 19(b)(3)(A)(iii) of the Act 2 and 

Rule 19b–4(f)(4) thereunder 3 so that the 

proposal was effective upon filing with 

the Commission. 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 proposed rule change will (i) 

amend DTC’s Settlement Service 

Guide’s instructions regarding 

withdrawals of intraday principal and 

income payments for non-money market 

instrument issues and (ii) update certain 

aspects of DTC’s Settlement Progress 

Payments (‘‘SPP’’) procedures. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

DTC 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. DTC 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 

DTC is amending the procedures 

governing a participant’s withdraw of 

principal and income (‘‘P&I’’) payments 

for non-money market instrument issues 

that DTC has received from paying 

agents and allocated to a participant’s 

settlement account. The changes 

include the address and fax number to 

which a participant must send the wire 

instruction form to and the information 

that must be included in that form as 

well as a clarification that the funds 

must be wired to the participant’s DTC 

settlement bank.4

DTC is also amending its SPP 

procedures. As background, an SPP is a 

payment sent from a DTC participant to 

DTC through Fedwire when a DTC 

participant has insufficient collateral 5

or is at its net debit cap.6 The SPP 

creates a credit to the participant’s 

settlement account thereby reducing 

their net debit and allowing the 

participant to continue to receive 

deliveries into their participant account. 

Under this rule change, DTC will 

implement a new automated SPP return 

functionality that will permit 

participants to request that DTC return 

all or a portion of an SPP and to have 

these payments wired to the 

participant’s settlement bank account 7

intraday and before the settlement 

period. DTC states that these changes 

should simplify the SPP return process 

and should allow participants to 

maximize the early return of available 

liquidity.8

Prior to this rule change, DTC would 

return only the full amount of a SPP 

provided that returning the SPP would 

not result in a negative collateral 

monitor 9 or cause the participant’s net 

settlement debit to exceed its net debit 

cap.10 DTC would debit the full amount 

of the SPP from the participant’s 

settlement account and return the funds 

through Fedwire to the participant’s 

original sending bank. If a participant 

only had sufficient collateral or debit 

cap to return a portion of the SPP, DTC 

would not process the request until the 

full amount of the SPP could be 

returned. Furthermore, return requests 

required manual approval from DTC’s 

Settlement Operations. 

The changes to DTC’s SPP function 

also include new wire instructions and 

parameters for using the new automated 

SPP Return function.11

DTC believes that the proposed rule 

change is consistent with the 

requirements of Section 17A of the 

Act 12 and the rules and regulations 

thereunder applicable to DTC. The 

proposed rule change will not affect the 


dwashington3 on PROD1PC60 with NOTICES